<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ORBIT/FR, INC.
(Exact name of Registrant as specified in its charter)
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<CAPTION>
DELAWARE 3825 23-2874370
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
506 PRUDENTIAL ROAD
HORSHAM, PENNSYLVANIA 19044
(215) 674-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ARYEH TRABELSI, PRESIDENT
ORBIT/FR, INC.
506 PRUDENTIAL ROAD
HORSHAM, PENNSYLVANIA 19044
(215) 674-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
ARTHUR H. MILLER, ESQUIRE FREDERICK W. DREHER, ESQUIRE
BLANK ROME COMISKY & MCCAULEY DUANE, MORRIS & HECKSCHER
1200 FOUR PENN CENTER PLAZA 4200 ONE LIBERTY PLACE
PHILADELPHIA, PENNSYLVANIA 19103 PHILADELPHIA, PENNSYLVANIA 19103
(215) 569-5500 (215) 979-1000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share........ 2,300,000 shares $9.00 $20,700,000 $6,272.72
</TABLE>
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(1) Includes 300,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 11, 1997
PROSPECTUS
2,000,000 SHARES
[ORBIT/FR, INC. LOGO]
COMMON STOCK
-----------
All of the 2,000,000 shares of Common Stock offered hereby are being sold by
ORBIT/FR, Inc. Prior to this offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $8.00 and $9.00 per share. See "Underwriting" for a description
of the factors considered in determining the initial public offering price. The
Company has applied for the inclusion of the Common Stock on the Nasdaq
National Market upon official notice of issuance under the symbol "ORFR".
-----------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total(3)................................... $ $ $
</TABLE>
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(1)Excludes a non-accountable expense allowance of $100,000 payable to the
Representatives of the Underwriters. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2)Before deducting expenses of this offering payable by the Company
estimated at $600,000, including the non-accountable expense allowance.
(3)Orbit-Alchut Technologies, Ltd., the sole stockholder of the Company
prior to this offering, has granted to the Underwriters a 30-day option to
purchase up to an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to the Company and Proceeds to the Stockholder will be $ , $ , $ and
$ , respectively. See "Principal Stockholders" and "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of the shares will be made at the offices of
Pennsylvania Merchant Group Ltd in West Conshohocken, Pennsylvania on or about
, 1997.
-----------
PENNSYLVANIA MERCHANT GROUP LTD UNTERBERG HARRIS
, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information in this Prospectus (i)
assumes an initial public offering price of $8.50 per share (the "Offering
Price"), (ii) assumes that the Underwriters' over-allotment option is not
exercised, (iii) reflects the establishment of the Company in December 1996 and
the issuance of 4,000,000 shares of Common Stock to Orbit-Alchut Technologies,
Ltd. ("Alchut"), the Company's sole stockholder prior to this offering, (iv)
reflects the acquisition of Flam & Russell, Inc. ("Flam & Russell") on June 28,
1996 and (v) assumes the acquisition of Advanced Electromagnetics, Inc.
("AEMI") upon the completion of this offering. See "The Company." For
explanations of certain technical terms used in this Prospectus, see "Glossary"
on page 47.
THE COMPANY
ORBIT/FR, Inc. ("ORBIT/FR" or the "Company") develops, markets and supports
sophisticated automated microwave test and measurement systems for the wireless
communications, satellite, automotive and aerospace/defense industries.
Products such as cellular phones, satellites, radio transmitters, global
positioning system ("GPS") receivers and guided missiles depend on the reliable
and efficient transmission and reception of microwave signals in order to
communicate. By utilizing the Company's systems to measure the critical
performance characteristics of microwave signals, wireless manufacturers and
service providers within these industries can improve quality and time-to-
market, lower the risk of failure and underperformance and reduce costs.
Microwave test and measurement systems are used during all stages of a
product's life cycle: product development, pre-production qualification,
production testing and product maintenance.
The need for microwave test and measurement systems and products expanded
rapidly during the 1960's and 1970's in conjunction with the growth and
increased sophistication of the aerospace/defense industry in the United States
and Western Europe. In the last 20 years, the need for microwave test and
measurement has expanded beyond aerospace/defense applications to all aspects
of modern telecommunications, including personal wireless communications
devices, satellite-based communications systems and "smart" automobiles. This
expansion has occurred in conjunction with a growing desire among companies to
focus on their core competencies and, accordingly, outsource many non-core
functions such as the development and manufacture of microwave test and
measurement systems.
Since its founding, the Company has expanded from distributing individual
microwave test and measurement components to providing a wide range of fully
integrated microwave test and measurement solutions. Components of an ORBIT/FR
automated microwave test and measurement system include proprietary software
and hardware products, which can be combined into standard or customized
configurations to meet a customer's specific needs. The Company believes that
its innovative proprietary systems, experienced staff, reputation for quality
and reliability, strong international presence and comprehensive customer
service give it a competitive advantage that will enable it to remain a leading
global supplier of microwave test and measurement systems to a growing number
of companies within the wireless communications, satellite, automotive and
aerospace/defense industries.
The Company markets and sells its systems to customers in the United States
and throughout the world. Within the Company's targeted industries, the
Company's customers include manufacturers of wireless systems and products,
such as Motorola, Nokia and Ericsson; manufacturers of systems and products
that incorporate microwave technology, such as Lockheed Martin, Hughes, BMW and
Boeing; and telecommunications service providers that rely on microwave
technology, such as AT&T, NTT and British Telecom. The Company's customers also
include the United States government and several foreign governments. At
December 31, 1996, the Company's backlog was approximately $10.0 million,
compared to approximately $4.5 million at December 31, 1995.
3
<PAGE>
The Company's objective is to strengthen its leadership position in automated
microwave test and measurement systems while developing products and systems
for a broader range of microwave applications. The principal elements of the
Company's strategy to reach its objective are: (i) offering comprehensive
solutions to customers, (ii) maintaining its technological leadership, (iii)
focusing on standard systems and proprietary off-the-shelf products, (iv)
pursuing growth in international markets and (v) leveraging its technological
expertise to expand into complementary markets.
THE OFFERING
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<S> <C>
Common Stock offered by the Company......... 2,000,000 shares
Common Stock to be outstanding after the of-
fering..................................... 6,094,118 shares(1)(2)
Use of proceeds............................. For payment of the cash portion
of the purchase price of AEMI and
for working capital and other
general corporate purposes,
including possible acquisitions.
Proposed Nasdaq National Market symbol...... "ORFR"
</TABLE>
- --------
(1) Excludes 492,300 shares of Common Stock issuable upon exercise of stock
options to be granted upon completion of this offering at an exercise price
equal to the Offering Price pursuant to the Company's 1997 Equity Incentive
Plan. See "Management--1997 Equity Incentive Plan" and "Shares Eligible for
Future Sale."
(2) Includes a maximum of 94,118 shares of Common Stock that will be issued
contemporaneously with the completion of this offering in connection with
the acquisition of AEMI. See "The Company."
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PRO FORMA(1)
------------------------------------ ------------
1992 1993 1994 1995 1996 1996
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.............. $1,869 $3,003 $7,171 $8,299 $10,404 $17,012
Gross profit................ 1,050 1,794 1,906 2,853 3,954 5,482
Operating income (loss)..... 228 703 (106) 756 1,267 1,698
Net income.................. 67 353 84 493 831 1,058
Net income per common
share...................... $ .02 $ .09 $ 0.02 $ 0.12 $ 0.21 $ 0.26
Weighted average number of
common shares.............. 4,000 4,000 4,000 4,000 4,000 4,081
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
------ ------------ -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................. $3,270 $2,957 $18,082
Total assets.................................... 9,903 11,579 26,704
Total long-term debt............................ 2,722 3,034 3,034
Stockholders' equity............................ 1,860 2,548 17,673
</TABLE>
- --------
(1) Gives effect to the acquisition of AEMI at an assumed purchase price of
$1,377,000, of which one-half will be paid in cash and the other half will
be paid in shares of Common Stock valued at the Offering Price. See
"Unaudited Consolidated Pro Forma Data."
(2) Gives effect to the sale of 2,000,000 shares of Common Stock being offered
by the Company at the Offering Price and the application of estimated net
proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of Common Stock offered hereby.
RAPID TECHNOLOGICAL CHANGE. The microwave test and measurement industry is
characterized by rapid technological change. The Company's future success will
depend upon its ability continually to enhance its current products and to
develop and introduce new products that keep pace with the increasingly
sophisticated needs of its customers and the technological advancements of its
competitors. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that will
adequately meet the requirements of the marketplace. See "Business -- Systems
and Products" and "Business-- Research and Development."
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's success is heavily
dependent upon its proprietary technology. The Company does not currently have
any material patents and relies principally on trade secret and copyright laws
to protect its technology. However, there can be no assurance that these steps
will prevent misappropriation of its technology. Moreover, third parties could
independently develop technologies that compete with the Company's
technologies. Although the Company believes that its products and proprietary
rights do not infringe patents and proprietary rights of third parties, there
can be no assurance that infringement claims, regardless of merit, will not be
asserted against the Company. In addition, effective copyright and trade
secret protection of the Company's proprietary technology may be unavailable
or limited in certain foreign countries. See "Business -- Proprietary Rights."
RISKS ASSOCIATED WITH ACQUISITIONS. In the normal course of business, the
Company evaluates potential acquisitions that would complement or expand its
business. Subject to the completion of this offering, the Company will acquire
AEMI. There can be no assurance that the Company will be able to successfully
integrate the business and operations of AEMI or any other business acquired
in the future. There can be no assurance that the Company will not incur
disruptions and unexpected expenses in integrating such acquisitions. In
attempting to make acquisitions, the Company often competes with other
potential acquirors, many of which have greater financial and operational
resources. Furthermore, the process of evaluating, negotiating, financing and
integrating acquisitions may divert management time and resources. There can
be no assurance that any acquisition, when consummated, will not materially
adversely affect the Company's business, operating results or financial
condition. See "Business -- The ORBIT/FR Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON ALCHUT; OPERATIONS IN ISRAEL. The Company maintains and will
continue to maintain a number of relationships with Alchut, the sole
stockholder of the Company prior to this offering. Alchut is the Company's
principal subcontractor for electro-mechanical production, primarily in
connection with the production of positioners. In addition, Alchut provides
general and administrative services for the Company's operations in Israel.
Effective January 1, 1997, the Company and Alchut entered into an agreement
under which Alchut will continue to provide these services for at least one
year. See "Certain Transactions." Alchut maintains its production operations,
and the Company maintains part of its engineering operations, in Israel. As a
result, the Company may be directly influenced by the political, economic and
military conditions affecting Israel.
RISKS OF FIXED-PRICE CONTRACTS. Virtually all of the Company's contracts for
its systems and products are on a fixed-price basis. The profitability of such
contracts is subject to inherent uncertainties as to the cost of completion.
In addition to possible errors or omissions in making initial estimates, cost
overruns may be incurred as a result of unforeseen obstacles, including both
physical conditions and unexpected problems in engineering,
6
<PAGE>
design or testing. Since the Company's business may at certain times be
concentrated in a limited number of large contracts, a significant cost
overrun on any one contract could have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS ASSOCIATED WITH ENTERING NEW MARKETS. The Company has identified and
is evaluating whether to enter into certain complementary markets and may use
a portion of the proceeds of this offering to expand into these markets. The
Company's success in these markets will depend on, among other factors, the
Company's ability to identify markets and develop technologies for such
markets on a timely basis, hire and retain skilled management, financial,
marketing and engineering personnel, successfully manage growth and obtain
capital sufficient to finance such expansion. There can be no assurance that
the Company will successfully enter these markets. See "Use of Proceeds" and
"Business -- The ORBIT/FR Strategy."
MANAGEMENT OF GROWTH. The Company is currently experiencing a period of
rapid growth in the number and complexity of products and in the number of
personnel. In addition, the Company believes that continued growth will be
required to maintain the Company's competitive position. The Company's rapid
growth, coupled with the rapid evolution of the Company's markets, has placed,
and is likely to continue to place, significant strains on its management,
administrative, operating and financial resources, as well as increased
demands on its internal systems, procedures and controls. The Company's
ability to manage recent and future growth will require the Company to
continue to improve its financial and management controls, reporting systems
and procedures on a timely basis, to implement new systems as necessary and to
expand, train, motivate and manage its sales and technical personnel. There
can be no assurance that the Company will be able to manage its growth
successfully. Failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. In 1996, international sales
comprised approximately 52% of the Company's total sales, and the Company
expects its international business to continue to account for a material part
of its revenues. International sales are subject to numerous risks, including
political and economic instability in foreign markets, restrictive trade
policies of foreign governments, inconsistent product regulation by foreign
agencies or governments, imposition of product tariffs and burdens and costs
of complying with a wide variety of international and U.S. export laws and
regulatory requirements. There can be no assurance that the Company will be
able to continue to compete successfully in international markets or that its
international sales will be profitable. Approximately 92% of the Company's
sales in 1996 were denominated in U.S. dollars. Accordingly, the Company
believes that it does not have significant exposure to fluctuations in
currency. However, fluctuations in currency could adversely affect the
Company's customers. See "Business -- The ORBIT/FR Strategy."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's operating results
have varied from quarter to quarter in the past and may vary significantly in
the future depending on factors such as the size and timing of significant
contracts, the mix of third party products and the Company's proprietary
products included in a particular contract, customers' budgetary constraints,
increased competition, the timing of new product announcements and changes in
pricing policies by the Company or its competitors, market acceptance of new
and enhanced versions of the Company's products, changes in operating expenses
and changes in general economic factors. The Company's expense levels are
based, in part, on its expectations as to future revenue levels. If the
Company's revenue levels were to be below expectations, the Company's
operating results would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON QUALIFIED TECHNICAL PERSONNEL. The Company's operating results
depend in large part upon the efforts of its microwave, software and systems
engineers. The success of the Company's business therefore depends on its
ability to attract and retain engineers and other technical personnel. There
are a limited number of microwave engineers, and such individuals are sought
both by microwave test and measurement companies such as the Company and by
manufacturers of wireless products and telecommunications service providers.
Competition for such personnel is intense. The Company has at times
experienced difficulty in recruiting and
7
<PAGE>
retaining technical personnel, and there can be no assurance that the Company
will not experience difficulties in the future in attracting and in retaining
technical personnel. See "Business -- Employees."
DEPENDENCE ON KEY PERSONNEL. The success of the Company depends to a
significant degree upon the contribution of its executive officers and other
key personnel, including Aryeh Trabelsi, the Company's President and Chief
Executive Officer. Other than Mr. Trabelsi, none of the Company's executive
officers has an employment agreement with the Company other than an agreement
terminable upon 90 days notice. There can be no assurance that the Company
will be able to retain its managerial and other key personnel or to attract
additional managerial and other key personnel if required. See "Business --
Employees" and "Management."
PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS. The sale of products and systems
by the Company may entail the risk of product liability and related claims. A
product liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition. Complex software and system products, such as those offered by the
Company, may contain defects or failures when introduced or when new versions
are released. There can be no assurance that, despite testing by the Company,
errors will not be found in new products after commencement of commercial
shipments, resulting in loss of market share or failure to achieve market
acceptance. The Company maintains product liability insurance in the amount of
$3.0 million and errors and omissions insurance in the amount of $1.0 million,
although there can be no assurance that such coverage will be applicable to a
particular claim or that the amounts of such insurance will be adequate if the
Company experiences a significant claim. Although the Company has not
experienced any significant claims to date related to its systems or products,
the occurrence of such a claim could have a material adverse effect upon the
Company's business, operating results and financial condition.
COMPETITION. The market for automated microwave test and measurement
products, systems and services is highly competitive and is characterized by
continuing advances in products and technologies. In general, competition in
this market comes from major microwave test and measurement vendors, some of
which have a longer operating history, significantly greater financial,
technical and marketing resources, greater name recognition and a larger
installed customer base than the Company. These companies also have
established relationships with current and potential customers of the Company.
The Company also competes, on a limited basis, with the internal development
groups of its existing and potential customers, who may design and develop
parts of their own microwave test and measurement systems. The Company's
business, operating results and financial condition could be materially
adversely affected by such competition. See "Business -- Competition."
FLUCTUATIONS IN CAPITAL SPENDING. The Company is dependent upon the wireless
communications, satellite, automotive and aerospace/defense industries.
Because these industries are characterized by technological change, pricing
and gross margin pressure and, particularly in the aerospace/defense industry,
government budget constraints, they have from time to time experienced sudden
economic downturns. During these periods, capital spending is frequently
curtailed and the number of design projects often decreases. Since the
Company's sales are dependent upon capital spending trends and new design
projects, negative factors affecting these industries could have a material
adverse effect on the Company's business, operating results and financial
condition.
CONTROL BY PRINCIPAL STOCKHOLDER. Upon completion of this offering, Alchut
will beneficially own 65.6% of the outstanding Common Stock of the Company
(60.7% if the Underwriters' over-allotment option is exercised in full). Mr.
Joseph Aviv, Chairman of the Board of the Company, and Mr. Zeev Stein, a
director of the Company, and their families currently own approximately 44.0%
and 42.0% of the outstanding shares of Alchut, respectively. As a result,
these individuals and Alchut will be in a position to exercise control over
most matters requiring stockholder approval, including the election or removal
of directors, approval of significant corporate transactions and the ability
generally to direct the Company's affairs. Such concentration of ownership may
have the effect of delaying or preventing a change in control of the Company,
including transactions in which the holders of the Company's Common Stock
might otherwise receive a premium over current market prices for their shares.
See "Principal Stockholders."
8
<PAGE>
DISCRETIONARY USE OF PROCEEDS. The Company intends to use the proceeds of
this offering to pay up to $800,000 in connection with the AEMI acquisition
and for working capital and other general corporate purposes, including
possible acquisitions. Accordingly, the Company's management will have broad
discretion with respect to the use of the net proceeds of this offering. See
"Use of Proceeds."
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
was determined through negotiations between the Company and the
Representatives of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after this offering. See
"Underwriting." The market price of the shares of Common Stock may be
significantly affected by factors such as actual or anticipated fluctuations
in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to copyrights or proprietary rights, conditions and
trends in the microwave test and measurement industry, adoption of new
accounting standards affecting the software industry, general market
conditions and other factors. In addition, the stock market has, from time to
time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stock of technology
companies and that have often been unrelated to the operating performance of
particular companies.
DILUTION. The initial public offering price is substantially higher than the
pro forma net tangible book value per share of Common Stock. Investors
purchasing shares of Common Stock in this offering at the Offering Price will
therefore incur immediate and substantial dilution of $5.79 in pro forma net
tangible book value per share. See "Dilution."
NO DIVIDENDS. The Company has never paid cash dividends on its Common Stock
and does not anticipate that any cash dividends will be declared or paid in
the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after this offering may have an adverse effect on
the market price of the Common Stock. Upon completion of this offering, the
Company will have outstanding 6,094,118 shares of Common Stock assuming the
maximum of 94,118 shares are issued in connection with the acquisition of
AEMI. Of these shares, 2,000,000 shares sold in this offering generally will
be freely transferable without restriction. The remaining 4,094,118 shares,
4,000,000 of which are owned by Alchut and a maximum of 94,118 of which will
be issued in connection with the acquisition of AEMI, may not be sold unless
registered under the Securities Act of 1933, as amended (the "Securities Act")
or an exemption from registration is available, including the exemption
provided by Rule 144 under the Securities Act. Alchut and the Company's
directors and executive officers have agreed that they will not, other than by
Alchut with respect to the over-allotment option, directly or indirectly,
offer, sell, contract to sell, pledge, grant any option for the sale of or
otherwise dispose of any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of the Representatives of the Underwriters, other than in certain
private transactions in which each transferee acquiring an interest in such
Common Stock during such 180-day period agrees in writing to be bound by such
agreement. After such 180-day period, the 4,000,000 shares of Common Stock
held by Alchut will be eligible for sale in the public market in reliance upon
Rule 144 subject to the restrictions contained therein. The current
stockholders of AEMI have agreed with the Company that they will not offer,
sell or otherwise dispose of the maximum of 94,118 shares of Common Stock
issued in connection with the acquisition of AEMI for a period of two years
after the closing date of such acquisition. After such two-year period, the
maximum of 94,118 shares held by such stockholders will be eligible for sale
under Rule 144 subject to the restrictions contained therein. After 180 days
from the date of this Prospectus, the Company intends to register under the
Securities Act 800,000 shares of Common Stock reserved for awards under the
Company's 1997 Equity Incentive Plan. See "Underwriting" and "Shares Eligible
for Future Sale."
ISSUANCE OF PREFERRED STOCK AND COMMON STOCK; ANTI-TAKEOVER PROVISIONS.
Pursuant to its Amended and Restated Certificate of Incorporation, the Company
has an authorized class of 2,000,000 shares of Preferred Stock which may be
issued by the Board of Directors with such terms and such rights, preferences
and designations as the Board may determine and without any vote of the
stockholders, unless otherwise required by
9
<PAGE>
law. Issuance of such Preferred Stock, depending upon the rights, preferences
and designations thereof, may have the effect of delaying, deterring or
preventing a change in control of the Company. Issuance of additional shares
Common Stock could result in dilution of the voting power of the Common Stock
purchased in this offering. In addition, certain "anti-takeover" provisions of
the Delaware General Corporation Law (the "DGCL") among other things, may
restrict the ability of the stockholders to approve a merger or business
combination or obtain control of the Company. See "Description of Securities."
10
<PAGE>
THE COMPANY
ORBIT/FR, Inc. ("ORBIT/FR" or the "Company") was incorporated in Delaware in
December 1996. The Company is the holding company for Orbit Advanced
Technologies, Inc., a Delaware corporation ("Technologies") and its wholly
owned subsidiary, Flam & Russell, Inc., a Delaware corporation ("Flam &
Russell"), and for Orbit F.R. Engineering, Ltd., an Israeli corporation
("Engineering"). Prior to the completion of this offering, Orbit-Alchut
Technologies, Ltd., a publicly traded company in Israel which was founded in
1950 ("Alchut"), owned all of the 4,000,000 issued and outstanding shares of
the Company. In addition to its ownership interests in the Company, Alchut has
ownership interests in companies operating in the avionics, tracking and
telemetry markets.
Technologies was incorporated in 1985 as a wholly-owned subsidiary of Alchut
to provide sales and customer support for Alchut's products in the United
States, including positioning subsystems. In 1991, Technologies began to focus
on the development and design of its own proprietary microwave test and
measurement products and systems. In 1994, Technologies recognized the
potential for providing customers with fully integrated microwave test and
measurement solutions and began incorporating Technologies' software
technology with hardware from third-party manufacturers, including Alchut.
Technologies continues to subcontract certain production services to Alchut
through Engineering but retains the right to select any other production
subcontractor after January 1, 1998. See "Certain Transactions."
Engineering was incorporated in Israel in December 1996 as a wholly-owned
subsidiary of Alchut at which time Alchut transferred all of the assets
relating to its microwave test and measurement business to Engineering.
Engineering is principally responsible for overseeing the development, design
and production of ORBIT/FR's electro-mechanical products.
Effective December 31, 1996, Alchut transferred or caused to be transferred
all of the outstanding shares of Technologies and Engineering in exchange for
shares of the Company, thereby making Technologies and Engineering wholly-
owned subsidiaries of the Company.
On June 28, 1996, Technologies purchased all of the issued and outstanding
shares of Flam & Russell for approximately $1,043,000. The acquisition of Flam
& Russell augmented the Company's product mix, staff of microwave and software
engineers and customer base. Flam & Russell has been active in the microwave
test and measurement field since 1981.
On March 31, 1997, the Company entered into an agreement with Advanced
Electromagnetics, Inc., a California corporation ("AEMI"), pursuant to which
all of the issued and outstanding shares of AEMI will be sold to the Company,
contemporaneously with the completion of this offering, for up to $1.6
million, subject to adjustment based on AEMI's financial performance for the
three years ended March 31, 1997. One-half of the purchase price will be paid
in cash and the other half will be paid by issuance of shares of the Company's
Common Stock valued at the Offering Price. AEMI manufactures anechoic foam, a
microwave absorbing material that is an integral component of microwave test
and measurement systems. The Company believes that the acquisition of AEMI
will enhance its ability to provide comprehensive test and measurement
solutions to its customers.
The Company's principal offices are located at 506 Prudential Road, Horsham,
Pennsylvania 19044. Its telephone number is (215) 674-5100, its e-mail address
is [email protected] and its World Wide Web home page is located at
www.orbitfr.com.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at the Offering Price are estimated
to be approximately $15,125,000 after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the
net proceeds as follows: (i) up to $800,000 to pay the cash portion of the
purchase price (assuming the maximum purchase price) for the AEMI acquisition
(see "The Company"); and (ii) the balance for working capital and other
general corporate purposes, including the investment in or acquisition of
complementary businesses, products, product development rights or
technologies. Other than the acquisition of AEMI described in "The Company,"
the Company has no current understanding, commitment or arrangement with
respect to any potential investment or acquisition. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing investment grade
securities or commercial paper. The Company will not receive any proceeds from
the sale of Common Stock pursuant to any exercise of the Underwriters' over-
allotment option.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted to reflect the sale of the 2,000,000 shares
of Common Stock offered by the Company at the Offering Price and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
---------- ---------- -----------
<S> <C> <C> <C>
Long term debt............................ $2,722,000 $3,034,029 $ 3,034,029
---------- ---------- -----------
Stockholders' equity:
Preferred Stock, $0.01 par value,
2,000,000 shares authorized; no shares
issued or outstanding.................. -- -- --
Common Stock, $0.01 par value,
10,000,000 shares authorized; 4,000,000
actual shares, 4,081,000 pro forma
shares and 6,081,000 pro forma as
adjusted shares issued and
outstanding(3)......................... 40,000 40,810 60,810
Additional paid-in capital.............. 450,256 1,137,946 16,242,946
Retained earnings....................... 1,369,292 1,369,292 1,369,292
---------- ---------- -----------
Total stockholders' equity............ 1,859,548 2,548,048 17,673,048
---------- ---------- -----------
Total capitalization.................. $4,581,548 $5,582,077 $20,707,077
========== ========== ===========
</TABLE>
- --------
(1) Gives effect to the acquisition of AEMI at an assumed purchase price of
$1,377,000, of which one-half will be paid in cash and the other half will
be paid in shares of Common Stock at the Offering Price. See "Unaudited
Consolidated Pro Forma Data."
(2) Gives effect to the sale of 2,000,000 shares of Common Stock being offered
by the Company at the Offering Price and the application of estimated net
proceeds therefrom. See "Use of Proceeds."
(3) Excludes 492,300 shares of Common Stock issuable upon exercise of stock
options to be granted upon completion of this offering at an exercise
price equal to the Offering Price pursuant to the Company's 1997 Equity
Incentive Plan. See "Management -- 1997 Equity Incentive Plan" and "Shares
Eligible for Future Sale."
12
<PAGE>
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and does
not intend to pay cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to reinvest its earnings, if any, in the
development and expansion of the Company's business. Any future declaration of
cash dividends will be at the discretion of the Company's Board of Directors
and will depend upon the earnings, capital requirements and financial position
of the Company, general economic conditions and other pertinent factors.
DILUTION
At December 31, 1996, the pro forma net tangible book value of the Company
was $1,330,693 or $0.33 per share of Common Stock. Pro forma net tangible book
value per share represents the amount of total tangible assets reduced by the
amount of total liabilities and divided by the number of outstanding shares of
Common Stock, after giving effect to the acquisition of AEMI. After giving
effect to the receipt by the Company of the net proceeds from the sale of the
Common Stock offered by the Company hereby at the Offering Price and after
deducting underwriting discounts and commissions and estimated offering
expenses, the adjusted pro forma net tangible book value of the Company at
December 31, 1996 would have been $16,455,693 or $2.71 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $2.38 per share to the existing stockholder and an immediate dilution
of pro forma net tangible book value of $5.79 per share to purchasers of the
Common Stock offered hereby. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Initial public offering price.................................. $8.50
Pro forma net tangible book value before this offering....... $0.33
Increase in net tangible book value attributable to new
investors................................................... 2.38
-----
Pro forma net tangible book value after this offering.......... 2.71
-----
Dilution to new investors...................................... $5.79
=====
</TABLE>
The following table sets forth the difference between the existing
stockholders and the purchasers of shares of Common Stock in this offering
with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid (before deducting estimated underwriting discounts and offering
expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES
PURCHASED(1) TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT NUMBER PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 4,094,118 67.2% $ 1,290,256 7.1% $0.32
New investors................ 2,000,000 32.8 17,000,000 92.9 8.50
--------- ----- ----------- -----
Total...................... 6,094,118 100.0% $18,290,256 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) The sale of shares of Common Stock by Alchut, if the Underwriters' over-
allotment option is exercised in full, would reduce the number of shares
held by existing stockholders to 3,794,118 shares, or approximately 62.3%
of the total number of shares outstanding after this offering, and would
increase the number of shares held by new investors to 2,300,000 shares,
or approximately 37.7% of the total number of shares outstanding after
this offering.
The foregoing table (under existing stockholders) includes a maximum of
94,118 shares of Common Stock that will be issued contemporaneously with the
completion of this offering in connection with the AEMI acquisition. The
foregoing table does not include the exercise of outstanding options.
Effective upon the completion of this offering, the Company has granted
options to purchase an aggregate of 492,300 shares of Common Stock at an
exercise price equal to the Offering Price. The Company has reserved an
additional 307,700 shares of Common Stock for future stock option grants. See
"Management -- 1997 Equity Incentive Plan."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the
consolidated financial statements of ORBIT/FR, Inc. The Company's consolidated
financial statements for each of the three years in the period ended December
31, 1996 have been audited by Ernst & Young LLP, independent auditors. The data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto, and other financial information
included elsewhere herein. All information is in thousands, except per share
data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Contract revenues....................... $1,277 $1,852 $7,128 $7,957 $10,267
Commission revenues..................... 592 1,151 43 342 137
------ ------ ------ ------ -------
Total revenues......................... 1,869 3,003 7,171 8,299 10,404
Cost of revenues........................ 819 1,209 5,265 5,446 6,450
------ ------ ------ ------ -------
Gross profit............................. 1,050 1,794 1,906 2,853 3,954
General and administrative expenses...... 501 737 989 864 1,315
Sales and marketing expenses............. 234 265 786 994 791
Research and development expenses........ 87 89 237 239 581
------ ------ ------ ------ -------
Operating income (loss).................. 228 703 (106) 756 1,267
Other income............................. -- 38 71 38 3
------ ------ ------ ------ -------
Income (loss) before income taxes........ 228 741 ( 35) 794 1,270
Income tax expense (benefit)............. 161 388 (119) 301 439
------ ------ ------ ------ -------
Net income............................... $ 67 $ 353 $ 84 $ 493 $ 831
====== ====== ====== ====== =======
Net income per common share.............. $ .02 $ .09 $ 0.02 $ 0.12 $ 0.21
====== ====== ====== ====== =======
Weighted average number of common
shares.................................. 4,000 4,000 4,000 4,000 4,000
====== ====== ====== ====== =======
<CAPTION>
DECEMBER 31,
------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................... $ 357 $ 768 $3,300 $3,875 $3,270
Total assets............................. 3,843 2,758 7,674 6,799 9,903
Total long-term debt..................... 380 164 3,129 3,220 2,722
Stockholder's equity..................... 98 451 535 1,028 1,860
</TABLE>
14
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA DATA
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADVANCED
ORBIT/FR, ELECTROMAGNETICS,
INC. INC. ADJUSTMENTS PRO FORMA
---------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 325,039 $ 230,104 $(555,143)(1) $ -0-
Accounts receivable... 4,864,415 375,964 5,240,379
Inventory............. 2,241,234 308,709 2,549,943
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts............ 573,345 573,345
Deferred income
taxes................ 381,500 381,500
Other................. 206,063 3,443 209,506
---------- ---------- --------- -----------
Total current
assets............. 8,591,596 918,220 8,954,673
---------- ---------- --------- -----------
Property and equipment,
net.................... 994,280 163,057 250,000 (1) 1,407,337
Purchased software,
net.................... 317,050 317,050
Goodwill................ 900,305 (1) 900,305
---------- ---------- --------- -----------
Total assets........ $9,902,926 $1,081,277 $ 595,162 $11,579,365
========== ========== ========= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... 671,051 282,019 953,070
Accounts payable--
Alchut............... 1,051,683 1,051,683
Accrued expenses...... 1,551,813 160,534 1,712,347
Payable to former
owners of AEMI....... 133,357 133,357
Income taxes payable.. 72,667 72,667
Customer advances..... 359,000 359,000
Billings in excess of
costs and estimated
earnings on
uncompleted
contacts............. 931,664 931,664
Deferred income
taxes................ 683,500 100,000 (1) 783,500
---------- ---------- --------- -----------
Total current
liabilities........ 5,321,378 442,553 233,357 5,997,288
Note payable to
Alchut............... 2,722,000 2,722,000
Note payable to
officer.............. 312,029 312,029
---------- ---------- --------- -----------
Total liabilities... 8,043,378 754,582 233,357 9,031,317
Stockholders' equity:
Common stock.......... 40,000 2,696 (1,886)(1) 40,810
Additional paid-in
capital.............. 450,256 452,420 235,270 (1) 1,137,946
Retained earnings
(deficit)............ 1,369,292 (128,421) 128,421 (1) 1,369,292
---------- ---------- --------- -----------
Total stockholders'
equity............. 1,859,548 326,695 361,805 2,548,048
---------- ---------- --------- -----------
Total liabilities
and stockholders'
equity............. $9,902,926 $1,081,277 $ 595,162 $11,579,365
========== ========== ========= ===========
</TABLE>
See notes to Unaudited Consolidated Pro Forma Data.
15
<PAGE>
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FLAM &
RUSSELL, INC. ADVANCED
ORBIT/FR, 1/1/96- ELECTROMAGNETICS,
INC. 6/28/96 INC. 1996 ADJUSTMENTS PRO FORMA
----------- ------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues...... $10,267,319 $3,411,347 $3,196,075 $16,874,741
Commission revenues.... 136,857 136,857
----------- ---------- ---------- --------- -----------
Total revenues........ 10,404,176 3,411,347 3,196,075 17,011,598
Cost of revenues....... 6,450,177 2,891,779 2,097,163 40,172 (2) 11,529,291
50,000 (6)
----------- ---------- ---------- --------- -----------
Gross profit............ 3,953,999 519,568 1,098,912 (90,172) 5,482,307
Operating expenses:
General and
administrative........ 1,314,684 278,700 398,306 4,600 (2) 2,023,067
35,228 (3)
(53,466)(4)
45,015 (7)
Sales and marketing.... 790,573 129,057 104,019 1,023,649
Research and
development........... 581,266 156,128 737,394
----------- ---------- ---------- --------- -----------
Total operating
expenses............. 2,686,523 563,885 502,325 31,377 3,784,110
----------- ---------- ---------- --------- -----------
Operating income
(loss)................. 1,267,476 (44,317) 596,587 (121,549) 1,698,197
Other income (expense):
Interest income........ 23,024 1,241 24,265
Interest expense....... (19,062) (41,313) (69,330) 41,313 (5) (88,392)
Other.................. (1,372) 15,100 13,728
----------- ---------- ---------- --------- -----------
Total other income
(expense)............ 2,590 (41,313) (52,989) 41,313 (50,399)
----------- ---------- ---------- --------- -----------
Income (loss) before
income taxes........... 1,270,066 (85,630) 543,598 (80,236) 1,647,798
Income tax expense...... 439,000 63,000 88,093 (8) 590,093
----------- ---------- ---------- --------- -----------
Net income (loss)....... $ 831,066 $ (85,630) $ 480,598 $(168,329) $ 1,057,705
=========== ========== ========== ========= ===========
</TABLE>
See notes to Unaudited Consolidated Pro Forma Data.
16
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA DATA
DECEMBER 31, 1996
The following pro forma adjustments are made to reflect the acquisitions of
Flam & Russell and AEMI:
Pro Forma Consolidated Balance Sheets
(1) To record the acquisition of AEMI at an assumed purchase price of
$1,377,000 (calculated pursuant to the agreement with AEMI reflecting AEMI's
financial results as of December 31, 1996). The purchase is assumed to be paid
one-half in shares of Common Stock at the Offering Price and one-half in cash.
For purposes of the pro forma balance sheets, the portion of the AEMI
acquisition purchase price payable is presented as $555,143 in "cash" and
$133,357 as "Payable to former owners of AEMI". The difference between the
assumed purchase price and the net assets of AEMI as of December 31, 1996 is
preliminarily allocated to property and equipment for $250,000, related
deferred income tax liabilities for $100,000 and goodwill for $900,305.
Pro Forma Consolidated Statements of Operations
(2) To record additional depreciation as calculated on the fair values of
the Flam & Russell property and equipment acquired for the period January 1,
1996 through June 28, 1996 over a five-year life.
(3) To record amortization of purchased software acquired from the Flam &
Russell acquisition for the period January 1, 1996 through June 28, 1996 over
a five-year life.
(4) To reflect changes in salaries for key employees subsequent to the
acquisition of Flam & Russell for the period January 1, 1996 through June 28,
1996.
(5) To eliminate interest expense on debt which was not assumed in the
acquisition of Flam & Russell for the period January 1, 1996 through June 28,
1996.
(6) To record additional depreciation as calculated on the fair values of
property and equipment acquired from AEMI over a five-year life.
(7) To record amortization of goodwill resulting from the AEMI acquisition
over a 20-year life.
(8) To reflect, at 40%, the income tax effect of the pro forma columns and
adjustments.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's historical results of operations
and liquidity and capital resources should be read in conjunction with the
Selected Consolidated Financial Data, the Consolidated Financial Statements of
the Company and related Notes thereto and other financial information
appearing elsewhere in this Prospectus. As used in this section, the term
"Company" includes the Company and its predecessors.
BASIS OF PRESENTATION
ORBIT/FR was incorporated in December 1996, is the holding company for
Technologies, Engineering and Flam & Russell, and is a wholly-owned subsidiary
of Alchut. Technologies was incorporated in 1985 and its historical results
are included for all periods presented. In June 1996, Technologies acquired
Flam & Russell in a transaction accounted for as a purchase. Flam & Russell's
results of operations have been consolidated since the date of acquisition. In
August 1994, Alchut established a separate business unit dedicated to
microwave test and measurement which was incorporated as a separate corporate
entity in December 1996 under the name Engineering. Accordingly, since 1994,
the consolidated results of the Company reflect Technologies and Engineering
on an as-if pooled basis for the period that Technologies and Engineering were
under common control. All intercompany accounts and transactions have been
eliminated.
OVERVIEW
Prior to 1994, the Company generated its revenues principally from sales of
microwave test and measurement software and from commission revenues generated
by the sales of Alchut's products in the United States. In 1994, the Company
recognized the potential for providing customers with fully integrated
microwave test and measurement solutions and began incorporating the Company's
software technology with hardware from third-party manufacturers, including
Alchut. Because the Company's systems and products are used as part of its
customers' manufacturing processes, the Company's growth is largely dependent
on the expansion of its customers' product development and production efforts.
The Company's systems and products are sold either under fixed-price or
cost-plus contracts and are accounted for on the percentage of completion
method. Approximately 93.7% of the Company's revenues for the year ended
December 31, 1996 were derived from fixed-price contracts or purchase orders
which require the Company to provide systems and products at pre-negotiated
prices. The Company derived approximately 5.0% of its revenues in the same
period from cost-plus contracts in which customers are charged based on the
costs incurred by the Company. Cost-plus contracts are generally entered into
in connection with research and development projects that are performed for
the United States and Israeli governments. The balance of the Company's
revenues for the year ended December 31, 1996 were commissions generated from
the sales of non-microwave test and measurement systems and products, which
the Company began to de-emphasize in 1996 and will discontinue in mid-1997.
At December 31, 1996, the Company had a backlog of approximately $10.0
million, compared to a backlog of approximately $4.5 million at December 31,
1995. The Company's backlog includes only those orders for which it has
received and accepted a completed purchase order. The backlog at December 31,
1996 is expected to be delivered in fiscal 1997. This backlog represents an
average sales cycle of approximately five months.
A significant portion of the Company's research and development expenses has
been incurred while developing the specific requirements for particular
customers' orders and, therefore, are included in the cost of revenues. The
related funding (which includes a profit component) is included in revenues at
such time. The Company believes that its ability to offer a custom solution to
customers is an important competitive advantage. During 1996, the Company
recognized $2.2 million in revenues from this activity, including $520,000 in
customer-funded research and development. Such customer-funded research has
enabled and will continue to enable the Company to update and expand upon its
existing product line.
18
<PAGE>
Since 1992, the Company has increased its independent research and
development in connection with the development of turnkey microwave test and
measurement products and systems. The Company expects such expenses to
continue to increase as the Company enhances its microwave test and
measurement product line and develops new products for the EMC market and
other microwave-related markets.
In 1994, in connection with its conversion from a distributor for Alchut
products to a full service provider of its own microwave test and measurement
systems and products, the Company began selling its systems and products
overseas. In 1996, while approximately 52.0% of the Company's revenues was
derived from overseas customers, approximately 92.0% of its revenues in 1996
was denominated in U.S. dollars. Accordingly, the Company believes that it
does not have significant exposure to fluctuations in currency.
The Company believes that its future financial performance will depend
substantially on its success in acquiring companies that provide complementary
products and services, capitalizing on global infrastructure development,
providing standard solutions and expanding into complementary markets that
leverage the Company's technological expertise.
The acquisition of Flam & Russell on June 28, 1996 gave the Company greater
price flexibility and also augmented the Company's product mix, staff of
microwave and software engineers and customer base. The acquisition was
accounted for as a purchase transaction with a purchase price of approximately
$1,043,000 and resulted in no recognition of goodwill. Flam & Russell's
backlog at the time of the acquisition was $2.4 million. In connection with
this acquisition, the Company recorded purchased software of $352,000 and
approximately $384,000 in deferred tax assets and credits, which can be used
to offset future taxes.
The Company has an agreement to acquire AEMI upon the completion of this
offering for up to $1.6 million, subject to adjustment based on AEMI's
financial performance for the three years ended March 31, 1997. One-half of
the purchase price will be paid in cash and the other half will be paid by
issuance of shares of the Company's Common Stock valued at the Offering Price.
The Company believes that this acquisition will further broaden its product
line and enable it to offer more comprehensive microwave test and measurement
solutions to its customers.
RESULTS OF OPERATIONS
The following table sets forth certain Statement of Operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0%
Cost of revenues..................................... 73.4 65.6 62.0
------- ------- -------
Gross profit......................................... 26.6 34.4 38.0
General and administrative expenses.................. 13.8 10.4 12.6
Sales and marketing expenses......................... 11.0 12.0 7.6
Research and development expenses.................... 3.3 2.9 5.6
------- ------- -------
Operating income (loss).............................. (1.5) 9.1 12.2
Other income......................................... 1.0 0.5 --
------- ------- -------
Income (loss) before income taxes.................... (0.5) 9.6 12.2
Income tax (benefit) expense......................... (1.7) 3.6 4.2
------- ------- -------
Net income........................................... 1.2% 6.0% 8.0%
======= ======= =======
</TABLE>
19
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues for 1996 were $10.4 million compared to $8.3 million in
1995, an increase of approximately $2.1 million or 25.3%. Revenues from
microwave test and measurement for 1996 were $10.3 million compared to $8.0
million in 1995, an increase of approximately $2.3 million or 28.9%.
Approximately $1.2 million of the increase was attributable to Flam &
Russell's backlog at the time of the acquisition. The Company's initiation of
sales of microwave test and measurement systems to manufacturers of "smart"
automobiles contributed $600,000 to the growth in revenues, and the balance of
the increase was attributable to sales in the wireless communications and
satellite industries. Commission revenues from non-microwave test and
measurement decreased $205,000 from the prior year as the Company began to
phase out the sale of such systems.
Cost of revenues. Cost of revenues for 1996 were $6.5 million compared to
$5.4 million in 1995, an increase of approximately $1.1 million or 20.4%. As a
percentage of microwave test and measurement revenues, cost of revenues
decreased to 62.8% in 1996 from 68.4% in 1995. This increase in gross margin
reflected improved efficiencies in the proposal, production and delivery
stages of providing turnkey systems and illustrated the Company's shift to the
sale of standard systems and proprietary off-the-shelf products. The increased
gross margin was partially offset by an increase in the sale of third-party
products used as components in the Company's test and measurement systems.
These third-party products generally have a lower gross margin than the
Company's systems and products.
General and administrative expenses. General and administrative expenses for
1996 were $1.3 million compared to $864,000 in 1995, an increase of
approximately $451,000 or 52.2%. As a percentage of revenues, general and
administrative expenses were 12.6% in 1996 and 10.4% in 1995. This increase
was a result of (i) the expansion and centralization of the administrative and
finance functions related to the growth of the Company, (ii) the acquisition
of Flam & Russell in June 1996, which included certain transition costs and
temporary redundancies and (iii) an increase in legal and accounting fees.
Sales and marketing expenses. Sales and marketing expenses for 1996 were
$791,000 compared to $994,000 in 1995, a decrease of approximately $203,000 or
20.4%. As a percentage of revenues, sales and marketing expenses were 7.6% in
1996 and 12.0% in 1995. This decrease was the result of (i) the Company's
decision during 1996 to consolidate its sales and marketing operations at the
Company's headquarters in Horsham, Pennsylvania and (ii) lower commissions
negotiated with some of the Company's independent sales representatives in the
Far East. This decrease was partially offset by (i) an increase in the
Company's direct sales force and marketing personnel resulting from the
acquisition of Flam & Russell and (ii) a decision to expand the Company's
direct sales force in the United States.
Research and development expenses. Research and development expenses for
1996 were $581,000 compared to $239,000 in 1995, an increase of $342,000 or
143%. The increase reflected (i) the additional research and development
relating to the modification of the Flam & Russell software to support the
Company's hardware products, (ii) the software development required to support
the needs of the Company's test and measurement systems for the "smart"
automobile and wireless communications industries and (iii) additional funds
spent on porting the Company's software products to Windows 95.
Other income. Other income decreased $35,000 in 1996 from 1995 principally
as a result of higher interest expense in 1996.
Income taxes. Income tax expense for 1996 was $439,000 compared to $301,000
in 1995, an increase of $138,000. The Company's effective tax rate decreased
from 37.9% in 1995 to 34.6% in 1996, as a result of a greater percentage of
the Company's income being generated from its subsidiary in Israel where the
tax rate is lower.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues for 1995 were $8.3 million compared to $7.2 million in
1994, an increase of approximately $1.1 million or 15.3%. Revenues from
microwave test and measurement for 1995 were $8.0
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million compared to $7.1 million in 1994, an increase of approximately
$900,000 or 12.7%. The Company experienced increased sales to customers within
the wireless communications industry and to customers in the Far East. These
increases were partially offset by (i) the completion of a $2.5 million
project in the satellite industry in 1994 and (ii) a decrease in sales in the
aerospace/defense industry in the United States. Commission revenues from non-
microwave test and measurement increased from $43,000 in 1994 to $342,000 in
1995, an increase of $299,000. In 1994, commission revenues were negatively
impacted by a loss in connection with a large customer contract.
Cost of revenues. Cost of revenues for 1995 were $5.4 million compared to
$5.3 million in 1994, an increase of approximately $100,000 or 2%. As a
percentage of microwave test and measurement revenues, cost of revenues
decreased to 68.4% in 1995 from 73.9% in 1994. This improvement in the
Company's gross margin primarily reflected (i) an improvement in the Company's
ability to forecast and manage the costs associated with fixed-price contracts
for turnkey systems, (ii) an on-going effort to develop and build proprietary
off-the-shelf products and (iii) increased sales to customers in the Far East,
which sales typically have higher gross margins to offset higher selling
commissions.
General and administrative expenses. General and administrative expenses for
1995 were $864,000 compared to $989,000 in 1994, a decrease of approximately
$125,000 or 12.6%. As a percentage of revenues, general and administrative
expenses were 10.4% in 1995 and 13.8% in 1994. During the transition to
turnkey systems sales in 1994, management from Alchut provided considerable
direct assistance to the Company. By 1995, the Company was able to perform
most of the design and marketing functions of these systems on its own. The
decrease in general and administrative expenses during this period was also
attributable to greater efficiencies in managerial and administrative
functions.
Sales and marketing expenses. Sales and marketing expenses for 1995 were
$994,000 compared to $786,000 in 1994, an increase of approximately $208,000
or 26.5%. As a percentage of revenues, sales and marketing expenses increased
to 12.0% in 1995 from 11.0% in 1994. This increase was largely the result of
higher sales in the Far East where sales representatives receive higher
commissions. The Company also had increased its expenditures for training,
seminars and other promotions overseas.
Research and development expenses. Research and development expenses
remained unchanged at $239,000 in 1995 compared to $237,000 in 1994. Research
and development expenditures were attributable to developments in the wireless
communications industry in 1995, compared to developments in the satellite
industry and the development of the Company's turnkey systems in 1994.
Other income. Other income decreased $33,000 in 1995 from 1994 as a result
of miscellaneous income received in 1994.
Income taxes. Income tax expense for 1995 was $301,000 compared to a benefit
of $119,000 in 1994. The benefit in 1994 reflects the low effective tax rate
in Israel resulting from adjustments to the statutory rate allowable under
local law.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its working capital requirements
through cash flows from its operations. The Company has two working capital
bank lines of credit aggregating $1.15 million. At December 31, 1996, no
amounts under these lines were outstanding, although $500,000 was being held
under a letter of credit in connection with the Flam & Russell acquisition and
was not available. The Company believes that its cash flows from operations
together with the proceeds of this offering will be sufficient to meet its
working capital needs for at least the next 18 months. At December 31, 1996,
the $2,722,000 due to Alchut represents a three-year, non-interest bearing
note owed by Engineering for the transfer by Alchut of working capital at
December 31, 1996.
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During 1996, the Company spent or incurred an obligation for approximately
$1,043,000 for the Flam & Russell acquisition. Additionally, the Company had
$349,000 of capital expenditures. During 1997, the Company plans to spend up
to $800,000 on the AEMI acquisition and to have capital expenditures of
approximately $400,000, a portion of which will be used to establish the
Company's European office.
The Company has exposure to currency fluctuations as a result of billing
some of its contracts in foreign currency. When selling to customers in
countries with less stable currencies, the Company bills in U.S. dollars. For
the year ended December 31, 1996, approximately 8% of the Company's revenues
was billed in currencies other than U.S. dollars. Substantially all of the
costs of the Company's contracts, including costs subcontracted to Alchut,
have been, and will continue to be, U.S. dollar-denominated.
INFLATION AND SEASONALITY
The Company does not believe that inflation or seasonality has had a
significant effect on the Company's operations to date.
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BUSINESS
INTRODUCTION
The Company develops, markets and supports sophisticated automated microwave
test and measurement systems for the wireless communications, satellite,
automotive and aerospace/defense industries. Products such as cellular phones,
satellites, radio transmitters, global positioning system ("GPS") receivers
and guided missiles depend on the reliable and efficient transmission and
reception of microwave signals in order to communicate. By utilizing the
Company's systems to measure the critical performance characteristics of
microwave signals, wireless manufacturers and service providers within these
industries can improve quality and time-to-market, lower the risk of failure
and underperformance and reduce costs.
Since its founding, the Company has expanded from distributing individual
microwave test and measurement components to providing a wide range of fully
integrated microwave test and measurement solutions. Components of an ORBIT/FR
automated microwave test and measurement system include proprietary software
and hardware products, which can be combined into standard or customized
configurations to meet a customer's specific needs. The Company believes that
its innovative proprietary systems, experienced staff, reputation for quality
and reliability, strong international presence and comprehensive customer
service give it a competitive advantage that will enable it to remain a
leading global supplier of microwave test and measurement systems to a growing
number of companies within the wireless communications, satellite, automotive
and aerospace/defense industries.
The Company markets and sells its systems to customers in the United States
and throughout the world. Within the Company's targeted industries, the
Company's customers include manufacturers of wireless systems and products,
such as Motorola, Nokia and Ericsson; manufacturers of systems and products
that incorporate microwave technology, such as Lockheed Martin, Hughes, BMW
and Boeing; and telecommunications service providers that rely on microwave
technology, such as AT&T, NTT and British Telecom. The Company's customers
also include the United States government and several foreign governments. At
December 31, 1996, the Company's backlog was approximately $10.0 million,
compared to approximately $4.5 million at December 31, 1995.
The Company's objective is to strengthen its leadership position in
automated microwave test and measurement systems while developing products and
systems for a broader range of microwave applications. The principal elements
of the Company's strategy to reach its objective are: (i) offering
comprehensive solutions to customers, (ii) maintaining its technological
leadership, (iii) focusing on standard systems and proprietary off-the-shelf
products, (iv) pursuing growth in international markets and (v) leveraging its
technological expertise to expand into complementary markets.
INDUSTRY OVERVIEW
The need for microwave test and measurement systems and products expanded
rapidly during the 1960's and 1970's in conjunction with the growth and
increased sophistication of the aerospace/defense industry in the United
States and Western Europe. In the last 20 years, this need for test and
measurement products and systems has expanded beyond aerospace/defense
applications to all aspects of modern telecommunications, including personal
wireless communications devices, satellite-based communications systems and
"smart" automobiles. This expansion has occurred in conjunction with a growing
desire among companies to focus on their core competencies and accordingly
outsource many non-core functions such as the development and manufacture of
microwave test and measurement systems.
Within the wireless communications, satellite, automotive and
aerospace/defense industries, test and measurement products and systems are
used during all stages of a product's life cycle: product development, pre-
production qualification, production testing and product maintenance. Given
the broad scope of testing procedures, it is not uncommon for a manufacturer
or service provider to own and operate more than one microwave test and
measurement system.
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WIRELESS COMMUNICATIONS. The wireless communications industry has grown
rapidly in recent years as a result of the development of cost-effective
digital technologies and the gradual global deregulation of the
telecommunications industry. Wireless communications products include
cellular/PCS handsets, pagers, field service/delivery equipment and
cellular/PCS base stations. Rapid growth within the wireless communications
industry is expected to continue in the future due to an increase in available
spectrum, the adoption of efficient new digital technologies and the
development of "smart" antennas. According to the Cellular Telecommunications
Industry Association ("CTIA"), there were over 44 million wireless subscribers
in the United States alone as of December 31, 1996, up 30.4% over 1995. The
CTIA also reports that wireless companies invested $8.4 billion in capital
improvements in 1996, up 65.2% over 1995, and that during 1996, 7,382 new cell
sites were deployed, 55.6% more than were deployed in 1995. The Company
believes that wireless communications growth in international markets has been
greater than growth experienced in the United States.
Growing worldwide demand for wireless communications products and services
has generated a need among wireless manufacturers and service providers for
systems and products that address their specific microwave test and
measurement needs. These companies operate in highly-competitive, rapidly
changing markets in which the performance and reliability of their systems and
products are essential to achieve and maintain competitive advantages. The
accurate transmission and reception of microwave signals are fundamental to
the performance of wireless systems and products. To ensure the successful
transfer of voice or data from one point to another and to minimize poor
reception, cross talk and dropped calls, manufacturers and service providers
conduct extensive testing for signal quality, direction, strength and
interference.
SATELLITE. Satellite-related markets have grown rapidly over the past
several years, driven by the emergence of advanced communication technologies
offering cost-effective global voice, video and data transmission, GPS,
internet access and tracking capabilities. Satellites provide several
advantages over terrestrial communications networks, including rapid
installation and deployment, no incremental cost as distances increase and
higher rates of data transmission. According to Euroconsult, a market research
firm, 555 communications satellites are expected to be launched between July
1996 and December 2006.
To ensure that satellite-based communications systems are effective and
reliable, it is essential that both satellites and "earth stations" transmit
and receive microwave signals accurately. The accuracy requirements for these
satellite systems are critical -- failure to detect a design error could
result in a satellite's "footprint" not covering its intended geographic area.
Satellite manufacturers cannot afford to make this kind of error since the
cost to manufacture, launch and insure a satellite can reach $200 million.
Accordingly, sophisticated microwave test and measurement systems are critical
to satellite and earth station manufacturers, as well as their subcontractors
and sub-assembly manufacturers, to ensure that their products work properly.
AUTOMOTIVE. The world's major manufacturers of automobiles and automotive
sub-assemblies, driven by competitive pressures, are designing new generations
of "smart" cars and trucks that incorporate the latest communications and
safety devices including cellular/PCS, GPS-based direction-finding, data
transfer, digital TV and collision-avoidance systems. Each of these features
requires a specialized, highly-accurate microwave transmission and reception
system. To ensure the performance of these various systems and to assess how
they are impacted by the electromagnetic properties of the car itself,
automotive manufacturers must test the car and these devices as a unit using a
microwave test and measurement system designed for automotive applications.
AEROSPACE/DEFENSE. The need within the aerospace/defense community for
accurate and secure communications and tracking systems led to the emergence
of microwave test and measurement companies in the 1960's. Despite cutbacks in
United States defense budgets in the late 1980's and early 1990's, microwave
test and measurement needs within the aerospace/defense industry are expected
to grow steadily for the foreseeable future as a result of system upgrades on
existing military platforms, substantial new investments in non-U.S. military
programs and the expansion of civil aviation worldwide.
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The industry's tracking requirements, such as air traffic control and
missile guidance, led to the development of Radar Cross Section ("RCS") and
the test and measurement of radomes. RCS involves the transmission of
microwave signals towards a passive target, such as an aircraft or missile,
and then the creation of an "image" of the target by measuring the energy
reflected back towards the transmit source. Radome testing evaluates the
impact of a radome (the dome-shaped casing that is placed on the leading edge
of an aircraft or missile to protect the radar and direction-finding
equipment) on the microwave signals that pass through it.
THE ORBIT/FR SOLUTION
ORBIT/FR provides its customers with flexible and reliable solutions for
their complex microwave test and measurement needs. The Company focuses its
efforts and resources on developing state-of-the-art microwave test and
measurement systems and products that incorporate specialized technologies and
expertise. The Company's customers have a need for microwave test and
measurement systems and products but often do not have the in-house
capabilities to develop, or the desire to develop, such systems and products
themselves. ORBIT/FR's systems and products provide customers with cost-
effective and user-friendly solutions to their microwave test and measurement
needs, thus allowing them to remain focused on their core competencies. The
Company's systems and products incorporate technological expertise developed
and acquired by the Company over many years.
The Company offers a wide range of standard and custom microwave test and
measurement solutions for cellular/PCS handset testing, cellular base station
testing, satellite testing, automotive testing and specialized
aerospace/defense-related testing. The Company's products include test and
measurement software, microwave receivers, positioner subsystems, as well as
other microwave products, all of which are typically incorporated into the
Company's systems. The Company's proprietary software supports the Company's
own test and measurement products as well as those manufactured by third
parties. The Company's engineers and other technical staff use their broad
expertise to assess and understand their customers' specific microwave test
and measurement needs, process orders quickly, keep delivery time to a
minimum, provide comprehensive customer support and release new software on a
regular basis.
The Company believes that its innovative proprietary systems, experienced
staff, reputation for quality and reliability, strong international presence
and comprehensive customer service give it a competitive advantage that will
enable it to remain a leading global supplier of microwave test and
measurement systems to a growing number of companies within the wireless
communications, satellite, automotive and aerospace/defense industries.
THE ORBIT/FR STRATEGY
The Company's objective is to strengthen its leadership position in
automated microwave test and measurement systems while developing products and
systems for a broader range of microwave applications. The principal elements
of the Company's strategy to reach its objective are:
OFFERING COMPREHENSIVE SOLUTIONS TO CUSTOMERS. As the need for microwave
test and measurement grows, new and existing customers increasingly desire to
purchase comprehensive, turnkey test and measurement systems from a single
provider. The Company addresses this desire by providing engineering and
project management services, by offering an increasingly broad product line
and by maintaining close relationships with outside component suppliers.
Additionally, the Company intends to acquire companies with complementary
products and services that can be integrated with the Company's existing or
proposed products and systems. For example, the Company expanded its product
line with the acquisition of Flam & Russell and will further expand its
product line with the acquisition of AEMI. By acquiring suppliers of key
components of microwave test and measurement systems that the Company does not
already provide, the Company believes that it will be able to increase its
overall gross margin.
MAINTAINING TECHNOLOGICAL LEADERSHIP. The Company believes that it has
sophisticated and diversified technological capabilities and intends to
maintain its technological leadership by continuously designing and developing
new software releases and hardware upgrades which offer greater performance
and higher precision.
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FOCUSING ON STANDARD SYSTEMS AND PROPRIETARY OFF-THE-SHELF PRODUCTS. Given
the diversified needs of the Company's customers, no two microwave test and
measurement systems will be identical. However, the Company seeks to keep the
costs of customization to a minimum by designing and delivering specific types
of systems that maximize the use of the Company's proprietary off-the-shelf
products. This approach enables the Company to optimize its margins while
offering its customers tailor-made solutions built around proven high-quality
and reliable products.
PURSUING GROWTH IN INTERNATIONAL MARKETS. Approximately 52% of the Company's
revenues during 1996 were derived from international customers. The Company
believes that the growth of the international microwave test and measurement
marketplace over the next several years will be due in large part to worldwide
economic development, governmental policies aimed at improving the
communications infrastructure in developing countries and the increasing
globalization of commerce. The Company is devoting significant efforts to
increasing its share of the international market for microwave test and
measurement systems by strengthening and expanding its sales network through
the establishment of foreign sales and customer service centers and the
appointment of additional international sales representatives. In addition,
the Company believes it has a competitive advantage due to the duty-free
status of its products manufactured in Israel and sold into the European
Union.
LEVERAGING TECHNOLOGICAL EXPERTISE TO EXPAND INTO COMPLEMENTARY MARKETS. The
Company intends to leverage its technological expertise in microwave test and
measurement systems to expand into complementary markets that the Company
believes offer high growth potential and where the Company's technology
provides competitive advantages. The Company has targeted Electromagnetic
Compatibility ("EMC") testing systems, Microwave Non-Destructive Testing
("NDT") systems and certain non-test and measurement microwave products as
potential future markets.
EMC Testing. EMC testing addresses the unintentional interaction between
electronic products due to their electromagnetic radiation. Since this
radiation may adversely affect the operation of electronic equipment, FCC
guidelines in the United States, EMC and Low-Voltage directives in the
European Union and EMC guidelines in most other foreign countries regulate the
level of electromagnetic radiation emitted from these products and require
manufacturers of electronic products to perform EMC testing. The EMC testing
industry has grown rapidly over the past few years as a result of the
proliferation of electronic devices and the resultant transition from
voluntary regulatory "guidelines" to mandatory "directives." In 1996, the
market for EMC-related products and services was estimated at $1.3 billion in
Western Europe alone and is expected to grow by 20-30% annually for the
foreseeable future. The Company has identified certain test and measurement
needs within the overall EMC marketplace that require capabilities similar to
those which the Company has developed in the microwave test and measurement
field. The Company believes that its large customer base among electronic
equipment manufacturers would give it a significant advantage if it determined
to enter the EMC marketplace.
Microwave Non-Destructive Testing. The field of NDT addresses the problem of
assessing the structural integrity of a product without having to damage or
destroy it. Current NDT methods employ ultrasonic and x-ray technologies which
have performance limitations and cannot be used under certain circumstances.
The Company believes that many of the techniques it has developed for
microwave test and measurement can be adapted to fill needs within the NDT
market.
Other Microwave Products. The Company believes that opportunities exist to
apply the Company's core technologies to the design, manufacture and marketing
of products that incorporate microwave technology. The Company intends to
continue marketing its radial power combiners, amplifiers, antennas and
mixers, and plans to develop and sell additional microwave-based products in
the future. The Company believes its large customer base will give it a
competitive advantage in marketing these products.
SYSTEMS AND PRODUCTS
Since its founding, the Company has expanded from distributing individual
microwave test and measurement components to providing a wide range of
microwave test and measurement solutions. Components
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of an ORBIT/FR automated microwave test and measurement system
include proprietary software and hardware products which can be combined into
standard or customized configurations to meet customers' specific needs. One
of the Company's principal strengths is its experienced design team that
solves complex technical and practical problems. A typical automated microwave
test and measurement system is illustrated below:
[A PICTURE OF AN AUTOMATED MICROWAVE TEST AND
MEASUREMENT SYSTEM APPEARS HERE.]
MICROWAVE TEST AND MEASUREMENT SYSTEMS. The Company designs, manufactures
and markets automated microwave test and measurement systems. In addition to
providing most of these systems' component parts, the Company also integrates
the systems and trains its customers in use of the systems. While most
customers purchase fully integrated turnkey microwave test and measurement
systems, the Company also sells its hardware and software products
individually as replacement parts or components of custom-designed systems.
The Company offers seven types of microwave test and measurement systems. The
first, antenna measurement systems, are generic systems that can be adapted
for many uses, and the other types are designed and sold in response to well-
defined microwave test and measurement needs within specific industries.
Prices for a typical ORBIT/FR system range from $50,000 to $500,000, but large
systems have sold for as much as $2.5 million.
Antenna Measurement Systems. All products and systems that receive or
transmit microwave signals rely on antennas. Accordingly, items such as
microwave radios, GPS receivers, field service/delivery equipment, satellite
earth stations and guided missiles need to have their antennas tested to
ensure satisfactory performance characteristics. The Company's antenna
measurement systems offer both manufacturers and service providers user-
friendly and cost-effective solutions for their antenna measurement needs. The
systems test for signal quality, direction, strength and interference and can
be adapted to perform testing in each of the stages of a product's life:
development, qualification, production and maintenance. While antenna
measurement systems differ significantly from one application to another, all
of the Company's systems incorporate a personal computer running specialized
proprietary software, a microwave receiver, a positioning subsystem, and at
least one additional antenna or probe. The systems can be designed for use in
a wide variety of different test environments, ranging from a small anechoic
chamber to an outdoor range covering several acres. The Company offers three
types of antenna measurement methods:
. Far-field:Traditional method generally used outdoors
. Near-field:Cost-effective indoor method using mathematical conversion
tools
. Compact Range:High-end indoor method using a microwave reflector
The Company also has developed advanced systems that combine these
measurement methods, such as far-field and near-field, in a single chamber.
Cellular/PCS/Pager Systems. ORBIT/FR believes it is a leader in the design
and delivery of high-performance test and measurement systems for
manufacturers of cellular/PCS handsets and pagers. The Company has developed a
standard system based on its spherical near-field technology that the Company
sells as a turnkey off-the-shelf product. The system consists of the Company's
software, receiver and positioning subsystem built into a small anechoic
chamber together with a human mannequin. The positioning subsystem allows a
probe to trace a sphere around the handset or pager held by the mannequin,
thus fully sampling the complete microwave properties of the device under
test.
Cellular/PCS Base Station Systems. The Company develops and sells test and
measurement systems used to assess the microwave performance characteristics
of cellular/PCS base stations. These systems enable cellular/PCS base station
antenna manufacturers to design and build efficient and reliable products, and
they allow wireless communications service providers to monitor more
efficiently the performance of their base stations. The existing system design
is based on the Company's cylindrical near-field technology and is designed
for indoor use. The Company plans to introduce an outdoor mobile testing
system for cellular/PCS base stations during the first quarter of 1998.
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Satellite Systems. The Company develops and sells microwave test and
measurement systems for satellites which test many aspects of satellite
performance including beam location (to assess the satellite's "footprint"),
channel purity and intermodulation, gain, G/T, pattern, EIRP and TMA/TDMA
microwave timing. These systems also test the transmit and receive
characteristics of the active array antennas used on most modern satellites
and can have the ability to identify and diagnose malfunctions within these
complex antennas. The Company's satellite systems utilize either near-field or
compact range technology. Both technologies are equally effective from a test
and measurement viewpoint, but each offers certain benefits. A near-field
system offers diagnostic capabilities and is generally less expensive than a
comparably equipped compact range system, but a compact range system is faster
and easier to use.
Automotive Systems. ORBIT/FR believes it is a leader in the design and
delivery of high-performance test and measurement systems for automobile
manufacturers and manufacturers of automotive sub-assemblies. The Company's
systems incorporate both near-field and far-field technologies and are thus
capable of microwave sampling over a wide range of frequencies. A typical
system includes a large mechanical arm that sweeps over a large turntable. The
car being tested rests on the turntable, and both the turntable and the
mechanical arm are set in motion based upon instructions received from the
Company's measurement software. The systems' broad capabilities are essential
given a growing trend by automobile manufacturers to integrate advanced
microwave technologies such as cellular/PCS, GPS-based direction-finding, data
transfer, digital TV and collision-avoidance systems into their "smart" cars.
RCS Systems. The Company's Radar Cross Section ("RCS") measurement systems
transmit microwave signals towards a passive target and then measure the
energy reflected back towards the transmit source. In an RCS system, the
passive target is typically a model or full scale aircraft or missile that is
mounted on a special "low-RCS" testing pylon capable of rotating the target.
Data collected at various rotation angles and frequencies can be processed to
form an electromagnetic "image" of the target. This type of information
enables the design engineer to assess more accurately the detailed radar
signature of the target. The Company believes that it is a market leader in
this field.
Radome Systems. A radome is a dome-shaped casing that is placed on the
leading edge of an aircraft or missile to protect the radar and direction-
finding equipment. A radome is typically manufactured using fiberglass or
other materials that are designed to be "transparent" to microwave signals.
Testing is performed periodically to ensure that microwave signals are not
degraded or deflected as they pass through the radome. The Company's systems
are designed to measure radome performance by analyzing the path of microwave
signals as they pass through the radome and then comparing it to the
propagation path when the radome is not present. Radome systems use far-field
measurement methods but rely on high positioning accuracy normally required by
near-field systems.
Custom Systems. From time to time, the Company designs and manufactures
custom microwave test and measurement systems for a wide variety of uses and
applications. To date, most of these systems have been built for the United
States government. The Company's broad microwave and antenna expertise has
enabled it to obtain these contracts, and the Company intends to bid for
similar jobs in the future if the expertise gained in designing such systems
is deemed to be of strategic value to the Company.
MICROWAVE TEST AND MEASUREMENT SOFTWARE PRODUCTS. ORBIT/FR offers automatic
measurement software for microwave test and measurement systems. The Company's
software products are Windows-based programs that provide the customer with a
consistent user-friendly interface with the test and measurement system. The
software products have a robust and modular structure that enables the Company
to easily add features for current and future customers. The software uses
far-field and/or near-field algorithms to generate accurate results, and the
computational methodologies used have gained acceptance throughout the
microwave test and measurement community. The software supports the Company's
own measurement equipment as well as equipment manufactured by third parties.
The Company's software products are designed to be "off-the-shelf" but are
versatile and can be customized by the Company's or the customer's technical
personnel to suit specific needs. The Company has delivered over 300 software
installations worldwide in the price range of $20,000-50,000 each. The Company
believes that its software products are the industry standard.
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While software can vary between systems, it always consists of three primary
modules: data acquisition, data analysis and report writing. The software's
data acquisition module records actual measurements as it controls the
microwave measurement equipment, the positioning subsystem, and often the
source antenna and/or the antenna being measured. Variables such as frequency,
power level, amplitude, phase, rotary and/or linear motion, polarization,
transmit/receive switching, electrical beam pointing and polarization
switching are all controlled by the Company's measurement software. The
multidimensional results obtained are stored in a computer file for subsequent
analysis. The software's data analysis module processes the acquired data
using sophisticated microwave and signal processing algorithms developed by
the Company and the National Institute of Standards and Technology ("NIST").
The data analysis module transforms the acquired data into easily-understood
numerical information and graphic representations, thus providing the customer
with the data required to satisfy its internal requirements and those of its
own customers. The software's report writing module can be customized to meet
each customer's needs.
MICROWAVE RECEIVERS. The microwave receiver is the device in the automated
microwave test and measurement system that measures the microwave signals
received from the antenna or device under test or, alternatively, from the
antenna collecting the backscatter from an RCS target. The Company's microwave
receivers convert and digitize the signals to put them into a computer
compatible format. They are capable of simultaneously measuring up to four
channels ranging in frequency from 50 MHz to 110 GHz. The Company believes
that its microwave receivers have a high degree of accuracy and are easy to
use. As part of its "Channel Partner" relationship with Hewlett Packard, the
Company uses HP as its preferred source for microwave receivers incorporated
into the Company's test and measurement systems. While this arrangement with
HP has led to a decrease in sales of the Company's own receivers, the Company
believes that the benefits of its relationship with HP, such as increased
visibility, market access and product performance, substantially outweigh the
costs.
POSITIONER SUBSYSTEMS. The positioner subsystem is the collection of
equipment that holds the device under test and causes it to be moved according
to the needs of the test. A typical positioner subsystem may include the
following components:
Positioners. A positioner is the item upon which the device under test is
placed while it is being tested. The Company's positioners are rugged, yet
highly precise, devices that adjust themselves in accordance with the
positioning instructions received from the measurement software. Special
circuitry and mechanical design features built into the positioner enable the
data acquired from the antenna under test to travel efficiently through the
positioner to the computer to be analyzed. The Company's simple positioners
rotate around a single axis, while the Company's more elaborate positioners
incorporate up to three axes. An automated microwave test and measurement
system requires one or more positioners. The Company offers over 200 different
positioner models and believes that its positioners are among the most
accurate in the market.
Positioner Controllers and Power Control Units. The Company manufactures
positioner controllers and power control units ("PCUs") as well as models that
combine these two products into one box. Working together, the positioner
controller and the PCU act as the "translators" between the microwave software
and the positioner. The positioner controller receives digital instructions
from the microwave software and translates them into analog signals understood
by the PCU. These analog signals are then amplified by the PCU to provide
precisely calibrated DC power to the positioner's electric motors, which then
operate at a user-defined speed to move the antenna or device under test
through the desired positions. The Company offers four positioner controller
models, two PCU models and four models that combine both positioner controller
and PCU.
Planar Scanners. A planar scanner is a rectangular device that enables a
probe antenna to be moved along an x- and y-axis so that its position at any
time is known and can be exactly replicated. Planar scanners are typically
mounted vertically to enable the probe to be moved throughout the height and
width dimensions of the scanner. Scanners enable test engineers to accurately
and reliably analyze many aspects of the microwave signals radiating from the
antenna or device under test. The Company offers 24 standard scanners ranging
in size from 3 feet x 3 feet to over 100 feet x 100 feet.
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Pylons and Model Towers. Pylons and model towers are used in many microwave
test and measurement applications and range in size from very large to very
small. Large pylons can carry substantial loads in indoor or outdoor
environments, and certain models can even support a full-sized aircraft.
Pylons are almost always used in RCS systems.
OTHER MICROWAVE PRODUCTS. The Company has developed several microwave
products used in the larger microwave industry.
Radial Power Combiners. The Company's radial power combiners offer a highly-
efficient electromagnetic mechanism to combine several identical low-energy
signals together to make a single high-energy signal. Radial power combiners
have many uses, but their most common application is in high-power microwave
transmitters.
Antennas, Probes and Other Microwave Accessories. The Company designs and
manufactures antennas, probes and other microwave accessories. These products
are used in the Company's microwave test and measurement systems, and they are
also sold to customers as stand-alone items.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company markets and sells its products in the United States through
three regional sales managers and through two independent sales
representatives that target specific geographic and strategic markets.
Internationally, the Company has established sales and customer service
centers in Israel and Germany and has representatives for sales, marketing and
customer support in Austria, Brazil, China, Denmark, France, Germany, India,
Italy, Japan, Singapore, South Korea, Spain, Sweden, Switzerland, Taiwan and
the United Kingdom.
The Company's engineers and other technical staff support the efforts of the
sales force. Since a customer's engineers typically play an important role in
the procurement decision, the Company's engineers work closely with them to
help them understand the advantages of the Company's products and systems.
Additional business from existing customers is pursued through the joint
efforts of both the sales force and the engineers and other technical staff
who have worked closely with the customer's engineers and who understand the
customer's needs. If a customer has already purchased a microwave test and
measurement system from ORBIT/FR, the Company believes it has an advantage
over competitors in obtaining orders for system upgrades as well as any
additional systems that the customer may wish to purchase at a later date.
Typically, a substantial portion of the Company's revenues in a given year is
generated by customers for whom the Company has previously provided products
or systems.
The Company generates sales leads for new customers through referrals from
existing customers and other industry suppliers, its reputation in the
industry, advertising in trade publications and on the World Wide Web and
participation in conferences and trade shows. In addition, the Company is in
the process of establishing marketing alliances with two major manufacturers
of products and systems that incorporate microwave technology, pursuant to
which the Company will provide test and measurement system upgrades and
support free of charge in return for referral business. As a Hewlett Packard
"Channel Partner," the Company receives referrals and recommendations from
HP's worldwide sales force, and the Company believes that it thereby obtains
greater visibility in the microwave test and measurement market.
The Company devotes significant resources to provide comprehensive customer
support. Customer support is provided under warranty for the first year on all
products sold by ORBIT/FR. Beyond the first year, customer support on products
sold by ORBIT/FR is provided on an as-needed basis. The Company also provides
a technical support line and, for an additional fee, on-site and in-house
training for all of its products and systems. The Company encourages its
employees to be customer service-oriented because it relies to a large degree
on its reputation to attract and retain customers. Furthermore, the Company
believes that its comprehensive customer support program gives it a
competitive advantage in the microwave test and measurement market.
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CUSTOMERS
The Company has over 1,000 installations with customers in the wireless
communications, satellite, automotive and aerospace/defense industries. In
1994, Raytheon, and in 1995, Matra Marconi, each accounted for more than 10%
of the Company's total revenues; however, the Company believes the loss of
either customer would not have a material adverse effect on the Company's
overall revenues. Representative customers that have purchased systems from
the Company include:
Wireless Communications.... Alcatel, Andrew, AT&T, Bell Atlantic, Bosch
Telecom, British Telecom, Celwave, Daewoo,
Ericsson, GTE, IBM, ITT, Korea Mobile Telecom,
Lucent Technologies, Motorola, NEC, Nokia,
Northern Telecom, NTT, Qualcomm, RCA, Siemens
Plessey and Telebras.
Satellite.................. DASA, Elenia Spazio, Harris, Hughes Space and
Communications, Lockheed Martin, Space
Systems/Loral, Matra Marconi Space, Raytheon and
TRW.
Automotive................. BMW, Ford, FUBA, Mitsubishi, SAAB, Samsung and
Toyota.
Aerospace/Defense.......... Aerospatiale, Ball Aerospace, Boeing, British
Aerospace, Dassault, General Electric, Hughes
Aircraft, Israel Aircraft Industry, ITT Avionics,
Lockheed Martin/Loral, McDonnell Douglas,
Mitsubishi Heavy Industries, NASA, Northrop-
Grumman, Pratt & Whitney, Racal Avionics,
Raytheon E-Systems, Rockwell International, SAAB
Missiles, SPAR Aerospace, Texas Instruments,
Tracor/AEL and the United States Air Force, Army
and Navy.
The Company's customers are located in the Americas (the United States,
Canada, Brazil and Argentina), Europe (the United Kingdom, France, Germany,
Italy, Holland, Spain, Austria, Denmark, Poland, Finland, Norway, Sweden,
Switzerland and Portugal) and throughout the rest of the world (Japan, Korea,
China, Thailand, Taiwan, Singapore, Indonesia, Israel, Australia and South
Africa).
PRODUCTION AND SUPPLIERS
The Company's engineers, based in both Horsham, Pennsylvania and Israel, are
responsible for product design and development and for overseeing the
production of the Company's products. While the Company maintains a production
facility in Horsham, most of the production of the Company's products is
performed by subcontractors. Alchut is currently the Company's principal
subcontractor for electro-mechanical production, primarily in connection with
the manufacturing of positioners. The Company believes that Alchut currently
offers the best available combination of quality, reliability and price. After
the expiration of its one-year service contract with Alchut, the Company has
the right to select any other subcontractor. See "Certain Transactions."
While the Company produces most of the component parts for its microwave
test and measurement systems, it purchases certain components from outside
vendors for turnkey microwave test and measurement systems, including personal
computers, shielded enclosures and microwave absorbers. The acquisition of
AEMI will enable the Company to add microwave absorbers to its product line,
and part of the Company's strategy is to seek future acquisitions that will
further reduce its dependence on outside suppliers.
BACKLOG
At December 31, 1995 and 1996, the Company's backlog was approximately $4.5
million and $10.0 million, respectively. The Company includes in backlog only
those orders for which it has received and accepted a completed purchase
order. Such orders are generally subject to cancellation by the customer with
payment of a specified charge. The delivery lead time on the Company's
products and systems averages approximately five months, but can be as short
as a few days and as long as 12 months. Because of the possibility of customer
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changes in delivery schedules, cancellation of orders and potential shipment
delays, the Company's backlog as of any particular date may not be
representative of actual sales for any succeeding period.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its ability to adapt
to rapidly changing technological circumstances within the industries it
serves and to continue to meet the needs of its customers. Accordingly, the
timely development and introduction of new products is essential to maintain
the Company's competitive position. The Company develops all of its products
in-house and currently has a research and development staff which includes 14
engineers. A significant portion of the Company's research and development
efforts has been conducted in direct response to the specific requirements of
customers' orders, and, accordingly, such amounts are included in the cost of
sales when incurred and the related funding is included in net revenues at
such time. Revenues for customer-funded research and development during 1994,
1995 and 1996 were approximately $472,000, $482,000 and $520,000,
respectively. In addition, the Company invested $237,000, $239,000 and
$581,000, respectively, during 1994, 1995 and 1996 on independent research and
development, which is not directly funded by a third party. Customer-funded
research and development contains a profit component and is therefore not
directly comparable to independent research and development.
The Company continues to benefit from research and development grants from
the Israeli government through the Chief Scientist program, from the United
States government through the SBIR program and through BIRD, a joint United
States/Israeli government program. While the Company has already received
significant benefits from these programs throughout the initial development
stages of its core technology base, the Company believes that its business,
operating results and financial condition would not be materially adversely
affected if the Company were to lose its ability to obtain research and
development funding through these programs in the future. The Company plans to
leverage this technology base to develop additional products for commercial
applications.
COMPETITION
The Company believes that its current systems and products compete
effectively with the systems and products offered by its competitors on the
basis of product functionality, speed and accuracy, reliability, price, ease
of use and technical support. The market for automated microwave test and
measurement products, systems and services, however, is highly competitive and
is characterized by continuing advances in products and technologies. In
general, competition in this market comes from major microwave test and
measurement vendors, some of which have a longer operating history,
significantly greater financial, technical and marketing resources, greater
name recognition and a larger installed customer base than the Company. These
companies also have established relationships with current and potential
customers of the Company. The Company also competes, on a limited basis, with
the internal development groups of its existing and potential customers, many
of whom design and develop parts of their own microwave test and measurement
systems. The Company's business, operating results and financial condition
could be materially adversely affected by such competition. The Company's
primary competitors in the microwave test and measurement market are
Scientific Atlanta, Nearfield Systems, Aeroflex, System Planning Corporation
and Rantec/ESCO.
PROPRIETARY RIGHTS
The Company is heavily dependent on its proprietary technology. The Company
relies on a combination of confidentiality agreements with its employees,
license agreements, copyrights, trademarks and trade secret laws to establish
and protect rights to its proprietary technology. The Company does not hold
any material patents. All of the Company's software is shipped with a security
lock which limits software access to authorized users. Generally, the Company
does not license or release its source code. Effective copyright and trade
secret protection of the Company's proprietary technology may be unavailable
or limited in certain foreign countries.
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EMPLOYEES
As of March 31, 1997, the Company had a total of 67 employees, including 22
in software and research and development, 16 in engineering and program
management, 12 in sales, marketing and customer support services, eight in
production and nine in administration. Fifty-two employees are located at the
Company's headquarters in Horsham, Pennsylvania, 14 are located in Israel and
one is located in Germany. None of the Company's employees is represented by a
collective bargaining agreement, nor has the Company experienced any work
stoppage. The Company considers its relations with its employees to be good.
LITIGATION
The Company is not a party to any litigation and is not aware of any
threatened litigation, unasserted claims or assessments that could have a
material adverse effect on the Company's business, operating results or
financial condition.
FACILITIES
The Company occupies approximately 20,000 square feet of space at its
headquarters in Horsham, Pennsylvania under a lease expiring in October 1997.
Upon expiration of the lease, the Company anticipates moving to a 40,000 to
50,000 square foot facility in the same vicinity. The current annual base rent
is approximately $179,000. The Company also maintains an engineering facility
in Israel and is in the process of establishing a technical support and
program management center in Germany. The Company's current aggregate annual
rental expenses for these additional facilities are approximately $60,000.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND CERTAIN KEY EMPLOYEES
The following table sets forth certain information regarding the Company's
executive officers, directors and certain key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joseph Aviv.............. 60 Chairman of the Board of Directors
Aryeh Trabelsi........... 39 President, Chief Executive Officer and Director
Moshe Pinkasy............ 46 Chief Executive Officer of Engineering
Marcel Boumans........... 39 Managing Director of European Operations
Joseph Sullivan.......... 54 Director of Finance and Treasurer
David Farina............. 36 Near-Field Strategic Business Unit Director
John Aubin............... 43 Far Field/RCS Strategic Business Unit Director
Sean Mallon.............. 30 EMC Strategic Business Unit Director
Zeev Stein............... 44 Director
David Ben-Bassat......... 51 Director
</TABLE>
Joseph Aviv has served as Chairman of the Board of Directors of the Company
and its predecessor and of Alchut since March 1996. Since 1994, Mr. Aviv has
been the General Manager of Aviron Engineers Ltd., a holding company located
in Ra'anana, Israel. From April 1992 to July 1994, Mr. Aviv was a member of
the Board of Directors of Alchut. From 1985 to 1994, Mr. Aviv was the Chairman
of the Board of Directors of Paz-Chen, Ltd. a publicly-traded jewelry company
located in Tel-Aviv, Israel.
Aryeh Trabelsi has served as the President and Chief Executive Officer of
the Company and its predecessor since September 1996, and as a Director of the
Company since December 1996. From July 1995 to September 1996, Mr. Trabelsi
was the Senior Vice-President and Chief Executive Officer of Technologies.
From 1995 to 1996, in his various capacities, Mr. Trabelsi was responsible for
the worldwide management of Alchut's Microwave Test and Measurement Strategic
Business Unit. From 1991 to 1995, Mr. Trabelsi served as Microwave Test and
Measurement Business and Product Development Manager for Alchut and
Technologies.
Moshe Pinkasy has served as the Chief Executive Officer of Engineering since
January 1997. From February 1996 to December 1996, Mr. Pinkasy was Alchut's
Manager of the Microwave Test and Measurement Business in Israel. From 1992 to
1996, Mr. Pinkasy served, in various capacities, as the Mechanical Engineering
Department Manager for Alchut.
Marcel Boumans has served as the Managing Director of European Operations of
the Company since March 1997. From June 1995 to March 1997, Mr. Boumans was a
Systems Design Engineer for Dornier Satelliten Systeme GmbH, the satellite
systems subsidiary of Daimler-Benz Aerospace. From 1990 to 1995, Mr. Boumans
was a Systems Design Engineer for Dornier GmbH, the communications and defense
subsidiary of Daimler-Benz Aerospace.
Joseph Sullivan has served as the Director of Finance and Treasurer of the
Company since December 1996. From March 1996 to October 1996, Mr. Sullivan was
the Finance Director for CME Information Services, Inc., a privately held
medical education company located in Mount Laurel, New Jersey. From January
1995 to June 1995, Mr. Sullivan was the Finance Director for the animal health
business group of the International Division of Pfizer, Inc., a publicly-
traded pharmaceutical company. From 1969 to December 1994, Mr. Sullivan was
the Finance Director for the animal health business group of the International
Division of SmithKline Beecham plc, a publicly-traded pharmaceutical company.
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David Farina has served as the Strategic Business Unit Director in charge of
Near Field Systems for the Company and its predecessor since August 1995. From
1994 to 1995, Mr. Farina was employed as a Department Manager for Flam &
Russell, managing large engineering projects. From 1987 to 1994, Mr. Farina
was Project Manager for Flam & Russell.
John Aubin has served as the Far Field/RCS Strategic Business Unit Director
of the Company since June 1996. From 1991 to 1996, Mr. Aubin was Vice-
President in charge of the Antenna Measurement Business Area for Flam &
Russell.
Sean Mallon has served as the EMC Strategic Business Unit Director for the
Company and its predecessor since November 1996. From 1993 to 1996, Mr. Mallon
was the President and Chief Executive Officer of RDI International, Inc., a
company co-founded by Mr. Mallon, which designed, manufactured and marketed a
line of TV/FM antennas and accessories.
Zeev Stein has served as a Director of the Company and its predecessor since
March 1996. Since July 1994, Mr. Stein has served as a Director of Alchut and
since September 1996, Mr. Stein has also served as the Vice-President of
Operations of Alchut. From 1991 to 1996, Mr. Stein was the General Manager of
Stein Special Art, Ltd., located in Ra'anana, Israel. Mr. Stein is the son-in-
law of Mr. Aviv.
David Ben-Bassat has served as a Director of the Company and its predecessor
since December 1996. Since 1995, Mr. Ben-Bassat has been the General Manager
of Radius, Ltd., a radio station located in Rosh Hain, Israel. From 1990 to
1995, Mr. Ben-Bassat was the General Manager of Mascom, Ltd., a communications
company located in Ra'anana, Israel.
BOARD OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
that the Board of Directors shall consist of not less than three nor more than
thirteen members, the exact number to be fixed and determined from time to
time by the Board. The Company's Board of Directors is presently composed of
four directors. The Board of Directors is elected by the stockholders at the
annual meeting of the stockholders of the Company.
With the exception of Mr. Aviv, directors currently do not receive any
compensation for services on the Board of Directors. The Board of Directors
may, however, establish compensation for, and reimburse the expenses of, the
directors. During the year ended December 31, 1996, Mr. Aviv received fees of
$14,000 for services rendered to the Company. Pursuant to an agreement between
the Company and Mr. Aviv, Mr. Aviv will receive a fee of $84,000 for services
to be rendered to the Company in 1997, subject to increase upon approval of
the Board of Directors.
Under the Company's 1997 Equity Incentive Plan, effective upon the
completion of this offering, Mr. Ben-Bassat will be granted an option to
purchase 20,000 shares of Common Stock at the Offering Price. This option will
vest annually in four equal increments beginning 24 months after the
completion of this offering.
BOARD COMMITTEES
The Board of Directors plans to establish an Audit Committee in April 1997
to review, act on and report to the Board of Directors with respect to various
auditing and accounting matters, including the internal accounting procedures
of the Company and the services provided by the Company's independent public
accountants. The Board of Directors also plans to establish a Compensation
Committee in April 1997 to set compensation and bonuses for management. Prior
to the offering, the Company intends to appoint three independent directors.
The individuals, who have not been chosen yet, will become directors promptly
after the completion of this offering and will be members of both the
Company's Audit Committee and Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company did not have a Compensation Committee of the Board
of Directors, and with the exception of Mr. Aviv's compensation, which was set
by the Board of Directors, compensation decisions were made by Mr. Aviv and
Mr. Trabelsi.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the Company's
Chief Executive Officer for the year ended December 31, 1996. No other
executive officer of the Company received compensation in excess of $100,000
during the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ------------
NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Aryeh Trabelsi............. 1996 $ 108,786 $ 15,000 -- $440(1)
President and Chief
Executive Officer
</TABLE>
- --------
(1) Represents life insurance premiums paid on behalf of Mr. Trabelsi.
OPTION GRANTS
No stock options were granted to or exercised by any executive officer
during the year ended December 31, 1996.
EMPLOYMENT AGREEMENTS
Aryeh Trabelsi. Effective February 15, 1997, the Company entered into an
employment agreement with Aryeh Trabelsi, the President and Chief Executive
Officer of the Company, for an initial term of two years and thereafter
terminable by either the Company or Mr. Trabelsi on 90 days' notice. Pursuant
to the terms of Mr. Trabelsi's employment agreement, Mr. Trabelsi is entitled
to receive (i) an annual base salary of $154,216 or such higher amount as the
Company's Board of Directors may determine from time to time, (ii) an annual
cash bonus based on the Company's net income before taxes, excluding any gains
from the sale of securities, and (iii) an annual cash bonus based on the
Company's achievement of specified levels of net income before taxes excluding
capital gains.
Mr. Trabelsi has been granted, effective upon the completion of this
offering, a stock option to purchase up to 171,000 shares of the Common Stock
at a per share exercise price equal to the Offering Price. This option vests
annually in four equal increments beginning 24 months after the completion of
this offering.
Mr. Trabelsi's employment agreement may be terminated by the Company for
cause, which is defined as the material breach of the employment agreement by
Mr. Trabelsi or if Mr. Trabelsi commits a material act of dishonesty or a
material breach of trust or a fiduciary obligation with respect to the
Company. The employment agreement may be terminated by Mr. Trabelsi for good
reason, which includes, among other things, a material breach of the
employment agreement by the Company, the demotion or removal of Mr. Trabelsi,
a material diminishment of Mr. Trabelsi's responsibilities, a reduction in his
base salary, the relocation of Mr. Trabelsi's primary place of employment by
more than 100 miles (other than a relocation to Israel after December 1998)
without his consent or any failure of the Company to obtain the assumption of
the agreement by any successor or assign of the Company.
Under the employment agreement, Mr. Trabelsi is subject to certain non-
disclosure, non-solicitation and non-competition covenants. The employment
agreement provides that during the period of non-competition and non-
solicitation, Mr. Trabelsi will receive his base salary reduced by up to one-
half of any salary received by Mr. Trabelsi from another employer during the
period of non-competition or non-solicitation.
Moshe Pinkasy. Effective January 1, 1997, Engineering entered into an
employment agreement with Moshe Pinkasy, the Chief Executive Officer of
Engineering, which is terminable by either Engineering or Mr. Pinkasy on 90
days notice. Pursuant to the terms of Mr. Pinkasy's employment agreement, Mr.
Pinkasy is entitled to
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<PAGE>
receive (i) an annual base salary of $57,000 and (ii) an annual cash bonus
based on the Company's net profits. Mr. Pinkasy has been granted, effective
upon the completion of this offering, a non-qualified stock option to purchase
up to 51,000 shares of the Common Stock at a per share exercise price equal to
the Offering Price. This option vests annually in four equal increments
beginning 24 months after the completion of this offering. Under the
employment agreement, Mr. Pinkasy is subject to certain non-disclosure, non-
solicitation and non-competition covenants.
1997 EQUITY INCENTIVE PLAN
On March 17, 1997, the Board of Directors adopted and the Company's
stockholder approved the Company's 1997 Equity Incentive Plan (the "Incentive
Plan"). The purposes of the Incentive Plan are to attract and retain key
employees and certain other persons who are in a position to make significant
contributions to the success of the Company, to reward these employees and
other persons for their contributions, to provide additional incentive to
these employees and other persons to continue making similar contributions and
to further align the interests of these employees and other persons with those
of the Company's stockholders. To achieve these purposes, the Incentive Plan
permits grants of incentive stock options ("ISOs"), options not intended to
qualify as incentive stock options ("Non-ISOs"), stock appreciation rights
("SARs"), restricted and unrestricted stock awards, performance awards, loans
and supplemental cash awards and combinations of the foregoing (all referred
to as "Awards").
The Incentive Plan permits Awards to be granted for a total of 800,000
shares of the Company's Common Stock. Shares issuable under Awards that
terminate unexercised, shares issuable under Awards that are payable in stock
or cash but are paid in cash and shares issued but later forfeited will be
available for future Awards under the Incentive Plan.
All current and future employees of the Company, and other persons who, in
the opinion of the Board of Directors, are in a position to make significant
contributions to the success of the Company, such as consultants and non-
employee directors, are eligible to receive Awards under the Incentive Plan.
The Incentive Plan is administered by the Board of Directors, which
determines, among other things and subject to certain conditions, the persons
eligible to receive Awards, the persons who actually receive Awards, the type
of each Award, the number of shares of Common Stock subject to each Award, the
date of grant, exercise schedule, vesting schedule and other terms and
conditions of each Award, whether to accelerate the exercise or vesting
schedule or waive any other terms or conditions of each Award, whether to
amend or cancel an Award and the form of any instrument used under the
Incentive Plan. The Board of Directors has the right to adopt rules for the
administration of the Incentive Plan, settle all controversies regarding the
Incentive Plan or any Award, and construe and correct defects and omissions in
the Incentive Plan or any Award. The Incentive Plan may be amended, suspended
or terminated by the Board of Directors, subject to certain conditions,
provided that stockholder approval will be required whenever necessary for the
Incentive Plan to continue to satisfy the requirements of certain securities
and tax laws, rules and regulations.
Recipients of stock options under the Incentive Plan will have the right to
purchase shares of Common Stock at an exercise price, during a period of time
and on such other terms and conditions as are determined by the Board of
Directors. For ISOs, the recipient must be an employee, the exercise price
must be at least 100% (110% if issued to a 10% or greater stockholder of the
Company) of the fair market value of the Company's Common Stock on the date of
grant and the term cannot exceed ten years (five years if issued to a 10% or
greater stockholder of the Company) from date of grant. If permitted by the
Board of Directors and subject to certain conditions, an option exercise price
may be paid by delivery of shares of the Company's Common Stock that have been
outstanding, a promissory note, a broker's undertaking to promptly deliver the
necessary funds or by a combination of those methods. If permitted by the
Board of Directors, options (other than those granted in tandem with SARs) may
be settled by the Company, paying to the recipient, in cash or shares of
Common Stock (valued at the then fair market value of the Company's Common
Stock), an amount equal to such fair market value minus the exercise price of
the option shares.
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SARs may be granted under the Incentive Plan either alone or in tandem with
stock options. Generally, recipients of SARs are entitled to receive, upon
exercise, cash or shares of Common Stock (valued at the then fair market value
of the Company's Common Stock) equal to such fair market value on the date of
exercise minus such fair market value on the date of grant of the shares
subject to the SAR, although certain other measurements also may be used. A
SAR granted in tandem with a stock option is exercisable only if and to the
extent that the option is exercised.
The Incentive Plan provides for restricted and unrestricted stock awards.
Stock awards allow the recipient to acquire shares of the Company's Common
Stock for their par value or any higher price determined by the Board of
Directors. In the case of restricted stock awards, the shares acquired are
subject to a vesting schedule and other possible conditions determined by the
Board of Directors.
The Incentive Plan provides for performance awards entitling the recipient
to receive stock options, stock awards or other types of Awards conditional
upon achieving performance goals determined by the Board of Directors.
Performance goals may involve overall corporate performance, operating group
or business unit performance, personal performance or any other category of
performance determined by the Board of Directors. Financial performance may be
measured by revenue, operating income, net income, earnings per share, Common
Stock price, price-earnings multiple or other financial factors determined by
the Board of Directors.
Under the Incentive Plan, loans or supplemental cash awards may be granted
to recipients of Awards to help defray taxes due as a result of the Awards.
The terms and conditions of loans and supplemental cash awards, including the
interest rate, which may be zero, and whether any loan will be forgiven, are
determined by the Board of Directors.
Generally, upon termination of a recipient's employment or other
relationship with the Company, stock options and SARs remain exercisable for a
period of three months (one year if termination is due to death or disability)
to the extent that they were exercisable at the time of termination, except as
otherwise agreed between the employee and the Company, unvested shares under
outstanding restricted stock awards vest immediately except in the case of a
voluntary resignation or termination for cause (as defined in the Incentive
Plan). Stock options, SARs and other Awards that are not exercisable at the
time of termination automatically terminate, and payments or benefits under
deferred stock awards, performance awards and supplemental cash awards that
are not irrevocably due at the time of termination are forfeited.
38
<PAGE>
CERTAIN TRANSACTIONS
In December 1996, Alchut incorporated Engineering and transferred the assets
of its microwave test and measurement unit to Engineering in exchange for
shares of Engineering and a three-year, non-interest bearing note in the
principal amount of $2,722,000. In December 1996, Alchut transferred or caused
to be transferred to the Company all of the issued and outstanding shares of
Technologies and Engineering in exchange for 4,000,000 shares of Common Stock
of the Company. See "The Company."
The Company, Engineering and Alchut have entered into a one-year services
agreement, commencing January 1, 1997, pursuant to which: (i) Alchut will
supply administrative services and office space to Engineering in Israel, (ii)
the Company will supply administrative services and office space to Alchut and
certain of Alchut's divisions and subsidiaries in Horsham, Pennsylvania and
(iii) Engineering will purchase certain electro- mechanical production
services required in Israel from Alchut. Alchut will receive (i) $360,000 per
year as compensation for the provision of its administrative services to
Engineering, (ii) cost of the production services plus 5% as compensation for
the provision of its production services to Engineering and (iii) $22.80 per
square foot per year as rent (approximately $51,000 for 1997). The Company
will receive (i) reimbursement for the cost of the administrative services it
provides to Alchut and (ii) $2,000 per month as rent. The compensation to be
received by the Company and Alchut for the provision of office space includes
all taxes, utilities and maintenance. After the expiration of the one-year
term of the agreement, Alchut's and the Company's compensation is subject to
negotiation, and the entire agreement is terminable on 90 days notice.
The Company has acted as a distributor for certain systems manufactured by
Alchut. During the years ended December 31, 1994, 1995 and 1996, the Company's
commission revenues were approximately $43,000, $342,000 and $137,000
respectively. The Company has also subcontracted certain manufacturing
services to Alchut. Included in the Company's cost of revenues for the years
ended December 31, 1994, 1995 and 1996 are approximately $1,492,000,
$1,423,000 and $1,496,000, respectively, relating to the production services
provided by Alchut.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 10, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby, by (i) each
stockholder known by the Company to be the beneficial owner of five percent or
more of the outstanding Common Stock, (ii) each director and the executive
officer of the Company named in the Summary Compensation Table individually
and (iii) all directors and executive officers as a group. Except as otherwise
indicated in the footnotes below, the Company believes that each of the
beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
----------------------------------------
PERCENT PRIOR PERCENT AFTER
NAME OF BENEFICIAL OWNER NUMBER TO THIS OFFERING THIS OFFERING
- ------------------------ --------- ---------------- -------------
<S> <C> <C> <C>
Orbit-Alchut Technologies, Ltd.(2)... 4,000,000 100.0% 65.6%
P.O. Box 3171
Industrial Zone
Netanya 42131
Israel
Joseph Aviv(3)....................... 4,000,000 100.0 65.6
Aryeh Trabelsi(4).................... -- -- --
Zeev Stein(5)........................ 4,000,000 100.0 65.6
David Ben-Bassat(6).................. 4,000,000 100.0 65.6
All directors and executive officers
as a group (7 persons)(7)........... 4,000,000 100.0 65.6
</TABLE>
- --------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by or for, among others, the spouse and/or
minor children of the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire under outstanding stock options within 60 days after the date of
this table. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Alchut has granted to the Underwriters an option to purchase up to an
additional 300,000 shares of Common Stock to cover over-allotments at the
Offering Price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. See "Underwriting." If this option
is exercised in full, Alchut will beneficially own 60.7% of the Company's
Common Stock after this offering.
(3) Represents 4,000,000 shares held by Alchut. Mr. Aviv is a director and
44.0% beneficial stockholder of Alchut.
(4) Does not include 171,000 shares of Common Stock issuable upon the exercise
of an option to be granted to Mr. Trabelsi effective upon the completion
of this offering, which option becomes exercisable in four cumulative
annual installments commencing 24 months after the completion of this
offering.
(5) Represents 4,000,000 shares held by Alchut. Mr. Stein is a director and
42.0% beneficial stockholder of Alchut.
(6) Represents 4,000,000 shares held by Alchut. Mr. Ben-Bassat is a director
of Alchut. Does not include 20,000 shares of Common Stock issuable upon
the exercise of an option to be granted to Mr. Ben-Bassat effective upon
the completion of this offering, which option becomes exercisable in four
cumulative annual installments commencing 24 months after the completion
of this offering.
(7) Includes the information contained in the notes above, as applicable. Does
not include 81,000 shares of Common Stock issuable upon the exercise of
options to be granted to the three other executive officers effective upon
the completion of this offering, which options become exercisable in four
cumulative annual installments commencing 24 months after the completion
of this offering.
40
<PAGE>
DESCRIPTION OF SECURITIES
Under the Company's Amended and Restated Certificate of Incorporation, the
authorized capital stock of the Company is 12,000,000 shares, consisting of
10,000,000 shares of Common Stock, $0.01 par value per share, and 2,000,000
shares of undesignated Preferred Stock, $0.01 par value per share. As of the
date of this offering, 4,000,000 shares of Common Stock are issued and
outstanding and held of record by Alchut. Upon the completion of this
offering, 6,094,118 shares of Common Stock will be issued and outstanding
(assuming the issuance of a maximum of 94,118 shares of Common Stock in
connection with the acquisition of AEMI).
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior liquidation
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive conversion rights or other subscription rights. There are no
redemption or sinking funds provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be outstanding upon completion of this offering will
be fully paid and non-assessable.
PREFERRED STOCK
Upon completion of this offering, no shares of Preferred Stock will be
outstanding. The Board of Directors will have the authority to issue up to
2,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon
such Preferred Stock, including dividend rights, conversion rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, without any
further vote or action by the stockholders unless otherwise required by law.
The Board of Directors can issue Preferred Stock with voting and conversion
rights, which could adversely affect the voting power of the holders of Common
Stock. The issuance of Preferred Stock could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any shares of Preferred Stock.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the DGCL, the Company's Amended and Restated Certificate of
Incorporation provides that no director of the Company will be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of the directors' duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or involving intentional misconduct or a knowing violation of
law, (iii) with respect to certain unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or
(iv) for any transaction from which the director derives any improper personal
benefit. In addition, the Company's Bylaws provide that the Company may
indemnify any director or officer, to the fullest extent permitted by the
DGCL, who was or is a party to any action or proceeding by reason of his or
her services to the Company.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the DGCL. In
general, Section 203 prohibits a public Delaware corporation from engaging in
a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. Generally, a "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested
41
<PAGE>
stockholder" is a person who, together with his affiliates and associates,
owns (or within three years, did own) 15% or more of a corporation's voting
stock. The statute could have the effect of delaying, deferring or preventing
a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
6,094,118 shares of Common Stock. Of these shares, the 2,000,000 shares sold
in this offering will be freely transferable by persons other than
"affiliates" of the Company without restriction or further registration under
the Securities Act. The remaining 4,094,118 shares of Common Stock
outstanding, 4,000,000 of which are owned by Alchut and a maximum of 94,118 of
which will be issued in connection with the acquisition of AEMI, are
"restricted securities" ("Restricted Shares") within the meaning of Rule 144
under the Securities Act and may not be sold unless registered under the
Securities Act or an exemption from registration is available, including the
exemption afforded by Rule 144.
Alchut and the Company's executive officers and directors have entered into
"lock-up" agreements with the Representatives of the Underwriters pursuant to
which neither Alchut nor such persons will, directly or indirectly, offer,
sell, contract to sell, pledge, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent
of the Representatives, other than in certain private transactions in which
each transferee acquiring an interest in such Common Stock during such 180-day
period agrees in writing to be bound by such agreement. After such 180-day
period, the 4,000,000 shares of Common Stock held by Alchut will be eligible
for sale in the public market in reliance upon Rule 144 subject to the
restrictions contained therein. The stockholders of AEMI have agreed with the
Company that they will not offer, sell or otherwise dispose of the maximum of
94,118 shares of Common Stock issued in connection with the acquisition of
AEMI for a period of two years after the closing date of such acquisition.
After such two-year period, the maximum of 94,118 shares held by such
stockholders will be eligible for sale under Rule 144 subject to the
restrictions contained therein. After 180 days from the date of this
Prospectus, the Company intends to register under the Securities Act 800,000
shares of Common Stock reserved for awards under the Company's Incentive Plan.
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose shares are aggregated) who has beneficially
owned Restricted Shares for at least one year but less than two years is
entitled to sell, commencing 90 days after the date of this Prospectus, within
any three-month period a number of shares that does not exceed the greater of
one percent of the then outstanding shares of Common Stock (60,941 shares
immediately after the completion of this offering) or the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 also are subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not an "affiliate" of
the Company at any time during the three months preceding a sale, and who has
beneficially owned Restricted Shares for at least two years, is entitled to
sell such shares under Rule 144(k) without regard to the limitations described
above.
Since there has been no public market for the Company's shares of the Common
Stock, the Company is unable to predict the effect that sales made pursuant to
Rule 144 or otherwise may have on the prevailing market price at such times
for shares of the Common Stock. Nevertheless, sales of a substantial amount of
the Common Stock in the public market, or the perception that such sales could
occur, could adversely affect market prices. See "Risk Factors -- Shares
Eligible for Future Sale."
Under the Company's Incentive Plan, the Company has granted, effective upon
the completion of this offering, options to purchase 492,300 shares of Common
Stock at the Offering Price. By their terms, these options are not exercisable
until 24 months after the completion of this offering. In addition, there are
307,700 shares available for options which the Company may grant in the future
under the Incentive Plan.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters") have severally agreed to
purchase from the Company the number of shares of Common Stock set forth
opposite their respective names in the table below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Pennsylvania Merchant Group Ltd.............................
Unterberg Harris............................................
---------
Total................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The nature of the Underwriters'
obligation is such that they are committed to purchase all shares of Common
Stock offered hereby if any of such shares are purchased.
The Company has been advised by the Underwriters, for whom Pennsylvania
Merchant Group Ltd and Unterberg Harris are acting as representatives (the
"Representatives"), that the Underwriters propose initially to offer the
shares of Common Stock directly to the public at the Offering Price set forth
on the cover page of this Prospectus and to certain dealers (which may include
Underwriters) at such public offering price less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may reallow, a
discount not to exceed $ per share in sales to certain other dealers. After
the public offering, the public offering price and concessions and discounts
may be changed by the Representatives.
Alchut has granted to the Underwriters an option, exercisable not later than
30 business days after the date of this Prospectus, to purchase up to an
additional 300,000 shares of Common Stock to cover over allotments, at the
Offering Price less the underwriting discounts and commissions set forth on
the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by it shown in the table above bears to the
number of shares of Common Stock offered hereby, and Alchut will be obligated
pursuant to the option to sell such shares to the Underwriters. The
Underwriters may exercise the option only for the purposes of covering over-
allotments, if any, made in connection with the distribution of the shares of
Common Stock to the public.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of shares of the Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Upon the completion of this offering, Alchut and the Company's directors and
executive officers have agreed not to sell, offer to sell, contract to sell or
otherwise dispose of any of its shares of Common Stock or any other security
convertible into or exchangeable for, or options or warrants to purchase or
acquire, shares of Common Stock without the prior written consent of the
Representatives for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed not to sell, issue, contract to sell, offer
to sell or
44
<PAGE>
otherwise dispose of any shares of Common Stock or any other security
convertible into or exchangeable for shares of Common Stock without the prior
written consent of the Representatives during the same period, subject to
certain exceptions including the issuance and sale of Common Stock or
securities convertible into or exchangeable for Common Stock in connection
with acquisitions and of the grant of options under the Incentive Plan. See
"Shares Eligible For Future Sale."
Prior to this offering, there has been no public market for the Common
Stock. The market prices to the public will be determined by negotiations
between the Company and the Representatives. The factors to be considered in
determining such public offering price will include the Company's historical
and pro forma operations, the industry in which the Company operates, the
Company's prospects, assets, earnings, financial condition and management and
the market prices for securities of companies in businesses similar to that of
the Company.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or the effecting of any purchase for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with this offering. A penalty bid means an
arrangement that permits the Underwriters to reclaim a selling concession
otherwise accruing to an Underwriter or a syndicate member in connection with
this offering when shares of Common Stock sold by such Underwriter or
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
The Company has agreed to pay the Representatives a non-accountable expense
allowance of $100,000 at closing.
One or more of the Underwriters have informed the Company that they
currently intend to make a market in the Common Stock subsequent to the date
of this Prospectus, but there can be no assurance that an active trading
market will develop or continue after this offering.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Blank Rome Comisky & McCauley, Philadelphia, Pennsylvania. Certain
legal matters will be passed upon for the Underwriters by Duane, Morris &
Heckscher, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of ORBIT/FR, Inc. at December 31, 1995
and 1996, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and in the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Flam & Russell, Inc. at June 30, 1995 and June
28, 1996, and for each of the three years in the period ended June 28, 1996,
appearing in this Prospectus and in the Registration Statement have been
audited by Messina, Ceci, Archer & Company, P.C., independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
45
<PAGE>
AVAILABLE INFORMATION
A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Common Stock offered hereby has been filed
by the Company with the Commission, Washington D.C. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement and exhibits and schedules filed as a part thereof. A
copy of the Registration Statement may be inspected by anyone without charge
at the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of prescribed fees. The Commission maintains a Web Site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web Site is
http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of this offering, the Company will be subject to the
informational requirements of the Exchange Act. So long as the Company is
subject to periodic reporting requirements of the Exchange Act, it will
continue to furnish the reports and other information required thereby to the
Commission. The Company will furnish to its stockholders annual reports
containing consolidated financial statements audited by its independent
auditors and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information.
46
<PAGE>
GLOSSARY
Anechoic chamber -- An enclosure that has been fitted with materials that
absorb electromagnetic waves. Anechoic chambers provide an interference-free
environment for microwave test and measurement systems.
BIRD -- Binational Research and Development Foundation. An Israeli-American
organization that funds research and development work conducted by Israeli-
American companies. Sales of products developed with BIRD funds are, under
certain circumstances, subject to royalties.
Chief Scientist Program -- A program sponsored by the Israeli government in
which export-oriented Israeli companies can apply for research and development
grants.
Compact range -- A compact range relies on a highly accurate machined
parabolic reflector to create a planar radiated electromagnetic wave. A
spherical wave radiating from the transmit antenna strikes the parabola and is
reflected as a planar wave toward the receive antenna. Since the receive
antenna sees a planar wave, the collected data can be analyzed using standard
far-field methods. A compact range system offers a primary benefit of far-
field testing (i.e. no complex mathematical transformations) as well as one of
the main benefits of near-field testing (i.e. indoor range). Compact range
systems are generally more expensive than standard far-field or near-field
systems.
Far-Field -- A microwave measurement is said to be conducted in the far-
field when the distance between the transmitting antenna and the receiving
antenna is large enough that planar electromagnetic waves reach the receiving
antenna. In other words, the distance between the two antennas is far enough
that the transmitting antenna's spherical radiation has become practically
planar. Under certain conditions far-field measurements can be taken in an
indoor test chamber (e.g. electrically small antenna and/or low frequencies).
However, the more versatile far-field facilities use large outdoor test
ranges. A majority of the Company's far-field test and measurement systems are
used on outdoor test ranges.
Frequency -- The number of waves transmitted each second.
GPS -- Global Positioning System. A digital geographic positioning system
incorporating a network of geo-stationary satellites and mobile earth-based
receivers. GPS technology is being used for land, air and sea-based direction-
finding and locator systems.
Microwave -- Electromagnetic waves with frequencies ranging from 3 GHz to 30
GHz. For simplicity, the Company has used the word "microwave" in this
Prospectus to describe waves throughout the radio frequency (RF) spectrum.
Near-Field -- A measurement is said to be conducted in the near-field when
the receiving antenna is within close proximity to the transmitting antenna
such that the measured electromagnetic waves retain their spherical
characteristics. Using proven, stable algorithms, near-field software
mathematically translates measured near-field data into data which is
equivalent to that which would be collected on a larger far-field range.
Because near-field data can be collected with only a very short distance
between the transmit and receive antennas, near-field systems can always be
installed in indoor test chambers. This is a significant benefit given that
indoor chambers provide a "cleaner" electromagnetic and meteorological test
environment. Near-field systems can also incorporate diagnostic tools for use
on certain complex microwave products such as satellite antennas, a feature
that far-field systems do not offer.
PCS -- Personal Communication Systems. Digital wireless ground-based
personal voice and data communication services.
Radome -- A radome is a dome-shaped casing that is placed on the leading
edge of an aircraft or missile to protect the radar and direction-finding
equipment. A radome is typically manufactured using fiberglass or other
47
<PAGE>
materials that are transparent to microwave signals. Testing is performed
periodically to ensure that microwave signals are not deflected as they pass
through the radome.
RCS -- Radar Cross Section. The radar "signature" of an aircraft or missile.
RCS measurement techniques record and analyze the electromagnetic reflectivity
of an aircraft or missile (or a scale model thereof), and then quantify and
qualify that object's RCS.
RPC -- Radial Power Combiner. A solid-state device that adds several
identical low-energy signals together to make a single high-energy signal.
RPCs have many uses, but their most common application is in microwave
transmitters.
SBIR -- Small Business Innovative Research. A program sponsored by the
United States government under which companies with fewer than 500 employees
can obtain project-specific research and development grants.
Shielded enclosure -- A room or chamber designed to prevent the entry or
escape of electromagnetic energy.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ORBIT/FR, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995, and 1996.................................................... F-4
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1994, 1995 and 1996........................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
FLAM & RUSSELL, INC. FINANCIAL STATEMENTS
Independent Auditor's Report............................................. F-17
Balance Sheets as of June 30, 1995 and June 28, 1996..................... F-18
Statements of Income for the years ended July 1, 1994, June 30, 1995 and
June 28, 1996........................................................... F-19
Statements of Changes in Stockholders' Equity for the years ended July 1,
1994, June 30, 1995 and June 28, 1996................................... F-20
Statements of Cash Flows for the years ended July 1, 1994, June 30, 1995
and June 28, 1996....................................................... F-21
Notes to Financial Statements............................................ F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholder and Board of Directors
ORBIT/FR, Inc.
We have audited the accompanying consolidated balance sheets of ORBIT/FR,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of operations, stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of ORBIT/FR, Inc. at December 31, 1995 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 12, 1997
F-2
<PAGE>
ORBIT/FR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 775,732 $ 325,039
Accounts receivable.................................... 2,053,907 4,864,415
Inventory.............................................. 2,503,212 2,241,234
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 846,865 573,345
Deferred income taxes.................................. 112,000 381,500
Other.................................................. 134,348 206,063
---------- ----------
Total current assets................................. 6,426,064 8,591,596
Property and equipment, net............................. 373,355 994,280
Purchased software, less accumulated amortization of
$35,228................................................ -- 317,050
---------- ----------
Total assets............................................ $6,799,419 $9,902,926
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable....................................... $ 394,502 $ 671,051
Accounts payable -- Parent............................. 183,610 1,051,683
Accrued expenses....................................... 584,195 1,551,813
Income taxes payable................................... 109,253 72,667
Customer advances...................................... 195,000 359,000
Billings in excess of costs and estimated earnings on
uncompleted contracts................................. 717,377 931,664
Deferred income taxes.................................. 367,000 683,500
---------- ----------
Total current liabilities............................ 2,550,937 5,321,378
Note payable to Parent.................................. 3,220,000 2,722,000
Stockholder's equity:
Preferred stock: $.01 par value:
Authorized shares -- 2,000,000
Issued and outstanding shares -- none
Common stock: $.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 4,000,000............ 40,000 40,000
Additional paid-in capital............................. (29,744) 450,256
Retained earnings...................................... 968,226 1,369,292
Parents equity in division............................. 50,000 --
---------- ----------
Total stockholder's equity........................... 1,028,482 1,859,548
---------- ----------
Total liabilities and stockholder's equity........... $6,799,419 $9,902,926
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Contract revenues......................... $7,127,810 $7,957,033 $10,267,319
Commission revenues....................... 43,098 341,896 136,857
---------- ---------- -----------
Total revenues.......................... 7,170,908 8,298,929 10,404,176
Cost of revenues.......................... 5,265,002 5,445,607 6,450,177
---------- ---------- -----------
Gross profit............................... 1,905,906 2,853,322 3,953,999
Operating expenses:
General and administrative................ 988,605 864,023 1,314,684
Sales and marketing....................... 785,851 994,010 790,573
Research and development.................. 237,456 239,370 581,266
---------- ---------- -----------
Total operating expenses................ 2,011,912 2,097,403 2,686,523
---------- ---------- -----------
Operating income (loss).................... (106,006) 755,919 1,267,476
Other income (expense):
Interest income........................... 37,349 36,826 23,024
Interest expense.......................... -- -- (19,062)
Other..................................... 33,745 1,518 (1,372)
---------- ---------- -----------
Total other income (expense)............ 71,094 38,344 2,590
---------- ---------- -----------
Income (loss) before income taxes.......... (34,912) 794,263 1,270,066
Income tax (benefit) expense............... (119,000) 301,000 439,000
---------- ---------- -----------
Net income................................. $ 84,088 $ 493,263 $ 831,066
========== ========== ===========
Net income per common share................ $ .02 $ .12 $ .21
========== ========== ===========
Weighted average number of common shares... 4,000,000 4,000,000 4,000,000
========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- ADDITIONAL PARENT'S TOTAL
NUMBER OF PAID-IN RETAINED EQUITY IN STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS DIVISION EQUITY
--------- ------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 4,000,000 $40,000 $(29,744) $ 604,875 $(164,000) $ 451,131
Net income............. -- -- -- (217,912) 302,000 84,088
--------- ------- -------- ---------- --------- ----------
Balance, December 31,
1994................... 4,000,000 40,000 (29,744) 386,963 138,000 535,219
Net income............. -- -- -- 581,263 (88,000) 493,263
--------- ------- -------- ---------- --------- ----------
Balance, December 31,
1995................... 4,000,000 40,000 (29,744) 968,226 50,000 1,028,482
Net income............. -- -- -- 401,066 430,000 831,066
Parent's equity in
division contributed to
paid-in capital........ -- -- 480,000 -- (480,000) --
--------- ------- -------- ---------- --------- ----------
Balance, December 31,
1996................... 4,000,000 $40,000 $450,256 $1,369,292 $ -- $1,859,548
========= ======= ======== ========== ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 84,088 $ 493,263 $ 831,066
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation.......................... 107,965 119,716 179,985
Amortization.......................... -- -- 35,228
Deferred income tax (benefit)
provision............................ (367,000) 216,000 210,000
Allowance for anticipated losses on
uncompleted contracts................ 144,500 (144,500) --
Changes in operating assets and
liabilities (net of effects of
acquisition):
Accounts receivable.................. (1,559,700) 482,459 (2,321,724)
Inventory............................ (2,344,738) 55,586 627,001
Costs and estimated earnings in
excess of billings on uncompleted
contracts........................... (579,053) (11,809) 420,674
Other assets......................... (37,475) (26,356) (56,917)
Accounts payable and accrued
expenses............................ 713,796 29,874 205,138
Accounts payable -- Parent........... 1,543,504 (1,730,175) 868,073
Income taxes payable................. 127,361 (113,375) (64,259)
Customer advances.................... -- 195,000 164,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts........................... 365,550 144,664 21,122
----------- ----------- -----------
Net cash (used in) provided by
operating activities............... (1,801,202) (289,653) 1,119,387
Cash flows from investing activities:
Purchase of property and equipment..... (408,147) (128,352) (348,910)
Purchase of net assets through
acquisition of Flam & Russell, Inc.,
net of cash acquired.................. -- -- (573,170)
----------- ----------- -----------
Net cash used in investing
activities......................... (408,147) (128,352) (922,080)
Cash flows from financing activities:
Borrowings on line of credit........... -- -- 1,150,000
Repayments of line of credit........... -- -- (1,300,000)
Net proceeds (repayments) from note
payable to Parent..................... 2,965,000 91,000 (498,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... 2,965,000 91,000 (648,000)
----------- ----------- -----------
Net increase (decrease) in cash......... 755,651 (327,005) (450,693)
Cash at beginning of year............... 347,086 1,102,737 775,732
----------- ----------- -----------
Cash at end of year..................... $ 1,102,737 $ 775,732 $ 325,039
=========== =========== ===========
Supplemental disclosures of cash flow
information
Cash paid during the year for income
taxes................................. $ 107,374 $ 309,353 $ 75,033
=========== =========== ===========
Cash paid during the year for
interest.............................. $ -- $ -- $ 16,238
=========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ownership and Basis of Presentation
ORBIT/FR, Inc. (the "Company"), incorporated in Delaware on December 9,
1996, is a wholly-owned subsidiary of Orbit-Alchut Technologies, Ltd., an
Israeli publicly traded corporation (hereinafter referred to as the Parent).
The Company develops, markets and supports sophisticated automated microwave
test and measurement systems for wireless communications, satellite,
automotive and aerospace/defense industries. The Company also is a distributor
of certain systems, which are manufactured by the Parent which has provided
the Company with all of its commission revenues. During the first half of
1997, the Company will phase out its sales arrangement with the Parent for the
distribution of such systems. The Company sells its products to customers
throughout the western hemisphere, the Pacific Rim and Israel (Note 8).
On December 31, 1996, as part of a corporate restructuring and in exchange
for 4,000,000 shares of the Company, the Parent transferred or caused to be
transferred to the Company, all of its issued and outstanding shares of two of
its subsidiaries, Orbit Advanced Technologies, Inc. ("Technologies"), a
Delaware corporation established in 1985, and Orbit F.R. Engineering, Ltd.
("Engineering"), an Israeli company incorporated on December 29, 1996. Both of
these subsidiaries are responsible for the microwave test and measurement
business. Prior to its incorporation on December 29, 1996, Engineering
operated as a separate division of the Parent (see Related Party Transactions
in Note 5). Effective January 1, 1997, the personnel formerly employed in the
microwave test and measurement division of the Parent are employed by
Engineering.
The consolidated results of the Company reflect Technologies and Engineering
on an as-if pooled basis for businesses under common control for all periods
presented. Further, the recapitalization of these businesses on December 31,
1996 has retroactively been restated for common stock for all periods
presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries (Note 13). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventory
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on
accelerated methods for both financial reporting and income tax purposes over
the estimated useful lives as follows: office equipment -- 5-7 years; lab
equipment -- 5 years; furniture and fixtures -- 7 years; transportation
equipment -- 5 years; leasehold improvements -- 5 years.
F-7
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchased Software
Purchased software was acquired in connection with the acquisition described
in Note 13 and is being amortized on a straight-line basis over five years.
Revenue and Cost Recognition
The Company's principal sources of contract revenues are from engineering
and design services and the production of electro-mechanical equipment.
Revenues from long-term fixed-price development contracts performed
principally under the Company's control are recognized on the percentage-of-
completion method, measured by the percentage of costs incurred to date to
estimated total costs for each contract when such costs can be reasonably
estimated. Contract costs include all direct material, labor and subcontractor
costs and those indirect costs related to contract performance such as
indirect labor, supplies and tool costs. General and administrative costs are
charged to expense as incurred. Changes in job performance, job conditions,
and estimated profitability, including those arising from contract penalty
provisions and final contract settlements may result in revisions to costs and
revenue and are recognized in the period in which the revisions are
determined. Revenues from electro-mechanical equipment sold to customers which
are not part of a larger contract are recognized when the contract is
substantially completed. 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 received from clients in excess of
revenues recognized to date are classified under current liabilities as
billings in excess of costs and estimated earnings on uncompleted contracts.
Research and Development
Internally funded research and development costs are charged to operations
as incurred. Included in cost of revenues is customer funded research and
development costs of approximately $472,000, $482,000, and $520,000 for the
years ended December 31, 1994, 1995, and 1996, respectively.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist principally of accounts receivable and
cash. To reduce credit risk relating to the Company's sales in the U.S. and
overseas, the Company performs ongoing credit evaluations of its commercial
customers' financial condition, but generally does not require collateral for
government and domestic commercial customers. For its foreign commercial
customers, the Company generally requires irrevocable letters of credit in the
amount of the total contract. At December 31, 1996, irrevocable letters of
credit were posted for three of the Company's foreign customers.
Warranty Expense
The Company provides for warranty costs on sales of its own product. Product
warranty periods vary, but generally extend for one year from the date of
sale.
Income Taxes
The Company uses the liability method to account for income taxes.
Accordingly, deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts reportable for income tax
purposes. The Company files a consolidated federal income tax return with its
domestic subsidiaries.
F-8
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
The Company's foreign operations' functional currency is the U.S. dollar.
Foreign currency transaction gains and losses, which are not material, are
recognized currently in the consolidated statements of operations.
For the year ended December 31, 1996, approximately 8% of the Company's
revenue was billed in currencies other than the U.S. dollar. Substantially all
of the costs of the Company's contracts, including costs subcontracted to the
Parent, have been U.S. dollar denominated transactions.
Net Income Per Share
Net income per share is computed using the weighted average number of common
shares outstanding during the period. The common shares outstanding for all
periods have been restated to reflect the corporate restructuring described in
Note 1.
Long-Lived Assets
During the year ended December 31, 1996, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of." SFAS 121 did not have an impact on the Company's financial
condition or results of operations.
Accounting for Stock Options
During the year ended December 31, 1996, the Company adopted the Financial
Accounting Standards Board Statement No. 123 (SFAS 123), "Accounting for Stock
Based Compensation." SFAS No. 123 provides companies with a choice to follow
the provision of SFAS No. 123 in the determination of stock-based compensation
expenses or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company will continue to follow APB 25 and will
provide pro forma disclosures as required by SFAS No. 123. SFAS 123 did not
have an impact on the Company's financial condition or results of operations.
2. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Work-in-process..................................... $1,600,000 $1,211,000
Parts and components................................ 903,212 1,030,234
---------- ----------
$2,503,212 $2,241,234
========== ==========
</TABLE>
F-9
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- ----------
<S> <C> <C>
Office equipment..................................... $364,812 $ 656,432
Lab and computer equipment........................... 188,367 667,430
Transportation equipment............................. 111,359 163,161
Furniture and fixtures............................... 57,161 44,359
Leasehold improvements............................... 12,915 4,142
-------- ----------
734,614 1,535,524
Less accumulated depreciation........................ 361,259 541,244
-------- ----------
Property and equipment, net.......................... $373,355 $ 994,280
======== ==========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- ----------
<S> <C> <C>
Accrued compensation................................. $371,330 $ 435,930
Accrued contract costs............................... 41,676 413,430
Purchase price payable relating to Flam & Russell.... -- 275,000
Accrued commissions.................................. -- 92,128
Accrued royalties.................................... 21,072 87,185
Accrued warranty..................................... 15,000 81,000
Other accrued expenses............................... 135,117 167,140
-------- ----------
$584,195 $1,551,813
======== ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The financial results of Engineering include all contract revenue of the
microwave test and measurement business unit of the Parent, direct contract
costs, direct personnel costs, electrical and mechanical production services
in an amount equal to the Parent's cost of providing such services plus 5% and
pro rata allocations of administrative expenses from the Parent to
Engineering. Such allocations of administrative expenses are based on
management's estimate of the level of these expenses required to support
Engineering, relative to the reasonable allocation of such costs. Interest
expense on intercompany debt has not been provided. The average balance of the
intercompany debt for the three years ended December 31, 1996 was
approximately $3.0 million. Income taxes for Engineering are in accordance
with the statutory rates in Israel net of adjustments allowable under local
law. The Parent's equity in division of Engineering has been reflected as a
contribution of additional paid-in capital upon its incorporation on December
29, 1996.
Note payable -- Parent reflects the amount due to the Parent for the net
working capital required by Engineering. At December 31, 1996, the balance of
$2,722,000 was converted into a three year, non-interest bearing promissory
note payable due in 1999.
Included in cost of revenues for the years ended December 31, 1994, 1995,
and 1996 are approximately $1,492,000, $1,423,000, and $1,496,000,
respectively, relating to the production services provided by the Parent.
F-10
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commission revenue results from amounts earned as a distributor of certain
systems manufactured by the Parent. Accounts payable -- Parent reflects the
balance outstanding relating to these transactions with the Parent.
Effective January 1, 1997, Engineering and the Parent entered into an
agreement, whereby Engineering will purchase from the Parent electrical and
mechanical production services. Engineering will pay the Parent the cost of
providing such services plus 5%. The Parent will provide other administrative
services, including but not limited to, bookkeeping, computer, legal,
accounting, cost management, information systems, and production support for a
fixed amount of $360,000 during 1997. This amount will be evaluated and
determined on an annual basis. Engineering is leasing office space from the
Parent on an annual basis, for a rental of $51,000 per year.
6. LINE OF CREDIT AGREEMENTS
The Company has a $1,000,000 line of credit with a bank of which the entire
amount is available at December 31, 1995 and 1996, respectively. The line is
renewable annually in April and bears interest at .5% over the banks prime
rate (8.75% at December 31, 1996). The line is secured by accounts receivable
and requires a compensating cash balance of 50% of the outstanding amount of
the line. At December 31, 1996, $500,000 was not available to the Company as
it was being held for a letter of credit (Note 13).
The Company also has a $150,000 line of credit with a bank of which the
entire amount is available at December 31, 1996. The line is renewable
annually in April and bears interest at 1.5% over the bank's prime rate (9.75%
at December 31, 1996). The line is secured by accounts receivable.
7. COMMITMENTS
The Company leases its operating facilities and certain equipment under
noncancelable operating lease agreements which expire in various years through
1999. Rent expense for the years ended December 31, 1994, 1995, and 1996 was
approximately $43,000, $48,000, and $120,000, respectively. Future minimum
payments under noncancelable operating leases with initial terms of one year
or more is as follows at December 31, 1996: $179,000 in 1997; $45,000 in 1998;
$9,500 in 1999 and $2,500 in 2000. Subsequent to December 31, 1996 the Company
entered into a sublease agreement for one of its operating facilities. Future
minimum rentals to be received under this sublease are as follows: $37,000 in
1997; $44,000 in 1998 and $7,400 in 1999.
8. CERTAIN CONCENTRATIONS
The Company's contract revenues were concentrated in the following markets
and geographic regions as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
United States
Commercial.............................................. 55% 20% 37%
Government.............................................. 10 12 11
--- --- ---
65 32 48
Foreign
Commercial.............................................. 24 58 45
Government.............................................. 11 10 7
--- --- ---
35 68 52
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
F-11
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in the consolidated balance sheets at December 31, 1995 and 1996
are net assets of the Company's foreign subsidiary, Engineering, which
aggregated $50,000 and $480,000, respectively.
9. INCOME TAXES
Pretax income (loss) from continuing operations for the years ended December
31 was taxed in the following jurisdictions:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Domestic................................. $(356,912) $ 990,263 $ 678,066
Foreign.................................. 322,000 (196,000) 592,000
--------- --------- ----------
$ (34,912) $ 794,263 $1,270,066
========= ========= ==========
</TABLE>
The Company has indicated that all profits of Engineering, its Israeli
subsidiary, are permanently invested overseas.
The tax effects of temporary differences that give rise to a significant
portion of deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Operating loss and credit carryforwards.......... $ -- $ 313,600
Allowance for losses on contracts................ 60,000 8,100
Accrued compensation............................. 45,000 53,700
Other............................................ 7,000 6,100
--------- ---------
Total deferred tax assets........................ 112,000 381,500
--------- ---------
Deferred tax liabilities:
Accounting for long-term contracts............... (352,000) (393,500)
Prepaid and other................................ (15,000) (55,000)
Purchase accounting basis differences............ -- (235,000)
--------- ---------
Total deferred tax liabilities..................... (367,000) (683,500)
--------- ---------
Net deferred tax liabilities....................... $(255,000) $(302,000)
========= =========
</TABLE>
Deferred tax assets arise from net operating losses of approximately
$395,000 and tax credits of approximately $142,000 which the Company acquired
in its acquisition of Flam & Russell, Inc. (Note 13). The tax benefit of these
losses and credits may be limited both in time and amount due to limitations
imposed by Section 382 of the Internal Revenue Code. Net operating loss and
credit carryforwards expire during various dates from 1999 through 2011.
F-12
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Current
Federal................................. $ 163,000 $ 138,000 $ 67,000
State................................... 65,000 55,000 --
Foreign................................. 20,000 (108,000) 162,000
--------- --------- --------
248,000 85,000 229,000
Deferred
Federal................................. (261,000) 163,000 141,000
State................................... (106,000) 53,000 69,000
Foreign.................................
--------- --------- --------
(367,000) 216,000 210,000
--------- --------- --------
Total income tax (benefit) expense........ $(119,000) $ 301,000 $439,000
========= ========= ========
</TABLE>
A reconciliation of income tax (benefit) expense at the U.S. Federal
statutory tax rate and the actual income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Statutory U.S. Federal rate................ $ (12,000) $270,000 $432,000
State taxes, net........................... (31,000) 71,000 47,000
Foreign rate difference.................... (89,000) (41,000) (39,000)
Other, net................................. 13,000 1,000 (1,000)
--------- -------- --------
$(119,000) $301,000 $439,000
========= ======== ========
</TABLE>
10. RESEARCH AND DEVELOPMENT
Prior to 1994, the Company received research and development funding from
the Binational Industrial Research and Development Foundation ("BIRD") and the
Chief Scientist of the Ministry of Industry and Trade ("Chief Scientist").
Under terms of the BIRD grants, the Company is obligated to repay 100% to 150%
of the funding received at rates ranging from 2 1/2% to 5% of the annual sales
of the product developed under the grants. For the years ended December 31,
1994, 1995 and 1996, royalties under this program were approximately $41,000,
$42,000 and $39,000, respectively. At December 31, 1996, the Company had an
outstanding contingent obligation to BIRD in the amount of $34,000. Under the
terms of the Chief Scientist grant, the Company is obligated to pay royalties
at a rate of 2% of revenues generated from the sale of certain products up to
the amount of the grant. For the years ended December 31, 1994, 1995 and 1996,
royalties under this program were approximately $64,000, $64,000 and $78,000,
respectively. At December 31, 1996, the Company had an outstanding contingent
obligation to the Chief Scientist of $976,000.
11. RETIREMENT PLAN
The Company has 401(k) savings plans which cover substantially all U.S.
employees who have attained the age of 21 and have completed 12 months of
service. Eligible employees make voluntary contributions to the plans up to
specified percentages of their annual compensation as defined in the plans.
Under the plans, the
F-13
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company makes discretionary matching contributions determinable each plan year
and additional contributions based on annual eligible compensation for each
participant. The plans are funded on a current basis. For the years ended
December 31, 1994, 1995 and 1996, the Company's contributions to the plans
were $8,000, $1,000 and $18,000, respectively.
12. LONG-TERM CONTRACTS
Long-term contracts in process accounted for using the percentage of
completion method are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- -----------
<S> <C> <C>
Accumulated expenditures on uncompleted
contracts..................................... $4,567,586 $ 8,913,893
Estimated earnings thereon..................... 647,941 1,031,484
---------- -----------
5,215,527 9,945,377
Less: applicable progress billings............. 5,086,039 10,303,696
---------- -----------
Total.......................................... $ 129,488 $ (358,319)
========== ===========
</TABLE>
The long-term contracts are shown in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Costs and estimated earnings on uncompleted
contracts in excess of billings................. $ 846,865 $ 573,345
Billings on uncompleted contracts in excess of
costs and estimated earnings.................... (717,377) (931,664)
--------- ---------
$ 129,488 $(358,319)
========= =========
</TABLE>
At December 31, 1995 and 1996, as a result of delays and other production
and delivery difficulties, the Company has provided for $10,000 and $20,000,
respectively, of anticipated losses on contracts in process and nearing
completion. These amounts are included in accrued expenses at December 31,
1995 and 1996.
13. ACQUISITION OF FLAM & RUSSELL, INC.
On June 28, 1996, the Company acquired 100% of the outstanding stock of Flam
& Russell, Inc. (Flam & Russell) for cash of approximately $768,000, including
direct acquisition costs of $74,900. The purchase agreement also provided for
contingent payments, subject to offsets, over a two-year period. At December
31, 1996, the Company had a letter of credit in the amount of $500,000 against
its line of credit (Note 6) relating to the contingent purchase price. In
March 1997, the Company reached a settlement on the contingent purchase price
for $275,000. Such amount has been provided for in accrued expenses as of
December 31, 1996.
The acquisition was accounted for as a purchase. The results of operations
from June 29, 1996 through December 31, 1996 are included in the Company's
results of operations. The purchase price of approximately $1,043,000 has been
preliminarily allocated to the net assets acquired based upon their estimated
fair market values, principally as follows: $452,000 to property and
equipment, $352,000 to purchased software, $384,000 to deferred tax assets,
$249,000 to deferred tax liabilities and $104,000, net, to current assets and
liabilities.
F-14
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma information represents a summary of
consolidated results of operations of the Company and Flam & Russell for the
years ended December 31, 1995 and 1996, as if the acquisition had occurred at
the beginning of 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Total revenues.................................. $13,454,000 $13,816,000
=========== ===========
(Loss) income before extraordinary items........ $ (59,000) $ 789,000
=========== ===========
Net income...................................... $ 342,000 $ 789,000
=========== ===========
Net income per common share..................... $ .09 $ .20
=========== ===========
</TABLE>
14. STOCKHOLDER'S EQUITY
Common Stock
The holders of shares of Common Stock are entitled to one vote for each
share on record on any matters to be voted on by the stockholder. The holders
of Common Stock are entitled to receive dividends if declared by the Board of
Directors and to share ratably in the assets of the Company legally available
for distribution to its stockholders in the event of liquidation, dissolution
or winding-up of the Company. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights.
Preferred Stock
The Company's Board of Directors may, without further action by the
Company's stockholder, from time to time, direct the issuance of shares of
Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. The holders of Preferred
Stock would normally be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding-up of the Company before any
payment is made to the holders of the Common Stock. The issuance of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock or could adversely affect the
rights and powers, including voting rights, of the holders of Common Stock.
Stock Option Plan
During March 1997 the Board of Directors adopted, and the Company's
Stockholder approved, the Company's 1997 Equity Incentive Plan (the "Incentive
Plan"). The purposes of the Incentive Plan is to promote the long-term
retention of the Company's key employees and certain other persons who are in
a position to make significant contributions to the success of the Company.
The Incentive Plan permits grants of incentive stock options ("ISOs"), options
not intended to qualify as ISOs ("nonqualified options"), stock appreciation
rights ("SARs"), restricted, unrestricted and deferred stock awards,
performance awards, loans and supplemental cash awards, and combinations of
the foregoing (all referred to as "Awards").
The Incentive Plan provides for awards of 800,000 shares of the Company's
Common Stock of which 492,300 shares will be granted at the initial public
offering price and will vest over four years. Future shares will be granted at
the fair market value on the date of grant and will vest over four years.
F-15
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
15. EVENTS "UNAUDITED" SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS
In April 1997, the Board of Directors of the Company authorized the filing
of a Registration Statement with the Securities and Exchange Commission for
the offer and sale of up to 2,000,000 shares of its Common Stock.
On March 31, 1997, the Company entered into an agreement with Advanced
Electromagnetics, Inc., a California corporation ("AEMI"), pursuant to which
all of the issued and outstanding shares of AEMI will be sold to the Company,
contemporaneously with the completion of this offering, for up to $1.6
million, subject to adjustment based on AEMI's financial performance for the
three years ended March 31, 1997. One-half of the purchase price will be paid
in cash and the other half will be paid by issuance of shares of the Company's
Common Stock valued at the Offering Price.
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Flam & Russell, Inc.
Horsham Pennsylvania
We have audited the accompanying balance sheets of Flam & Russell, Inc. (a
wholly-owned subsidiary of Orbit Advanced Technologies, Inc.) as of June 30,
1995 and June 28, 1996 and the related statements of income, changes in
stockholders' equity and cash flows for each of the three fiscal years in the
period ended June 28, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Flam & Russell, Inc. as of
June 30, 1995 and June 28, 1996 and the results of its operations and its cash
flows for each of the three fiscal years in the period ended June 28, 1996 in
conformity with generally accepted accounting principles.
/s/ Messina, Ceci, Archer & Company,P.C.
August 2, 1996 (except as to Note P, which is as of March 14, 1997)
F-17
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 28,
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................... $ 58,499 $ 194,401
Accounts receivable, net of allowance of $6,228 in
1996............................................. 629,857 577,467
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 200,376 256,584
Inventories....................................... 677,202 365,023
Deferred income taxes............................. 7,500 --
Other current assets.............................. 5,482 17,237
---------- ----------
1,578,916 1,410,712
---------- ----------
Property and equipment............................. 270,801 185,431
---------- ----------
Other assets
Deferred income taxes............................. 56,820 --
Deposits.......................................... 2,433 1,298
---------- ----------
59,253 1,298
---------- ----------
$1,908,970 $1,597,441
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.................................. $ 381,348 $ 341,014
Notes payable..................................... 450,000 150,000
Billings in excess of costs and estimated earnings
on uncompleted contracts......................... 48,475 72,518
Customer advances................................. 97,700 2,538
Accrued expenses.................................. 132,500 119,842
Capital lease obligations......................... 31,081 32,568
Other current liabilities......................... 25,419 31,533
---------- ----------
1,166,523 750,013
---------- ----------
Other liabilities
Notes payable..................................... 650,000 --
Capital lease obligations......................... 50,402 17,834
---------- ----------
700,402 17,834
---------- ----------
Stockholders' equity
Common stock...................................... 75,900 116,700
Additional paid-in capital........................ 670,597 1,139,797
Accumulated deficit............................... (689,083) (410,112)
---------- ----------
57,414 846,385
Treasury stock, at cost........................... (15,369) (16,791)
---------- ----------
42,045 829,594
---------- ----------
$1,908,970 $1,597,441
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
STATEMENTS OF INCOME
PERIODS ENDED JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales..................................... $5,656,497 $5,863,918 $6,057,951
Cost of goods sold........................ 4,473,052 5,293,725 5,331,574
---------- ---------- ----------
Gross profit............................ 1,183,445 570,193 726,377
---------- ---------- ----------
Expenses
Bid and proposal........................ 718,642 651,727 330,536
Research and development................ 599,964 850,140 362,284
---------- ---------- ----------
1,318,606 1,501,867 692,820
---------- ---------- ----------
Income (loss) from operations............. (135,161) (931,674) 33,557
---------- ---------- ----------
Other income (expense)
Interest income......................... 6,768 4,051 8,989
Interest expense........................ (55,221) (32,814) (102,297)
Miscellaneous........................... 1,224 3,889 --
---------- ---------- ----------
(47,229) (24,874) (93,308)
---------- ---------- ----------
Loss before taxes and extraordinary
gains.................................... (182,390) (956,548) (59,751)
Benefit (provision) for income taxes...... 90,541 -- (64,320)
---------- ---------- ----------
Loss before extraordinary gains........... (91,849) (956,548) (124,071)
Extraordinary gains....................... -- 400,902 403,042
---------- ---------- ----------
Net income (loss)......................... $ (91,849) $ (555,646) $ 278,971
========== ========== ==========
Earnings (loss) per common share:
Loss before extraordinary gains......... $ (1.22) $ (12.94) $ (1.73)
Extraordinary gains..................... -- 5.42 5.62
---------- ---------- ----------
Net income (loss)....................... $ (1.22) $ (7.52) $ 3.89
========== ========== ==========
Common shares used in computing per share
amounts.................................. 75,200 73,925 71,675
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIODS ENDED JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY ACCUMULATED
STOCK CAPITAL STOCK DEFICIT TOTAL
-------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, July 2, 1993...... $ 75,900 $ 670,597 $ (2,925) $ (41,588) $701,984
Net loss.................. -- -- -- (91,849) (91,849)
-------- ---------- -------- --------- --------
Balance, July 1, 1994...... 75,900 670,597 (2,925) (133,437) 610,135
Purchase of 2,550 shares
of common stock for
treasury................. -- -- (12,444) -- (12,444)
Net loss.................. -- -- -- (555,646) (555,646)
-------- ---------- -------- --------- --------
Balance June 30, 1995...... 75,900 670,597 (15,369) (689,083) 42,045
Purchase of 1,950 shares
of common stock for
treasury................. -- -- (1,422) -- (1,422)
Conversion of trust debt
to common stock.......... 40,800 469,200 -- -- 510,000
Net income................ -- -- -- 278,971 278,971
-------- ---------- -------- --------- --------
Balance, June 28, 1996..... $116,700 $1,139,797 $(16,791) $(410,112) $829,594
======== ========== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
STATEMENTS OF CASH FLOWS
PERIODS ENDED JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................. $(91,849) $(555,646) $ 278,971
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation................................. 124,665 142,210 121,251
Deferred income taxes........................ (90,541) -- 64,320
Extraordinary gain........................... -- (400,902) (403,042)
Gain on sale of equipment.................... -- (2,057) --
Allowance for bad debts...................... -- -- 6,228
Interest converted to stock.................. -- -- 63,042
Changes in assets and liabilities:
Accounts receivable......................... (442,435) 206,629 46,163
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... 122,648 67,470 (56,208)
Inventories................................. (132,996) 56,913 312,179
Other assets................................ 64,739 16,212 (10,620)
Accounts payable............................ (85,531) 242,534 (40,334)
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... 127,854 (467,805) 24,043
Customer advances........................... -- 72,694 (95,162)
Accrued expenses............................ 12,416 20,800 (12,658)
Other liabilities........................... 38,279 7,985 6,114
-------- --------- ---------
Net cash provided (used) by operating
activities................................ (352,751) (592,963) 304,287
-------- --------- ---------
Cash flows from investing activities
Acquisition of property and equipment......... (180,166) (76,019) (35,881)
Proceeds from equipment sale.................. -- 5,948 --
-------- --------- ---------
Net cash used by investing activities...... (180,166) (70,071) (35,881)
-------- --------- ---------
Cash flows from financing activities
Purchase of treasury stock.................... -- (12,444) (1,422)
Repayment of notes payable.................... -- -- (300,000)
Repayment of capital leases................... -- (10,904) (31,082)
Increase in notes payable..................... -- 450,000 200,000
-------- --------- ---------
Net cash provided (used) by financing
activities................................ -- 426,652 (132,504)
-------- --------- ---------
Net increase (decrease) in cash............ (532,917) (236,382) 135,902
Cash at beginning of period................ 827,798 294,881 58,499
-------- --------- ---------
Cash at end of period...................... 294,881 $ 58,499 $ 194,401
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Flam and Russell, Inc.
(the Company) is presented to assist in the understanding of the financial
statements.
Organization and Nature of Operations
The Company was incorporated in the State of Delaware on July 8, 1980 and
became a wholly owned subsidiary of Orbit Advanced Technologies, Inc. on June
28, 1996. It is an engineering firm specializing in research, development, and
design services in the areas of microwave, antenna, and related technology.
The Company markets its product and services worldwide.
Use of Estimate
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could differ from those
estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the average cost method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
straight-line and accelerated methods over the estimated useful lives of the
assets.
Revenue Recognition
The Company accounts for certain contracts on the percentage-of-completion
method in which income is recognized in the ratio that costs incurred bears to
estimated total costs. Adjustments to cost estimates are made periodically,
and losses expected to be incurred on contracts in progress are charged to
operations in the period such losses are determined. The aggregate of costs
incurred and income recognized on uncompleted contracts in excess of related
billings is shown as a current asset, and the aggregate of billings on
uncompleted contracts in excess of related costs incurred and income
recognized is shown as a current liability.
Deferred Income Taxes
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. These differences related
principally to the Company recognizing revenue on the percentage of completion
method for financial reporting purposes and the completed contract method for
income tax purposes. Deferred taxes are also recognized for operating losses
that are available to offset future taxable income and tax credits that are
available to offset future federal income taxes.
NOTE B -- CREDIT RISK
The Company maintains cash deposits, at primarily one financial institution
that may at times exceed the $100,000 federally insured limits. At June 28,
1996, the Company has uninsured cash deposits of $119,042.
F-22
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
Concentration of credit with respect to trade accounts receivable include
amounts due from large foreign and nationally established corporations and
various government agencies in the high tech industry group. Credit is issued
under binding contracts to these companies and government agencies and
generally collateral is not required.
NOTE C -- UNCOMPLETED CONTRACTS
Cost, estimated earnings, and billings on uncompleted contracts are as
follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cost incurred on uncompleted contracts........ $ 2,784,473 $ 5,281,584
Estimated earnings............................ 317,679 330,829
Billings to date.............................. (2,950,251) (5,428,347)
----------- -----------
$ 151,901 $ 184,066
=========== ===========
Included in accompanying balance sheet under
the following captions:
Cost and estimated earnings in excess of
billings on uncompleted contracts............ $ 200,376 $ 256,584
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (48,475) (72,518)
----------- -----------
$ 151,901 $ 184,066
=========== ===========
</TABLE>
NOTE D -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Finished goods.......................................... $ -- $ 53,645
Work in progress........................................ 104,296 49,462
Raw materials........................................... 572,906 261,916
-------- --------
$677,202 $365,023
======== ========
</TABLE>
NOTE E -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and fixtures.......................... $ 83,409 $ 83,409
Office equipment................................ 110,392 113,402
Lab equipment................................... 647,508 672,336
Computer equipment.............................. 919,456 927,499
Automobiles..................................... 49,750 40,806
----------- -----------
1,810,515 1,837,452
Accumulated depreciation........................ (1,539,714) (1,652,021)
----------- -----------
$ 270,801 $ 185,431
=========== ===========
</TABLE>
F-23
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
Depreciation expense was $121,251, $142,210 and $124,665 for the three years
presented.
NOTE F -- NOTES PAYABLE
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Line of credit with a bank up to a maximum of
$750,000. Interest is payable monthly at prime
plus 3/4% (9.0% in 1996 and 9.75% in 1995).
Secured by substantially all the assets of the
Company and limited by 80% of acceptable accounts
receivable. In addition, the bank required a 5%
compensating balance totalling $37,500. The line
of credit was paid in full in July, 1996......... $ 450,000 $ 150,000
Promissory notes payable to Samuel T. Russell
Revocable Trust (the "Trust"), a related entity,
ranging from $50,000 to $200,000, with interest
at 8%. These notes were to mature on various
dates from July 22, 1997 through July 9, 1998.... 650,000 --
---------- ---------
1,100,000 150,000
Current portion................................... (450,000) (150,000)
---------- ---------
Long-term debt.................................... $ 650,000 $ --
========== =========
</TABLE>
During 1995, the accrued interest of $400,902 on the Trust note was forgiven
as discussed in Note K.
On June 28, 1996, with the approval of the Board of Directors, the Trust note
plus accrued interest was converted into stock, and the remainder was recorded
as an extraordinary gain as discussed in Note K.
NOTE G -- TAXES
The benefit from (provision for) income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ---- --------
<S> <C> <C> <C>
Federal
Current.......................................... $ -- $ -- $ --
Deferred......................................... 78,592 -- (25,300)
------- ---- --------
78,592 -- (25,300)
------- ---- --------
State
Current.......................................... -- -- --
Deferred......................................... 11,949 -- (39,020)
------- ---- --------
11,949 -- (39,020)
------- ---- --------
$90,541 $ -- $(64,320)
======= ==== ========
</TABLE>
F-24
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
A reconciliation of the income tax benefit (provision) at the federal
statutory rate to the income tax benefit (provision) at the effective rate is
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Benefit (provision) computed at the
federal statutory rate................. $ 62,013 $ 188,920 $(94,850)
State taxes (net of federal benefit).... 15,047 45,841 (23,015)
Adjustment to estimated deferred rate... (30,322) (92,376) 46,379
Permanent differences................... -- 102,731 103,279
Change in valuation allowance........... -- (111,838) (89,709)
Reinstatement of Pennsylvania NOL
deduction.............................. -- (106,997) --
Other individually immaterial items..... 43,803 (26,281) (6,404)
-------- --------- --------
$ 90,541 $ -- $(64,320)
======== ========= ========
</TABLE>
The components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory valuation................................ $ -- $ 52,617
Provision for bad debts............................ -- 1,503
Net operating losses............................... 199,663 133,268
Investment tax credits............................. 35,899 35,899
Research and development........................... 96,331 106,347
--------- ---------
331,893 329,634
Deferred tax liability:
Long-term contract................................. (46,159) (18,511)
--------- ---------
285,734 311,123
Less valuation allowance............................ (221,414) (311,123)
--------- ---------
Net deferred tax asset.............................. 64,320 --
Less short term portion............................. (7,500) --
--------- ---------
Long-term portion................................... $ 56,820 $ --
========= =========
</TABLE>
The Company has available at June 28, 1996, investment tax credits of
$35,899; research and development tax credits of $106,347; and net operating
loss carryforwards of approximately $402,000 for federal and $797,000 for
State of Pennsylvania. The tax credits and net operating losses will expire
through the year 2009 for federal and the year 1997 for the State of
Pennsylvania.
NOTE H -- RETIREMENT PLAN
The Company has a cash deferred savings plan covering substantially all its
employees. Employees with a minimum of one year of service during the plan
year are eligible to participate in the plan. This type of plan allows a
participating employee to contribute, and therefore defer, a portion of their
compensation up to eight percent each plan year. The Company matches employee
contributions up to a maximum of three percent of the employees' compensation.
The Company's contributions were $33,851, $66,952 and $65,546 for each of the
three periods ended.
F-25
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
NOTE I -- TREASURY STOCK
Treasury stock consists of Class A non-voting common stock and is as
follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------ -------
<S> <C> <C>
Balance, July 1, 1994...................................... 700 $ 2,925
Purchase................................................. 2,550 12,444
----- -------
Balance, June 30, 1995..................................... 3,250 15,369
Purchase................................................. 1,950 1,422
----- -------
Balance, June 28, 1996..................................... 5,200 $16,791
===== =======
</TABLE>
NOTE J -- COMMON STOCK
The Company's outstanding shares of common stock is comprised of the
following:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Class A -- nonvoting -- par value $1 per share, 20,000
shares authorized, 16,700 shares issued in 1996 and
13,400 issued in 1995.................................. 13,400 16,700
Class B -- voting -- par value $1 per share, 100,000
shares authorized, 100,000 shares issued in 1996 and
62,500 shares issued in 1995........................... 62,500 100,000
</TABLE>
NOTE K -- RELATED PARTY TRANSACTIONS AND EXTRAORDINARY GAIN
The Company has had certain transactions with the Trust. Prior to the
Company becoming a wholly owned subsidiary of Orbit Advanced Technologies,
Inc. certain stockholders of the Company were beneficiaries of the Trust.
On June 30, 1995, the trustees of the Trust agreed to waive and forgo the
payments of accrued interest through that date. This transaction resulted in
an extrordinary gain of $400,902.
On June 28, 1996, with the approval of the Board of Directors, the
outstanding balance of the notes payable to the Trust of $850,000, and accrued
interest of $63,042 was converted to 3,300 shares of Class A common stock and
37,500 shares of Class B common stock of the Company, in the amount of
$510,000, and the remainder was recorded as an extraordinary gain of $403,042.
The Company valued each share issued at $12.50, which was equivalent to the
amount received by the Company's shareholders in connection with the sale of
their shares on June 28, 1996.
NOTE L -- SUPPLEMENTARY DISCLOSURES TO THE STATEMENT OF CASH FLOWS
Cash paid for interest and income taxes for each of the periods ended were
as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Interest........................................... $3,358 $29,158 $41,786
Income taxes....................................... 8,160 -- --
</TABLE>
F-26
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
Noncash investing and financing transactions are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ----
<S> <C> <C> <C>
Note payable and accrued interest of $913,042,
net of extraordinary gain of $403,042, converted
to capital...................................... $510,000 $ -- $ --
Capital lease obligation......................... -- 92,387 --
-------- ------- ----
$510,000 $92,387 $ --
======== ======= ====
</TABLE>
NOTE M -- LEASING ARRANGEMENTS
Operating Leases
The Company has leased facilities in Pennsylvania, Florida and the
Netherlands. The Pennsylvania lease is a noncancelable operating lease, which
expires October 31, 1997. The Netherlands office is leased on a month to month
basis and is cancelable with six months notice. The Florida lease expired in
1995.
The Company also leased a vehicle under a noncancelable operating lease
which expired in April of 1996.
Lease expense was $171,179, $204,123 and $195,907 for each of the periods
ended.
Capital lease
The Company leases equipment under a capital lease agreement which expires
in 1998. The obligation has been recorded in the accompanying financial
statements at the present value of the future minimum lease payments. The
capitalized costs and the accumulated amortization are included in equipment
and accumulated depreciation, respectively. Amortization is included in
depreciation expense. At the expiration of this lease, the title to this
equipment transfers to the Company upon payment of the purchase option price.
Information with respect to this lease as of June 28, 1996 and for the year
then ended is as follows:
<TABLE>
<S> <C>
Capital costs.................................................... $92,387
=======
Accumulated amortization......................................... $48,041
=======
Amortization expense............................................. $26,564
=======
</TABLE>
Future minimum lease payments for all leases at June 28, 1996 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
--------- --------
<S> <C> <C>
1997................................................. $147,167 $ 36,951
1998................................................. 51,567 18,476
-------- --------
Total minimum lease payments......................... $198,734 55,427
========
Amount representing interest......................... (5,025)
Current portion of capital lease..................... (32,568)
--------
$ 17,834
========
</TABLE>
F-27
<PAGE>
FLAM & RUSSELL, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ORBIT ADVANCED TECHNOLOGIES, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 1, 1994, JUNE 30, 1995 AND JUNE 28, 1996
NOTE N -- CONTINGENT LIABILITY
The State of California is currently examining the Company's liability for
back sales tax and has proposed certain adjustments that aggregate
approximately $28,000 of additional sales tax. The Company does not agree with
the basis upon which the adjustments are calculated. The ultimate resolution
is not presently determinable.
NOTE O -- SALE OF BUSINESS
On June 28, 1996, the Company's stockholders sold all their shares of the
Company to Orbit Advanced Technologies, Inc.
NOTE P -- ADJUSTMENTS TO FINANCIAL STATEMENTS ISSUED PREVIOUSLY
At the time that the original financial statements were issued for the
period ended June 28, 1996, management had determined that the extraordinary
gain, as more fully described in Note K, should be presented net of applicable
taxes. The current facts no longer support this position, as management has
determined that this gain is a permanent difference for tax purposes. The
financial statements for this period have been adjusted as follows:
<TABLE>
<CAPTION>
ACCUMULATED NET
DEFICIT INCOME
----------- --------
<S> <C> <C>
As previously reported.............................. $(422,105) $266,978
Adjustment to provision for taxes................... 11,993 11,993
--------- --------
As adjusted......................................... $(410,112) $278,971
========= ========
</TABLE>
In addition, certain reclassifications have been made to all the previously
presented financial statements to conform to the current presentation. Such
reclassifications have had no effect on net income as previously reported,
except as mentioned above.
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OF-
FERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITA-
TION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY, OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME, SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 11
Use of Proceeds.......................................................... 12
Capitalization........................................................... 12
Dividend Policy.......................................................... 13
Dilution................................................................. 13
Selected Consolidated Financial Data..................................... 14
Unaudited Consolidated Pro Forma Data.................................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 23
Management............................................................... 34
Certain Transactions..................................................... 39
Principal Stockholders................................................... 40
Description of Securities................................................ 41
Shares Eligible for Future Sale.......................................... 43
Underwriting............................................................. 44
Legal Matters............................................................ 45
Experts.................................................................. 45
Available Information.................................................... 46
Glossary................................................................. 47
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[ORBIT/FR, INC. LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
PENNSYLVANIA MERCHANT GROUP LTD
UNTERBERG HARRIS
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, all of which are being
borne by the Registrant.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 6,273
National Association of Securities Dealers, Inc. Filing Fee........ 2,570
Nasdaq National Market Listing Fee................................. 32,735
Printing and Engraving Expenses.................................... 95,000
Accounting Fees and Expenses....................................... 183,500
Legal Fees and Expenses............................................ 165,000
Blue Sky Qualification Fees and Expenses........................... 10,000
Miscellaneous...................................................... 4,922
--------
Total............................................................ $500,000
========
</TABLE>
The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The DGCL provides, in substance, that Delaware corporations shall have the
power, under specified circumstances, to indemnify their directors, officers,
employees and agents in connection with actions, suits or proceedings brought
against them by third parties and in connection with actions or suits by or in
the right of the corporation, by reason of the fact that they were or are such
directors, officers, employees and agents, against expenses (including
attorneys' fees) and, in the case of actions, suits or proceedings brought by
third parties, against judgments, fines and amounts paid in settlement
actually and reasonably incurred in any such action, suit or proceeding.
The Company's Bylaws also provide for indemnification to the fullest extent
permitted by the Delaware General Corporation Law. Reference is made to the
Bylaws of the Company.
As permitted by the DGCL, the Company's Certificate of Incorporation
eliminates the personal liability of its directors to the Company and its
stockholders, in certain circumstances, for monetary damages arising from a
breach of the director's duty of care.
The Company intends to obtain directors' and officers' liability insurance
which covers certain liabilities, including liabilities to the Company and its
stockholders, in the amount of $5.0 million.
The Underwriting Agreement to be filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of certain
officers, directors and controlling persons of the Company with respect to
certain liabilities in connection with this offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction was exempt from registration requirements of the Securities Act,
by reason of Section 4(2) thereof. Pursuant to the Share Exchange Agreement
dated December 31, 1996 by and among the Company, Alchut and Orbit Advanced
Systems, Ltd.,
II-1
<PAGE>
the Company issued 3,999,520 shares of common stock to Alchut in consideration
for 10 shares of the common stock of Technologies and 99 shares of the
ordinary stock of Engineering and issued 480 shares of common stock to Orbit
Advanced Systems, Ltd. in exchange for 1 share of the ordinary stock of
Engineering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
*1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated March 31, 1997 by and among
Advanced Electromagnetics, Inc., Anechoic Systems, Inc., Gabriel
A. Sanchez, Barbara Sanchez and the Company.
2.2 Share Exchange Agreement dated December 31, 1996 by and among
Orbit-Alchut Technologies, Ltd., Orbit Advanced Systems, Ltd. and
the Company.
2.3 Asset Acquisition Agreement dated December 31, 1996 by and between
Orbit-Alchut Technologies, Ltd. and Orbit F.R. Engineering, Ltd.
2.4 Inventory Acquisition Agreement dated January 1, 1997 by and
between Orbit-Alchut Technologies, Ltd. and Orbit F.R.
Engineering, Ltd.
2.5 Stock Purchase Agreement dated June 28, 1996 by and among Orbit
Advanced Technologies, Inc., The Samuel T. Russell Trust, Richard
P. Flam, Rickey E. Hartman, Lois A. R. Charles, Dorothy Russell,
John Aubin, Norman D. Kegg and Flam & Russell, Inc.
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company.
*4.1 Specimen Common Stock Certificate of the Company.
*5.1 Opinion of Blank Rome Comisky & McCauley.
10.1 Employment Agreement dated February 15, 1997 by and between the
Company and Aryeh Trabelsi.
10.2 Employment Agreement dated January 1, 1997 by and between the
Company and Moshe Pinkasy.
10.3 1997 Equity Incentive Plan.
10.4 Services Agreement dated January 1, 1997 by and among Orbit-Alchut
Technologies, Ltd., Orbit F.R. Engineering, Ltd. and the Company.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Messina, Ceci, Archer & Company, P.C.
*23.3 Consent of Blank Rome Comisky & McCauley (included in the opinion
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedule (electronic filing only).
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedules have been omitted because they are not applicable or because
required information is included in the Financial Statements and Notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and this offering of such securities at that
time shall be deemed the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer of controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Horsham, Pennsylvania, on the date
indicated.
ORBIT/FR, INC.
By: /s/ Aryeh Trabelsi
---------------------------------
Aryeh Trabelsi
President and Chief Executive
Officer
Date: April 11, 1997
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Aryeh Trabelsi and Joseph Aviv and each of
them, his true and lawful attorney-in-fact and agent with full power of
substitution or resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documentation in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/s/ Aryeh Trabelsi President, Chief April 11, 1997
- --------------------------------- Executive Officer
ARYEH TRABELSI and Director
/s/ Joseph Aviv Chairman of the April 11, 1997
- --------------------------------- Board of Directors
JOSEPH AVIV
/s/ Zeev Stein Director April 11, 1997
- ---------------------------------
ZEEV STEIN
/s/ David Ben-Bassat Director April 11, 1997
- ---------------------------------
DAVID BEN-BASSAT
/s/ Joseph E. Sullivan Director of Finance April 11, 1997
- --------------------------------- and Treasurer
JOSEPH E. SULLIVAN
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
*1.1 Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated March 31, 1997 by and among
Advanced Electromagnetics, Inc., Anechoic Systems, Inc., Gabriel
A. Sanchez, Barbara Sanchez and the Company.
2.2 Share Exchange Agreement dated December 31, 1996 by and among
Orbit-Alchut Technologies, Ltd., Orbit Advanced Systems, Ltd. and
the Company.
2.3 Asset Acquisition Agreement dated December 31, 1996 by and between
Orbit-Alchut Technologies, Ltd. and Orbit F.R. Engineering, Ltd.
2.4 Inventory Acquisition Agreement dated January 1, 1997 by and
between Orbit-Alchut Technologies, Ltd. and Orbit F.R.
Engineering, Ltd.
2.5 Stock Purchase Agreement dated June 28, 1996 by and among Orbit
Advanced Technologies, Inc., The Samuel T. Russell Trust, Richard
P. Flam, Rickey E. Hartman, Lois A. R. Charles, Dorothy Russell,
John Aubin, Norman D. Kegg and Flam & Russell, Inc.
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company.
*4.1 Specimen Common Stock Certificate of the Company.
*5.1 Opinion of Blank Rome Comisky & McCauley.
10.1 Employment Agreement dated February 15, 1997 by and between the
Company and Aryeh Trabelsi.
10.2 Employment Agreement dated January 1, 1997 by and between the
Company and Moshe Pinkasy.
10.3 1997 Equity Incentive Plan.
10.4 Services Agreement dated January 1, 1997 by and among Orbit-Alchut
Technologies, Ltd., Orbit F.R. Engineering, Ltd. and the Company.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Messina, Ceci, Archer & Company, P.C.
*23.3 Consent of Blank Rome Comisky & McCauley (included in the opinion
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on page II-4).
27.1 Financial Data Schedule (electronic filing only).
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
------------------------
Parties:
- -------
ADVANCED ELECTROMAGNETICS, INC.
a California corporation ("AEMI")
9257 Mission Gorge Road
Santee, CA 92072-1719
Sellers: ANECHOIC SYSTEMS, INC.
a Nevada corporation ("ANECHOIC")
9257 Mission Gorge Road
Santee, CA 92072-1719
GABRIEL A. SANCHEZ ("SANCHEZ") and BARBARA J. SANCHEZ
("B.J. SANCHEZ")
9257 Mission Gorge Road
Santee, CA 92072-1719
Buyer: ORBIT/FR, INC.
a Delaware corporation ("BUYER")
506 Prudential Road
Horsham, PA 19044
Date: March 31, 1997
- ----
Background: AEMI owns and operates a business (the "Business") specializing
- ----------
in the design, manufacturing, marketing and sale of absorbing materials
applications and goods and services related to such materials and to the testing
and application of microwave and related technology for the aerospace industry
as well as for other uses. Sanchez, B.J. Sanchez and Anechoic (collectively, the
"Sellers") own all of the issued and outstanding shares of capital stock of AEMI
("AEMI's Stock"). The parties desire that Sellers sell and Buyer buys all of
AEMI's Stock and the Business, subject to the terms and conditions stated in
this Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual agreements
contained herein, AEMI, Sellers and Buyer agree as follows:
-1-
<PAGE>
SECTION 1: DEFINED TERMS
- -------------------------
All defined terms used in this Agreement and not specifically defined in
context are defined in this Section 1, as follows:
1.1 "Accounts Receivable" means (a) any right to payment for goods sold,
-------------------
leased or licensed or for services rendered, whether or not it has been earned
by performance, whether billed or unbilled, and whether or not it is evidenced
by any Contract, (b) any note receivable, or (c) any other receivable or right
to payment of any nature.
1.2 "Ancillary Agreements" means the agreements entered into incident to this
--------------------
Agreement.
1.3 "Asset" means any real, personal, mixed, tangible or intangible property
-----
of any nature, including Cash Assets, prepayments, deposits, escrows, Accounts
Receivable, Tangible Property, Real Property, Software, Contract Rights,
Intangibles and goodwill, and claims, causes of action and other legal rights
and remedies.
1.4 "Cash Asset" means any cash on hand, cash in bank or other accounts,
----------
marketable securities, and other cash-equivalent assets of any nature.
1.5 "Consent" means any consent, approval, order or authorization of, or any
-------
declaration, filing or registration with, or any application or report to, or
any waiver by, or any other action (whether similar or dissimilar to any of the
foregoing) of, by or with, any Person, which is necessary in order to take a
specified action or actions in a specified manner and/or to achieve a specified
result.
1.6 "Contract" means any written or oral contract, agreement, instrument,
--------
order, arrangement, commitment or understanding of any nature, including sales
orders, purchase orders, leases, subleases, data processing agreements,
maintenance agreements, license agreements, sublicense agreements, loan
agreements, promissory notes, security agreements, pledge agreements, deeds,
mortgages, guaranties, indemnities, warranties, employment agreements,
consulting agreements, sales representative agreements, joint venture
agreements, buy-sell agreements, options or warrants.
1.7 "Contract Right" means any right, power or remedy under any Contract,
--------------
including rights to receive property or services or otherwise derive benefits
from the payment, satisfaction or performance of another party's Obligations,
rights to demand that another party accept property or services or take any
other actions, and rights to pursue or exercise remedies or options.
1.8 "Disclosure Letter" means the letter delivered by Sellers to Buyer
-----------------
contemporaneously with the execution and delivery of this Agreement that (i)
sets forth information called for by Sellers' representations and warranties,
and (ii) clearly identifies the particular provision pursuant to which such
information is furnished.
1.9 "Employee Benefit Plan" means any employee benefit plan or any employee
---------------------
benefit or fringe benefit arrangement of any nature, including bonus plans,
incentive compensation plans, severance pay plans, vacation pay plans, deferred
compensation plans, pension plans, profit sharing plans, retirement plans,
payroll savings plans, stock option plans, stock purchase plans, stock ownership
plans, hospitalization plans, medical plans,
-2-
<PAGE>
dental plans, disability plans, sick pay plans, group insurance plans, death
benefit plans, or employee welfare plans, but not including employment Contracts
with individual employees.
1.10 "Encumbrance" means any lien, security interest, pledge, mortgage,
-----------
easement, covenant, restriction, reservation, conditional sale, prior
assignment, or other encumbrance, claim, burden or charge of any nature.
1.11 "GAAP" means generally accepted accounting principles under United States
----
accounting rules and regulations, consistently applied.
1.12 "Hazardous Substances" means any substance, waste, contaminant, pollutant
--------------------
or material that has been determined by any federal governmental authority, or
any state or local government authority having jurisdiction over the property in
question, to be capable of posing a risk of injury or damage to health, safety,
property or the environment, including (i) all substances, wastes, contaminants,
pollutants and materials defined or designated as hazardous, dangerous or toxic
pursuant to any Law of any state in which any of AEMI's Real Property is located
or any United States Law, and (ii) asbestos, polychlorinated biphenyls ("PCBs")
and petroleum.
1.13 "Insurance Policy" means any public liability, product liability, general
----------------
liability, comprehensive, property damage, vehicle, life, hospital, medical,
dental, disability, worker's compensation, key man, fidelity bond, theft,
forgery, errors and omissions, directors' and officers' liability, or other
insurance policy of any nature.
1.14 "Intangible" means any name, corporate name, fictitious name, trademark,
----------
trademark application, service mark, service mark application, trade name, brand
name, product name, slogan, trade secret, know-how, patent, patent application,
copyright, copyright application, design, logo, formula, invention, product
right or other intangible asset of any nature, whether in use, under development
or design, or inactive.
1.15 "Judgment" means any order, writ, injunction, citation, award, decree or
--------
other judgment of any nature of any foreign, federal, state or local court,
governmental body, administrative agency, regulatory authority or arbitration
tribunal.
1.16 "Law" means any provision of any foreign, federal, state or local law,
---
statute, ordinance, charter, constitution, treaty, rule or regulation.
1.17 "Material" means, with respect to any Person, material, in a legal sense
--------
or in an accounting sense, to (i) the financial condition or financial
performance of such Person, or (ii) the Assets of such Person, or (iii) the
Assets of any other Person which are used by such Person and cannot be readily
replaced.
1.18 "Obligation" means any debt, liability or obligation of any nature,
----------
whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated,
accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown
or otherwise.
-3-
<PAGE>
1.19 "Offering Price" means the price at which the Buyer's common stock is
--------------
valued for the purposes of the Buyer's initial public offering. This price will
be jointly determined by the Buyer and its underwriters immediately prior to the
first day of public trading of the Buyer's shares.
1.20 "Permit" means any license, permit, approval, waiver, order,
------
authorization, right or privilege of any nature, granted, issued, approved or
allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.21 "Person" means any individual, sole proprietorship, joint venture,
------
partnership, corporation, association, cooperative, trust, estate, governmental
body, administrative agency, regulatory authority or other entity of any nature.
1.22 "Prime Rate" means the prime rate of general application as set forth in
----------
the "Money Rates" section (or such future section as shall replace it) of The
---
Wall Street Journal (Eastern Edition), as published on a specified date or
- -------------------
dates, or, if no date(s) are specified, as the same shall be published from time
to time.
1.23 "Proceeding" means any demand, claim, suit, action, litigation,
----------
investigation, arbitration, administrative hearing or other proceeding of any
nature.
1.24 "Real Property" means any real estate, land, building, condominium,
-------------
townhouse, structure or other real property of any nature, all shares of stock
or other ownership interests in cooperative or condominium associations or other
forms of ownership interest through which interests in real estate may be held,
and all appurtenant and ancillary rights thereto, including easements,
covenants, water rights, sewer rights and utility rights.
1.25 "Software" means any computer program, operating system, applications
--------
system, hardware or software of any nature, whether operational, under
development or inactive, including all object code, source code, technical
manuals, user manuals and other documentation therefor, whether in machine-
readable form, programming language or any other language or symbols, and
whether stored, encoded, recorded or written on disk, tape, film, memory device,
paper or other media of any nature.
1.26 "Tangible Property" means any furniture, fixtures, leasehold
-----------------
improvements, vehicles, office equipment, computer equipment, other equipment,
machinery, tools, forms, supplies or other tangible personal property of any
nature.
1.27 "Tax" means (i) any foreign, federal, state or local income, earnings,
---
profits, gross receipts, franchise, capital stock, net worth, sales, use,
occupancy, general property, real property, personal property, intangible
property, transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security or other tax of any nature, (ii) any foreign,
federal, state or local organization fee, qualification fee, annual report fee,
filing fee, occupation fee, assessment, sewer rent or other fee or charge of any
nature, or (iii) any deficiency, interest or penalty imposed with respect to any
of the foregoing.
SECTION 2: SALE AND PURCHASE OF AEMI'S STOCK
- --------------------------------------------
-4-
<PAGE>
2.1 Sale and Purchase. On the Closing Date (as defined in Section 10.1), and
-----------------
subject to the terms and conditions of this Agreement including, but not limited
to, completion by Buyer of its IPO as hereinafter defined, Sellers shall sell,
transfer, assign and convey to Buyer, and Buyer shall purchase from Sellers, all
right, title and interest in and to AEMI's Stock.
SECTION 3: CONSIDERATION FOR AEMI'S STOCK
- ---------- ------------------------------
3.1 Purchase Price. The total purchase price ("Purchase Price") payable by
--------------
Buyer to Sellers for AEMI's Stock shall be determined in accordance with the
formula set forth in Schedule 3.1.
3.2 Payment of Purchase Price. The Purchase Price shall be payable by Buyer
-------------------------
to Sellers at Closing as follows:
(a) Buyer shall pay to Seller a dollar amount equal to one-half (1/2) of
the Purchase Price (the "Cash Payment").
(b) The balance of the Purchase Price shall be paid in certain
unregistered shares of common stock , par value $ .01 per share, of the Buyer
and shall be delivered to and held by Sellers, subject to the provisions of
Section 11.4 (the "Stock Payment"). For purposes hereof, the parties agree that
the total number of shares of Buyer payable to Sellers shall be determined by
dividing the balance of the Purchase Price by a number equal to the Offering
Price established as part of the initial public offering of stock of Buyer (the
"IPO") which Buyer contemplates completing contemporaneously with the Closing
Date and which is an expressed condition to the transaction contemplated
hereunder as more fully provided below.
(c) In the event the audited financial statements contemplated by
Schedule 3.1 are not available at or prior to Closing, then $450,000 of the Cash
Payment shall be paid at Closing, and the balance of the Purchase Price shall be
paid as soon as such audited financial statements are available and the Purchase
Price can be determined in accordance with Schedule 3.1. The parties agree to
cooperate fully with the auditor in the completion of the audited financial
statements contemplated hereunder.
3.3 Currency and Method of Payment. All dollar amounts stated in this
------------------------------
Agreement are stated in United States currency, and all payments required under
this Agreement shall be paid in United States currency. All payments required
under this Agreement shall be made as follows: (i) any payment may be made by
wire transfer of United States funds; (ii) any payment exceeding $100,000 shall
be made by wire transfer of United States funds; (iii) any payment exceeding
$10,000, but not exceeding $100,000, may be made by bank certified, treasurer's
or cashier's check; and (iv) any payment not exceeding $10,000 may be made by
ordinary check.
3.4 Allocation of the Purchase Price. The Purchase Price shall be allocated
--------------------------------
among the Stock and the Covenants as set forth on Schedule 3.4. All parties
------------
hereto shall each file all required forms (and any amendments
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<PAGE>
thereto) with the Internal Revenue Service ("IRS") on a timely basis and no
party hereto shall take any position on their respective tax returns that is
inconsistent with Schedule 3.4.
------------
SECTION 4: REPRESENTATIONS AND WARRANTIES OF SELLERS
- ----------------------------------------------------
Knowing that Buyer is relying thereon, Sellers and AEMI, jointly and
severally, represent, warrant and covenant to Buyer, as of the Effective Date
and as follows:
4.1 Organization and Authority. AEMI is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of California,
the jurisdiction of its organization, and has the full corporate power and
authority to own its Assets, conduct its business as and where such business is
presently conducted, and enter into this Agreement, the Ancillary Agreements to
which it is a party and the transactions contemplated hereby and thereby. AEMI
is not required to be qualified as a foreign corporation in any other
jurisdiction except where the failure to be so qualified would not be Material
to AEMI. Sellers have the full legal right, power and capacity to enter into
and perform this Agreement, the Ancillary Agreements to which it is a party and
the transactions contemplated hereby and thereby. AEMI does not own any
subsidiaries or any interest in any other Person. The Disclosure Letter sets
forth a list of (i) all names under which, and all addresses at which, AEMI has
conducted any business at any time since its formation, and (ii) all fictitious
names, product names and other names used by AEMI in connection with the
Business during the five-year period ending on the date of this Agreement.
There are no predecessors to the business of AEMI.
4.2 Capital Structure of AEMI. The authorized capital stock of AEMI consists
-------------------------
of 30,000,000 shares of common stock, no par value (the "Common Stock"), of
which 17,969,502 shares and 9,000,000 shares are issued, outstanding and owned
legally and beneficially by Sanchez and Anechoic, respectively, free and clear
of any Encumbrances, as set forth in the Disclosure Letter. Sellers have the
full right to sell and transfer all of his right, title and interest in and to
AEMI's Stock, and upon delivery and payment for AEMI's Stock as provided herein,
Buyer will acquire good and marketable title thereto, free and clear of all
Encumbrances. All of the AEMI's issued shares of Common Stock are duly
authorized, validly issued and fully paid, with no liability attaching to the
Ownership thereof, are not subject to, and were not issued in violation of any
preemptive rights and, subject to the articles of incorporation or other
organizational documents of AEMI's, are not subject to any preemptive rights
except as otherwise waived. Except for this Agreement, there are no Contracts
relating to the issuance, sale, redemption, ownership, disposition or voting of
any of AEMI's Common Stock or other securities of AEMI.
4.3 Effect of Agreement. The execution, delivery and performance of this
-------------------
Agreement and the Ancillary Agreements by AEMI and Sellers and the consummation
by them of the transactions contemplated hereby and thereby, (a) have been duly
authorized by all necessary corporate action by AEMI and Anechoic, (b) do not
and will not constitute a breach or violation of, or a default under, the
articles of incorporation, by-laws or other organizational documents of AEMI and
Anechoic, (c) do not and will not, with or without notice and/or lapse of time,
constitute a breach or violation of, or a default under, any Contract to which
AEMI or Sellers are a party or by which AEMI or its Assets or Business is bound,
(d) do not and will not, with or without notice and/or lapse
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<PAGE>
of time, constitute a violation of any Law or Judgment applicable to AEMI or
Sellers or to the Business or Assets of AEMI, (e) do not and will not, with or
without notice and/or lapse of time, constitute a violation of, and do not and
will not result in the revocation, restriction, suspension or modification of
any Permit of AEMI, (f) do not and will not, with or without notice and/or lapse
of time, accelerate or otherwise modify any Obligation of AEMI, (g) do not and
will not, with or without notice and/or lapse of time, result in the creation of
any Encumbrance upon, or give to any other Person any interest in, AEMI's Common
Stock or other securities of AEMI, or in the Business or Assets of AEMI, and (h)
do not require any Consent of any Person, except as listed in the Disclosure
Letter ("AEMI's Required Consents"). This Agreement and the Ancillary
Agreements constitute the valid and legally binding agreements of AEMI and
Sellers (to the extent they are a party thereto or bound thereby), enforceable
against each of them in accordance with their respective terms.
4.4 Financial and Corporate Records. AEMI's books and records are and have
-------------------------------
been properly prepared and maintained in form and substance adequate for
preparing audited financial statements in accordance with GAAP, and fairly and
accurately reflect, in all material respects, all of AEMI's Assets and
Obligations and all Contracts and transactions to which AEMI is or was a party
or by which any of AEMI's or its Business or Assets is or was affected. Copies
of the articles of incorporation, by-laws and other organizational documents
have been delivered to Buyer. AEMI's corporate minute books contain accurate
minutes of all meetings of AEMI's shareholders and board of directors (and
committees thereof) and accurate written statements of all actions taken by
AEMI's shareholders and board of directors (and committees thereof) without a
meeting and accurate and complete records of the issuance and transfer of stock
of AEMI since its date of incorporation. The Disclosure Letter sets forth a
list of (a) the names and titles of the directors and officers of AEMI, (b) all
bank accounts, securities accounts, other accounts, safe deposit boxes and safes
of AEMI; the names of the banks, securities firm or other financial institution
or Person where any such account, safe deposit box or safe is located; and the
names of all persons who have access thereto or who are authorized to make
withdrawals therefrom, and (c) the names of all Persons authorized by proxies,
powers of attorney or other instruments to act on behalf of AEMI concerning its
Business or Assets.
4.5 Compliance with Law. AEMI's operations, the conduct of AEMI's Business
-------------------
as and where such Business has been or presently is conducted, and AEMI's Assets
and their uses, comply with all Laws and Judgments applicable to AEMI, and its
Business or Assets, except where the failure to so comply would not be Material
to AEMI, and AEMI has not received any notice that it is not in compliance.
AEMI has obtained and holds all Permits required for the lawful operation of its
Business as and where such Business is presently conducted, except where the
failure to do so would not be Material to AEMI. All Permits held by AEMI that
are Material to AEMI are listed in the Disclosure Letter.
4.6 Financial Statements. Sellers have delivered or shall have delivered as
--------------------
soon as practicable to Buyer copies of the financial statements of AEMI as of
March 31, 1997, 1996 and 1995, and the related statements of operations of AEMI
for the years then ended, including the notes thereto, accompanied by the report
of independent certified public accountants to AEMI, if any ("AEMI's Annual
Financial Statements"). AEMI's Annual Financial Statements were prepared in
accordance with GAAP and fairly present the financial condition and results of
operations of AEMI as of the date and for the periods indicated.
-7-
<PAGE>
4.7 Conduct of Operations. Except as set forth in the Disclosure Letter,
---------------------
from March 31, 1996 to the date of this Agreement:
(a) Except in the ordinary course of its business consistent with its
past practices, AEMI has not (i) created or assumed any Encumbrance upon any of
its Business or Assets, (ii) incurred any Obligation, (iii) made any loan or
advance to any Person, (iv) assumed, guaranteed or otherwise become liable for
any Obligation of any Person, (v) committed for any capital expenditure, (vi)
sold, abandoned or otherwise disposed of any of its Business or Assets, (vii)
purchased, leased or otherwise acquired any business, Assets or capital stock of
any other Person, (viii) settled any dispute, waived any right or canceled any
Obligation, (ix) assumed, entered into or amended any Contract other than this
Agreement, or canceled or terminated any Contract other than in accordance with
its terms, (x) increased, or authorized an increase in, the compensation or
benefits paid or provided to any of its directors, officers, employees, agents
or representatives, or (xi) done anything outside the ordinary course of
business, whether or not specifically described in any of the foregoing clauses.
(b) Even in the ordinary course of its business consistent with its past
practices, AEMI has not (i) declared, paid or set aside for payment any dividend
or other distribution, or made any direct or indirect redemption, retirement or
acquisition of any shares of its capital stock, (ii) made any change in its
accounting policies or practices, (iii) paid directly or indirectly any of its
Obligations before it became due in accordance with its terms, (iv) issued, or
authorized the issuance, of any shares of capital or other securities or granted
any rights with respect to its shares of capital or other securities, (v)
amended its articles of incorporation, by-laws or other organizational
documents, or merged with or into, consolidated with, completely or partially
liquidated or dissolved, or was involved in any other business combination with
any other Person, (vi) changed, or authorized a change in, the rights of its
outstanding capital stock or the character of its Business, or (vii) adopted or
amended any Employee Benefit Plan.
(c) There has been no casualty loss (whether or not covered by insurance)
Material to AEMI, and there has been no event or occurrence Material to, or
which might be Material to, AEMI.
4.8 Current Assets. The Disclosure Letter sets forth a detailed list, as of
--------------
the date of this Agreement, of all of AEMI's Accounts Receivable (the
"Receivables List"), including (i) billed and earned Accounts Receivable, (ii)
unbilled but earned Accounts Receivable, (iii) billed but unearned Accounts
Receivable (indicating whether collected), (iv) unearned customer deposits, and
(v) the rights to receive payments under Contracts that have not been billed or
earned, and all of AEMI's other current assets, grouped by balance sheet
account. As to all such Accounts Receivable, the Disclosure Letter sets forth
the customer names, individual invoice dates, individual invoice amounts and
allowances for doubtful accounts. None of AEMI's current assets, including
AEMI's Accounts Receivable, is subject to any Encumbrances.
4.9 Tangible Property. The Disclosure Letter sets forth a detailed list, as
-----------------
of the date of this Agreement, of all of AEMI's Tangible Property, grouped as to
type, including date of purchase, location, cost, accumulated depreciation and
net book value thereof. Except as set forth in the Disclosure Letter, AEMI has
good and
-8-
<PAGE>
marketable title to all of its Tangible Property, free and clear of any
Encumbrances. Except as set forth in the Disclosure Letter, all of AEMI's
Tangible Property is located at AEMI's Office Locations, and AEMI has the
unqualified right to require the immediate return of any of AEMI's Tangible
Property not located at AEMI's Office Locations. All Tangible Property owned or
used by AEMI is in good condition, ordinary wear and tear (other than that which
materially detracts from the value or impairs the present use of the property)
excepted, and is sufficient for the Business conducted by AEMI or proposed to be
conducted by it.
4.10 Real Property. Except for AEMI's Office Locations listed in the
-------------
Disclosure Letter, there is no Real Property owned or leased by AEMI. None of
AEMI's Real Property, nor the occupancy, maintenance or use thereof by AEMI, is
in violation of any Contract or Law, and no notice from any lessor, governmental
body or other Person has been received by AEMI claiming any violation of any
Contract or Law, or requiring or calling attention to the need for any work,
repairs, construction, alteration or installations. All Real Property leased by
AEMI is in good condition, ordinary wear and tear (other than that which
materially detracts from the value or impairs the present use of the property)
excepted, and is sufficient for the business conducted by AEMI or proposed to be
conducted by it. AEMI has not placed or caused to be placed, and neither AEMI
nor any Seller has any knowledge or belief that there exists, any Hazardous
Substances (i) on or under any of AEMI's Real Property; or (ii) discharged,
spilled, disposed of or otherwise released by or at the discretion of AEMI or
Sellers which would provide a basis for any liability for personal injury,
property damage, environmental cleanup or natural resources damage.
4.11 Software and Intangibles. Except for Software which is readily available
------------------------
commercially, the Disclosure Letter sets forth a detailed list and description
of all Software and Intangibles owned or used by AEMI. Except as set forth in
the Disclosure Letter, AEMI has (i) good and marketable title to all of its
owned Software and Intangibles, free and clear of any Encumbrances, and (ii) the
right to use all non-owned Software and Intangibles used by it. The Software
and Intangibles owned or used by AEMI are adequate for the Business conducted by
it or proposed to be conducted by it. None of the Software or Intangibles owned
or used by AEMI, or their respective past or current uses, has violated or
infringed upon or is violating or infringing upon any Software or Intangible of
any Person, and to the knowledge of AEMI and Sellers, no Person is violating or
infringing upon any Software or Intangibles owned by AEMI. None of AEMI's owned
Software or Intangibles is owned by or registered in the name of any current or
former shareholder, director, officer, employee, salesman, agent, representative
or contractor of AEMI, nor does any such Person have any interest therein or
right thereto.
4.12 Obligations.
-----------
(a) The Disclosure Letter sets forth a detailed list, as of the date of
this Agreement, of all of AEMI's accounts payable, accrued expenses and other
current and long-term liabilities, grouped by balance sheet account. Except as
set forth in the Disclosure Letter, AEMI has no Obligations other than (i)
Obligations listed in the Disclosure Letter, and (ii) Obligations under the
Specified Contracts listed in the Disclosure Letter.
(b) Anechoic has no Obligations other than Obligations listed in the
Disclosure Letter.
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<PAGE>
4.13 Contracts.
---------
(a) The Disclosure Letter sets forth a detailed list of all of the
following types of Contracts to which AEMI is a party or by which AEMI or its
Business or Assets is bound (collectively, the "Specified Contracts"), grouped
into the following categories: (i) Contracts with customers, indicating whether
such Contracts are on fixed price basis, a cost plus basis or some other basis,
(ii) loan agreements, mortgages, notes, and other financing Contracts, (iii)
Contracts for the purchase, sale, lease or use of Real Property of any nature,
(iv) Contracts for the purchase, lease, license and/or maintenance of Tangible
Property, Intangibles or Software under which AEMI is the purchaser, licensee,
lessee or user, and other supplier Contracts that are Material to AEMI, (v)
Contracts with current or former shareholders, officers, directors, employees,
agents or representatives of AEMI, or any affiliates, associates or family
members of any current or former shareholder, officer or director of AEMI (other
than Contracts that constitute Employee Benefit Plans), (vi) Contracts under
which AEMI agrees to indemnify any Person, share the tax liability of any
Person, or guarantee any Obligation of any Person, or any similar Contract,
(vii) Contracts containing covenants of AEMI not to compete in any line of
business or with any Person in any geographical area, (viii) Contracts for joint
ventures, partnerships or strategic alliances, and (viii) other Contracts that
are Material to AEMI (other than Contracts that constitute Insurance Policies).
Copies of each written Specified Contract have been delivered to Buyer, and a
description of each oral Specified Contract is included in the Disclosure
Letter.
(b) With respect to the Specified Contracts, (i) AEMI is not in default
thereunder or would be in default thereunder, with or without notice and/or
lapse of time, (ii) to the knowledge of AEMI and Sellers, none of the other
parties to any Specified Contract is in default thereunder or would be in
default thereunder, with or without notice and/or lapse of time, and (iii) AEMI
has not given or received any notice of default or notice of termination with
respect to any Specified Contract, and each Specified Contract is in full force
and effect in accordance with its terms. With respect to the Specified
Contracts with customers, there are no burdensome or onerous provisions in any
such Specified Contract and, to the knowledge of AEMI and Sellers, there is no
fact or circumstance that would adversely affect AEMI's ability to perform any
such contract within budget and AEMI will be able to perform its obligations
under each such Specified Contract on a profitable basis. Except as set forth
in the Disclosure Letter, there are no currently outstanding proposals or offers
submitted by AEMI within (60) days of the date hereof to any customer, prospect,
supplier or other Person which, if accepted, would result in a legally binding
Contract of AEMI involving other than standard products quoted pursuant to a
standard price list.
4.14 Customers and Suppliers. The Disclosure Letter sets forth a list of all
------------------------
of AEMI's customers and suppliers. AEMI's relationship with each customer and
supplier is continuing on a good basis. No customer or supplier has given
notice of or otherwise indicated any intent to terminate or not renew its
Contracts with AEMI before its scheduled expiration or otherwise to terminate
its relationship with AEMI. Neither AEMI nor Sellers has any knowledge or
belief that the transactions contemplated by this Agreement will adversely
affect relations with any Customer or supplier.
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<PAGE>
4.15 Employees and Independent Contractors. The Disclosure Letter sets forth
-------------------------------------
a list of all of AEMI's employees, together with (i) their titles or
responsibilities, (ii) their social security numbers and states or countries of
residence, (iii) their current salaries or wages, (iv) their dates of hire, (v)
their last compensation changes and the dates on which such changes were made,
(v) any specific bonus, commission or incentive plans or agreements for or with
them, including all bonuses, commissions and incentives paid during the past
twelve months, and (vi) any outstanding loans or advances made to them. The
Disclosure Letter sets forth a list of all sales representatives and independent
contractors engaged by AEMI, their tax identification numbers and states or
countries of residence, their payment arrangements and a brief description of
their jobs or projects currently in progress. Except as limited by any
employment Contracts listed in the Disclosure Letter and except for any
limitations of general application which may be imposed under applicable
employment Laws, AEMI has the right to terminate the employment of each of its
employees at will and without incurring any penalty or liability other than
liability for severance pay in accordance with AEMI's disclosed severance pay
policy. AEMI is in full compliance with all Laws respecting employment
practices, except where the failure to so comply would not be Material to AEMI.
AEMI's relations with its employees are currently on a good and normal basis,
and there have been no strikes or labor disputes involving AEMI. AEMI is not
subject to any Contract with any labor union, and to the knowledge of AEMI and
the Sellers, no labor union has sought to represent any employees of AEMI. No
employee of AEMI has indicated an intention to terminate his or her employment
with AEMI. Neither AEMI nor any Seller has any knowledge or belief that the
transactions contemplated by this Agreement will adversely affect relations with
AEMI's employees.
4.16 Employee Benefit Plans. Except as set forth in the Disclosure Letter
----------------------
AEMI has not established, maintained or been required to contribute to any
Employee Benefit Plans and AEMI has not proposed any Employee Benefit Plans
which AEMI will establish, maintain, or to which AEMI will be obligated to
contribute, and AEMI has not proposed any changes to any Employee Benefit Plans
now in effect (all of the preceding referred to collectively hereinafter as
"AEMI's Employee Benefit Plans"). The Disclosure Letter includes a description
of each Employee Benefit Plan that is currently in effect or as to which AEMI
has any current or future Obligation, which description indicates the employees
covered or affected thereby and all of the Obligations of AEMI thereunder.
Copies of all Employee Benefit Plans are described in the Disclosure Letter and
all written materials used by AEMI to describe its Employee Benefit Plans to
employees have been delivered to Buyer. If permitted and/or required by
applicable Law, AEMI has properly submitted all of AEMI's Employee Benefit Plans
in good faith to meet the applicable requirements of ERISA and/or the Internal
Revenue Code to the IRS for its approval within the time prescribed therefore
under applicable federal regulations. Favorable letters of determination of such
tax-qualified status from the IRS are attached to the Disclosure Letter. With
respect to AEMI's Employee Benefit Plans, AEMI will have made, on or prior to
the Closing Date, all payments required to be made by it or on prior to the
Closing Date and will have accrued (in accordance with generally accepted
accounting principles consistently applied) as of the Closing Date all payments
due but not yet payable as of the Closing Date. AEMI has never been obligated to
contribute to a Multiemployer Plan (as defined in ERISA or the Code) or any
Employee Benefit Plan that is subject to the minimum funding standards of ERISA
or the Code or to Title IV of ERISA. AEMI has furnished Buyer with a true and
correct copy of the most current Form 5500 and any other form or filing required
to be submitted to any governmental agency with regard to any of AEMI's Employee
Benefit Plans. All of AEMI's Employee Benefit Plans are, and have been, operated
in full compliance with their provisions and with all applicable Laws. Neither
the execution and deliver of this Agreement nor the consummation of the
transactions contemplated hereby will
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<PAGE>
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due from AEMI
under any of AEMI's Employee Benefit Plans, (ii) increase any benefits otherwise
payable under any of AEMI's Employee Benefit Plans or (iii) result in the
acceleration of the time of payment or vesting of any such benefits to any
extent. There are no pending actions, claims, or lawsuits which have been
asserted or instituted against any of AEMI's Employee Benefit Plans, the assets
of any of the trusts under such plans, the plan sponsor, the plan administrator
or against any fiduciary of any of AEMI's Employee Benefit Plans (other than
routine benefit claims) nor does AEMI have knowledge of facts which could form
the basis for any such action, claim or lawsuit. There are no investigations or
audits of any of AEMI's Employee Benefit Plans, any trusts under such plans, the
plan sponsor, the plan administrator or any fiduciary of any of AEMI's Employee
Benefit Plans which have been threatened or instituted nor does AEMI have
knowledge of facts which could form the basis for any such investigation or
audit. Except as set forth in the Disclosure Letter, no event has occurred or
will occur which will result in Liability to AEMI in connection with any
Employee Benefit Plan established, maintained, or contributed to (currently or
previously) by AEMI or by any other entity which, together with AEMI, constitute
elements of either (i) a controlled group of corporations (within the meaning of
Section 414 (b)(of the Code), (ii) a group of trades or businesses under common
control (within the meaning of Sections 414 (c) of the Code or 4001 of ERISA),
(iii) an affiliated service group (within the meaning of Section 414 (m) of the
Code) or (iv) another arrangement covered by Section 414 (o)(of the Code).
4.17 Taxes.
-----
(a) Tax Returns. AEMI has timely filed all returns, declarations,
-----------
reports and statements ("Tax Returns") required to be filed by it relating to
any Tax, all of which were accurately prepared. AEMI has duly paid all Taxes and
withholdings required to be paid by it in respect of such Tax Returns. AEMI has
properly withheld from payments to its employees, contractors, salesmen, agents,
representatives, vendors and other Persons all amounts required by Law to be
withheld, and AEMI has timely filed all Tax Returns required to be filed by it
with respect to such withholdings. Copies of all sales, use, excise, payroll,
withholding and similar Tax Returns filed by AEMI since January 1, 1993 have
been delivered to Buyer. No audit or similar Proceeding is pending or, to the
knowledge of Sellers, threatened against AEMI, no notice of deficiency or
adjustment has been received by AEMI, by or from any governmental taxing
authority, and no Tax is being contested by AEMI. All deficiencies asserted or
threatened by the IRS or any other governmental taxing authority relating to
AEMI have been paid, fully satisfied or adequately provided for on the books and
records of AEMI. There are no agreements or waivers in effect which provide for
an extension of time for the assessment of any Tax against AEMI.
4.18 Proceedings and Judgments. No Proceeding is currently pending or, to the
-------------------------
knowledge of the Sellers, threatened, nor has any Proceeding occurred at any
time since January 1, 1990, to which AEMI is or was a party, or by which AEMI's
Stock, business or Assets is or was affected, and there is no basis known to
AEMI and Sellers for any such Proceeding. No Proceeding is currently pending
or, to the knowledge of the Sellers, threatened against AEMI or any Seller,
relating to this Agreement, the Ancillary Agreements or the transactions
contemplated hereby or thereby. No Judgment is currently outstanding, nor has
any Judgment been outstanding at any time since January 1, 1990, against AEMI,
or by which AEMI's Stock, Business or Assets or the Assets of any other Person
which are used by AEMI, is or was affected. No breach of contract, breach of
warranty, tort, negligence; infringement, product liability, discrimination,
wrongful discharge or other claim of
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any nature has been asserted or, to the knowledge of AEMI or any Seller,
threatened by or against AEMI except where such claim would not be Material to
AEMI, and there is no basis known to AEMI or any Seller to any such claim.
4.19 Insurance. The Disclosure Letter sets forth a list of the Insurance
---------
Policies currently owned or maintained by AEMI (excluding Insurance Policies
that constitute Employee Benefit Plans) and all liability and errors and
omissions Insurance Policies owned or maintained by AEMI at any time since
January 1, 1990. Except as indicated in the Disclosure Letter, all such
Insurance Policies are or were on an "occurrence" rather than a "claims made"
basis. Copies of all Insurance Policies described in the Disclosure Letter have
been delivered to Buyer. Each such Insurance Policy is or was (i) in full force
and effect during the period(s) of coverage indicated in the Disclosure Letter,
(ii) with financially sound and reputable insurance companies or associations,
and (iii) in amounts and covering such risks as were or are sufficient to allow
AEMI to replace any of its Assets that might be damaged or destroyed, protect it
and its Business from risks customarily insured against by companies engaged in
similar businesses in the same general areas without it becoming a co-insurer,
and comply with the requirements of all Laws, Contracts and Permits applicable
to it or its business or Assets. Except as described in the Disclosure Letter,
there are no claims pending under any of the Insurance Policies described in the
Disclosure Letter. AEMI has not received any notice of cancellation with
respect to any of its current Insurance Policies, and there is no basis for the
insurer thereunder to terminate any of AEMI's current Insurance Policies.
4.20 Questionable Payments. Neither AEMI, nor any Seller, nor any of AEMI's
---------------------
current or former shareholders, directors, officers, representatives, agents or
employees (when acting in such capacity or otherwise on behalf of Sellers or any
of its predecessors), (i) has used or is using any corporate funds for any
illegal contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) has used or is using any corporate funds for any
direct or indirect unlawful payments to any foreign or domestic government
officials or employees, (iii) has established or maintained, or is maintaining,
any unlawful or unrecorded fund of corporate monies or other properties, (iv)
has made any false or fictitious entries on the books and records of AEMI, (v)
has made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature, or (vi) made any material favor or gift
which is not deductible by AEMI for corporation tax purposes.
4.21 Related Party Transactions. Except as set forth on in the Disclosure
--------------------------
Letter, there are no Contracts under which AEMI has any current or future
Obligations, or any other arrangements or transactions of any nature, between
AEMI and (i) any current or former shareholder, partner, director, officer or
controlling Person of AEMI, (ii) any other Person affiliated or associated with
AEMI, or (iii) any affiliate, associate or family member of any Person listed in
clause (i) of this Section 4.21.
4.22 Brokerage Fees. No Person acting on behalf of AEMI or Sellers shall be
--------------
entitled to any brokerage or finder's fees in connection with the transactions
contemplated by this Agreement.
-13-
<PAGE>
4.23 Full Disclosure. No representation or warranty made by AEMI or any
---------------
Seller in this Agreement or pursuant hereto contains any untrue statement of any
material fact or omits to state any material fact that is necessary to make the
statements made, in the context in which made, not false or misleading. The
Disclosure Letter and copies of documents attached thereto or otherwise
delivered to Buyer pursuant to or in connection with this Agreement are accurate
and complete and are not missing any amendments, modifications, correspondence
or other related papers which would be pertinent to Buyer's understanding
thereof. There is no fact known to Sellers that has not been disclosed to Buyer
in the Disclosure Letter that was or is, or so far as AEMI and Sellers can
reasonably foresee will be, Material to AEMI or to the ability of AEMI or any
Seller to perform their obligations under this Agreement.
SECTION 5: REPRESENTATIONS AND WARRANTIES OF BUYER
- ---------------------------------------------------
Knowing that Sellers are relying thereon, Buyer represents and warrants to
Sellers as follows:
5.1 Organization and Authority. Buyer is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of Delaware,
the jurisdiction of its incorporation, and has the full corporate power and
authority to enter into and perform this Agreement, and the Ancillary Agreements
to which it is a party and the transactions contemplated hereby and thereby.
5.2 Effect of Agreement. Buyer's execution, delivery and performance of this
-------------------
Agreement, and the Ancillary Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby (i) have been
duly authorized by all necessary corporate actions by Buyer, (ii) do not and
will not constitute a breach or violation of, or a default under, the articles
of incorporation and by-laws of Buyer (iii) do not and will not, with or without
notice and/or lapse of time, constitute a breach or violation of, or default
under, any Contract to which Buyer is a party or by which Buyer or its Assets or
Business, is bound, (iv) do not and will not, with or without notice and/or
lapse of time, constitute a violation of any Law or Judgment, applicable to
Buyer or its Business or Assets, and (v) do not require the Consent of any
Person. This Agreement, and the Ancillary Agreements to which it is a party
constitute the valid and legally binding agreements of Buyer, enforceable
against Buyer in accordance with their respective terms.
5.3 Proceedings. No Proceeding is currently pending or to the knowledge of
-----------
Buyer, threatened, against Buyer relating to this Agreement, the Ancillary
Agreements, or the transactions contemplated hereby or thereby.
5.4 Brokerage Fees. No Person acting on behalf of Buyer is entitled to any
--------------
brokerage or finder's fee in connection with the transactions contemplated by
this Agreement.
5.5 Full Disclosure. No representation or warranty made by Buyer in this
---------------
Agreement or pursuant hereto, contains any untrue statement of any material fact
and omits to state any material fact necessary to make the statements made, in
the context in which made, not false or misleading.
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<PAGE>
SECTION 6: CERTAIN OBLIGATIONS OF SELLERS PENDING CLOSING
- ----------------------------------------------------------
6.1 Investigation. During the period from the date of this Agreement to the
-------------
Closing Date, (i) to the extent reasonably requested by Buyer, AEMI shall permit
Buyer and its authorized representatives to have full access to its Office
Locations and other facilities during normal business hours, to observe the
Business operations, to meet with AEMI's employees, and to audit, examine and
copy all of AEMI's files, books and records, and other documents and papers
relating to the Business, and (ii) AEMI shall provide to Buyer and its
authorized representatives all information concerning the Business and its
Assets, and all information concerning the financial condition of AEMI, that is
reasonably requested by Buyer.
6.2 Conduct Pending Closing. During the period from the date of this
-----------------------
Agreement to the Closing Date, except with the express prior written consent of
Buyer:
(a) AEMI shall, and Sellers shall cause AEMI to, (i) conduct the Business
in a manner consistent with past practices, shall not make any change in its
business practices that is or would be Material to AEMI, and (ii) in good faith,
use its best efforts to preserve the Business organization intact, retaining the
services of its current employees, salesmen, contractors, agents and
representatives and maintaining the good will of its suppliers, customers and
other Persons having business relations with AEMI.
(b) Except in the ordinary course of its business consistent with its
past practices, AEMI shall not, and Sellers shall cause AEMI not to, (i) create
or assume any Encumbrance upon AEMI's Assets, (ii) incur any Obligation
involving an amount exceeding $5,000 in any single case or $10,000 in the
aggregate, (iii) make any loan or advance to any Person, (iv) assume, guarantee
or otherwise become liable for any Obligation of any Person, (v) commit for any
capital expenditure, (vi) purchase, lease, or otherwise acquire any business,
Assets or capital stock of any other Person, (vii) sell, abandon or otherwise
dispose of any of AEMI's Business or Assets, (viii) settle any dispute, waive
any right or cancel any Obligation of AEMI, (ix) assume or enter into or amend
any Contract involving an amount exceeding $5,000 in any single case or $10,000
in the aggregate, or cancel or terminate any Contract other than in accordance
with its terms, (x) increase, or authorize an increase in, the compensation or
benefits paid or provided to any of AEMI's directors, officers, employees,
agents or representatives, (xi) initiate any lawsuit or other Proceeding, or
(xii) undertake any transactions or reclassifications that would affect non-
current assets or non-current liabilities by more than $10,000, or (xiii) do
anything outside the ordinary course of business, whether or not specifically
described in any of the foregoing clauses.
(c) AEMI shall not, and Sellers shall cause AEMI not to, (i) do or omit
to do any act, or permit any act or omission to occur, which will cause a breach
or violation of, or a default under, any of its Contracts, Insurance Policies or
Permits, except where the breach or violation would not be Material to the AEMI,
(ii) completely or partially liquidate or dissolve, or (iii) terminate any part
of the Business.
(d) AEMI shall, and Sellers shall cause AEMI to, (i) maintain AEMI's
Office Locations in good condition and repair, (ii) maintain AEMI's Insurance
Policies and Permits in full force and effect, (iii) comply with all applicable
Contracts, Permits and Laws, except where the failure to so comply would not be
Material to AEMI, (iv) duly and timely withhold from payments to employees,
contractors, salesmen, agents,
-15-
<PAGE>
representatives, vendors and other Persons involved in the Business all amounts
required by Law to be withheld and timely file all Tax Returns required to be
filed by it with respect to such withholdings.
(e) AEMI shall, and Sellers shall cause AEMI to, maintain its existence
and good standing in the State of California and its good standing as a foreign
corporation in each jurisdiction where it is currently qualified as a foreign
corporation.
(f) AEMI shall not, and Sellers shall cause AEMI not to, enter into any
Contract which requires or commits it to take any action or omit to take any
action which would be inconsistent with the foregoing provisions of this Section
6.2.
(g) AEMI shall, and Sellers shall cause AEMI to, have its independent
certified public accountants to prepare and forward to Buyer,, in a timely
manner, an annual financial statement for the fiscal year ending March 31, 1997
6.3 Acquisition Proposals. Neither AEMI nor any Seller, nor any of AEMI's
---------------------
officers, employees, representatives or agents, shall, directly or indirectly,
solicit, initiate or encourage inquiries or proposals from, or participate in
any discussions or negotiations with, or provide any non-public information to,
any Person (other than Buyer and its respective officers, employees,
representatives and agents) concerning any sale of any of AEMI's Assets, any
sale of capital stock or other securities of AEMI, or any merger, consolidation,
business combination or similar transaction involving AEMI or its Business or
Assets.
6.4 Material Consents. Between the date of this Agreement and the Closing
-----------------
Date, AEMI shall, and Sellers shall cause AEMI to, in good faith, use its best
efforts to obtain all of AEMI's Required Consents.
6.5 Advice of Changes. Between the date of this Agreement and the Closing
-----------------
Date, AEMI and Sellers shall promptly advise Buyer in writing of any fact of
which it obtains knowledge and which, if existing or known as of the date of
this Agreement, would have been required to be set forth or disclosed in or
pursuant to this Agreement (it being understood that any such advice shall not
be deemed to modify the representations, warranties and covenants of AEMI
contained in this Agreement).
6.6 Best Efforts. AEMI and Sellers shall use their best efforts to
------------
consummate the transactions contemplated by this Agreement in accordance
herewith, and AEMI and Sellers shall not take, cause to be taken, or to the best
of their ability permit to be taken, any action that would impair the prospect
of completing the transactions contemplated by this Agreement.
SECTION 7: CERTAIN OBLIGATIONS OF BUYER PENDING CLOSING
- --------------------------------------------------------
7.1 Material Consents. Between the date of this Agreement and the Closing
-----------------
Date, Buyer shall in good faith cooperate with AEMI in its efforts to obtain all
of AEMI's Required Consents.
-16-
<PAGE>
7.2 Advice of Changes. Between the date of this Agreement and the Closing
-----------------
Date, Buyer shall promptly advise AEMI in writing of any fact of which it
obtains knowledge and which, if existing or known as of the date of this
Agreement, would have been required to be set forth or disclosed in or pursuant
to this Agreement (it being understood that any such advice shall not be deemed
to modify the representations, warranties and covenants of Buyer contained in
this Agreement).
7.3 Best Efforts. Buyer shall use its best efforts to consummate the
------------
transactions contemplated by this Agreement in accordance herewith, and Buyer
shall not take, cause to be taken, or to the best of its ability permit to be
taken, any action that would impair the prospect of completing the transactions
contemplated by this Agreement.
SECTION 8: CONDITIONS PRECEDENT TO CLOSING BY SELLERS
- ------------------------------------------------------
Each obligation of Sellers to be performed on the Closing Date shall be
subject to the satisfaction of each of the following conditions, except to the
extent that such satisfaction is waived by Sellers in writing:
8.1 Representations of Buyer. All representations and warranties of Buyer
------------------------
contained in this Agreement shall be accurate on and as of the Closing Date,
with the same force and effect as though made on and as of the Closing Date.
8.2 Performance by Buyer. All of the covenants, terms and conditions of this
--------------------
Agreement to be satisfied or performed by Buyer on or before the Closing Date
shall have been substantially satisfied or performed.
8.3 Absence of Proceedings. No Proceeding shall have been instituted or
----------------------
threatened on or before the Closing Date by any Person (other than AEMI or
Sellers), no Judgment shall have been issued, and no new Law shall have been
enacted, that seeks to or does prohibit or restrain, or that seeks damages as a
result of, the consummation of the transactions contemplated by this Agreement.
SECTION 9: CONDITIONS PRECEDENT TO CLOSING BY BUYER
- ----------------------------------------------------
Each obligation of Buyer to be performed on the Closing Date shall be subject
to the satisfaction of each of the following conditions, except to the extent
that such satisfaction is waived by Buyer in writing:
9.1 Representations of Sellers. All of the representations and warranties of
--------------------------
Sellers contained in this Agreement shall be accurate on and as of the Closing
Date, with the same force and effect as though made on and as of the Closing
Date, and the Schedules and Disclosure Letter accompanying this Agreement shall
be complete, accurate and current on and as of the Closing Date, with only such
changes as are expressly permitted in and are consistent with the terms of this
Agreement.
-17-
<PAGE>
9.2 Performance by AEMI and Sellers. All of the covenants, terms and
-------------------------------
conditions of this Agreement to be satisfied or performed by AEMI and Sellers on
or before the Closing Date shall have been substantially satisfied or performed.
9.3 Absence of Adverse Changes. There shall not have been any adverse
--------------------------
changes Material to AEMI between the date of this Agreement and the Closing
Date.
9.4 Absence of Proceedings. No Proceeding shall have been instituted or
----------------------
threatened on or before the Closing Date by any Person (other than Buyer), no
Judgment shall have been issued, and no new Law shall have been enacted, that
seeks to or does prohibit or restrain, or that seeks damages as a result of, the
consummation of the transactions contemplated by this Agreement.
9.5 Material Consents. AEMI and Sellers shall have obtained all of AEMI's
-----------------
Required Consents.
9.6 Initial Public Offering. Buyer shall have completed its IPO.
-----------------------
SECTION 10: CLOSING
- --------------------
10.1 Closing. Unless this Agreement is terminated in accordance with Section
-------
13, the closing on the sale of AEMI's Stock by Sellers to Buyer and the other
transactions contemplated by this Agreement ("Closing") shall be held at 10:00
A.M. local time on June 12, 1997, or such other time and date as is agreed upon
by Sellers and Buyer ("Closing Date"), provided that the Closing shall not be
held later than September 30, 1997. The Closing shall be held at the offices of
Buyer's counsel, Blank, Rome, Comisky & McCauley, Four Penn Center Plaza,
Philadelphia, Pennsylvania, 19103, or such other location as is agreed upon by
Sellers and Buyer; provided, however, that if acceptable to Sellers and Buyer,
Closing may be effected by facsimile transmission of executed Closing Documents
(as defined in Section 10.2) and payment of the Purchase Price in the manner set
forth in Section 3.3 and by sending original copies of Closing Documents by
reputable overnight delivery service, postage or delivery charges prepaid, for
delivery to the parties at their addresses stated on the first page of this
Agreement by the fifth business day following the Closing Date. Except to the
extent prohibited by Law, the Closing shall be considered effective as of the
close of business on the Closing Date or such other effective date as is agreed
upon in writing by Sellers and Buyer ("Effective Date").
10.2 Obligations of Sellers at Closing. At the Closing, Sellers shall deliver
---------------------------------
to Buyer the following (collectively, with the documents required to be
delivered by Buyer pursuant to Section 10.3, the "Closing Documents"):
(a) AEMI's Stock. Certificates representing all of AEMI's Stock, with any
------------
required transfer stamps affixed, together with evidence of payment of any
transfer taxes relating thereto; and with assignments separate from certificates
duly executed by Sellers to transfer all of AEMI's Stock to Buyer.
(b) Resignations. Resignations of such directors and officers of AEMI as
------------
Buyer shall designate in writing to Sellers, effective on the Closing Date or
such other date as Buyer shall determine, duly executed by such officers and
directors.
-18-
<PAGE>
(c) Resolutions. Copies of the resolutions duly adopted by the board of
-----------
directors or AEMI, the shareholders of AEMI, if applicable, the board of
directors of Anechoic and the shareholders of Anechoic, if applicable,
authorizing AEMI to enter into and perform this Agreement and the Ancillary
Agreements, certified by proper officers of AEMI as in full force and effect on
and as of the Closing Date.
(d) Good Standing Certificates of AEMI. Good standing certificates for
----------------------------------
AEMI from the State of California dated no earlier than fifteen (15) days before
the Closing Date.
(e) Good Standing Certificates of Anechoic. Good standing certificates
--------------------------------------
for Anechoic from the State of Nevada dated no earlier than fifteen (15) days
before the Closing Date.
(f) Incumbency Certificate. A certificate, dated the Closing Date,
----------------------
executed by the Secretary or Assistant Secretary of AEMI, certifying the names,
titles and signatures of all of AEMI's officers who execute this Agreement, and
the Ancillary Agreements and other documents on behalf of AEMI, and the
authority of such officers to do so, in form and substance acceptable to Buyer.
(g) Closing Certificate. A certificate ("Sellers' Closing Certificate"),
-------------------
dated the Closing Date and duly executed by Sellers in which Sellers represent
and warrant to Buyer that (i) all of the representations and warranties of
Sellers contained in this Agreement are accurate on and as of the Closing Date,
with the same force and effect as though made on and as of the Closing Date;
(ii) the Disclosure Letter is complete and accurate on and as of the Closing
Date, with only such changes as are expressly permitted in and are consistent
with the terms of this Agreement (all of which changes shall be set forth in an
attachment to Closing Certificate); (iii) all of the covenants, terms and
conditions of this Agreement to be satisfied or performed by AEMI and Sellers on
or before the Closing Date have been substantially satisfied or performed; (iv)
there have not been any adverse changes Material to AEMI between the date of
this Agreement and the Closing Date; and (v) as of the Closing Date, no
Proceeding has been instituted or threatened in writing against AEMI or either
Seller by any Person, and no Judgment has been issued against AEMI or either
Seller, that seeks to or does prohibit or restrain, or that seeks damages as a
result of, the consummation of the transactions contemplated by this Agreement.
(h) Minute Books. All of AEMI's minute books and stock books concerning
------------
all items described in Section 4.4.
(i) Consents. The original copies of all Required Consents obtained by
--------
AEMI and/or Sellers.
(j) Documents of Transfer. All instruments or documents necessary to
---------------------
change the names of individuals authorized to draw on or have access to the
accounts and safe deposit boxes described on Schedule 4.4, and all keys and
combinations to all safe, lock boxes and other depositories described on
Schedule 4.4.
(k) Other Documents. All other agreements, certificates, instruments and
---------------
documents reasonably requested by Buyer in order to fully consummate the
transactions contemplated by this Agreement and carry out the purposes and
intent of this Agreement.
10.3 Obligations of Buyer at Closing. At the Closing, Buyer shall deliver to
-------------------------------
Sellers the following:
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<PAGE>
(a) Closing Payment. Telephone confirmation of the wire transfer of
---------------
funds in the amount of the Closing Payment, in accordance with Sellers' proper
wire transfer instructions, and delivery of the Stock Payment.
(b) Resolutions. Copies of the resolutions duly adopted by the board of
-----------
directors of Buyer, authorizing Buyer to enter into and perform this Agreement,
and the Ancillary Agreements, certified by proper officers of Buyer as in full
force and effect on and as of the Closing Date.
(c) Good Standing Certificates. Good standing certificates for Buyer
--------------------------
from the State of Delaware, dated no earlier than fifteen (15) days before
Closing Date.
(d) Incumbency Certificate. A certificate, dated the Closing Date,
----------------------
executed by the Secretary or Assistant Secretary of Buyer, certifying the names,
titles and signatures of all of Buyer's officers who execute this Agreement, the
Ancillary Agreements and other documents on behalf of Buyer, and the authority
of such officers to do so, in form and substance acceptable to Sellers.
(e) Closing Certificate. A certificate ("Buyer's Closing Certificate"),
-------------------
dated the Closing Date and duly executed by Buyer, in which Buyer represents and
warrants to Sellers that: (i) all of the representations and warranties of
Buyer contained in this Agreement are true on and as of the Closing Date, with
the same force and effect as though made on and as of the Closing Date; (ii) all
of the covenants, terms and conditions of this Agreement to be satisfied or
performed by Buyer on or before the Closing Date have been substantially
satisfied or performed; and (iii) as of the Closing Date, no Proceeding has been
instituted or threatened in writing against Buyer by any Person, and no Judgment
has been issued against Buyer, that seeks to or does prohibit or restrain, or
that seeks damages as a result of, the consummation of the transactions
contemplated by this Agreement.
(f) Other Documents. All other agreements, certificates, instruments and
---------------
documents reasonably requested by Sellers in order to fully consummate the
transactions contemplated by this Agreement and carry out the purposes and
intent of this Agreement.
SECTION 11: CERTAIN OBLIGATIONS OF SELLERS AND BUYER AFTER CLOSING
- -------------------------------------------------------------------
11.1 Cooperation with Buyer. From and after the Effective Date, (i) Sellers
----------------------
shall fully cooperate to place Buyer in full possession and enjoyment of all of
AEMI's Assets and to transfer to Buyer the full control and benefits of the
Business; (ii) Sellers shall not undertake any action, directly or indirectly,
alone or together with any other Person, which obstructs or impairs the smooth
assumption by Buyer of the Business; and (iii) all correspondence, papers,
documents and similar items and materials received by Sellers relating to the
Specified Assets, or otherwise relating to the Business, shall be immediately
forwarded to Buyer.
11.2 Further Assurances. At any time and from time to time after the date of
------------------
this Agreement, at Buyer's request and expense, and without further
consideration, AEMI and Sellers shall promptly execute and deliver all such
further agreements, certificates, instruments and documents, and perform such
further actions,
- 20 -
<PAGE>
as Buyer may reasonably request in order to fully consummate the transactions
contemplated hereby and carry out the purposes and intent of this Agreement.
Without limiting the generality of the foregoing, AEMI shall timely file all Tax
returns and reports required to be filed with respect to the Assets and Business
for all periods ending on or before the Effective Date.
11.3 Nondisclosure. At all times after the Closing Date, except with Buyer's
-------------
express prior written consent, Sellers shall not, directly or indirectly
(through subsidiaries, affiliates, associates or otherwise), communicate,
disclose or divulge to any Person (other than Buyer), or use for the benefit of
any Person (other than Buyer), any confidential or proprietary knowledge or
information, no matter when or how acquired, concerning AEMI's Assets or the
conduct and details of the Business, including (a) the identity of customers,
prospects and suppliers, (b) names, addresses and telephone numbers of
individual contacts at customers and prospects, (c) fees, renewal dates, and
other details of customer contracts and proposals, (d) pricing policies,
marketing strategies, product strategies, technical know-how, trade secrets, and
methods of operations, (e) software designs and concepts, (f) budgets and other
nonpublic financial information, and (g) expansion plans, management policies,
and other business strategies and policies. For purposes of this Section 11.6,
confidential information shall not include any information that is now known by
the general public or becomes known by the general public other than as a result
of any improper act or omission of AEMI or any Sellers.
11.4 Holding Period and Request for Registration. Sellers agree that for a
-------------------------------------------
period of two (2) years following the Closing Date (the "Holding Period"),
neither of them, directly or indirectly, shall sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of the securities of the Buyer
representing the Stock Payment. Buyer agrees that if at the conclusion of the
Holding Period, the securities of the Buyer representing the Stock Payment are
not freely tradeable as if registered under the Securities Act of 1933
(the"Act"), then Buyer, upon the written request of either of the Sellers agrees
to file or cause to be filed as soon thereafter as practicable with the United
States Securities and Exchange Commission a registration statement covering the
registration of such securities under the Act.
11.5 Debt Repayment. Buyer agrees that within thirteen months of the Closing
--------------
Date, it will cause AEMI to repay its outstanding long-term debt obligation to
Sanchez inclusive of principal and interest . Until repaid, Buyer will endeavor
to cause accrued interest and $5,000 of principal to be paid to Sanchez on a
monthly basis.
11.6 Noncompetition. Sellers acknowledge that the Business conducted by AEMI
--------------
and the business conducted by Buyer (referred to collectively, as "Buyer's
Business") are highly competitive, require substantial and continuous
expenditures of money and the time of skilled experts to develop, market and
support, and are marketed on a worldwide basis. Accordingly, for a period of
five years after the Closing Date, except with Buyer's express prior written
consent, Sellers shall not, directly or indirectly (through subsidiaries or
affiliates), in any capacity, for the benefit of any Person, at any location
worldwide:
(a) Communicate with or solicit any Person who is then a customer of
Buyer or the Business in any manner which interferes or might interfere with
such relationship between such Person and Buyer or the Business, or in an effort
to obtain such Person as a customer of any Person that conducts a business
competitive with or similar to Buyer's Business or the Business.
- 21 -
<PAGE>
(b) Communicate with or solicit any Person who is then an employee,
salesman, agent or representative of Buyer or the Business in any manner which
interferes or might interfere with such relationship between such Person and
such Buyer Company or the Business, or in an effort to obtain such Person as an
employee, salesman, agent or representative of any Person that conducts a
business competitive with or similar to Buyer's Business or the Business.
(c) Establish, own, finance, manage, operate or control, or participate
in the establishment, ownership, financing, management, operation or control of,
any Person that conducts a business competitive with or similar to Buyer or the
Business except the following: j(i) the ownership interest of Sanchez in
Anechoic; and (ii) the ownership interest of Sanchez in Advanced
Electromagnetics Measurement, Inc., a Colorado corporation.
11.7 Consideration. Sellers expressly acknowledge that (i) the restrictive
-------------
covenants of this Section 11 ("Covenants") are a material part of the
consideration bargained for by Buyer, and (ii) without the agreement of Sellers
to be bound by the Covenants, Buyer would not have agreed to enter into this
Agreement and consummate the transactions contemplated hereby.
11.8 Enforcement. Sellers expressly acknowledge that any breach by either of
-----------
them of any of the Covenants will result in irreparable injury to Buyer for
which money damages could not adequately compensate. If there is such a breach,
Buyer shall be entitled, in addition to all other rights and remedies it may
have at law or in equity, to have an injunction issued by any competent court
enjoining and restraining Sellers and all other Persons involved therein from
continuing such breach. The existence of any claim or cause of action which
Sellers or any such other Person may have against Buyer shall not constitute a
defense or bar to the enforcement of any of the Covenants. If Buyer must resort
to litigation to enforce any of the Covenants that has a fixed term, then such
term shall be extended for a period of time equal to the period during which a
breach of such Covenant was occurring, beginning on the date of a final court
order (without further right of appeal) holding that such a breach occurred or,
if later, the last day of the original fixed term of such Covenant.
11.9 Scope. If any portion of any Covenant or its application is construed to
-----
be invalid, illegal or unenforceable, then the other portions and their
application shall not be affected thereby and shall be enforceable without
regard thereto. If any of the Covenants is determined to be unenforceable due
to its scope, duration, geographical area or similar factor, then the court
making such determination shall have the power to reduce or limit such scope,
duration, area or other factor, and such Covenant shall then be enforceable in
its reduced or limited form.
SECTION 12: INDEMNIFICATION AND SETOFF
- ---------------------------------------
12.1 Indemnification Obligations of Sellers. From and after the Closing Date,
--------------------------------------
Sellers shall, jointly and severally, indemnify and hold harmless Buyer, and its
successors and assigns, from and against any and all Proceedings, Judgments,
Obligations, losses, damages, deficiencies, settlements, assessments, charges,
costs and expenses (including, but not limited to, reasonable attorneys' fees,
investigation expenses, court costs, interest and penalties) arising out of or
in connection with, or caused by, directly or indirectly, any or all of the
following:
- 22 -
<PAGE>
(a) Any misrepresentation, breach or failure of any warranty or
representation made by AEMI or Sellers in this Agreement.
(b) Any failure or refusal by AEMI or Sellers to satisfy or perform any
covenant, term or condition of this Agreement required to be satisfied or
performed by them.
(c) Any Obligation of AEMI for any Tax, including, but not limited to,
(i) any tax payable by AEMI, with respect to AEMI's business operations except
to the extent that any accruals or reserves therefor shall be clearly reflected
on AEMI's March 31, 1996 balance sheet for the period ending March 31, 1996
described in Section 4.6 ("March 31, 1996 Balance Sheet"), (ii) any Tax payable
by AEMI with respect to the ownership, possession, purchase, lease, sale,
disposition or use of any of AEMI's Assets at any time before the Effective Date
except to the extent that any accruals or reserves therefor shall be clearly
reflected on the March 31, 1996 Balance Sheet, and (iii) any tax resulting from
the sale of AEMI's Stock to Buyer and the other transactions contemplated
hereby. Any obligation of AEMI for any Tax shall be subject to indemnification
under this Section 12.1 notwithstanding that the same may be assessed against or
imposed upon Buyer.
(d) Any Proceeding against Buyer by or on behalf of any employee of AEMI
who is not hired by Buyer.
(e) Any Proceeding against Buyer by any Person based on any act or
omission occurring prior to the Closing Date relating to or arising in
connection with AEMI's operation of the Business.
(f) Any Proceeding against Buyer by a shareholder of Anechoic arising out
of a failure of Anechoic, its officers or directors, to discharge duties or
obligations owed to such shareholder.
12.2 Indemnification Obligations of Buyer. From and after the Closing Date,
------------------------------------
Buyer shall indemnify and hold harmless Sellers, and their successors, assigns,
heirs and personal representatives, from and against any and all Proceedings,
Judgments, Obligations, losses, damages, deficiencies, settlements, assessments,
charges, costs and expenses (including, but not limited to, reasonable
attorneys' fees, investigation expenses, court costs, interest and penalties)
arising out of or in connection with, or caused by, directly or indirectly, any
or all of the following:
(a) Any misrepresentation, breach or failure of any warranty or
representation made by Buyer in this Agreement.
(b) Any failure or refusal by Buyer to satisfy or perform any covenant,
term or condition of this Agreement required to be satisfied or performed by it.
(c) Any Proceeding against Sellers by any Person (other than Buyer) based
on any act or omission occurring after the Closing Date relating to or arising
in connection with Buyer's operation of the Business.
12.3 Indemnification Notice. With respect to each event, occurrence or matter
----------------------
("Indemnification Matter") as to which Buyer on the one hand, or Sellers on the
other hand (referred to as the "Indemnitee"), is
- 23 -
<PAGE>
entitled to indemnification from the other (referred to as the "Indemnitor")
under this Section 12, within ten days after the Indemnitee receives any written
documents underlying the Indemnification Matter, or, if the Indemnification
Matter does not involve a third party action, suit, claim or demand, promptly
after the Indemnitee first has actual knowledge of the Indemnification Matter,
the Indemnitee shall give notice to the Indemnitor of the nature of the
Indemnification Matter and the amount demanded or claimed in connection
therewith ("Indemnification Notice").
12.4 Defense of Indemnification Matters. If an Indemnification Matter
----------------------------------
involves a third party action, suit, claim or demand, then, upon receipt of the
Indemnification Notice, the Indemnitor shall, at its expense and through counsel
of its choice, promptly assume and have sole control of the litigation, defense
or settlement of the Indemnification Matter (referred to as the "Defense"),
except that:
(a) The Indemnitee may, at its option and expense and through counsel of
its choice, participate in (but not control) the Defense.
(b) If the Indemnitee reasonably believes that the handling of the
Defense by the Indemnitor may have a material adverse effect on the Indemnitee's
business or its relationship with any customer, supplier, employee, contractor,
salesman, agent or representative, then the Indemnitee may, at its option and
expense and through counsel of its choice, assume control of the Defense;
provided that the Indemnitor shall continue to be obligated to indemnify the
Indemnitee with respect thereto and shall be entitled to participate in the
Defense at its expense and through counsel of its choice.
(c) The Indemnitor shall not consent to any Judgment or agree to any
settlement without the Indemnitee's prior written consent.
(d) If the Indemnitor does not promptly assume control over the Defense
or, after doing so, does not continue to prosecute the Defense in good faith,
the Indemnitee may, at its option and through counsel of its choice, but at the
Indemnitor's expense, assume control over the Defense; provided that the
Indemnitor shall continue to be obligated to indemnify the Indemnitee with
respect thereto.
(e) In any event, the Indemnitor and the Indemnitee shall fully cooperate
with each other in connection with the Defense, including, but not limited to,
furnishing all available documentary or other evidence as is reasonably
requested by the other.
12.5 Indemnification Payments. All amounts owed by the Indemnitor to the
------------------------
Indemnitee (if any) shall be paid in full within three business days after a
final settlement or agreement as to the amount owed is reached, or after a final
Judgment (without further right of appeal) determining the amount owed is
rendered.
12.6 Limits on Indemnification. Regardless of which party or parties is the
-------------------------
Indemnitor, and notwithstanding the other provisions of this Section 12, the
Indemnitor's liability under this Section 12 shall be limited as follows:
(a) Deductible. No amount shall be payable by the Indemnitor under
----------
this Section 12 unless and until the aggregate amount otherwise payable by the
Indemnitor under this Section 12 exceeds Fifty Thousand
- 24 -
<PAGE>
Dollars ($50,000), in which event such aggregate amount and all future amounts
payable by the Indemnitor under this Section 12 shall be payable in full.
(b) Ceiling. The Indemnitor's total liability under this Section 12
-------
shall in no event exceed, in the aggregate, the Purchase Price.
(c) Time Limit. With respect to any Indemnification Matter, the
----------
Indemnitor shall have no liability unless the Indemnitee gives an
Indemnification Notice in accordance with Section 12.3 within 24 months after
the Closing Date.
(d) Exceptions. None of the foregoing limitations shall apply in
----------
the case of any Indemnification Matter involving recklessness, intentional
misrepresentation, fraud or criminal matters.
12.7 Setoff and Holdback. In addition to all other rights and remedies that
-------------------
the Indemnitee may have, the Indemnitee shall have the right to setoff, against
any monies or other amounts due, inclusive of the Stock Payment, to the
Indemnitor (whether under this Agreement or otherwise), any sums for which the
Indemnitee is entitled to indemnification under this Section 12 or any other
sums which the Indemnitor may owe to the Indemnitee (whether under this
Agreement or otherwise). The Indemnitee's rights to indemnification under this
Section 12 shall under no circumstances be in any manner limited by this right
of setoff. If any Indemnification Matters are pending at the time the
Indemnitee is required to make any payment to the Indemnitor (whether under this
Agreement or otherwise), then the Indemnitee shall have the right, upon notice
to the Indemnitor, to withhold from such payment, until final determination of
such Indemnification Matters, the total amount for which the Indemnitor may
become liable as a result thereof, determined by the Indemnitee reasonably and
in good faith, which amount shall be subject to revision (upward or downward)
from time to time upon the discovery of additional material information with
respect to such matter.
SECTION 13: TERMINATION, AMENDMENT AND WAIVER
- ----------------------------------------------
13.1 Termination. This Agreement may be terminated and the transactions
-----------
contemplated hereby abandoned at any time before Closing, in accordance with any
of the following methods:
(a) By the mutual written consent of Buyer and Sellers.
(b) By written notice from Buyer to Sellers, or from Sellers to Buyer, if
the Closing does not occur on or before September 30, 1997, for any reason other
than a breach of this Agreement by the party giving such notice.
(c) By written notice from Buyer to Sellers, if it becomes certain, for
all practical purposes, that any of the conditions to the closing obligations of
Buyer set forth in Section 9 cannot be satisfied for a reason other than Buyer's
breach of this Agreement, and Buyer is not willing to waive the satisfaction of
such condition.
- 25 -
<PAGE>
(d) By written notice from Sellers to Buyer, if it becomes certain, for
all practical purposes, that any of the conditions to the closing obligations of
Sellers set forth in Section 8 cannot be satisfied for a reason other than
AEMI's or Sellers' breach of this Agreement, and Sellers are not willing to
waive the satisfaction of such condition.
(e) By written notice from Buyer to Sellers, if AEMI or Sellers breach
any of their representations, warranties, covenants or agreements contained in
this Agreement.
(f) By written notice from Sellers to Buyer, if Buyer breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement.
13.2 Effect of Termination. Upon termination of this Agreement pursuant to
---------------------
Section 13.1, this Agreement shall be of no further force and effect, and there
shall be no liability on the part of any party hereto, except for the
obligations of the parties under Sections 14.1, 14.2 and 14.3, and except that
no such termination shall relieve any party from liability for any breach of
this Agreement prior to such termination.
13.3 Amendment. This Agreement may be amended, modified or supplemented by
---------
the parties hereto, whether before or after approval by Buyer's shareholders,
provided that any such amendment, modification or supplement shall be in writing
and signed by the parties hereto.
13.4 Waiver. No waiver with respect to this Agreement shall be enforceable
------
unless in writing and signed by the party against whom enforcement is sought.
Except as otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between or among any of the parties, shall
constitute a waiver of, or shall preclude any other or further exercise of the
same or any other right, power or remedy.
SECTION 14: OTHER PROVISIONS
- -----------------------------
14.1 Confidentiality. During the period from the date of this Agreement to
---------------
the Closing Date, (a) each of the parties shall maintain the confidentiality of
all information normally maintained as confidential and exchanged among them in
connection with this Agreement, in the same manner that the recipient of the
information maintains the confidentiality of its own confidential information,
and (b) none of the parties will discuss the existence or nature of this
Agreement or the transaction contemplated hereby with any of AEMI's customers,
prospects, suppliers, employees, contractors, salesmen, agents or
representatives, except in the manner reasonably determined by Buyer. If this
Agreement is terminated in accordance with Section 13 or by the written
agreement of Sellers and Buyer, then each party shall promptly return all
confidential information and materials of the other parties, and the provisions
of the foregoing sentence shall survive such termination indefinitely. Sellers
and Buyer each acknowledge that any breach of this Section 14.1 may cause
irreparable injury to the others for which money damages could not adequately
compensate. If there is such a breach, the aggrieved party shall be entitled,
in addition to all other rights and remedies they may have at law or in equity,
to have an injunction issued by any competent court enjoining and restraining
the breaching parties from continuing such
- 26 -
<PAGE>
breach. The existence of any claim or cause of action which any of the
breaching parties may have against any of the aggrieved parties shall not
constitute a defense or bar to the enforcement of this Section 14.1.
14.2 Publicity. All voluntary public announcements concerning the
---------
transactions contemplated by this Agreement shall be mutually acceptable to both
Buyer and Sellers. Unless required by Law, neither party shall make any public
announcement or issue any press release concerning the transactions contemplated
by this Agreement without the prior written consent of the other party. With
respect to any announcement that any of the parties is required by Law to issue,
such party shall, to the extent possible under the circumstances, review the
necessity for and the contents of the announcement with the other party before
issuing the announcement.
14.3 Expenses. Each party shall pay all of the costs and expenses incurred by
--------
it in negotiating and preparing this Agreement (and all other agreements,
certificates, instruments and documents executed in connection herewith), in
performing its obligations under this Agreement, and in otherwise consummating
the transactions contemplated by this Agreement.
14.4 Notices. All notices, consents or other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three business
days after being mailed by first class certified mail, return receipt requested,
postage prepaid, or (c) one business day after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the first page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and shall be
effective on the date transmitted if confirmed within 72 hours thereafter by a
signed original sent in the manner provided in the preceding sentence. A copy of
each notice to AEMI or Sellers shall be simultaneously sent to Steven H.
Wilhelm, Esquire, 155 Fourth Avenue, Suite 200, San Diego, CA 92101 and A. V.
Arias and Company, 7676 Hazard Center Drive, Suite 450, San Diego, CA 92106-
4507, Attention: Alfonso V. Arias, Jr. A copy of each notice to Buyer shall be
simultaneously sent to Blank, Rome, Comisky & McCauley, 1200 Four Penn Center
Plaza, Philadelphia, Pennsylvania 19103, Attention: Arthur H. Miller. Any
party may change its address for notice and the address to which copies must be
sent by giving notice of the new addresses to the other parties in accordance
with this Section 14.4, except that any such change of address notice shall not
be effective unless and until received.
14.5 Reliance by Buyer. Notwithstanding the right of Buyer to investigate the
-----------------
Business, AEMI's Assets and the financial condition of AEMI, Buyer has the
unqualified right to rely, and has relied, upon the representations and
warranties of AEMI and Sellers made in this Agreement.
14.6 Survival of Representations. All representations, warranties and
---------------------------
covenants made in or pursuant to this Agreement shall survive the date hereof,
the Effective Date and the consummation of the transactions contemplated hereby.
14.7 Interpretation of Representations. Each warranty and representation made
---------------------------------
by Sellers in this Agreement is independent of all other warranties and
representations made by Sellers (whether or not covering related or similar
matters) and must be independently and separately satisfied. Exceptions or
qualifications to any such warranty or representation shall not be construed as
exceptions or qualifications to any other warranty or representation.
- 27 -
<PAGE>
14.8 Entire Understanding. This Agreement, together with the Exhibits,
--------------------
Schedules and the Disclosure Letter hereto, states the entire understanding
among the parties with respect to the subject matter hereof, and supersedes all
prior oral and written communications and agreements, and all contemporaneous
oral communications and agreements, with respect to the subject matter hereof.
14.9 Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns. No
party shall in any manner assign any of its rights or obligations under this
Agreement without the express prior written consent of the other parties.
14.10 Severability. If any provision of this Agreement is construed to be
------------
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
14.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
14.12 Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
14.13 References. All words used in this Agreement shall be construed to be
----------
of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, (i) the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof, (ii) the word "including" and
similar references shall be construed to mean "including without limitation" or
"including but not limited to."
14.14 Controlling Law. This Agreement is made under, and shall be construed
---------------
and enforced in accordance with, the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of law. Any action arising out of this
Agreement or the transactions contemplated hereby shall be instituted in the
state or federal court located in Philadelphia, Pennsylvania and each party
waives any objection which such party may have to such venue, and irrevocably
submits to the jurisdiction of any such court in any such action. THE PARTIES
HERETO WAIVE THEIR RIGHTS TO TRIAL BY JURY AND AGREE THAT ANY DISPUTES HEREUNDER
SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
14.15 No Third Party Beneficiaries. No provision of this Agreement is
----------------------------
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
other than the parties hereto, including any customer, prospect, supplier,
employee, contractor, salesman, agent or representative of AEMI.
14.16 Construction. The parties acknowledge that each has been
------------
represented by counsel in connection with this transaction, and each has had the
opportunity to fully consult with its advisors. Accordingly, when construing
this Agreement or the Ancillary Agreements, they shall be construed as prepared
by both the Buyer and the Sellers and shall not be construed more strictly
against the Buyer.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first stated above.
ORBIT/FR, INC.
By: /s/ Aryeh Trabelsi /s/ Gabriel A. Sanchez
---------------------------- ------------------------------------
Name: GABRIEL A. SANCHEZ
Title: President
/s/ Barbara J. Sanchez
------------------------------------
BARBARA J. SANCHEZ
ANECHOIC SYSTEMS, INC.
By: /s/ Gabriel A. Sanchez
---------------------------------
Name:
Title: President
ADVANCED ELECTROMAGNETICS, INC.
By: /s/ Gabriel A. Sanchez
---------------------------------
Name:
Title: President
- 29 -
<PAGE>
SCHEDULE 3.1
DETERMINATION OF PURCHASE PRICE
1. The Purchase Price shall be equal to six (6) times the net weighted
average after tax profit ("Weighted Profit"), as calculated using the method on
pages 4 and 12 of the attached report prepared by the certified public
accountant of AEMI, and as adjusted to reflect Sanchez' salary as US$120,000
instead of US$150,000.
2. The weighted profits shall be adjusted based upon AEMI's final reported
numbers as reflected in its audited financial statements as of March 31, 1995,
March 31, 1996 and March 31, 1997, as audited by Ernst & Young.
3. In no event shall the Purchase Price exceed $1,600,000.
4. The Purchase Price as determined above shall be subject to the greater of
the following negative adjustments:
(a) Equity Adjustment. The Purchase Price shall be adjusted, if
-----------------
necessary, based upon the final value of AEMI's net worth as of March 31, 1997
as audited by Ernst & Young. Specifically, any amount by which AEMI's net worth
exceeds US$549,213 shall be added to the Purchase Price and any amount by which
AEMI's net worth falls short of US$549,213 shall be subtracted from the Purchase
Price.
a. Working Capital Adjustment. The Purchase Price shall be adjusted, if
--------------------------
necessary, based upon the final value of AEMI's net working capital as of March
31, 1997 as audited by Ernst & Young which for purposes hereof is defined as
current assets minus current liabilities. Specifically, any amount by which
AEMI's working capital falls short of $500,000 shall be subtracted from the
Purchase Price.
5. In no event shall AEMI's long-term loan to Sanchez (inclusive of
principal and interest) exceed $300,000 at March 31, 1997.
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<PAGE>
SCHEDULE 3.4
ALLOCATION OF PURCHASE PRICE
To be determined at or prior to Closing.
- 31 -
<PAGE>
SCHEDULES
The following Schedules have been omitted pursuant to Item 601(b)(2) of
Regulations S-K:
Schedule 4.1 -Organization & Authority
Schedule 4.2 -Capital Structure
Schedule 4.3 -Effect of Agreement
Schedule 4.4 -Financial & Corporate
Schedule 4.5 -Compliance with Law
Schedule 4.7 -Conduct of Operations
Schedule 4.8 -Current Assets
Schedule 4.9 -Tangible Property
Schedule 4.10 -Real Property
Schedule 4.11 -Software & Intangibles
Schedule 4.12 -Obligations
Schedule 4.13 -Contracts
Schedule 4.14 -Customers & Suppliers
Schedule 4.15 -Employees & Independent Contractors
Schedule 4.16 -Employee Benefit Plans
Schedule 4.19 -Insurance
Schedule 4.21 -Related Party Transactions
The Registrant agrees to furnish supplementally a copy of any omitted
Schedule to the Commission upon request.
<PAGE>
EXHIBIT 2.2
SHARE EXCHANGE AGREEMENT
Parties: Orbit-Alchut Technologies, Ltd. ("Alchut")
18 Hakadar Street
Netanya
Israel
Orbit/FR, Inc. ("Orbit/FR")
506 Prudential Road
Horsham, Pennsylvania 19044
USA
Orbit Advanced Systems, Ltd. ("Systems")
18 Hakadar Street
Netanya
Israel
Date: As of December 31, 1996
Background: Alchut owns 10 shares of common stock of Orbit Advanced
- ----------
Technologies, Inc. ("Orbit"), representing all of the issued and outstanding
capital stock of Orbit. Alchut owns 99 ordinary shares, and Systems owns 1
ordinary share of Orbit F.R. Engineering Ltd. ("Engineering"), representing all
of the issued and outstanding share capital. The parties desire that Orbit/FR
sell and transfer to, and Alchut and Systems purchase and acquire, 3,999,520
shares and 480 shares, respectively, of, stock of Orbit/FR in exchange for
Alchut's 10 shares of common stock of Orbit and 99 ordinary shares of
Engineering and System's 1 ordinary share of Engineering. Simultaneously with
its receipt from Systems, Orbit/FR is transferring the 1 ordinary share of
Engineering to Orbit.
Intending to be legally bound, and in consideration of the mutual agreements
contained herein, the parties agree as follows:
SECTION 1. EXCHANGE OF SHARES
- ------------------------------
Effective as of 11:59 p.m. on December 31, 1996 (Tel Aviv time) (the
"Effective Date"), the following conveyances shall have taken place:
1.1. Orbit/FR hereby issues, sells and exchanges to Alchut, and Alchut
hereby purchases and acquires from Orbit/FR, 3,952,000 shares of common stock of
Orbit/FR in exchange for the 10 shares of common stock of Orbit owned by Alchut;
<PAGE>
1.2. Orbit/FR hereby issues, sells and exchanges to Alchut, and Alchut
hereby purchases and acquires from Orbit/FR, 47,520 shares of common stock of
Orbit/FR in exchange for the 99 ordinary shares of Engineering owned by Alchut;
1.3. Orbit/FR hereby issues, sells and exchanges to Systems, and Systems
hereby purchases and acquires from Orbit/FR, 480 shares of capital stock of
Orbit/FR in exchange for the 1 ordinary share of Engineering owned by Systems;
and
1.4. Orbit/FR hereby transfers, simultaneously with its receipt of such
from Systems, 1 ordinary share of Engineering to Orbit as a contribution to the
capital of Orbit.
SECTION 2. REPRESENTATIONS OF ALCHUT
- -------------------------------------
Knowing that Orbit/FR relies thereon, Alchut and Systems, jointly and
severally, represent and warrant to Orbit/FR as follows:
2.1. Organization. Alchut, Systems and Engineering each is a limited
------------
liability company that is duly organized, validly existing and in good standing
under the laws of Israel. Alchut, Systems, and Engineering each has the full
corporate power and authority to enter into and perform this Agreement.
2.2. Agreement. The execution, delivery and performance of this
---------
Agreement by Alchut and Systems, and the consummation by Alchut and Systems of
the transactions contemplated by this Agreement, have been duly authorized by
all necessary actions by its board of directors and shareholders and do not
constitute a violation of or default under the charter, bylaws and/or other
organizational documents of Alchut or Systems. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated by this Agreement, (a) do not constitute a default or breach
(immediately or after the giving of notice, passage of time or both) under any
contract, agreement, lease, instrument or understanding to which Alchut or
Systems is a party or by which either of them is bound, (b) do not constitute a
violation of any law, rule or regulation or any judgment, order or decree that
is applicable to Alchut or Systems or to the transactions contemplated by this
Agreement, (c) do not result in the creation of any lien, claim or encumbrance
upon, or give to any third party any interest in any of the capital stock of
Orbit or Engineering, and (d) do not require the consent, approval or
authorization of any person or entity. This Agreement constitutes the valid and
legally binding agreement of Alchut and Systems, enforceable against each in
accordance with its terms.
2.3. Capital Stock and Ownership. The authorized capital stock of Orbit
---------------------------
consists of 1,000 shares of Common Stock, $ 0.01 par value, of which 10 shares
are issued and outstanding, and are owned by Alchut and no shares are held in
treasury. The authorized capital stock of Engineering consists of 100 ordinary
shares, .01 par value, of which 100 shares are issued and outstanding, and
-2-
<PAGE>
no shares are held in the treasury. Of the 100 issued and outstanding shares of
Engineering, Alchut owns 99 ordinary shares and Systems owns the 1 ordinary
share. Except for the above disclosed shareholders, there are no other record
or beneficial owners of any shares of capital stock of either Orbit or
Engineering, and there are no other issued or outstanding shares of capital
stock of either Orbit or Engineering. All of the issued and outstanding shares
of capital stock of Orbit or Engineering have been duly authorized and validly
issued, and are fully paid and nonassessable, with no liability attaching to the
ownership thereof. Except for this Agreement, there are no outstanding options,
puts, calls, warrants, subscriptions, stock appreciation rights, phantom stock,
or other contracts, agreements or understandings relating to the offering, sale,
issuance, redemption or disposition of any shares of capital stock, or other
securities of Orbit or Engineering.
2.4. Brokerage Fees. No person or entity acting on behalf of Alchut or
--------------
Systems is entitled to any brokerage, finder's or investment banking fee in
connection with the transactions contemplated by this Agreement.
SECTION 3. REPRESENTATIONS OF ORBIT/FR
- ---------------------------------------
Knowing that Alchut relies thereon, Orbit/FR represents and warrants to
Alchut as follows:
3.1. Organization. Orbit/FR is a corporation that is duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
Orbit/FR has the full corporate power and authority to enter into and perform
this Agreement.
3.2. Agreement. Orbit/FR's execution, delivery and performance of this
---------
Agreement, and its consummation of the transactions contemplated by this
Agreement, (a) have been duly authorized by all necessary corporate actions by
its board of directors, (b) do not constitute a violation of or default under
its charter or bylaws, (c) do not constitute a default or breach (immediately or
after the giving of notice, passage of time or both) under any contract,
agreement, lease, instrument or understanding to which it is a party or by which
it is bound, (d) do not constitute a violation of any law rule or regulation or
any judgment, order or decree that is or to the transactions contemplated by
this Agreement, and (e) do not require the consent, or approval or authorization
of any person or entity. This Agreement constitutes the valid and legally
binding agreement of Orbit/FR, enforceable against it in accordance with its
terms.
3.3. Orbit/FR's Stock. The shares of Orbit/FR Stock to be issued to
----------------
Alchut and Systems as the consideration for the shares of Orbit and Engineering,
when issued, shall be validly authorized, validly issued, fully paid and
nonassessable.
3.4. Brokerage Fees. No person or entity acting on behalf of Orbit/FR
--------------
is entitled to any brokerage, finder's or investment banking fee in connection
with the transactions contemplated by this Agreement.
-3-
<PAGE>
SECTION 4. RESTRICTIVE COVENANTS
- ---------------------------------
4.1. Nondisclosure Covenants. Except as may be authorized by either
-----------------------
party, at all times after the date of this Agreement, except with the prior
written consent of the other party, no party shall, directly or indirectly, in
any capacity:
4.1.1 General Restrictions. Communicate, publish or otherwise
--------------------
disclose to any person or entity, or use for the benefit of any person or
entity, any confidential or proprietary property, knowledge or information of
the other party or concerning any of the business, software, assets or financial
condition of the other party, no matter when or how such knowledge or
information was obtained, including, but not limited to, (a) the identity of
customers and prospects, their specific requirements, and the names, addresses
and telephone numbers of individual contacts at customers and prospects; (b)
prices, renewal dates and other detailed terms of customer and supplier
contracts and proposals; (c) pricing policies, marketing and sales strategies,
methods of delivering products and services, and product and service development
projects and strategies; (d) employment and payroll records; (e) forecasts,
budgets and other nonpublic financial information; and (f) expansion plans,
management policies, methods of operation, and other business strategies and
policies.
4.1.2 Restrictions on Proprietary Property. Disclose or use any
------------------------------------
proprietary software or other confidential or proprietary property, knowledge or
information of the other party, no matter when or how acquired, for any purpose
not in furtherance of the business and interests of the other party, including,
but not limited to, the purposes of designing, developing, marketing and/or
selling any antenna measurement system that is visually or functionally similar
to, or competitive with, any proprietary property of the other party.
4.2. Noncompetition Covenants. During the period beginning on the date
------------------------
of this Agreement and ending on the fifth anniversary of the date of this
Agreement, except with the other party's prior written consent, no party shall,
directly or indirectly, in any capacity, at any location worldwide:
4.2.1 Solicitation Restrictions. Communicate with or solicit any
-------------------------
person or entity who is, or during such period becomes, a customer, prospect,
supplier, employee, salesman, agent or representative of, or a consultant to,
the other party, in any manner which interferes or might interfere with such
person or entity's relationship with the other party, or in an effort to obtain
any such person or entity as a customer, employee, salesman, agent or
representative of, or a consultant to, any other person or entity that conducts
a business competitive with or similar to the business of the other party.
4.2.2 Competing Products and Services Restrictions. Market or
--------------------------------------------
sell, in any manner other than in furtherance of the business and interests of
the other party, any product, system
-4-
<PAGE>
or service that is visually or functionally similar to, or competitive with, any
proprietary products, systems or services of the other party.
4.2.3 Competing Business Restrictions. Establish, own, manage,
-------------------------------
operate, finance or control, or participate in the establishment, ownership,
management, operation, financing or control of, or be a director, officer,
employee, salesman, agent or representative of, or be a consul tant to, any
person or entity that conducts a business competitive with or similar to the
business of the other party.
4.2.4 Business Definitions. For the purposes of the Section 4.3,
--------------------
(i) the business of Orbit/FR shall mean the development, marketing and support
of automated systems for the measurement of electromagnetic waves, and (ii) the
business of Alchut and Systems shall mean the development, marketing and support
of tracking and telemetric systems and avionics systems.
4.3. Certain Exclusions. Confidential and proprietary property,
------------------
knowledge and information of a party shall not include any information that is
now known by or readily available to the general public, nor shall it include
any information that in the future becomes known by or readily available to the
general public other than as a result of any breach of the provisions of Section
4.1 or 4.2, (the "Covenants") of this Agreement. The ownership by a party of not
more than one percent (1%) of the outstanding securities of any public company
shall not, by itself, constitute a breach of the Covenants, even if such public
company competes with a party.
4.4. Enforcement of Covenants. Each party each expressly acknowledges
------------------------
that it would be extremely difficult to measure the damages that might result
from any breach of the Covenants, and that any breach of the Covenants will
result in irreparable injury to the other party for which money damages could
not adequately compensate. If a breach of the Covenants occurs, then the non-
breaching party shall be entitled, in addition to all other rights and remedies
that it may have at law or in equity, to have an injunction issued by any
competent court enjoining and restraining the breaching party and all other
persons or entities involved therein from continuing such breach. The existence
of any claim or cause of action that the breaching party may have against the
non-breaching party shall not constitute a defense or bar to the enforcement of
any of the Covenants. If the non-breaching party must resort to litigation to
enforce any of the Covenants that has a fixed term, then such term shall be
extended for a period of time equal to the period during which a breach of such
Covenant was occurring, beginning on the date of a final court order (without
further right of appeal) holding that such a breach occurred or, if later, the
last day of the original fixed term of such Covenant.
4.5. Scope of Covenants. If any Covenant, or any part thereof, or the
------------------
application thereof, is construed to be invalid, illegal or unenforceable, then
the other Covenants, or the other portions of such Covenant, or the application
thereof, shall not be affected thereby and shall be enforceable without regard
thereto. If any of the Covenants is determined to be unenforceable
-5-
<PAGE>
because of its scope, duration, geographical area or other factor, then the
court making such determination shall have the power to reduce or limit such
scope, duration, area or other factor, and such Covenant shall then be
enforceable in its reduced or limited form.
SECTION 5. OTHER PROVISIONS
- ----------------------------
5.1. Waiver of Certain Rights and Remedies. Each party acknowledges
-------------------------------------
that it has had access to, and is familiar with, (i) the respective companies
whose shares such party is acquiring under this Agreement, and (ii) the business
conducted by such companies. Each party agrees that, to the fullest extent
permitted by law, such party waives any and all rights that such party may have
against the other party arising out of the condition or operation of the
business of the respective companies whose shares such party is acquiring under
this Agreement.
5.2. Fees and Expenses. Each party shall pay all of the fees and
-----------------
expenses incurred by it in negotiating and preparing this Agreement and in
consummating the transactions contemplated by this Agreement.
5.3. Notice. All notices, consents or other communications required or
------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or three business days
after being sent by a nationally recognized overnight delivery service, charges
prepaid. Notices may also be given by facsimile and shall be effective on the
date transmitted if confirmed within seventy-two (72) hours thereafter by a
signed original sent in the manner provided in the preceding sentence. Notices
and other communications to each party shall be sent to the party's address set
forth on the first page hereof. Any party may change its address for notice and
the address to which copies must be sent by giving notice of the new addresses
to the other parties in accordance with this Section 5.3, provided that any such
change of address notice shall not be effective unless and until received.
5.4. Survival of Representations. All representations and warranties
---------------------------
made in this Agreement or pursuant hereto shall survive the date of this
Agreement, the Effective Date and the consummation of the transactions
contemplated by this Agreement.
5.5. Interpretation of Representations. Each representation and
---------------------------------
warranty made in this Agreement or pursuant hereto is independent of all other
representations and warranties made by the same party, whether or not covering
related or similar matters, and must be independently and separately satisfied.
Exceptions or qualifications to any such representation or warranty shall not be
construed as exceptions or qualifications to any other representation or
warranty.
5.6. Reliance. Notwithstanding the right of any party to investigate
--------
the business, assets and financial condition of the other party, and
notwithstanding any knowledge determined or determinable by a party as a result
of such investigation, each party has the unqualified right to rely
-6-
<PAGE>
upon, and has relied upon, each of the representations and warranties made by
the other party in this Agreement or pursuant hereto.
5.7. Entire Understanding. This Agreement states the entire
--------------------
understanding among the parties with respect to the subject matter hereof, and
supersedes all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to the subject
matter hereof, including, but not limited to, all confidentiality letter
agreements and letters of intent previously entered into among some or all of
the parties hereto. No amendment or modification of this Agreement shall be
effective unless in writing and signed by each party.
5.8. Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by the parties hereto, and their respective successors and assigns.
Nothing in this Agreement is intended to confer, or shall be deemed to confer,
any rights or remedies upon any persons or entities other than the parties
hereto and their respective successors and assigns.
5.9. Waivers. Except as otherwise expressly provided herein, no waiver
-------
with respect to this Agreement shall be enforceable unless in writing and signed
by the party against whom enforcement is sought. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising, or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing between or among any of the parties, shall constitute a waiver of, or
shall preclude any other or further exercise of, any right, power or remedy.
5.10. Severability. If any provision of this Agreement is construed to
------------
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
5.11. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
5.12. Section Headings. The section and subsection headings in this
----------------
Agreement are used solely for convenience of reference, do not constitute a part
of this Agreement, and shall not affect its interpretation.
5.13. References. All words used in this Agreement shall be construed to
----------
be of such number and gender as the context requires or permits. Unless a
particular context clearly requires otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection of this Agreement.
-7-
<PAGE>
5.14. Controlling Law. This Agreement is made under, and shall be
---------------
construed and enforced in accordance with, the laws of Israel, without giving
effect to principles of conflicts of law. The parties agree that, except with
respect to an action for equitable relief, all disputes or differences arising
under this Agreement shall be determined by arbitration in Israel. The parties
agree that such arbitration shall be conducted by one arbitrator selected by the
parties, but if the parties are unable to agree upon one arbitrator, the
arbitrator shall be selected by the President of the Israeli Bar Association.
The arbitrators shall determine the procedures and rules of evidence in the
arbitration, but the substantive laws of Israel shall govern the decision. This
section constitutes an arbitration agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first stated above.
ORBIT-ALCHUT TECHNOLOGIES, LTD. ORBIT/FR, INC.
By: /s/ Joseph Aviv By: /s/ Aryeh Trabelsi
----------------------------- ---------------------------
Name: Name:
Title: Chairman Title: President
ORBIT ADVANCED SYSTEMS, LTD.
By: /s/ Joseph Aviv
-----------------------------
Name:
Title: Chairman
-8-
<PAGE>
EXHIBIT 2.3
ASSET ACQUISITION AGREEMENT
Parties: Orbit-Alchut Technologies, Ltd. ("Alchut")
- ------- 18 Hadakar Street
Netanya
Israel
Orbit F.R. Engineering, Ltd. ("Engineering")
18 Hadakar Street
Netanya
Israel
Date: As of December 31, 1996
- ----
Background: Alchut owns all of the issued and outstanding shares of Orbit
- ----------
Advanced Technologies, Inc. ("Orbit"). Orbit has been responsible for operating
the antennae measurement business for Alchut and its subsidiaries and possesses
the technical know-how necessary for the operation of the antennae measurement
unit. Orbit has maintained an antennae measurement unit in Israel, the
employees of which, although employed by Alchut, worked under the supervision of
Orbit. In contemplation of an initial public offering by Orbit/FR, it is
necessary for Alchut to transfer the antennae measurement unit in Israel to
Orbit/FR. Accordingly, Alchut has incorporated Engineering for the purpose of
establishing the antennae measurement unit as a separate entity. In addition,
it is the intent of the parties that the personnel formerly employed in the
antennae measurement division of Alchut will be employed by Engineering. In
accordance with the foregoing, the parties desire that Alchut sell, convey and
transfer, and Engineering buy and acquire, the commercial and engineering
portions, but not the production portion, of the antennae measurement unit in
Israel (the "Business"), and all of the assets used in the Business, except
inventory, subject to the terms and conditions stated in this Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements contained herein, Alchut and Engineering agree as follows:
SECTION 1: SALE AND PURCHASE OF SPECIFIED ASSETS
- -------------------------------------------------
1.1 Sale and Purchase. Effective as of 11:58 p.m. on December 31, 1996
-----------------
(Tel Aviv time) (the "Effective Date") and subject to the terms and conditions
of this Agreement, Alchut hereby sells, transfers, assigns and conveys to
Engineering, and Engineering hereby purchases from Alchut, all right, title and
interest in and to the Business and all of the Specified Assets (as defined in
Section 1.2), and Alchut shall assign to Engineering, and Engineering assumes
the Specified Liabilities (as defined in Section 1.3).
1.2 Specified Assets. "Specified Assets" means all of the assets of
----------------
Alchut as of the Effective Date used in the Business, wherever located and
whether or not reflected on Alchut's books and records, but excluding any and
all inventory of the Business.
<PAGE>
1.3 Specified Liabilities. "Specified Liabilities" means all of the
---------------------
liabilities and obligations of Alchut as of the Effective Date relating
exclusively to the Business whether or not reflected on Alchut's books and
records.
SECTION 2: CONSIDERATION FOR SPECIFIED ASSETS
- ----------------------------------------------
2.1 Contribution of Capital. Alchut is contributing the Specified Assets
-----------------------
to Engineering as a contribution to capital. The parties agree that the value
of such Specified Assets is $480,000.
2.2 Allocation of Purchase Price. The Purchase Price shall be allocated
----------------------------
among the Specified Assets, and the Assumed Liabilities in the manner agreed
upon by Alchut and Orbit/FR, Inc.
SECTION 3: REPRESENTATIONS AND WARRANTIES OF ALCHUT AND ENGINEERING
- --------------------------------------------------------------------
Knowing that Engineering is relying thereon, Alchut represents and warrants
to Engineering as follows:
3.1 Organization and Authority. Alchut is a limited liability company
--------------------------
that is duly organized, validly existing and in good standing under the laws of
Israel. Alchut has the full corporate power and authority to own its assets,
conduct the Business as and where such Business is presently conducted, and
enter into and perform this Agreement.
3.2 Effect of Agreement. The execution, delivery and performance of this
-------------------
Agreement by Alchut, and the consummation by it of the transactions contemplated
hereby, (a) have been duly authorized by all necessary corporate action by
Alchut, (b) do not and will not constitute a breach or violation of, or a
default under, the Charter, bylaws or other organizational documents of Alchut,
(c) do not and will not, with or without notice and/or lapse of time, constitute
a violation of any law, rule or regulation or any judgment, order or decree
applicable to Alchut or to the Specified Assets or the Business, (d) do not and
will not, with or without notice and/or lapse of time, constitute a violation
of, and do not and will not result in the revocation, restriction, suspension or
modification of any permit, license or authorization of Alchut, (e) do not and
will not, with or without notice and/or lapse of time, result in the creation of
any encumbrance upon, or give to any other person or entity any interest in the
Business or the Specified Assets, and (f) do not require any consent, approved
or authorization of any person or entity. This Agreement constitutes the valid
and legally binding agreement of Alchut, enforceable against it in accordance
with its terms.
3.3 Assets. Seller has good and valid title to all of the Specified
------
Assets it purports to own, including, without limitation, all Specified Assets
reflected on the balance sheet for the Business as of December 31, 1996 (the
"Business Balance Sheet"). None of such Specified Assets is subject to any
lien, claim or encumbrance, except (a) for liens, claims or encumbrances
reflected on the Business Balance Sheet. Seller has the full right to use all
Specified Assets not owned by it but which are used by it.
-2-
<PAGE>
3.4 Brokerage Fees. No Person acting on behalf of Alchut shall be
--------------
entitled to any brokerage or finder's fees in connection with the transactions
contemplated by this Agreement.
SECTION 4: REPRESENTATIONS AND WARRANTIES OF ENGINEERING
- ---------------------------------------------------------
Knowing that Alchut is relying thereon, Engineering represents and warrants
to Seller as follows:
4.1 Organization and Authority. Engineering is a limited liability
--------------------------
company duly organized, validly existing and in good standing under the laws of
Israel, and has the full corporate power and authority to enter into and perform
this Agreement and the transactions contemplated hereby.
4.2 Effect of Agreement. Engineering's execution, delivery and
-------------------
performance of this Agreement, and the consummation of the transactions
contemplated hereby, (i) have been duly authorized by all necessary corporate
actions by Engineering, (ii) do not and will not constitute a breach or
violation of, or a default under Charter, bylaws or other organizational
documents of Engineering, (iii) do not and will not, with or without notice
and/or lapse of time, constitute a breach or violation of, or default under, any
contract, agreement, lease, instrument or understanding to which Engineering is
a party or by which Engineering is bound, (iv) do not and will not, with or
without notice and/or lapse of time, constitute a violation of any law, rule or
regulation or decree, order or judgment applicable to Engineering, and (v) do
not require the consent, approval or authorization of any person or entity.
This Agreement constitutes the valid and legally binding agreements of
Engineering, enforceable against Engineering in accordance with its terms.
4.3 Brokerage Fees. No person or entity acting on behalf of Engineering
--------------
is entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement.
SECTION 5: OTHER PROVISIONS
- ----------------------------
5.1 Indemnification. Engineering agrees to indemnify and hold harmless
---------------
Alchut from and against all liabilities, claims, losses, or expenses arising out
of Engineering's failure to perform the Assumed Liabilities including, without
limitation, any customer contract of the Business that Engineering agreed to
perform under this Agreement.
5.2 Expenses. Each party shall pay all of the costs and expenses incurred
--------
by it in negotiating and preparing this Agreement (and all other agreements,
certificates, instruments and documents executed in connection herewith), in
performing its obligations under this Agreement, and in otherwise consummating
the transactions contemplated by this Agreement.
5.3 Notices. All notices, consents or other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective
-3-
<PAGE>
addresses stated on the first page of this Agreement. Notices may also be given
by prepaid telegram or facsimile and shall be effective on the date transmitted
if confirmed within 24 hours thereafter by a signed original sent in the manner
provided in the preceding sentence. Any party may change its address for notice
and the address to which copies must be sent by giving notice of the new
addresses to the other parties in accordance with this Section 5.3, except that
any such change of address notice shall not be effective unless and until
received.
5.4 Amendment. This Agreement may be amended, modified or supplemented by
---------
the parties hereto, provided that any such amendment, modification or supplement
shall be in writing and signed by the parties hereto.
5.5 Waiver. No waiver with respect to this Agreement shall be enforceable
------
unless in writing and signed by the party against whom enforcement is sought.
Except as otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between or among any of the parties, shall
constitute a waiver of, or shall preclude any other or further exercise of the
same or any other right, power or remedy.
5.6 Reliance. Notwithstanding the right of a party to investigate the
--------
business, assets and financial condition of the other party, each party has the
unqualified right to rely, and has relied, upon the representations and
warranties of the other party made in this Agreement.
5.7 Survival of Representations. All representations, warranties and
---------------------------
covenants made in or pursuant to this Agreement shall survive the date hereof,
the Effective Date and the consummation of the transactions contemplated hereby.
5.8 Interpretation of Representations. Each warranty and representation
---------------------------------
made in this Agreement is independent of all other warranties and
representations made the same party (whether or not covering related or similar
matters) and must be independently and separately satisfied. Exceptions or
qualifications to any such warranty or representation shall not be construed as
exceptions or qualifications to any other warranty or representation.
5.9 Entire Understanding. This Agreement states the entire understanding
--------------------
among the parties with respect to the subject matter hereof, and supersedes all
prior oral and written communications and agreements, and all contemporaneous
oral communications and agreements, with respect to the subject matter hereof.
5.10 Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns. No
party shall in any manner assign any of its rights or obligations under this
Agreement without the express prior written consent of the other parties. No
provision of this Agreement is intended to or shall be construed to grant or
confer any right to enforce this Agreement, or any remedy for breach of this
Agreement, to or upon any person or entity other than the parties hereto, and
their respective successors and assigns.
-4-
<PAGE>
5.11 Severability. If any provision of this Agreement is construed to be
------------
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
5.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
5.13 Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
5.14 References. All words used in this Agreement shall be construed to
----------
be of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof.
5.15 Controlling Law. This Agreement is made under, and shall be
---------------
construed and enforced in accordance with, the laws of Israel, without giving
effect to principles of conflicts of law. The parties agree that, except with
respect to an action for equitable relief, all disputes or differences arising
under this Agreement shall be determined by arbitration in Israel. The parties
agree that such arbitration shall be conducted by one arbitrator selected by the
parties, but if the parties are unable to agree upon one arbitrator, the
arbitrator shall be selected by the President of the Israeli Bar Association.
The arbitrators shall determine the procedures and rules of evidence in the
arbitration, but the substantive laws of Israel shall govern the decision. This
section constitutes an arbitration agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first stated above.
ORBIT-ALCHUT TECHNOLOGIES, LTD. ORBIT F.R. ENGINEERING, LTD.
BY: /s/ Joseph Aviv BY: /s/ Aryeh Trabelsi
----------------------------- ----------------------------
Name: Name:
Title: Chairman Title: Director
-5-
<PAGE>
EXHIBIT 2.4
INVENTORY ACQUISITION AGREEMENT
Parties: Orbit-Alchut Technologies, Ltd. ("Alchut")
- -------
18 Hadakar Street
Netanya
Israel
Orbit F.R. Engineering, Ltd. ("Engineering")
18 Hadakar Street
Netanya
Israel
Date: As of January 1, 1997
- ----
Background: Alchut owns all of the issued and outstanding shares of Orbit
- ----------
Advanced Technologies, Inc. ("Orbit"). Orbit has been responsible for operating
the antennae measurement unit for Alchut and its subsidiaries and possesses the
technical know-how necessary for the operation of the antennae measurement unit.
Orbit has maintained an antennae measurement unit in Israel, the employees of
which, although employed by Alchut, worked under the supervision of Orbit. In
contemplation of an initial public offering by Orbit/FR, it became necessary for
Alchut to transfer the antennae measurement unit in Israel to Orbit/FR.
Accordingly, Alchut incorporated Engineering for Orbit for the purpose of
establishing its antennae measurement unit as a separate entity. Effective at
11:58 p.m. on December 31, 1996, Alchut and Engineering entered into an Asset
Acquisition Agreement. In addition, the personnel formerly employed in the
antennae measurement unit were transferred to Engineering. In accordance with
the foregoing, the parties desire that Alchut now sell, convey and transfer, and
Engineering buy and acquire the inventory of the commercial and engineering
portions, but not the production portion, of the antennae measurement unit in
Israel (the "Business"), subject to the terms and conditions stated in this
Agreement.
INTENDING TO BE LEGALLY BOUND, and in consideration of the mutual
agreements contained herein, Alchut and Engineering agree as follows:
SECTION 1: SALE AND PURCHASE OF SPECIFIED ASSETS
- -------------------------------------------------
1.1 Sale and Purchase. Effective as of 12:01 a.m. on January 1, 1997 (Tel
-----------------
Aviv time) (the "Effective Date") and subject to the terms and conditions of
this Agreement, Alchut hereby sells, transfers, assigns and conveys to
Engineering, and Engineering hereby purchases from Alchut, all right, title and
interest in and to the Specified Assets (as defined in Section 1.2).
1.2 Specified Assets. "Specified Assets" means all of the inventory of
----------------
Alchut as of the Effective Date used in the Business, wherever located and
whether or not reflected on Alchut's books and records, but excluding any and
all assets of the Business, described in the Asset Acquisition Agreement dated
as of December 31, 1996.
<PAGE>
1.3 No Liabilities. Engineering shall assume no liabilities or
--------------
obligations of Alchut including any liabilities or obligations relating to the
Specified Assets.
SECTION 2: CONSIDERATION FOR SPECIFIED ASSETS
- ----------------------------------------------
2.1 Purchase Price: Engineering shall pay to Alchut for the Specified
--------------
Assets an amount equal to US $2,722,000 (the "Purchase Price") on the third
anniversary of the date hereof, which date may be changed to an earlier date or
later date by mutual consent of the parties. Engineering shall issue to Alchut
a Note in the amount of the Purchase Price.
2.2 Allocation of Purchase Price. The Purchase Price shall be allocated
----------------------------
among the Specified Assets, and the Assumed Liabilities in the manner agreed
upon by Alchut and Orbit/FR, Inc.
SECTION 3: REPRESENTATIONS AND WARRANTIES OF ALCHUT AND ENGINEERING
- -------------------------------------------------------------------
Knowing that Engineering is relying thereon, Alchut represents and warrants
to Engineering as follows:
3.1 Organization and Authority. Alchut is a limited liability company
--------------------------
that is duly organized, validly existing and in good standing under the laws of
Israel. Alchut has the full corporate power and authority to own its assets,
conduct the Business as and where such Business is presently conducted, and
enter into and perform this Agreement.
3.2 Effect of Agreement. The execution, delivery and performance of this
-------------------
Agreement by Alchut, and the consummation by it of the transactions contemplated
hereby, (a) have been duly authorized by all necessary corporate action by
Alchut, (b) do not and will not constitute a breach or violation of, or a
default under, the Charter, bylaws or other organizational documents of Alchut,
(c) do not and will not, with or without notice and/or lapse of time, constitute
a violation of any law, rule or regulation or any judgment, order or decree
applicable to Alchut or to the Specified Assets or the Business, (d) do not and
will not, with or without notice and/or lapse of time, constitute a violation
of, and do not and will not result in the revocation, restriction, suspension or
modification of any permit, license or authorization of Alchut, (e) do not and
will not, with or without notice and/or lapse of time, result in the creation of
any encumbrance upon, or give to any other person or entity any interest in the
Business or the Specified Assets, and (f) do not require any consent, approved
or authorization of any person or entity. This Agreement constitutes the valid
and legally binding agreement of Alchut, enforceable against it in accordance
with its terms.
3.3 Assets. Seller has good and valid title to all of the Specified
------
Assets it purports to own, including, without limitation, all Specified Assets
reflected on the balance sheet for the Business as of December 31, 1996 (the
"Business Balance Sheet"). None of such Specified Assets is subject to any
lien, claim or encumbrance, except (a) for liens, claims or encumbrances
reflected on the Business Balance Sheet. Seller has the full right to use all
Specified Assets not owned by it but which are used by it.
-2-
<PAGE>
3.4 Brokerage Fees. No Person acting on behalf of Alchut shall be
--------------
entitled to any brokerage or finder's fees in connection with the transactions
contemplated by this Agreement.
SECTION 4: REPRESENTATIONS AND WARRANTIES OF ENGINEERING
- ---------------------------------------------------------
Knowing that Alchut is relying thereon, Engineering represents and warrants
to Seller as follows:
4.1 Organization and Authority. Engineering is a limited liability
--------------------------
company duly organized, validly existing and in good standing under the laws of
Israel, and has the full corporate power and authority to enter into and perform
this Agreement and the transactions contemplated hereby.
4.2 Effect of Agreement. Engineering's execution, delivery and
-------------------
performance of this Agreement, and the consummation of the transactions
contemplated hereby, (i) have been duly authorized by all necessary corporate
actions by Engineering, (ii) do not and will not constitute a breach or
violation of, or a default under Charter, bylaws or other organizational
documents of Engineering, (iii) do not and will not, with or without notice
and/or lapse of time, constitute a breach or violation of, or default under, any
contract, agreement, lease, instrument or understanding to which Engineering is
a party or by which Engineering is bound, (iv) do not and will not, with or
without notice and/or lapse of time, constitute a violation of any law, rule or
regulation or decree, order or judgment applicable to Engineering, and (v) do
not require the consent, approval or authorization of any person or entity.
This Agreement constitutes the valid and legally binding agreements of
Engineering, enforceable against Engineering in accordance with its terms.
4.3 Brokerage Fees. No person or entity acting on behalf of Engineering
--------------
is entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement.
SECTION 5: OTHER PROVISIONS
- ----------------------------
5.1 Expenses. Each party shall pay all of the costs and expenses incurred
--------
by it in negotiating and preparing this Agreement (and all other agreements,
certificates, instruments and documents executed in connection herewith), in
performing its obligations under this Agreement, and in otherwise consummating
the transactions contemplated by this Agreement.
5.2 Notices. All notices, consents or other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three (3)
business days after being mailed by first class certified mail, return receipt
requested, postage prepaid, or (c) one (1) business day after being sent by a
reputable overnight delivery service, postage or delivery charges prepaid, to
the parties at their respective addresses stated on the first page of this
Agreement. Notices may also be given by prepaid telegram or facsimile and shall
be effective on the date transmitted if confirmed within 24 hours thereafter by
a signed original sent in the manner provided in the preceding sentence. Any
party may change its address for notice and the address to which copies must be
sent by giving notice of the new addresses
-3-
<PAGE>
to the other parties in accordance with this Section 5.2, except that any such
change of address notice shall not be effective unless and until received.
5.3 Amendment. This Agreement may be amended, modified or supplemented by
---------
the parties hereto, provided that any such amendment, modification or supplement
shall be in writing and signed by the parties hereto.
5.4 Waiver. No waiver with respect to this Agreement shall be enforceable
------
unless in writing and signed by the party against whom enforcement is sought.
Except as otherwise expressly provided herein, no failure to exercise, delay in
exercising, or single or partial exercise of any right, power or remedy by any
party, and no course of dealing between or among any of the parties, shall
constitute a waiver of, or shall preclude any other or further exercise of the
same or any other right, power or remedy.
5.5 Reliance. Notwithstanding the right of a party to investigate the
--------
business, assets and financial condition of the other party, each party has the
unqualified right to rely, and has relied, upon the representations and
warranties of the other party made in this Agreement.
5.6 Survival of Representations. All representations, warranties and
---------------------------
covenants made in or pursuant to this Agreement shall survive the date hereof,
the Effective Date and the consummation of the transactions contemplated hereby.
5.7 Interpretation of Representations. Each warranty and representation
---------------------------------
made in this Agreement is independent of all other warranties and
representations made the same party (whether or not covering related or similar
matters) and must be independently and separately satisfied. Exceptions or
qualifications to any such warranty or representation shall not be construed as
exceptions or qualifications to any other warranty or representation.
5.8 Entire Understanding. This Agreement states the entire understanding
--------------------
among the parties with respect to the subject matter hereof, and supersedes all
prior oral and written communications and agreements, and all contemporaneous
oral communications and agreements, with respect to the subject matter hereof.
5.9 Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its successors and assigns. No
party shall in any manner assign any of its rights or obligations under this
Agreement without the express prior written consent of the other parties. No
provision of this Agreement is intended to or shall be construed to grant or
confer any right to enforce this Agreement, or any remedy for breach of this
Agreement, to or upon any person or entity other than the parties hereto, and
their respective successors and assigns.
5.10 Severability. If any provision of this Agreement is construed to be
------------
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
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<PAGE>
5.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
5.12 Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
5.13 References. All words used in this Agreement shall be construed to
----------
be of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, the words "hereof" and
"hereunder" and similar references refer to this Agreement in its entirety and
not to any specific section or subsection hereof.
5.14 Controlling Law. This Agreement is made under, and shall be
---------------
construed and enforced in accordance with, the laws of Israel, without giving
effect to principles of conflicts of law. The parties agree that, except with
respect to an action for equitable relief, all disputes or differences arising
under this Agreement shall be determined by arbitration in Israel. The parties
agree that such arbitration shall be conducted by one arbitrator selected by the
parties, but if the parties are unable to agree upon one arbitrator, the
arbitrator shall be selected by the President of the Israeli Bar Association.
The arbitrators shall determine the procedures and rules of evidence in the
arbitration, but the substantive laws of Israel shall govern the decision. This
section constitutes an arbitration agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first stated above.
ORBIT-ALCHUT TECHNOLOGIES, LTD. ORBIT F.R. ENGINEERING, LTD.
By:/s/ Joseph Aviv By:/s/ Aryeh Trabelsi
------------------------------- -----------------------------
Name: Name:
Title: Chairman Title: Director
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<PAGE>
Orbit F/R Engineering Ltd.
--------------------------
51-241852-6
-----------
(hereinafter "Engineering")
US$ 2,722,000 CAPITAL NOTE
--------------------------
Issued to
ORBIT-ALCHUT TECHNOLOGIES LTD.
------------------------------
(hereinafter "Alchut")
This Capital Note is subject to the following terms & conditions:
1. Engineering undertakes to pay this capital note to Alchut not later than
December 31st 1999.
2. The Capital Note shall be paid-up in US Dollars or if payment in US Dollars
will not be legal, it shall be paid-up in N.I.S. at the representative rate
of exchange of the N.I.S. vs. US Dollar, which prevails at the time of
payment.
3. Should this Capital note not be paid up in full by December 31st 1999, it
shall bear interest at the highest rate charged by UBM Ltd. on unauthorized
debits.
Signed in Netanya, Israel Today March 31, 1997 as of January 1st 1997
/s/ Aryeh Trabelsi
--------------------------------
Orbit F/R Engineering Ltd.
by: Mr. Aryeh Trabelsi - Director
Mr. Moshe Pinkasy - Chief Executive Officer
<PAGE>
Exhibit 2.5
STOCK PURCHASE AGREEMENT
------------------------
AGREEMENT, dated June 28, 1996, by and among ORBIT ADVANCED TECHNOLOGIES,
INC., a Delaware corporation ("Buyer"), THE SAMUEL T. RUSSELL TRUST (the
"Trust"), RICHARD P. FLAM ("Flam"), RICKEY E. HARTMAN ("Hartman"), LOIS A. R.
CHARLES ("Lois"), DOROTHY RUSSELL ("Dorothy"), JOHN F. AUBIN ("John"), NORMA D.
KEGG ("Darlene") and FLAM & RUSSELL, INC., a Delaware corporation ("F&R").
BACKGROUND
----------
The Sellers (as defined in Section 1.30) own all of the issued and
outstanding shares of the voting and nonvoting capital stock of F&R (the
"Shares"). The Sellers desire to sell to Buyer, and Buyer desires to acquire
from the Sellers, the Shares for the consideration and subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, intending to be legally bound, and in consideration of the
mutual covenants and agreements contained below, the parties agree as follows:
SECTION
1. DEFINED TERMS
-------------
All defined terms used in this Agreement and not specifically defined in
context are defined in this Section 1, as follows:
1.1 "Accounts Receivable" means (a) any right to payment for goods sold,
-------------------
leased or licensed or for services rendered, whether or not it has been earned
by performance, whether billed or unbilled, and whether or not it is evidenced
by any Contract, (b) any note receivable or (c) any other receivable or right to
payment of any nature.
1.2 "Affiliate" means, with respect to a specified Person, and any other
---------
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the specified
Person.
1.3 "Arbitrator" means one individual with verifiable knowledge and at least
----------
five years technical or accounting experience in the industry of Buyer and F&R,
mutually selected by Buyer and Sellers.
1.4 "Assets" means any real, personal, mixed, tangible or intangible property
------
of any nature, including Cash Assets, Accounts Receivable, other current assets
of any nature, Tangible Property, Intangible Property, Real Property, Contract
Rights, claims, causes of actions and other legal rights and remedies, goodwill
and miscellaneous assets of any nature.
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<PAGE>
1.5 "Best Efforts" means the efforts that a prudent Person desirous of
------------
achieving a result would use in similar circumstances to ensure that such a
result is achieved as quickly as possible.
1.6 "Cash Assets" means any cash on hand, cash in bank or other accounts,
-----------
readily marketable securities and other cash-equivalent liquid assets of any
nature, whether or not reflected on the financial statements of F&R.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
----
1.8 "Consent" means any consent, approval, order or authorization of, or any
-------
declaration, filing or registration with, or any application or report to, or
any waiver by, or any other action of, by or with, any Person, which is
necessary in order to take a specified action or actions in a specified manner
and/or to achieve a specified result.
1.9 "Contract" means any written or oral, express or implied, agreement,
--------
instrument, order, arrangement, commitment or understanding of a legally binding
nature.
1.10 "Contract Right" means any right, power or remedy under any Contract,
--------------
including, but not limited to, rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance of
another party's Obligations, rights to demand that another party accept property
or services or take any other actions, and rights to pursue or exercise remedies
or options.
1.11 "Employee Benefit Plan" means any employee benefit plan or any employee
---------------------
benefit or fringe benefit arrangement of any nature, including, but not limited
to, bonus plans, incentive compensation plans, pension plans, medical plans,
dental plans, disability plans, sick pay plans, group insurance plans, death
benefit plans or employee welfare plans, but not including employment or
consulting Contracts with individuals.
1.12 "Encumbrance" means any lien, security interest, pledge, mortgage,
-----------
easement, covenant, restriction, reservation, conditional sale, prior
assignment, or other encumbrance, claim, burden or charge of any nature.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
1.14 "GAAP" means generally accepted accounting principles under United
----
States accounting rules and regulations, as in effect from time to time,
consistently applied throughout the applicable periods.
1.15 "Hazardous Substance" means any substance, waste, contaminant,
-------------------
pollutant or material that has been determined by any federal, state or local
governmental authority to be capable of posing a risk of injury to health,
safety, property or the environment, including all substances, wastes,
contaminants, pollutants and materials defined or designated as hazardous,
dangerous or
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<PAGE>
toxic pursuant to any Law of any state in which any owned or leased Real
Property of F&R is located or pursuant to any federal law.
1.16 "Indebtedness" means all items that, in accordance with GAAP, would be
------------
included in determining total liabilities as shown on the liability side of a
balance sheet as of the date the Indebtedness is to be determined.
1.17 "Insurance Policy" means any public liability, product liability,
----------------
general liability, comprehensive, property damage, vehicle, life, hospital,
medical, dental, disability, worker's compensation, key man, fidelity bond,
theft, forgery, errors and omissions, directors' and officers' liability, or
other insurance policy of any nature.
1.18 "Intangible Property" means any name, corporate name, fictitious
-------------------
name, trademark, trademark application, service mark, service mark application,
trade name, brand name, product name, slogan, trade secret, know-how, copyright,
copyright application, design, logo, formula, invention, product right or other
intangible asset of any nature, whether in use, under development or design, or
inactive.
1.19 "Inventory Subject to Setoff" means the sum, not to exceed $245,000, of
-----------------------------
the value of F&R's inventory other than work-in-process identified by Orbit as
of the Closing Date.
1.20 "Judgment" means any order, writ, injunction, citation, award, decree or
--------
other judgment of any nature of any foreign, federal, state or local court,
governmental body, administrative agency, regulatory authority or arbitration
tribunal.
1.21 "Knowledge" means, with respect to an individual or a trustee of a
---------
trust, that (a) such individual or trustee is actually aware of a particular
fact or other matter or (b) a prudent individual could reasonably be expected to
discover or otherwise become aware of a particular fact or other matter in the
course of conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter. A Person other than an individual or a
trustee of a trust will be deemed to have Knowledge of a particular fact or
other matter if any individual who is serving, or who has at any time served, as
a director, officer of employee of such Person has, or at any time had,
Knowledge of such fact or other matter.
1.22 "Law" means any provision of any foreign, federal, state or local law,
---
statute, ordinance, charter, constitution, treaty, rule or regulation.
1.23 "Losses" means any and all Obligations, Indebtedness, Proceedings,
------
causes of action, costs and expenses, including costs of investigation, actual
interest costs, penalties and reasonable attorney's fees.
-3-
<PAGE>
1.24 "Obligation" means any debt, liability or obligation of any nature,
----------
whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated,
accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown
or otherwise.
1.25 "Permit" means any license, permit, approval, waiver, order,
------
authorization, right or privilege of any nature, granted, issued, approved or
allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.26 "Person" means any individual, sole proprietorship, limited
------
liability company, joint venture, partnership, corporation, association,
cooperative, trust, estate, governmental body, administrative agency, regulatory
authority or other entity of any nature.
1.27 "Prime Rate" means the prime rate of general application as set
------------
forth in the "Money Rates" section (or such future section as shall replace it)
of The Wall Street Journal, as published on the business day preceding the
-----------------------
Closing Date.
1.28 "Proceeding" means any demand, claim, suit, action, litigation,
----------
investigation, arbitration, administrative hearing or other proceeding of any
nature.
1.29 "Real Property" means any real estate, land, building or other real
-------------
property of any nature, all shares of stock or other ownership interests in
cooperative or condominium associations or other forms of ownership interest
through which interests in real estate may be held, and all appurtenant and
ancillary rights thereto, including easements, covenants, water rights, sewer
rights and utility rights.
1.30 "Sellers" means the Trust, Flam, Hartman, Lois, Dorothy, John and
-------
Darlene.
1.31 "Subsidiary" means, with respect to any Person ("Parent"), any
----------
corporation or other Person, of which securities or other interests having the
power to elect a majority of that corporation's or other Persons' board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person, are held by Parent or
one or more of Parent's Subsidiaries.
1.32 "Tangible Property" means any machinery, buildings, fixtures, equipment,
-----------------
parts, furniture, leasehold improvements, office equipment, vehicles, tools,
forms, supplies or other tangible property of any kind or nature, whether
constituting fixed Assets, inventory or otherwise.
1.33 "Tax" means (a) any foreign, federal, state or local income, earnings,
---
profits, gross receipts, franchise, capital stock, net worth, sales, use,
occupancy, general property, real property, personal property, intangible
property, transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security or other tax of any nature, (b) any foreign,
federal, state or local organization fee, qualification fee, annual report fee,
filing fee, occupation fee, assessment, sewer rent
-4-
<PAGE>
or other fee or charge of any nature or (c) any deficiency, interest or penalty
imposed with respect to any of the foregoing.
1.34 "Threatened" means that a demand or statement has been made (orally or
----------
in writing) or any notice has been given (orally or in writing) with respect to
a claim, Proceeding, dispute, action or other matter, or an event has occurred
or circumstances exist that would lead a prudent Person to conclude that a
claim, Proceeding, dispute, action or other matter is likely to be asserted,
commenced, taken or otherwise pursued in the future.
1.35 "Working Capital" means current Assets less current liabilities,
---------------
calculated in accordance with GAAP, consistently applied.
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING
------------------------------------
2.1 Shares. Subject to the terms and conditions of this Agreement, at the
------
Closing, the Sellers shall sell to Buyer, and Buyer shall purchase from Sellers,
all of the Shares.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Shares shall be finally determined in accordance with Section 2.3, but shall not
exceed $1,543,750, payable as follows:
2.2.1 On the Closing Date, Buyer shall pay to Anthony R. Lorenzo,
Esquire, as agent for the Sellers, by check, $1,343,750, less the amount (which
is equal to $151,077) required as of the Closing Date to fully satisfy the
indebtedness of F&R to CoreStates Bank, N.A., and less (b) the cash deposited
into escrow in accordance with Section 2.3.5.
2.2.2 On the Closing Date, Buyer shall deliver to Sellers a
promissory note, in substantially the form set forth in Exhibit A (the "Note").
---------
The Note shall be in the principal amount of $200,000 payable in full, with
interest accrued thereon, on the first business day of the month that follows
the month in which the fifth anniversary of the Closing Date occurs. Interest
on the outstanding principal amount shall accrue at the per annum rate equal to
the Prime Rate and shall first become payable on the second anniversary of the
Closing Date, and thereafter shall continue to accrue and be paid quarterly
until the principal sum is fully paid. The Note shall be held in escrow under
the Escrow Agreement for a period of two years following the Closing Date and
shall be subject to setoff until its maturity by Buyer in accordance with
Section 8 of this Agreement. Buyer's parent company shall guarantee payment of
the Note in accordance with a guaranty agreement substantially in the form of
Exhibit B (the "Guaranty").
- ---------
2.3 Adjustments to Purchase Price.
-----------------------------
2.3.1 The "Adjustment Amount" means the greater of (a) the amount, if
any, by which $1,049,000 exceeds the stockholders' equity of F&R (calculated in
accordance with Section
-5-
<PAGE>
2.3.2) as of the Closing Date, and (b) the amount, if any, by which $859,000
exceeds the Working Capital of F&R (calculated in accordance with Section 2.3.2)
as of the Closing Date.
2.3.2 Sellers shall cause to be prepared and delivered to Buyer, at the
Sellers expense, within 45 days of the Closing Date, a balance sheet compiled in
accordance with GAAP (subject to and prepared in accordance with the provisions
of Section 2.3.4) and an income statement, compiled in accordance with GAAP, of
F&R dated as of the Closing Date (the "Closing Financial Statement"). If, within
45 days following Sellers' delivery of the Closing Financial Statement, Buyer
has not given to Sellers notice of its objection to the Closing Financial
Statement, then the Closing Financial Statement shall be deemed final and
binding and used to determine the Adjustment Amount. If Buyer gives notice of
its objection with respect to any items contained in the Closing Financial
Statement other than "F&R's ETC's" (as defined in Section 2.3.3), then the
issues in dispute will be promptly submitted to the respective certified public
accounting firms of Sellers and Buyer (the "Accountants") for resolution. If the
issues in dispute are submitted to the Accountants for resolution, then (a) each
party shall cooperate with the Accountants to resolve the dispute, (b) the
determination by the Accountants, as set forth in a notice delivered to both
parties by the Accountants within 30 days of their receipt of all materials
necessary to render a decision, will be binding and conclusive on the parties
and (c) Buyer and the Sellers will each bear the costs and fees of their own
Accountants in connection with such determination. If the Accountants fail,
within such 30 day period, to resolve any issues in dispute that have been
submitted to them, then the Accountants shall jointly select a third reputable
certified public accounting firm (the "Third Party Accountants") who shall,
within 30 days of its receipt of all materials necessary to render a decision,
conclusively resolve any such issues still in dispute. Buyer and Sellers will
(a) cooperate with the Third Party Accountants to resolve the dispute, (b) be
bound by the decision of the Third Party Accountants and (c) each bear 50% of
the Third Party Accountants' fees for such determination.
2.3.3 The Closing Financial Statement shall also be accompanied by
Sellers' estimates, as to each applicable Contract, of the costs to complete
F&R's such customer Contracts (other than cost-reimbursable Contracts) that have
not been completed as of the Closing Date ("F&R's ETC's"). F&R's ETC's as of the
Closing Date shall consist of those ETC's attributable to Contracts furnished
Buyer at May 31, 1996, reduced by actual costs incurred between May 31, 1996 and
the Closing Date. If Buyer gives notice of its objection to Sellers' calculation
of F&R's ETC's within 45 days following Buyer's receipt of the Closing Financial
Statement and submits with such notice its own good faith calculation (as to
each applicable Contract) of F&R's ETC's that differ by an aggregate of more
than ten percent from Sellers' calculation of F&R's ETC's, then the parties
shall promptly attempt to resolve their differing calculations of F&R's ETC's.
If Sellers and Buyer are unable to resolve their differing calculations, then
the matter shall be referred to the Arbitrator who will submit a third
calculation (as to each applicable Contract) of F&R's ETC's. In such event, (a)
Buyer and Sellers shall each cooperate with the Arbitrator, (b) the Arbitrator
shall submit his calculation (as to each applicable contract) of F&R's ETC's to
Buyer and Sellers within 30 days of his receipt of all materials necessary to
render a calculation and (c) Buyer and Sellers will each bear 50% of the
Arbitrator's fees. Of the three calculations of F&R's ETC's, Buyer and Sellers
shall be bound by the calculation (as to each applicable Contract) that falls
between the other two and such
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<PAGE>
calculation shall be used to adjust the Closing Financial Statement and the
Adjustment Amount. If (a) Buyer's aggregate calculation of F&R's ETC's does not
differ by more than ten percent from Sellers' aggregate calculation of F&R's
ETC's or (b) if Buyer does not object to Sellers' calculation of F&R's ETC's
within the 45 day period following Buyer's receipt of the Closing Financial
Statement, then Buyer and Sellers shall be bound by Sellers' calculation of
F&R's ETC's.
2.3.4 For purposes of calculating the Adjustment Amount, the following
provisions shall apply:
(a) Assets shall not include any intangible Assets of F&R,
including without limitation goodwill and shall include Inventory Subject to
Setoff (as defined in Section 1.19);
(b) Assets include up to $64,320 in deferred Tax Assets of F&R; and
(c) Liabilities shall include all accrued expenses of F&R and shall
not include Liabilities of F&R for vacation pay or sick pay.
2.3.5 Consistent with Section 2.2.1, Buyer shall deposit in cash on the
Closing Date into an escrow account pursuant to an escrow agreement
substantially in the form attached as Exhibit C (the "Escrow Agreement") a total
---------
of $500,000 that would have otherwise been paid as part of the cash component of
the Purchase Price on the Closing Date. The Escrow Agreement shall provide,
among other things, that on the tenth business day (the "Adjustment Date")
following the final determination of the Adjustment Amount, if any, the Trust
and the Buyer shall jointly instruct the escrow agent under the Escrow Agreement
to promptly disburse to Buyer in cash the Adjustment Amount, plus accrued
interest thereon pursuant to the terms of the Escrow Agreement. In addition, on
the Adjustment Date, the Escrow Agent shall also disburse to the Trust, the
excess (plus accrued interest thereon), if any, of the amount in the Escrow Fund
over $100,000 with respect to which a Claim (as defined in the Escrow Agreement)
has not been made, provided that if the Adjustment Date occurs prior to the date
that is 85 days from the date hereof, then the Escrow Agent shall continue to
retain in the escrow account at least $300,000, of which $200,000 shall be
disbursed to the Trust on the date that is 86 days from the date hereof but only
to the extent that no Claim with respect to such $200,000 has been made. On the
first anniversary of the Closing Date, Escrow Agent shall disburse to the Trust
the amount (plus accrued interest thereon) in the escrow account over $50,000,
with respect to which a Claim (as defined in the Escrow Agreement) has not been
made. On the second anniversary of the Closing Date, the escrow agent shall
disburse to the Trust the escrow funds, if any, that remain, except for such
funds subject to a Claim under the Escrow Agreement. Buyer shall have the right
at its election to substitute for the escrow an unconditional and irrevocable
letter of credit or guaranty of a United States banking institution, provided
that the terms of the escrow shall not in any event vary from the provisions of
this Section 2.3.5.
2.3.6 Additional Escrow Conditions. To the extent that any employee of
----------------------------
F&R as of the Closing Date continues from and after such date to be employed
by Buyer or F&R, then, during the two year period following the Closing Date, if
such employee utilizes sick time earned and
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<PAGE>
accrued while an employee of F&R, Sellers shall be responsible for the payment
of such sick time, not to exceed 20 working days, less sick time earned and
accrued by such employee while an employee of Orbit or F&R from and after the
Closing ("Sick Pay Escrow"). From and after the Closing Date, Sellers shall also
be responsible for any Losses of F&R that arise under or relate to (a) the
termination by F&R of the Guardian health insurance policy, (b) warranty claims
by third parties and/or other direct costs incurred by Buyer under completed
Contracts not reflected in the Financial Statements (as defined in Section 3.5),
(c) all liabilities of F&R arising prior to the Closing Date under all F&R
letters of credit, and (d) the amount of F&R's Accounts Receivables that are
aged more than 90 days as of the Closing Date (collectively, "Additional
Losses"). Buyer shall be entitled, from time to time during the term of the
Escrow Agreement, to instruct the escrow agent under the Escrow Agreement to
disburse to Buyer from escrow such funds that relate to the Sick Pay Escrow and
the Additional Losses, provided that a copy of such instructions are also
delivered to Sellers and Buyer attests to the escrow agent that Sellers have
received a copy of such instructions. In addition, during the term of the Escrow
Agreement, Buyer shall pay into the escrow account any cash receipts (net of (a)
Buyer's reasonable third party costs and expenses incurred to recover such
receipts and (b) an additional fee equal to 50% of such net cash receipts) that
relate to claims submitted by F&R prior to the Closing Date to the United States
government, or agency thereof, for past-year indirect rate adjustments on
projects conducted by F&R. Buyer will use reasonable efforts to comply with and
support any reasonable inquiries or requests by the United States government in
connection with such claims.
2.4 Closing. The closing of the sale of the Shares by the Sellers to Buyer
-------
and the other transactions contemplated by this Agreement (the "Closing") shall
take place at 10:00 a.m. on the date of this Agreement (the "Closing Date") at
the offices of Blank Rome Comisky & McCauley, 1200 Four Penn Center Plaza,
Philadelphia, Pennsylvania, or at such other time and place as may be agreed
upon by Buyer and Sellers. The Closing shall be deemed effective as of the
close of business on the Closing Date, or at such other time upon which the
parties shall mutually agree.
2.5 Closing Deliveries.
------------------
2.5.1 At the Closing, the Sellers shall deliver to Buyer:
(a) To the extent received by the Closing Date, or within 15 days
thereafter, Consents to the transfer or assignment to Buyer of all Contracts of
F&R where the Consent of any other party to any such Contract is required for
such assignment or transfer;
(b) the keys to all Tangible Property of F&R and title to the
vehicles, if any, of F&R;
(c) all files, papers, books and records, and service records
relating to the businesses of F&R;
(d) termination statements and any other termination documents in a
form reasonably satisfactory to counsel for Buyer, terminating all applicable
liens, security interests,
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<PAGE>
pledges, charges, executions, attachments, Encumbrances and claims in and to the
Shares and the Assets of F&R;
(e) a certificate, dated as of a recent date, from the Secretary of
the State of Delaware that F&R is a corporation validly existing and in good
standing;
(f) the minute books and stock books of F&R;
(g) certificates representing the Shares, with stock powers or
assignments separate from certificate duly endorsed by the Sellers;
(h) the Escrow Agreement, the opinion of counsel to the Sellers and
the Noncompetition Agreements;
(i) copies of the resolutions duly adopted by the board of directors
of F&R authorizing F&R to execute, deliver and perform this Agreement and to
consummate the transactions contemplated by this Agreement, certified by the
Secretary of F&R as in full force and effect, without modification or
rescission, on and as of the Closing Date;
(j) resignations of all directors and officers of F&R; and
(k) all such further documents, instruments and agreements which may
in the reasonable opinion of Buyer, or its counsel, be necessary in order to
transfer title to the Shares to Buyer more effectively, or to carry out and
effectuate any provision of this Agreement and the transactions contemplated by
this Agreement.
2.5.2 At the Closing, Buyer shall deliver to the Sellers:
(a) the Note, the Escrow Agreement, the Noncompetition Agreements,
and the Guaranty;
(b) a certificate, dated as of a recent date, from the Secretary of
the State of Delaware that Buyer is a corporation validly existing and in good
standing;
(c) copies of the resolutions duly adopted by the board of directors
of Buyer authorizing Buyer to execute, deliver and perform this Agreement and to
consummate the transactions contemplated by this Agreement, certified by the
Secretary of Buyer as in full force and effect, without the modification or
rescission, on and as of the Closing Date; and
(d) all such further documents, instruments and agreements which may
in the reasonable opinion of Sellers or their counsel, be necessary in order to
transfer title to the Shares to Buyer more effectively, or to carry out and
effectuate any provision of this Agreement and the transactions contemplated by
this Agreement.
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<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF F&R, SELLERS
----------------------------------------------
F&R and Sellers, jointly and severally, represent and warrant to Buyer the
following, each of which shall be true and accurate on and as of the date of
this Agreement and on and as of the Closing Date:
3.1 Corporate Organization. Schedule 3.1 contains a complete and accurate
---------------------- ------------
list for F&R of its jurisdiction of incorporation and its capitalization
(including the number of shares held by the Sellers). F&R is a corporation duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation, has the corporate power to own all of its
property and Assets and enter into this Agreement and perform the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
F&R and the consummation of the transactions contemplated by this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of F&R. This Agreement and all other documents and agreements contemplated by
this Agreement constitute the valid and binding obligations of Sellers and F&R,
as applicable, enforceable in accordance with their respective terms. F&R is
duly qualified as a foreign corporation in good standing under the Laws of each
jurisdiction set forth in Schedule 3.1 and there is no other jurisdiction in
------------
which the nature of its business or the location of its properties requires such
qualification, except where the failure so to qualify would not have a material
adverse effect on F&R. F&R has no Subsidiaries. Schedule 3.1 also sets forth,
------------
with respect to F&R, (a) the names and titles of its directors and officers, (b)
its federal employer identification number and (c) all fictitious, assumed or
other names of any type that are registered or used by them or under which they
have done business.
3.2 Effect of Agreement. Neither the execution and delivery of this
-------------------
Agreement nor the consummation or performance of any of the transactions
contemplated by this Agreement will, directly or indirectly, (a) contravene,
conflict with, or result in (with or without notice or lapse of time) a
violation of (i) any provision of the Articles of Incorporation or Bylaws of F&R
or (ii) any resolution adopted by the board of directors or shareholders of F&R,
(b) contravene, conflict with, or result in (with or without notice or lapse of
time) a violation of, or give any Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under any Judgment to which Sellers or F&R may be subject, (c) cause
Buyer to become subject to, or to become liable for the payment of, any Tax, (d)
to the Knowledge of Sellers, contravene, conflict with, or result in (with or
without notice or lapse of time) a violation or breach of any provision of, or
give any Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate or modify,
any Contract of F&R or (e) to the Knowledge of Sellers, result in (with or
without notice or lapse of time) the imposition or creation of any Encumbrance
upon or with respect to any of the Assets owned or used by F&R.
3.3 Capitalization. The authorized capital stock of F&R consists of 100,000
--------------
shares of Class B voting common stock, par value $1.00 per share, of which
100,000 shares are issued and outstanding, and 20,000 shares of Class A
nonvoting common stock, par value $1.00 per share, of
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<PAGE>
which 11,500 shares are issued and outstanding, and 1,900 shares are held in
treasury, all of which collectively constitute the Shares. Sellers are the sole
and unconditional owners of, and at Closing will transfer to Buyer, good and
marketable title to, all of the Shares, free and clear of all Obligations and
Encumbrances of any kind, nature or description and Schedule 3.3 sets forth the
------------
number of shares held by each Seller. All of the Shares, and other equity
securities of F&R, have been duly authorized and validly issued and are fully
paid and nonassessable. There are no Contracts or Contract Rights relating to
the issuance, sale or transfer of any equity securities or other securities of
F&R.
3.4 Financial and Corporate Records. The books and records of F&R are and
-------------------------------
have been, to the Knowledge of Sellers, properly prepared and maintained in form
and substance adequate for preparing financial statements and fairly and
accurately reflect all of the Assets and Obligations and all Contracts and
transactions to which F&R is or was a party or by which F&R or any of its Assets
is or were affected. The corporate minute books and stock books of F&R have
been delivered to Buyer and contain (a) accurate and complete minutes of all
meetings of the shareholders and boards of directors of F&R, (b) accurate and
complete written statements of all actions taken by the shareholders and boards
of directors of F&R without a meeting and (c) accurate and complete records of
the issuance, transfer and cancellation of all shares of capital stock and other
securities since its date of incorporation. Schedule 3.4 contains a complete
------------
list of all bank accounts, other accounts, certificates of deposit, marketable
securities, other investments, safe deposit boxes, lock boxes and safes of F&R,
and the names of all individuals who have access thereto or are authorized to
make withdrawals therefrom and dispositions thereof.
3.5 Financial Statements. The financial statements and notes thereof of F&R
--------------------
at and for the fiscal years ended June 30, 1995, July 1, 1994 and July 2, 1993
and the periods ended September 29, 1995, December 29, 1995 and March 29, 1996
(collectively, the "Financial Statements") (a) have been delivered to Buyer, (b)
are true and correct, (c) fairly present the financial condition and results of
operations of F&R as at and for the periods then ended in accordance with GAAP,
and (d) reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair presentation of the financial
condition and results of operations, cash flows and changes in shareholders'
equity of F&R as of such dates and for the periods then ended. To the Knowledge
of Sellers, the Financial Statements do not contain any material misstatements
or omissions regarding the business, Assets, condition (financial or otherwise)
or results of operations of F&R. All Indebtedness of F&R as of the Closing Date
is set forth in Schedule 3.5.
------------
3.6 Contracts.
---------
(a) Schedule 3.6 contains a reasonably complete, detailed and accurate
------------
list, and F&R has delivered to Buyer true and complete copies, of all of the
Contracts of F&R, including, for example, the following types of Contracts: (a)
each Contract that involves the performance of services or delivery of goods or
materials by or to F&R, (b) each lease, rental or occupancy agreement, license,
installment or conditional sale Contract, (c) each Contract to which any
employee, consultant or contractor of F&R is bound, (d) each collective
bargaining agreement, (d) each joint venture, partnership, voting, shareholder
or other Contract involving a sharing of profits, losses, costs
-11-
<PAGE>
or liabilities by F&R, and (e) each amendment, supplement and modification (oral
or written) to any of the foregoing. F&R is not in default under any Contract to
which it is a party, there are no defaults by the respective other parties under
such Contracts and the Sellers have furnished Buyer with all details of the
commitments of F&R with respect to each such Contract. All of the Contracts
listed or required to be listed in Schedule 3.6 are in full force and effect and
------------
are valid and enforceable in accordance with their terms, and to the Knowledge
of Sellers and Principals, no event has occurred or circumstance exists that
would give any Person the right (with or without notice or lapse of time) to
declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify any such Contract. The terms
and conditions of all such Contracts are reasonable and customary in the
industries and trades in which F&R operates, and there are no extraordinary
terms in such Contracts. Buyer will have the same Contract Rights under each
Contract, as does F&R. The fees or other compensation under each Contract are
accurately described on Schedule 3.6 and no fees or payments or other
------------
compensation have been prepaid and each Contract is enforceable in accordance
with its terms. Except as set forth on Schedule 3.6, F&R is not a party to any
------------
written or oral employment or other Contract with any of the employees of F&R or
other Person which is not terminable at-will without a severance obligation.
None of F&R's Contracts are classified in accordance with the Department of
Defense Industrial Security Regulation, DOD 5220.22R.
(b) Attached to Schedule 3.6 is a list of F&R's ETC's as of the Closing
------------
Date, which includes a true and complete quantitative analysis per contract of
the following categories: (i) total estimated contract, (ii) total estimated
cost, (iii) total estimated profit, (iv) estimated profit percentage, (v) costs
to date of Closing, (vi) costs to complete, (vii) percentage to completion,
(viii) earnings to date of Closing, (ix) loss provision, if any, (x) adjusted
earnings to date, (xi) billings to date, (xii) underbilled, (xiii) overbilled
and (xiv) backlog.
3.7 Employee Relations. F&R is not a party to any collective bargaining
------------------
Contract or any other Contract with any labor unions or any other representative
of the employees of F&R. F&R has no material labor disturbances or pending
arbitration, unfair labor practice, grievance or other Proceedings of any kind
with respect to the employees of F&R and F&R has had no such labor Proceedings
for the past 18 months or which remains unresolved. There is: (a) no grievance
which might have an adverse effect on F&R, nor any Proceeding arising out of or
under collective bargaining agreements, pending and no claim therefor has been
asserted and (b) no collective bargaining agreement currently being negotiated
by F&R. Sellers have no Knowledge of any present or Threatened walkout, strike
or any similar occurrence which adversely affects or may adversely affect the
Assets, properties, business, condition or prospects of F&R. During the past
five years, no union attempts to organize or represent the employees of F&R have
been made, nor are any such attempts now Threatened, nor have Sellers or F&R
been notified by any labor organization that it is soliciting or intends to
solicit employees of F&R to select a bargaining agent, nor is any such
solicitation being made or, to the Knowledge of Sellers, contemplated by any
labor union.
3.8 Taxes. F&R has duly and timely filed or will file with the appropriate
-----
governmental agencies (federal, state and local) all Tax returns and reports
required to be filed by it on or before
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<PAGE>
the Closing Date, all of which have been or will be accurately prepared. All
Taxes due, owing and payable, or which may be due, owing and payable for periods
prior to and including the Closing Date, have been or will be fully and timely
paid. F&R has not filed any elections with the Internal Revenue Service, or any
state taxing authority, and there are no agreements, waivers or other
arrangements providing for an extension of time with respect to the assessment
of any Tax or deficiency against F&R, nor are there any actions, suits or claims
now pending, or to Sellers' Knowledge Threatened, against F&R in respect of any
Tax. True and complete copies of the Tax returns of F&R for the fiscal years
ended June 30, 1995, July 1, 1994 and July 3, 1993 have been provided to Buyer.
3.9 Permits. F&R has obtained and maintains, in full force and effect, all
-------
material Permits which are necessary for the conduct of the business of F&R.
Schedule 3.9 contains an accurate and complete list of all Permits maintained by
- ------------
F&R, and all such Permits are in full force and effect, no violations are or
have been recorded in respect of any Permit and no Proceeding is pending or
Threatened to revoke, terminate or limit any Permit. Sellers, to their
Knowledge, do not have any basis to believe that F&R is in default, and F&R has
not received notice of any claim of default, with respect to any such Permit or
any notice of any other claim or Proceeding or Threatened Proceeding relating to
any such Permit.
3.10 Compliance with Laws. The operations of F&R, the conduct of its
--------------------
business as and where such business is presently conducted, and the Assets of
F&R and its uses comply, in all material respects, with all applicable Laws,
except where the failure to so comply would not have a material adverse effect
on the business, Assets or financial condition of F&R. Set forth on Schedule
--------
3.10 is a true, complete and accurate description of all material inspections
- ----
about which F&R received written notice (and related written reports furnished
to F&R made by federal, state and local governmental agencies, authorities and
other Persons for the past five years) regarding any Laws applicable to its
business or Assets, together with a description of all material recommendations
of, actions taken by, submission of information to, and fines and penalties
imposed by, all such governmental agencies and authorities.
3.11 Intangible Property. All of the Intangible Property of F&R is
-------------------
listed on Schedule 3.11. The rights of F&R in the Intangible Property are free
-------------
and clear of any and all Encumbrances. F&R has had no notice of any adversely
held Intangible Property of any other Person or notice of any claim of any other
Person relating to any of the Intangible Property and, to the Knowledge of
Sellers, there is no basis for any such charge or claim. F&R has not, to the
Knowledge of Sellers, misappropriated the trade secrets or property rights of
any Person and none of the Intangible Property, as used in the business of F&R,
infringes upon or violates the rights of any Person. Sellers have no Knowledge
of any Person utilizing the Intangible Property of F&R and F&R has not
transferred any rights to its Intangible Property to any Person.
3.12 Tangible Property. Schedule 3.12 is a detailed list of all of the
----------------- -------------
Tangible Property owned or used by or by under lease to F&R grouped as to type,
including the cost, accumulated depreciation and net book value. Except as set
forth on Schedule 3.12, F&R has good and marketable title to its Tangible
-------------
Property, free and clear of any Encumbrances. All of the Tangible
-13-
<PAGE>
Property of F&R is located at the offices or facilities of F&R, and F&R has the
full and unqualified right to require the immediate return of any of its
Tangible Property which is not located at its offices or facilities. All
Tangible Property used by F&R's customers is in good working order and repair,
and is sufficient for its operations as presently conducted.
3.13 Inventory. All of the inventory of F&R is listed on Schedule 3.13
--------- -------------
and consists of a quality and quantity usable and salable in the ordinary course
of business. All of the inventory of F&R is in good condition and repair, is
sufficient for the operations of F&R as currently conducted and complies with
the requirements of applicable Law. The quantities of each item in inventory
are not excessive but are reasonable in the present circumstances of F&R.
3.14 Real Property. Schedule 3.14 is a detailed list of all Real
------------- -------------
Property owned or leased by F&R. None of the Real Property owned or leased by
F&R, nor the occupancy, maintenance or use thereof, is in violation of any
Contract or Law, and no notice from any Person has been received by Sellers or
served upon any such Real Property claiming any violation of any Contract or
Law. To the Knowledge of Sellers, there are no Hazardous Substances on or under
any Real Property of F&R.
3.15 Accounts Receivable. All Accounts Receivable of F&R are listed on
-------------------
Schedule 3.15. All such Accounts Receivable represent valid Obligations arising
- -------------
from services actually performed by F&R in the ordinary course of its business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible. Schedule 3.15 also indicates the
-------------
Accounts Receivable that either have been or will be collected in full, without
any setoff, within 90 days after the date in which it first becomes due and
payable. There is no contest, claim or right of setoff in any agreement with
any maker of an Account Receivable relating to the amount or validity of such
Account Receivable.
3.16 No Undisclosed Liabilities. F&R has no Obligations or Liabilities
--------------------------
of any nature, except for liabilities or Obligations reflected or reserved
against in the Financial Statements and current liabilities incurred in the
ordinary course of its business.
3.17 No Material Adverse Change. Since March 29, 1996, there has been no
--------------------------
material adverse change in the business, operations, properties, prospects,
Assets or condition of F&R, or any event, condition or contingency that is
likely to result in such a material adverse change. In addition, since March
29, 1996, there has not been (a) any change in the authorized or issued capital
stock of F&R, (b) any grant of any option or right to purchase stock of F&R, (c)
any issuance of any security convertible into stock of F&R, (d) any purchase,
redemption, retirement or other acquisition of shares of stock of F&R, (e) any
declaration or payment of any dividend or other distribution with respect to
shares of stock of F&R, (f) any amendment to the Certificate of Incorporation or
Bylaws of F&R, (g) any damage to or destruction or loss of any Asset or property
of F&R, whether or not covered by insurance, materially and adversely affecting
the properties, Assets, business, financial condition or prospects of F&R or (h)
any agreement, oral or written, by F&R to do any of the foregoing or similar
acts.
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<PAGE>
3.18 Employees and Independent Contractors. Schedule 3.18 is a list of
------------------------------------- -------------
all of the employees of F&R and (a) their titles or responsibilities, (b) their
social security numbers and states of residence, (c) their dates of hire, (d)
their current salaries or wages, (e) their last compensation changes and the
dates on which such changes were made, (f) any specific bonus, commission or
incentive plans or agreements for or with them, (g) any outstanding loans or
advances made to them and (h) their full vacation and sick pay accrued to the
date of this Agreement and as of the Closing Date. Schedule 3.18 also contains a
-------------
list of all sales representatives and independent contractors engaged by F&R,
their tax identification numbers and states of residence, their payment
arrangements, and a brief description of their jobs or projects currently in
progress. Except for any limitations of general application which may be imposed
under applicable employment Laws, F&R has the right to terminate the employment
of each of their respective employees at will and without incurring any penalty
or liability other than liability for severance pay in accordance with the
disclosed severance pay policy of F&R. F&R is in material compliance with all
Laws respecting employment practices, except where the failure to so comply is
not and would not be material to F&R.
3.19 Employee Benefit Plans. Except as listed on Schedule 3.19, F&R
---------------------- -------------
neither sponsors, maintains nor contributes to, or has any ongoing Obligation
with respect to, any Employee Benefit Plan. Attached to Schedule 3.19 are
-------------
accurate and complete copies of all Employee Benefit Plans listed thereon,
including all written Contracts, Insurance Policies and other documents relating
to such Employee Benefit Plans, and any written materials used by F&R to
describe such Employee Benefit Plans to its employees or to its management, all
of which accurately describe the terms of such Employee Benefit Plans, including
Summary Plan Descriptions, if applicable. F&R has not agreed or committed, and
has no understanding whether legally binding or not, to create any additional
Employee Benefit Plan or to continue, modify, change or terminate any Employee
Benefit Plan. F&R has not established, maintained, or contributed to, and does
not have any ongoing Obligation with respect to, any Employee Benefit Plan that
is a "pension plan" (as defined in Section 3(2) of ERISA). Accurate and
complete copies of the most recent annual return on Form 5500 for each Employee
Benefit Plan listed on Schedule 3.19 for which such returns are required are
-------------
attached to Schedule 3.19. Except as otherwise described on Schedule 3.19, with
------------- -------------
respect to each Employee Benefit Plan listed on Schedule 3.19, (a) F&R has made
-------------
all payments required to be made and have accrued in accordance with GAAP all
payments due but not yet payable; (b) to the Knowledge of Sellers, F&R has
operated and currently operates such plans in compliance with the plan documents
and in all material respects with all applicable Laws including, but not limited
to, ERISA, the Code (including, but not limited to, Section 4980B thereof) and
the regulations thereunder; (c) to the Knowledge of Sellers, there has not been
any violation of the reporting and disclosure provisions of the Code and ERISA;
(d) to the Knowledge of Sellers, there has not been any Prohibited Transaction
(as defined in ERISA or the Code); and (e) to the Knowledge of Sellers, there
has not been any violation of Sections 404, 406 or 407 of ERISA. F&R has no
direct or indirect Obligation under any Employee Benefit Plan other than the
Employee Benefit Plans listed on Schedule 3.19. There are no circumstances
-------------
arising out of the sponsorship of or contribution to any Employee Benefit Plan
that will result in any direct or indirect liability other than liability for
contributions, benefit payments, administrative costs and liabilities incurred
in the ordinary course of business. No event has occurred and no circumstances
currently exist that do or will result in any civil penalty being assessed
pursuant
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<PAGE>
to Section 502 of ERISA, any tax being imposed under Section 4975 of the Code,
any liability for a breach of fiduciary or other responsibility under ERISA or
the Code or any other Obligation under applicable Law (including, but not
limited to, those relating to Section 4408B of the Code of Sections 601 through
608 of ERISA) with respect to any Employee Benefit Plan that has been
established, maintained or contributed to by F&R or any other entity or entities
that, together with F&R, constitute elements of either a controlled group of
corporations (within the meaning of Section 414(b) of the Code), a group of
trades or businesses under common control (within the meaning of Section 414(c)
of the Code or Section 4001 of ERISA), an affiliated service group (within the
meaning of Section 414(m) of the Code), or another arrangement covered by
Section 414(o) of the Code.
3.20 Proceedings and Judgments. Except as described on Schedule 3.20,
------------------------- -------------
(a) no Proceeding is currently pending or Threatened, nor has any Proceeding
occurred to which F&R is or was a party, or by which F&R or its Assets or
business is or was affected, (b) no Judgment is currently outstanding, nor has
any Judgment been outstanding at any time within the past five years, against
F&R, or by which F&R or its Assets or business is or was affected and (c) no
breach of Contract, breach of warranty, tort, negligence, infringement, product
liability, discrimination, wrongful discharge or other claim of any nature has
been asserted or Threatened by or against F&R at any time within the past five
years, and there is no basis for any such claim. As to each matter, if any,
described on Schedule 3.20, copies of all pertinent pleadings, Judgments,
-------------
orders, correspondence and other documents have been delivered to Buyer.
3.21 Environmental Matters. Except as set forth on Schedule 3.21, F&R
--------------------- -------------
is, and at all times prior to the date of this Agreement has been, in full
compliance with, and has not been in violation of or liable under, any
environmental Law and no Sellers have any basis to expect any actual or
Threatened order, notice or other communication from any Person of any actual or
potential violation or failure of F&R to comply with any environmental Law, or
of any actual or Threatened Obligation to undertake or bear the cost of any
liability with respect to any property or Assets in which F&R has had an
interest, or with respect to any property at or to which Hazardous Substances
were generated, manufactured, refined, transferred, imported, used or processed
by F&R, or from which Hazardous Substances have been transported, treated,
stored, handled, transferred, disposed, recycled or received.
3.22 Insurance. Schedule 3.22 is a list and description of all Insurance
--------- -------------
Policies currently owned or maintained by F&R. Copies of all Insurance Policies
described on Schedule 3.22 have been delivered to Buyer. Each such Insurance
-------------
Policy is or was in full force and effect during the period(s) of coverage
indicated on Schedule 3.22. Except as described on Schedule 3.22, there are no
------------- -------------
claims material to F&R that are pending under any of the Insurance Policies.
F&R has not received any notice of cancellation with respect to any of its
current Insurance Policies, and there is no basis for the insurer thereunder to
terminate any current Insurance Policies of F&R. Except as set forth on
Schedule 3.22, all such Insurance Policies are or were, during the entire period
- -------------
of coverage, on an "occurrence" rather than a "claims made" basis.
-16-
<PAGE>
3.23 Suppliers and Customers. Schedule 3.23 contains an accurate and
----------------------- -------------
complete list of the current customers, active prospects and current significant
suppliers of F&R. The relationships of F&R with its suppliers and customers are
good commercial working relationships and no supplier or customer of F&R has
canceled or otherwise terminated, or threatened in writing to cancel or
otherwise terminate, its relationship with F&R or has during the last 12 months
decreased materially, or Threatened to decrease or limit materially, its
services, supplies or materials to F&R or its usage of the services or products
of F&R. No Sellers have received written notice that any such supplier or
customer intends to cancel or otherwise modify its relationship with F&R or to
decrease materially or limit its services, supplies or materials to F&R or its
usage of the services or products of F&R. To the Knowledge of the Sellers, the
acquisition of the Shares by Buyer will not adversely affect the relationship
with any such supplier or customer. Except as set forth on Schedule 3.23, F&R is
-------------
not a party to any Contract with a customer or supplier that would be adversely
affected as a result of the acquisition of the Shares by Buyer.
3.24 Questionable Payments. No Sellers, to their Knowledge, nor any of
---------------------
the current or former shareholders, directors, officers, consultants, agents,
employees or other Persons associated with or active on behalf of F&R have (a)
used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (b) made any direct or
indirect unlawful payments to foreign or domestic government officials or
employees from corporate funds, (c) violated any provision of the Foreign
Corrupt Practices Act of 1977, (d) established or maintained any unlawful or
unrecorded fund of corporate monies or other Assets, (e) made any false or
fictitious entries on the books and records of F&R, (f) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment of any nature, or
(g) made any material favor or gift which is not deductible for federal income
tax purposes.
3.25 Related Party Transactions. Except as described on Schedule 3.25
-------------------------- -------------
there are no Contracts or other arrangements of any nature among the Sellers and
F&R and any current or former shareholder, director, officer or Affiliate of F&R
or any other Person Affiliated with Sellers and F&R.
3.26 Brokerage Fees. Except for a contingent fee owed to OEM Capital
--------------
(F&R's financial advisor), no Person acting on behalf of Sellers or F&R is or
shall be entitled to any brokerage or finder's fee in connection with the
transactions contemplated by this Agreement. The payment or other satisfaction
of any such fee is an Obligation of Sellers and is not an Obligation of F&R.
3.27 Full Disclosure. No representation or warranty made by Sellers or
---------------
F&R in this Agreement (a) contains any untrue statement of any fact that was or
is material to Sellers or F&R, (b) omits to state any fact that was or is
material to any Sellers or F&R, or (c) omits to state any fact that is necessary
to make the statements made, in the context in which made, not false or
misleading in any respect that was or is material to any Sellers or F&R. The
copies of documents attached as Schedules to this Agreement or otherwise
delivered to Buyer in connection with the transactions contemplated by this
Agreement, are accurate and complete, and are not missing any amendments,
modifications, correspondence or other related papers that would be pertinent to
Buyer's understanding thereof in any respect that was or is material to Sellers
or F&R. There is no fact
-17-
<PAGE>
known to Sellers or F&R, that has not been disclosed to Buyer in the Schedules
to this Agreement or otherwise in writing, that was or is, or so far as Sellers
or F&R can reasonably foresee, will be material to F&R or material to the
ability of Sellers or F&R to perform their respective obligations under this
Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Sellers the following, each
of which will be true and accurate on and as of the date of this Agreement and
on and as of the Closing Date:
4.1 Corporate Organization. Buyer is a corporation duly organized,
----------------------
validly existing and in good standing under the Laws of the State of Delaware
and has the corporate power to own all of its property and Assets, enter into
this Agreement and perform the transactions contemplated by this Agreement, and
carry on its business as and where it is now conducted. This Agreement and all
other documents and agreements contemplated by this Agreement constitute the
respective valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
4.2 Effect of Agreement. The purchase of the Shares by Buyer and the
-------------------
execution and performance by Buyer of this Agreement and the agreements
contemplated by this Agreement do not violate any federal, state or local Law,
and will not violate, conflict with, or result in a breach of or default or
liability under any agreement or instrument to which Buyer is a party or result
in the creation or imposition of any Encumbrance in or to any of Buyer's
property or Assets.
4.3 Authorization. The execution and delivery of this Agreement by Buyer
-------------
and the consummation of the transactions contemplated by this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of Buyer. Each document contemplated by this Agreement, when executed and
delivered by Buyer in accordance with the provisions hereof, shall be valid and
legally binding upon Buyer in accordance with its terms.
4.4 Investment Intent. Buyer is acquiring the Shares for its own account
-----------------
and not with a view to their distribution within the meaning of Section 2(11) of
the Securities Act of 1933, as amended. Buyer is an "accredited investor" as
that term is defined in Rule 501(a) under the Securities Act.
4.5 Proceedings. There is no Proceeding that has been commenced against
-----------
Buyer that challenges, or may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the transactions contemplated by this
Agreement.
4.6 Brokerage Fees. No Person acting on behalf of Buyer is or shall be
--------------
entitled to any brokerage or finder's fee in connection with the transactions
contemplated by this Agreement.
4.7 Full Disclosure. No representation or warranty made by Buyer in this
---------------
Agreement (a) contains any untrue statement of any fact that was or is material
to Buyer, (b) omits to state any
-18-
<PAGE>
fact that was or is material to Buyer, or (c) omits to state any fact that is
necessary to make the statements made, in the context in which made, not false
or misleading in any respect that was or is material to Buyer. The copies of
documents delivered to the Sellers in connection with the transactions
contemplated by this Agreement, are accurate and complete, and are not missing
any amendments, modifications, correspondence or other, related papers that
would be pertinent to the Sellers understanding thereof in any respect that was
or is material to Buyer. There is no fact known to Buyer, that has not been
disclosed to the Sellers that was or is, or so far as Buyer can reasonably
foresee will be, material to Buyer or material to the ability of Buyer to
perform its obligations under this Agreement.
SECTION 5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
---------------------------------------------------
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by Buyer in whole or in part):
5.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of F&R and Sellers contained in this Agreement will be true and
correct in all respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date. The Schedules to this
Agreement will be complete, accurate, current and updated in all respects on and
as of the Closing Date. F&R and Sellers will have performed and complied with
all covenants and agreements required by this Agreement to be performed or
complied with by them on or prior to the Closing Date.
5.2 No Default. F&R will not be in default in any respect under any
----------
material Contract relating to its business or Assets to which it is a party, and
F&R will not have received written notice of or be in violation of any material
Law or Judgment which relates to its business or Assets.
5.3 Performance of Covenants. All of the covenants and obligations that
------------------------
Sellers and F&R are required to perform or to comply with pursuant to this
Agreement at or prior to Closing (considered collectively) and each of these
covenants and obligations (considered individually), must have been duly
performed and complied with in all material respects.
5.4 No Proceedings. Since the date of this Agreement, there must not have
--------------
been commenced or threatened against Buyer any material proceeding (a) involving
any challenge to, or seeking damages or other relief in connection with, any of
the transactions contemplated by this Agreement or (b) that may have the effect
of preventing, delaying, making illegal or otherwise interfering with any of the
transactions contemplated by this Agreement.
5.5 No Claim on Stock Ownership. There must not have been made or
---------------------------
threatened by any Person any claim asserting that such Person (a) is the holder
or the beneficial owner of, or has
-19-
<PAGE>
the right to acquire or to obtain beneficial ownership of, the Shares or any
other voting, equity or ownership interest in, F&R or (b) is entitled to all or
any portion of the Purchase Price.
5.6 No Prohibition. Neither the consummation nor the performance of any of
--------------
the transactions contemplated by this Agreement will, directly or indirectly
(with or without notice or lapse of time), materially contravene, or conflict
with, or result in a material violation of, or cause Buyer or any Person
Affiliated with Buyer to suffer any material adverse consequence under any
Judgment, order, Consent or Contract.
5.7 Board Approval. This Agreement, and the transactions contemplated by
--------------
this Agreement, shall have been approved by the Board of Directors of Buyer.
5.8 No Adverse Change. There shall not have been any material adverse
-----------------
change in the financial position or operations of F&R since the date of this
Agreement.
5.9 Opinion of Counsel. Legal counsel to F&R and Sellers shall have
------------------
delivered to Buyer a legal opinion in form and substance satisfactory to Buyer
and its counsel.
5.10 Escrow Agreement. F&R and Sellers shall have entered into the Escrow
----------------
Agreement described in Section 2.3.
5.11 Restrictive Covenant Agreements. Flam, Hartman and Aubin, respectively,
-------------------------------
and Buyer shall have entered into a noncompetition agreement in the form of
Exhibit D (the "Noncompetition Agreements").
- ---------
5.12 Payment of Indebtedness by Related Persons. The Sellers will cause
------------------------------------------
all Indebtedness of F&R to them or their Affiliates to be paid or otherwise
satisfied in full prior to Closing.
SECTION 6. CONDITIONS PRECEDENT TO SELLERS'
AND F&R'S OBLIGATION TO CLOSE
-----------------------------
The obligation of F&R and Sellers to sell the Shares and their
obligation to take the other actions required to be taken by them at Closing is
subject to the satisfaction, at or prior to Closing, of each of the following
conditions (any of which may be waived by F&R and Sellers in whole or in part):
6.1 Accuracy of Representations. The representations and warranties of
---------------------------
Buyer contained in this Agreement will be true and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. Buyer will have performed and complied with
all covenants and agreements required by this Agreement to be performed or
complied with by it on or prior to the Closing Date.
-20-
<PAGE>
6.2 Buyer's Performance. All of the covenants and obligations that Buyer is
-------------------
required to perform or to comply with pursuant to this Agreement at or prior to
Closing (considered collectively) and each of these covenants and obligations
(considered individually), must have been performed and compiled with in all
material respects.
6.3 Board Approval. This Agreement, and the transactions contemplated by
--------------
this Agreement, shall have been approved by the Board of Directors of F&R.
SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
All representations, warranties, covenants, indemnities and
agreements made by Sellers, F&R and Buyer in this Agreement are continuing and
shall survive, for a period of two years after the Closing Date (except with
respect to Sections 3.8, 3.9, 3.10, 3.19, 3.21, 3.24, and 3.27 which shall
survive for the applicable statute of limitations period), the execution,
delivery and performance of this Agreement, the delivery of the other documents,
certifications, lists and instruments, and any investigation or inspection at
any time made by or on behalf of Buyer. No information furnished by Sellers and
F&R pursuant to this Agreement will operate as a waiver of any of Buyer's rights
for any misrepresentation or breach of any warranty which is disclosed by such
information. Each warranty, representation and agreement contained in this
Agreement is independent of all other warranties, representations and agreements
contained in this Agreement (whether or not covering an identical or related
subject matter) and must be independently and separately complied with and
satisfied. No representation or warranty or agreement made in this Agreement
will be limited in its construction by reference to or from any other such
provision. The right to indemnification, reimbursement or other remedy based on
such representations, warranties, covenants and Obligations will not be affected
by any investigation conducted with respect to, or any Knowledge acquired about
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or Obligation, unless such Knowledge is acquired from this
Agreement or the Schedules to this Agreement.
SECTION 8. INDEMNIFICATION AND SETOFF
--------------------------
8.1 Indemnification by the Sellers. The Sellers, jointly and severally,
------------------------------
shall indemnify, defend and hold harmless Buyer, F&R and any parent, Subsidiary,
associate, Affiliate, partner, shareholder, officer or shareholder of a partner
of Buyer, and all of their successors, assigns, heirs and representatives
(collectively, the "Buyer Group") from and against all demands, claims, actions
or causes of action, assessments, Judgments, Proceedings, Obligations, debts,
Losses, damages, liabilities, settlements, costs and expenses, including, but
not limited to, interest, penalties and reasonable attorneys' fees and expenses,
of any nature or kind, known or unknown, fixed, accrued, absolute or contingent,
liquidated or unliquidated, asserted against, resulting to, imposed upon or
incurred by any member of Buyer Group, directly or indirectly, by reason of or
resulting from any one or more of the following:
-21-
<PAGE>
8.1.1 any misrepresentation, breach, failure or inaccuracy of any
representation or warranty made by F&R or Seller in or pursuant to this
Agreement;
8.1.2 any failure or refusal by F&R or Sellers to satisfy or perform
any covenant, term or condition of this Agreement (not including noncompetition
agreements) required to be satisfied or performed by any or all of them;
8.1.3 any Proceeding against the Buyer Group by any Person (other
than Sellers) arising out of or caused by, directly or indirectly, any act or
omission of F&R, or any of its Affiliates, employees, representatives, directors
or officers at any time prior to the Closing Date;
8.1.4 any Taxes owed by F&R, Sellers for periods prior to the Closing
Date, whether or not any such liability for Taxes exists as of the Closing Date;
8.1.5 any Tax claim asserted against any member of Buyer Group with
respect to any Taxes relating to the operations of the business of F&R prior to
the Closing;
8.1.6 any liability or Obligation of the business of F&R relating to the
operations of the business of F&R before the Closing Date, except as
specifically set forth in the Financial Statements; or
8.1.7 any liability or Obligation of F&R relating to or arising under
F&R's Contract with the Naval Undersea Warfare Center, Project No. 9674,
Contract No. N66604-93-C-0006 (the "NUWC Contract") in excess of $200,000 placed
in the escrow account to cover claims under the NUWC Contract.
8.2 Indemnification by Buyer. Buyer shall indemnify, defend and hold
------------------------
harmless the Sellers and any Affiliate, partner, shareholder, officer or
shareholder of a partner of the Sellers and all of their assigns, heirs and
representatives (collectively, the "Sellers' Group") from and against all
demands, claims, actions or causes of action, assessments, Judgments,
Proceedings, Obligations, debts, Losses, damages, liabilities, settlements,
costs and expenses, including, but not limited to, interest, penalties and
reasonable attorneys' fees and expenses, of any nature or kind, known or
unknown, fixed, accrued, absolute or contingent, liquidated or unliquidated,
asserted against, resulting to, or imposed upon or incurred by any member of the
Sellers' Group directly or indirectly, by reason of or resulting from either of
the following:
8.2.1 any misrepresentation, breach or failure of any representation
or warranty made by Buyer in or pursuant to this Agreement; or
8.2.2 any failure or refusal by Buyer to satisfy or perform any
covenant, term or condition of this Agreement required to be satisfied or
performed by it.
-22-
<PAGE>
8.3 Indemnification Notice. With respect to each event, occurrence or matter
----------------------
("Indemnification Matter") as to which Buyer Group on one hand, or the Sellers'
Group on the other hand (in either case, an "Indemnitee") is entitled to
indemnification from the other ("Indemnitor") under this Section 8, within 15
days after Indemnitee receives any written documents underlying the
Indemnification Matter or, if the Indemnification Matter does not involve a
third party action, suit, claim or demand, promptly after Indemnitee first has
actual knowledge of the Indemnification Matter, Indemnitee shall give notice to
Indemnitor of the nature of the Indemnification Matter ("Indemnification
Notice") and if the Indemnification matter involves a third party action, claim,
suit or demand, Indemnitor shall undertake the defense of such Indemnification
Matter by legal counsel reasonably satisfactory to Indemnitee.
8.4 Indemnification Matters. The obligations and liabilities of Indemnitor
-----------------------
under Section 8 with respect to an Indemnification Matter by third parties will
be subject to the following terms and conditions:
8.4.1 If within 15 days after Indemnification Notice, Indemnitor fails to
defend against such Indemnification Matter, Indemnitee will have the right to
undertake the defense, compromise or settlement of such Indemnification Matter
on behalf of and for the account and at the risk and expense of Indemnitor
subject to the right of Indemnitor to assume (with Indemnitee's consent) the
defense of such Indemnification Matter at any time prior to settlement,
compromise or final determination of such Indemnification Matter.
8.4.2 Notwithstanding any provision of this Section 8 to the contrary,
(a) if there is a reasonable probability that (i) an Indemnification Matter may
materially and adversely affect Indemnitee other than as a result of money
damages or other money payments or (ii) Indemnitor cannot provide Indemnitee
with adequate assurance that it is capable of fulfilling its indemnification
obligations under this Section 8, Indemnitee will have the right to defend, co-
defend, reasonably compromise or settle such Indemnification Matter without
Indemnitor's approval but after giving Indemnitor three days prior notice of
such compromise or settlement and (b) Indemnitor will not, without the prior
written consent of Indemnitee, settle or compromise any Indemnification Matter
or consent to entry of any Judgment relating to any such Indemnification Matter,
which settlement, compromise or Judgment does not include as an unconditional
term the release of Indemnitee by the claimant in respect of such
Indemnification Matter. Indemnitee will have the right to participate in any
defense of an Indemnification Matter at any time at its own expense and
Indemnitor will cooperate and cause its counsel to fully and promptly cooperate
with Indemnitee and its counsel with respect to its participation in the defense
of the Indemnification Matter.
8.4.3 Indemnitor and Indemnitee will cooperate with each other to furnish
access to all records and documents of Indemnitor relating to any
Indemnification Matter.
8.5 Cumulative Remedies. The remedies provided in this Section 8 are
-------------------
cumulative and will not preclude assertion by Indemnitee of any other rights or
the seeking of any other remedies
-23-
<PAGE>
against any other party to this Agreement. Indemnitor's liability under this
Section 8 shall not extend to claims for which Indemnitee has received proceeds
under insurance policies covering such claims.
8.6 Setoff and Escrow. In addition to all other rights and remedies that the
-----------------
Indemnitee may have, the Indemnitee shall have the right to (a) setoff, against
any monies due to the Indemnitor (whether under this Agreement, the Note, or
otherwise), any sums for which the Indemnitee is entitled to indemnification
under this Section 8 or any other sums that the Indemnitee may owe to the
Indemnitor (whether under this Agreement, the Note or otherwise) or (b) give
notice of a claim in the amount to which it is entitled under this Section 8 in
accordance with the Escrow Agreement. The Indemnitee's rights to indemnification
under this Section 8 shall under no circumstances be in any manner limited by
this right of setoff or escrow. If any Indemnification Matters are pending at
the time the Indemnitee is required to make any payment to the Indemnitor
(whether under this Agreement or otherwise), then the Indemnitee shall have the
right, upon notice to the Indemnitor, to withhold from such payment, until final
determination of such Indemnification Matters, the total amount for which the
Indemnitor may become liable as a result thereof, determined by the Indemnitee
reasonably and in good faith.
8.7 Inventory Setoff. On the second anniversary of the Closing Date,
----------------
Buyer shall setoff against the principal sum under the Note the value, if any,
of all Inventory Subject to Setoff which remains in inventory (as defined in
Section 1.19), less $45,000. Buyer shall use best efforts to give reasonable
preference to the use of inventory included within Inventory Subject to Setoff
over inventory of similar character and shall at its option, either (i) on such
date transfers to Sellers title to any Inventory Subject to Setoff, at Sellers'
expense, or (ii) pays to Sellers ten percent of the value of all Inventory
Subject to Setoff.
8.8 Limitation. Sellers shall have no Obligation to indemnify Buyer or F&R
----------
for Losses under this Section 8 to the extent that such Losses in the aggregate
exceed $1,650,000, as such amount may be adjusted by Buyer's setoff rights and
disbursements from escrow.
SECTION 9. MISCELLANEOUS
-------------
9.1 Confidentiality. All information, data, disclosures and other
---------------
proprietary information furnished to the Sellers pertaining to Buyer, and to
Buyer pertaining to Sellers, shall be deemed confidential, except for
information which is or becomes generally available to the public other than as
a result of a breach of this Agreement. Except as required by Law or in the
event of a Proceeding arising from this Agreement, none of the parties shall
disclose the financial terms of this Agreement to any Person other than to their
respective professional advisors for purposes of such advisors assisting such
parties, as the case may be, in negotiating and performing this Agreement and
complying with all applicable Tax Laws. The parties shall cause their
professional advisers to treat all information concerning the parties to this
Agreement and the terms of this Agreement as confidential.
-24-
<PAGE>
9.2 Release. Sellers hereby release and forever discharge Buyer, F&R, and
-------
each of their respective individual, joint or mutual, past, present and future
agents, representatives, employees, officers, directors, affiliates,
stockholders, controlling persons, subsidiaries, successors and assigns
(individually, a "Releasee" and collectively, "Releases") from any and all
claims, demands, actions, causes of action, judgments, obligations, contracts,
agreements, debts and liabilities whatsoever, whether known or unknown,
suspected or unsuspected, both at law and in equity, which the Sellers (or their
respective heirs, executors, administrators, successors and assigns) now have,
have ever had or may hereafter have against the respective Releases arising on
or prior to the Closing Date or on account of or arising out of any matter,
cause or event occurring on or prior to the Closing Date, including, but not
limited to, any rights to indemnification or reimbursement from Buyer, whether
pursuant to its organizational documents, contract or otherwise and whether or
not relating to claims pending on, or asserted after, the Closing Date;
provided, however, that nothing contained in this Section 9.2 shall operate to
- -------- -------
release any Obligations of Buyer or F&R arising under this Agreement as a result
of its default or failure to meet its Obligations after the Closing Date or to
the extent that Buyer succeeds to the Obligations of F&R as a result of its
purchase of the Shares. Sellers hereby irrevocably covenant to refrain from,
directly or indirectly, asserting any claim or demand, or commencing,
instituting or causing to be commenced, any suit, action or proceeding of any
kind in any court or before any tribunal, based upon any matter purported to be
released hereby against any Releasee.
9.3 Further Assurances.
------------------
(a) The parties will execute from time to time any and all further
documents, instruments or agreements and do all other things and deliver all
items, which may be reasonably necessary to effectuate and carry out any and all
of the provisions of this Agreement and the transactions contemplated by this
Agreement.
(b) Buyer will use its reasonable efforts to collect F&R's Accounts
Receivables from and after the Closing Date. To the extent that payments for
any of F&R's Accounts Receivables that exist as of the Closing Date are made
more than 90 days after it first becomes due and payable in the ordinary course
of business, then Buyer shall deposit the amount collected into the escrow fund
under the Escrow Agreement, net of Buyer's reasonable third party costs and
expenses of collection.
(c) Flam shall, under Orbit's authority, from and after the Closing Date
direct the completion of the NUWC Contract, including maintaining direct contact
with the customer and Orbit shall furnish Flam with all reasonable services and
resources to competently and effectively complete such Contract.
9.4 Notices. All notices, consents or other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three business
days after being mailed by first class certified mail, return receipt requested,
postage prepaid, (c) one business day after being sent by a reputable overnight
delivery service, postage or delivery charges prepaid, or (d) on the date on
which a telegram or
-25-
<PAGE>
facsimile is transmitted to the parties (effective only if confirmed within 48
hours thereafter by a signed original sent in one of the preceding manners), to
their respective addresses stated on the signature page of this Agreement. A
copy of any notice to Buyer shall be simultaneously sent to Michael P. Saber,
Esquire, Blank Rome Comisky & McCauley, 1200 Four Penn Center, Philadelphia,
Pennsylvania 19103. A copy of any notice to Sellers shall be simultaneously sent
to Anthony R. Lorenzo, Esquire, Wofsey, Rosen, Kweskin & Kuriansky, 600 Summer
Street, Stamford, CT 06901. Any party may change its address for notice and the
address to which copies must be sent by giving notice of the new addresses to
the other parties in accordance with this Section 9.4, except that any such
change of address notice shall not be effective unless and until received.
9.5 Entire Understanding. This Agreement, together with the Schedules and
--------------------
Exhibits hereto, states the entire understanding among the parties with respect
to the subject matter hereof, and supersedes all prior oral and written
communications and agreements, and all contemporaneous oral communications and
agreements, with respect to the subject matter hereof. No amendment or
modification of this Agreement shall be effective unless in writing and signed
by the parties.
9.6 Parties in Interest. This Agreement shall bind, benefit, and be
-------------------
enforceable by and against each party hereto and its respective successors,
assigns, heirs and representatives. No party shall in any manner assign any of
its rights or obligations under this Agreement without the express prior written
consent of the other party.
9.7 No Third Party Beneficiaries. No provision of this Agreement is intended
----------------------------
to or shall be construed to grant or confer any right to enforce this Agreement,
or any remedy for breach of this Agreement, to or upon any Person other than
Buyer, F&R, Principals and the Sellers, including, but not limited to, any
customer, client, prospect, supplier, employee, contractor, salesman, agent or
representative of F&R.
9.8 No Waivers. No waiver with respect to this Agreement shall be
----------
enforceable unless in writing and signed by the party against whom enforcement
is sought. Except as otherwise expressly provided herein, no failure to
exercise, delay in exercising, or single or partial exercise of any right, power
or remedy by any party, and no course of dealing between or among any of the
parties, shall constitute a waiver of, or shall preclude any other or further
exercise of the same or any other right, power or remedy.
9.9 Severability. If any provision of this Agreement is construed to be
------------
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
9.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
-26-
<PAGE>
9.11 Controlling Law. This Agreement is made under, and shall be
---------------
construed and enforced in accordance with, the Laws of the Commonwealth of
Pennsylvania applicable to agreements made and to be performed solely therein,
without giving effect to principles of conflicts of law.
9.12 Jurisdiction and Process. Unless otherwise provided in this
------------------------
Agreement, each of the parties (a) irrevocably consents to the exclusive
jurisdiction of the Courts of Common Pleas of Montgomery County, Pennsylvania,
or the United States Court for the Eastern District of Pennsylvania, in any and
all actions between or among any of the parties, whether arising under this
Agreement or otherwise, (b) irrevocably waives its right to trial by jury in any
such action, and (c) irrevocably consents to service of process by first class
certified mail, return receipt requested, postage prepaid, to the address at
which such party is to receive notice in accordance with Section 9.4. In any
and all actions between or among any of the parties, whether arising under this
Agreement or otherwise, the prevailing party or parties shall be entitled to
recover their reasonable attorney's fees and legal expenses from the other party
or parties.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties have executed, or caused their duly authorized
representatives to execute, this Agreement on the date first written above.
ORBIT ADVANCED TECHNOLOGIES, INC.
By: [SIGNATURE APPEARS HERE]
- --------------------------------- ---------------------------------
Address: Name:SHAFAIR BENNY
Title:PRESIDENT
Attest: [SIGNATURE APPEARS HERE]
-----------------------------
FLAM & RUSSELL, INC.
By:/s/ Richard P. Flam
- --------------------------------- ---------------------------------
Address: Name:Richard P. Flam
Title:PRESIDENT
Attest: [SIGNATURE APPEARS HERE]
-----------------------------
/s/ Richard P. Flam
- --------------------------------- ------------------------------------
Address RICHARD P. FLAM
/s/ Rickey E. Hartman
- --------------------------------- ------------------------------------
Address RICKEY E. HARTMAN
/s/ John F. Aubin
- --------------------------------- ------------------------------------
Address JOHN F. AUBIN
/s/ Lois Charles
- --------------------------------- ------------------------------------
Address LOIS CHARLES
/s/ Dorothy Russell
- --------------------------------- ------------------------------------
Address DOROTHY RUSSELL
/s/ Norma D. Kegg
- --------------------------------- ------------------------------------
Address NORMA D. KEGG
THE SAMUEL T. RUSSELL TRUST
By: [SIGNATURE APPEARS HERE]
-----------------------------------
-28-
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
Exhibit A - Promissory Note
Exhibit B - Guaranty
Exhibit C - Escrow Agreement
Exhibit D - Noncompetition Agreement
<CAPTION>
SCHEDULES
- ---------
<S> <C>
Schedule 3.1 - Corporate Organization
Schedule 3.4 - Financial and Corporate Records
Schedule 3.5 - Financial Statements
Schedule 3.6 - Contracts
Schedule 3.9 - Permits
Schedule 3.10 - Compliance with Laws
Schedule 3.11 - Intangible Property
Schedule 3.12 - Tangible Property
Schedule 3.13 - Inventory
Schedule 3.14 - Real Property
Schedule 3.15 - Accounts Receivable
Schedule 3.18 - Employees and Independent Contractors
Schedule 3.19 - Employee Benefit Plans
Schedule 3.20 - Proceedings and Judgments
Schedule 3.21 - Environmental Matters
Schedule 3.22 - Insurance
Schedule 3.23 - Suppliers and Customers
Schedule 3.25 - Related Party Transactions
</TABLE>
-29-
<PAGE>
SCHEDULES
The following Schedules have been omitted pursuant to Item 601(b)(2) of
Regulation S-K:
<TABLE>
<CAPTION>
<S> <C>
Schedule 3.1 - Corporate Organization
Schedule 3.4 - Financial and Corporate Records
Schedule 3.5 - Financial Statements
Schedule 3.6 - Contracts
Schedule 3.9 - Permits
Schedule 3.10 - Compliance with Laws
Schedule 3.11 - Intangible Property
Schedule 3.12 - Tangible Property
Schedule 3.13 - Inventory
Schedule 3.14 - Real Property
Schedule 3.15 - Accounts Receivable
Schedule 3.18 - Employees and Independent Contractors
Schedule 3.19 - Employee Benefit Plans
Schedule 3.20 - Proceedings and Judgments
Schedule 3.21 - Environmental Matters
Schedule 3.22 - Insurance
Schedule 3.23 - Suppliers and Customers
Schedule 3.25 - Related Party Transactions
</TABLE>
The Registrant agrees to furnish supplementally a copy of any omitted Schedule
to the Commission upon request.
-30-
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 15th day of February 1997 ("Effective Date")
between ORBIT/FR INC., (the "Company"), a Pennsylvania corporation with offices
at 506 Prudential Road, Horsham, Pennsylvania, and ARYEH TRABELSI ("Trabelsi"),
of Elkins Park, Pennsylvania.
WHEREAS, Trabelsi and the Company desire to set forth all terms and
conditions upon which Trabelsi shall be employed by the Company hereinafter; and
WHEREAS, Trabelsi and the Company desire to replace and supersede any
and all prior existing agreements between the parties, written and oral, express
or implied;
NOW, THEREFORE, INTENDING TO BE LEGALLY BOUND, in consideration of the
mutual covenants contained herein and other good and valuable consideration the
receipt, adequacy, and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. Employment.
-----------
a. Term. The Company agrees to employ Trabelsi, and Trabelsi agrees to be
----
employed by the Company, as President and Chief Executive Officer, with the
duties set forth below, subject to the supervision and direction of the
Board of Directors. Such employment shall continue for a period of two
years from the date hereof unless sooner terminated in accordance with the
other provisions of this Agreement or under law. In the event that such
employment is not terminated in accordance with the other provisions of
this Agreement or under law, this Agreement shall continue until terminated
in accordance with this Agreement or under law.
b. Duties. Trabelsi shall serve as President and Chief Executive Officer
------
of the Company, subordinate to the Board of Directors ("Board"). In this
capacity, Trabelsi shall have supervision over, and responsibility for, the
day-to-day management, finances, and operations of the Company and existing
and future Israeli and other subsidiaries subject to the direction of the
Board and shall perform such duties and assignments necessary to carry out
the policies and decisions of the Board. Trabelsi shall devote all of his
working time, energy, skill, and best efforts to the Company's business and
affairs and to the promotion of the Company's interests as is required for
the fulfillment of his obligations and the performance of his duties under
this
<PAGE>
Agreement, except that Trabelsi shall not be precluded from pursuing
personal investments, so long as such activities do not materially
interfere with Trabelsi's performance of his duties under this Agreement.
2. Compensation, Benefits, and Expenses.
------------------------------------
a. Salary. During the term of Trabelsi's employment as described in
------
Section 1 hereof, the Company will pay him a base annual salary of one
hundred fifty-four thousand two hundred sixteen dollars or such higher
amount as the Board may determine from time to time ("Base Salary"). The
Base Salary will be reviewed on an annual basis by the Board. Trabelsi's
Base Salary shall be payable in accordance with the Company's normal
payroll practices for employees and the Company shall deduct or cause to be
deducted from Trabelsi's Base Salary all taxes and amounts required by law
to be withheld.
b. Benefits. The Company has established various policies with regard to
--------
paid vacation, holidays, and sick leave, medical and hospitalization
insurance, life insurance, salary continuance, disability insurance,
accidental death insurance, and participation in its 401(k) program for the
benefit and privilege of all full-time employees. Trabelsi shall be
entitled to the benefits of these policies and any similar policies, plans,
or programs as they presently exist or as they may be modified by the
Company from time to time to the extent that Trabelsi is eligible under
their general provisions and to the extent that the total cost to the
Company of such benefits, excluding vacation, paid holidays, and sick
leave, do not exceed fifteen percent of Trabelsi's Base Salary. Trabelsi's
employment by the Company or any subsidiary of the Company prior to the
Effective Date of this Agreement shall be considered in determining his
eligibility under these policies.
c. Bonus. In addition to his Base Salary, Trabelsi shall be entitled to
-----
an annual bonus equal to three percent of the Company's net income before
taxes (excluding the effect of any change in accounting principles and
gains realized from the sale of securities) (computed in accordance with
generally accepted accounting principles consistently applied) ("Three
Percent Bonus"). Trabelsi shall also be entitled to an additional bonus of
ten percent of the Company's net income before taxes excluding capital
gains (computed in accordance with generally accepted accounting principles
consistently applied) in excess of the following profit levels ("Ten
Percent Bonus"):
-2-
<PAGE>
1997 - $3,235,000
1998 - $4,610,000
1999 - $7,510,000
2000 - $11,360,000
Trabelsi's Three Percent Bonus shall be paid in quarterly installments with
the first salary payment to Trabelsi after the Board's approval the
Company's auditor's report of its financial statements for the preceding
quarter. Each such quarterly payment shall be equal to one half of the
Three Percent Bonus due Trabelsi for the related quarter. The remaining
amount of the Three Percent Bonus due Trabelsi shall be paid annually
within thirty days of the Board's approval of the Company's annual
auditor's report of its financial statements for the preceding year.
Trabelsi shall refund within thirty days of Trabelsi's receipt of the
Company's written demand, which demand shall set forth in reasonable detail
the basis for the Company's demand, any amounts overpaid by the Company for
the Three Percent Bonus. Trabelsi's Ten Percent Bonus shall be paid
annually within thirty days of the Board's approval of the Company's annual
auditor's report of its financial statements for the preceding year. Upon
termination of this Agreement except for termination in accordance with
Section 4 of this Agreement, Trabelsi shall be entitled to any unpaid
Three Percent Bonus and Ten Percent Bonus both prorated for any partial
year during which he actually performed his duties as President and Chief
Executive Officer as set forth in this Agreement.
d. Stock Options. Upon the closing of the initial public offering of the
-------------
Company's common stock by Pennsylvania Merchants Group, Ltd, contemplated
to occur in 1997 ("Initial Public Offering") Trabelsi shall be granted
stock options entitling him to purchase 171,000 shares of the Company's
common stock (which reflect 3% of the shares of the Company's common stock
that are contemplated to be outstanding immediately after the closing of
the Initial Public Offering (the sum of the 4,000,000 shares currently
outstanding and the 1,700,000 contemplated to be issued pursuant to the
Initial Public Offering)) pursuant to the Company's 1997 Qualified and Non-
Qualified Employee Stock Option Plan (the "Plan") at a price equal to the
Initial Public Offering price per share exercisable annually in four equal
increments beginning twenty-four months after the closing of the Initial
Public Offering. Any such unvested options shall survive the termination
of this Agreement unless terminated pursuant to Section 4 or by Trabelsi
under 4.e.
e. Company Automobile. The Company will provide an automobile for
------------------
Trabelsi's use, and the Company shall be responsible for all reasonable
operating expenses of such automobile, including, but not limited to, fuel,
registration, insurance, and maintenance expenses. The Company shall not
-3-
<PAGE>
be responsible nor reimburse Trabelsi for any fines or penalties related to
the operation of the automobile.
f. Telephone/Facsimile. During the term of this Agreement, the Company
-------------------
shall provide and pay expenses associated with telephone and facsimile
equipment and service in Trabelsi's residence.
g. Expenses. Trabelsi is authorized to incur, and shall be promptly
--------
reimbursed by Company for, ordinary, necessary, and reasonable expenses in
the course of his performance of services under this Agreement. Trabelsi
shall properly account for all such expenses.
h. Vacation. During the term of this Agreement, Trabelsi shall be
--------
entitled to twenty-three vacation days per annum. Trabelsi may accrue up
to forty-six unused vacation days for use in future years.
i. Travel. Trabelsi shall be entitled to one trip to Israel every two
------
years, for which the Company shall pay all reasonable travel (coach
airfare) and local lodging expenses incurred by Trabelsi and members of his
immediate household (spouse and children).
j. Compensation, Benefits, and Reimbursement for Expenses Accrued prior to
-----------------------------------------------------------------------
the Effective Date. Trabelsi shall be entitled to the accrued
------------------
compensation, benefits, and reimbursement for expenses arising from
Trabelsi's employment by the Company or any of its subsidiaries prior to
the Effective Date. Notwithstanding the foregoing, Trabelsi shall lose his
entitlement to all accrued vacation days in excess of forty-six days that
are neither used nor redeemed before January 1, 1999.
3. Indemnification.
---------------
Company shall indemnify Trabelsi, to the maximum extent under applicable
law and the bylaws of the Company as they existed on the Effective Date
(which bylaws as they existed on the Effective Date shall continue to be
effective for the purpose of this Section 3 whether or not subsequently
amended) for all acts of Trabelsi as an officer of the Company or any other
company that Trabelsi serves as an officer or director at the request of
the Company.
4. Termination.
-----------
a. Termination by Death. If Trabelsi dies, then this Agreement and all of
--------------------
-4-
<PAGE>
Trabelsi's rights to compensation and benefits under this Agreement shall
terminate immediately, except that Trabelsi's heirs, personal
representatives, or estate shall be entitled to receive the unpaid portion
of Trabelsi's Base Salary, any portion of his bonus to which he is entitled
under Section 2, any accrued benefits up to the date of termination and
any benefits that are to be continued or paid after the date of termination
in accordance with the terms of the corresponding benefit plan.
b. Termination by Disability. If Trabelsi becomes disabled, he shall
-------------------------
continue to receive all of his compensation and benefits in accordance with
Section 2 of this Agreement for a period of twelve months following the
first day on which Trabelsi shall be unable to perform his duties under
this Agreement by reason of physical or mental incapacity, sickness, or
infirmity ("Onset of Disability"). If Trabelsi disability continues for
more than twelve months after the Onset of Disability or for periods
aggregating more than twelve months during any twenty-four month period,
then the Company shall have the right to terminate immediately this
Agreement and all of Trabelsi's rights to compensation and benefits under
this Agreement, except that Trabelsi shall be entitled to receive the
unpaid portion of Trabelsi's Base Salary, any portion of his bonus to which
he is entitled under Section 2, any accrued benefits up to the date of
termination, and any benefits that are to be continued or paid after the
date of termination in accordance with the terms of the corresponding
benefit plans. Any Amounts due Trabelsi under this Section 4 shall be
reduced, dollar for dollar, by any amounts received by Trabelsi under any
disability insurance policy or plan provided to Trabelsi by Company.
c. Termination for Cause. The Company may immediately upon written notice
---------------------
terminate for Cause (as defined in this Section 4) this Agreement and all
of Trabelsi's rights to compensation and benefits under this Agreement,
except that Trabelsi shall be entitled to receive the unpaid portion of
Trabelsi's Base Salary, any accrued benefits to which he is entitled under
Section 2 up to the date of termination, and any benefits to which he is
entitled under Section 2 that are to be continued or paid after the date
of termination in accordance with the terms of the corresponding benefit
plans. The Company may set off against any amounts due Trabelsi, amounts
due the Company from Trabelsi. Cause shall exist if Trabelsi commits a
material act of dishonesty or material breach of trust or fiduciary
obligation with respect to the Company or materially breaches this
Agreement, but only if Trabelsi is given written notice specifying in
reasonable detail the nature of the alleged cause and a reasonable
opportunity to present his position to the Board.
d. Termination for Good Reason. Until December 31, 1998, Trabelsi
---------------------------
-5-
<PAGE>
may, upon ninety days' prior written notice to the Company, terminate this
Agreement for Good Reason (as defined in this Section 4). Good Reason
shall exist if
i. Trabelsi is demoted, removed or not re-elected to the office of
President and Chief Executive Officer of the Company, or there is a
material diminishment of Trabelsi's responsibilities, duties, or
status;
ii. Trabelsi's Base Salary is reduced or Trabelsi's benefits are
materially reduced;
iii. the Company commits a material breach of this Agreement and fails
to cure such breach within thirty days of its receipt of written
notice of the breach;
iv. Trabelsi's primary place of employment is relocated more than one
hundred miles from its present location (other than a relocation to
Israel after December 31, 1998, for which the Company pays all
reasonable costs of Trabelsi and Trabelsi's immediate family) without
Trabelsi's consent;
v. any failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
vi. any purported Termination for Cause that is not effected in
accordance with Section 4.
If Trabelsi terminates this Agreement for Good Reason, then (1) Trabelsi
shall receive his Base Salary under this Agreement until the expiration
date this Agreement; (2) all of the stock options issued to Trabelsi under
the Plan or any successor stock option plan of the Company (collectively
the "Options") shall be fully vested as of the date of termination
regardless of the terms of the Plan or any such successor plan; and (3) all
benefits and perquisites of Trabelsi shall continue to be provided by the
Company until the expiration date of this Agreement.
e. Termination Upon Notice. After September 30, 1998, either party may
-----------------------
terminate this Agreement for any reason upon ninety (90) days' prior
written notice to the other party. Upon such termination, all of
Trabelsi's rights to compensation and benefits under this Agreement shall
terminate, except that Trabelsi shall be entitled to receive the unpaid
portion of Trabelsi's Base Salary, any portion of his bonus to which he is
entitled under Section 2, any accrued benefits up to the date of
termination, any benefits that are to be continued or paid after the date
of termination in accordance with the terms of the corresponding benefit
plans, and compensation and benefits due under Section 7 of this
Agreement.
5. Documents Company Property. All memoranda, notes, records, reports and
--------------------------
-6-
<PAGE>
other documents made, compiled or authored or co-authored by Trabelsi, or
made available to him during his employment with the Company, concerning
any process, apparatus, method, information system, list of clients or
product used, developed or considered by the Company, or any client of the
Company, shall be the Company's confidential property, and shall be
delivered to the Company upon termination of employment or at any other
time requested by the Company, and shall not be furnished to any person,
firm or corporation other than the Company.
6. Confidential Information. Trabelsi shall not disclose to others, or use
------------------------
for his own benefit, or cause or induce others to do the same, any
proprietary, confidential or secret information or documents of the
Company, including, but not limited to, any customer lists, records,
intellectual property and business plans of the Company, other than in the
performance of his duties hereunder or unless authorized by the Company in
writing. Any unpublished information and client reports are considered by
the Company secret and confidential.
7. Non-Competition. During the term of this Agreement, and for a period of
---------------
time after the termination of this Agreement that is specified in writing
by the Company to Trabelsi before December 31, 1997, ("Noncompete Period")
Trabelsi will not, directly or indirectly, for his own account or as an
employee, salesperson, officer, director, partner, joint venturer,
shareholder, investor or otherwise (i) establish, own, manage, operate,
finance, or control, or participate in the establishment, ownership,
management, operation, financing, or control of any person that conducts a
business competitive with or similar to all or any part of the Company's
business or the business of the Company's parent and any affiliate of the
Company's parent existing on the Effective Date ("Parent") or (ii) solicit
or accept any business similar to that of, or in competition with, the
business of the Company or and its subsidiaries or Parent from any customer
or prospective customer of the Company or any subsidiary or Parent. For
the purpose or this Section 7, a prospective customer shall be any person
with which the Company or any subsidiary or Parent has specifically
corresponded with respect to particular business opportunities. During the
Noncompete Period, Trabelsi shall continue to receive his Base Salary in
accordance with Section 2 of this Agreement. If Trabelsi is employed
during the Noncompete Period, the Company may deduct from amounts due
Trabelsi an amount up equal to Trabelsi's salary received by Trabelsi from
such employment but in no case shall any such deduction exceed one half of
the amount due Trabelsi from the Company under this Section 7.
Notwithstanding the foregoing, for a period of five years after the
termination of this Agreement, Trabelsi shall not directly or indirectly,
for his own account or as an employee, officer, director, partner, joint
venturer, shareholder, investor or otherwise employ or
-7-
<PAGE>
solicit the employment or engagement of any employee, agent, officer,
representative, exclusive consultant, or exclusive subcontractor of the
Company or any subsidiary or Parent.
8. Inventions, Methods and Processes. All ideas, inventions, methods, works
---------------------------------
of authorship, or processes, and all components and derivatives thereof,
relating to the Company's business created or otherwise prepared by
Trabelsi on behalf of and while employed by the Company, shall be assigned
to the Company, and shall be the sole and exclusive property of the
Company. Upon request of the Board of Directors, Trabelsi promptly shall
execute any and all applications, assignments or other instruments that the
Board or any officer of the Company shall deem necessary or advisable in
order to apply for and obtain a copyright, patent, or trademark in the
United States and throughout the world, and will assign to the Company all
right, title and interest in and to such copyrights, patents, and/or
trademarks. The Company shall bear the cost of preparation and filing of
all such applications, assignments and instruments in the appropriate
governmental offices in the United States and any foreign country.
9. Remedies and Breach. It is agreed that as money damages for breaches of
-------------------
Sections 5, 6, 7, and 8 of this Agreement being difficult to determine,
the Company shall be entitled to an injunction upon any such breach by
Trabelsi, to be issued by any competent court of equity, enjoining and
restraining Trabelsi from any further or continued violation of such
Sections.
10. Scope of Agreement. This Agreement constitutes the entire understanding
------------------
between the parties with reference to the subject matter hereof. This
Agreement specifically modifies and replaces any and all prior written or
oral agreements between the parties. This Agreement may only be modified
in writing, executed by both parties.
11. Governing Law. This agreement shall be governed by and construed in
-------------
accordance with the laws of Pennsylvania. Trabelsi irrevocably consents to
the personal jurisdiction of the courts of the Commonwealth of
Pennsylvania.
12. Counterparts. This Agreement may be executed in counterparts, each of
------------
-8-
<PAGE>
which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Orbit F/R Inc. Aryeh Trabelsi
By: /s/ Joseph Aviv /s/ Aryeh Trabelsi
------------------------ ------------------------------
Name: Date: Febuary 15, 1997
------------------------ -------------------------
Title: Chairman
------------------------
Date: February 15, 1997
------------------------
-9-
<PAGE>
Exhibit 10.2
AGREEMENT
---------
Made and signed in Netanya on the 1st day of the month of January 1997
------- -------
Between ORBIT/FR Engineering Ltd.
of 18 Hakadar St., Netanya
(hereinafter: "The Company")
Party of the 1st Part
and Between Moshe Pinkasy, I.D. No. 50464817
of 9 Harimonim St., Hadera
(hereinafter: "The Manager")
Party of the 2nd Part
Whereas:
A. The Company is a subsidiary of ORBIT/FR INC - an Incorporated company
according to U.S. law (hereinafter: "ORBIT INC") of the ORBIT-ALCHUT
Technologies group;
B. The Company was established in order to give services and support ORBIT
INC;
C. The Company is engaged in R & D, manufacturing, acquisition and sales of
products in the field of antenna measurement systems (hereinafter: "field
of business");
D. ORBIT INC is interested in manufacturing some of its mechanics products in
Israel;
E. It is the intent of the Company to employ the Manager in a senior
administrative position in the framework of its ongoing business
activities, and in a manner which the Company will establish from time to
time, including, without derogating from the above, as a manager in its
business field, and the Manager is willing and interested in participating
in administrating the Company's business, in a manner and way to be
established by the Company;
F. The Manager served ORBIT INC until 31 December 1996, and directed its
Mechanical Division in the framework of the Company;
<PAGE>
- 2 -
G. The Manager is interested in continuing to direct the Mechanical Division
in the framework of the Company;
H. The parties wish to set up in this contract, exclusively, the conditions of
alliance between them, and the agreements which will apply to the Manager's
work in and for the Company;
I. This contract is being prepared as a personal contract, and as a special
agreement, and it enumerates the parties' mutual rights and obligations.
Therefore, it is hereby declared and agreed between the parties, as follows:
1. PREAMBLE
--------
The preamble to the Agreement is an integral part of it.
2. EMPLOYMENT OF MANAGER AND MANNER OF ITS
---------------------------------------
IMPLEMENTATION
--------------
2.1 The Company will employ the Manager in a senior administrative
position in the framework of its ongoing business activities, in a
manner and in positions which the Company and/or ORBIT INC will
decide from time to time.
2.2 Tasks of the Manager: Manager of ORBIT/FR Engineering Ltd.,
Representative of ORBIT/FR INC in the Company, assisting the Manager
of ORBIT/FR INC on matters of international positioner marketing
(hereinafter: "The Position") in the position of General Manager.
2.3 The Manager will dedicate his time, energy, knowledge, talents,
connections and experience to the Company and for the fulfillment of
his duties, and will do his utmost for the success of the field of
business and of the Company, its interests and business dealings.
<PAGE>
-3-
2.4 During the period of his employment in the Company, the Manager will
not be allowed to work and/or to be involved in any way whatsoever
in any business of any kind, either directly or indirectly, as
worker, manager, partner, consultant, etc. for himself and/or for
any third party, unless he receives written prior consent from the
Company, and under conditions which the Company will establish.
2.5 The Manager will be subject to the Company's Board of Directors, to
the Manager of ORBIT/FR INC and to its Board of Directors, and will
execute their instructions, directives and decisions, as will be
received.
2.6 The Manager will work for the good of the Company honestly and
loyally.
OTHER POSITIONS IN THE ORBIT GROUP AND TRANSFER OF POSITION
-----------------------------------------------------------
It is, hereby, agreed that the Company and/or ORBIT/FR INC is permitted to
change the position and definition of responsibility of the Manager upon
decision of the Company's Board of Directors and/or ORBIT/FR INC, and the
Manager is obligated to accept upon himself to serve in the other position
proposed to him by any of them, whether in their framework and/or in any
corporation in which he will find interest (hereinafter: "The ORBIT
Group"), subject to the fact that the position proposed to the Manager will
suit his talents and is with his agreement.
4. OBSERVANCE OF SECURITY AND NON-COMPETITIVENESS
----------------------------------------------
The parties will abide by the instructions in the Appendix to this
Agreement.
5. SALARY AND CONDITIONS OF EMPLOYMENT
-----------------------------------
For the duration of his employ the Manager will be entitled to a salary, as
well as social and associated benefits, as stated below:
<PAGE>
-4-
5.1 Salary
------
5.1.1 A monthly salary in the sum of 16,000 NIS (sixteen thousand shekels)
(gross), will be updated in amounts and at times which will be
established by the cost of living index in the private economic
sector.
5.1.2 Once a year, after the end of the calendar year, and not later than
30 days from date of publishing of the Company's financial
statement, the parties will discuss a raise in the Manager's salary,
after examining his performance, contribution to the Company, and
the work plan for the year just beginning.
5.1.3 The Manager's salary as stated in para. 5.1.1 above (called the
inclusive salary") alone will be taken into account for the purpose
of rights according to the law, and no addition or other benefit of
any type and kind will be considered as part of his salary.
5.2 Director's Insurance
--------------------
5.2.1 The inclusive salary will be insured by the Company in a Director's
policy, into which the following sums will be allocated:
5.2.1.1 A sum of 8-1/3% from the inclusive salary will be allocated
for severance pay.
This payment will substitute severance pay according to the
laws of severance pay - 1963. But the parties agree that in
case there will be a difference in sums which have accrued
in the compensation component in the policy - gross and
profit - and between the sum of severance pay and
compensation according to the severance pay law - 1963, and
the employment of the Manager will be terminated under
circumstances which allow him compensation according to the
law and/or under this agreement, the Company will pay the
Manager such difference.
<PAGE>
-5-
5.2.1.2 A sum of 5% of the inclusive salary, as an allotment for
remuneration will be allocated by the Company at its
expense.
5.2.1.3 The Manager instructs the Company to deduct from his
inclusive salary a sum of 5% for his part in the allocation
for remuneration and to transfer it to the Director's
Insurance.
5.2.1.4 A sum of 2.5% of the inclusive salary, as an allocation for
insuring loss of work ability, will be allocated by the
Company, as its expense.
5.2.2 Ownership of the policy will be transferred to the Manager, by the
Company, upon termination of his employment in the Company for any
reason whatsoever (whether dismissal or resignation), except if he
will be dismissed for fraud, theft, etc. circumstances under which
the employee is dismissed and is not entitled by law to severance
pay. If the employee is dismissed under circumstances under which a
dismissed employee is not entitled to coverance pay, the Company is
permitted to receive the sum accrued in the compensation component
of the policy.
5.2.3 The employee will be entitled to severance pay, as stated in para.
5.2.1.1 above, also in cases of resignation, except if the
resignation will be tendered under circumstances as detailed in
para. 5.2.2 above.
5.3 Advanced Study Fund
-------------------
5.3.1 The Company will allocate the sum of 7.5% of the inclusive salary
for the Manager in an Advanced Study Fund of the Manager's choice,
and the Manager, hereby, authorized the Company to deduct from his
salary a payment of 2.5% as his contribution.
<PAGE>
- 6 -
5.3.2 Upon termination of the relations between the parties, for whatever
reason, except if they terminate under circumstances by which the
dismissed employee is not entitled to severance pay as stated in
para. 5.2.2 above, the Company will instruct the Advanced Study Fund
to make available to the Manager or his representative, the full
sums which have accrued from the allocations of both parties to the
Fund. If the relations terminate under circumstances as stated in
para. 5.2.2 above, the Company will be permitted to reclaim the sums
it allocated to the Fund.
5.4 Vacation, Illness, Rest & Recreation and Army Reserve Duty
----------------------------------------------------------
5.4.1 The Manager is entitled to 23 vacation days per year, including days
of rest. The vacation days will be coordinated in advance with the
Company's Chairman of the Board of Directors, or whoever is
appointed by him. Vacation days not exercised can be accrued up to a
ceiling of 46 days, including rest days. The Manager will take
vacation at least 12 days a year.
5.4.2 The Manager is entitled to a payment for sick days as defined by
law. Sick days not utilized can be accrued up to a maximum of 90
days. It is clarified, hereby, that unused sick days cannot be
exchanged for a monetary payment.
5.4.3 The Manager is entitled to a payment for 10 days of rest and
recreation a year, subject to his leaving on vacation. The rest and
recreation payment sum will be established in the general group
agreement in the economic business sector.
5.4.4 Army Reserve Duty
-----------------
5.4.4.1 The Manager will inform the Company, at the earliest time
possible, regarding every call received for Army reserve
duty. The Manager will submit, subject to Company
requirements, a request for postponement of Army reserve
duty.
5.4.4.2 The Company will pay the Manger his regular salary for time
served on Army reserve duty, and no less than the sums that
it will receive from the National Insurance Institute
(N.I.I.) for the Manager's Army reserve duty.
<PAGE>
-7-
5.4.4.3 The Manager will give the Company all the authorizations
necessary to receive compensation for Army reserve duty
from the N.I.I., and will also give to the Company all
monetary compensation that he will receive from any
other source for the Army reserve duty.
5.5 The Law of Work and Rest Hours
------------------------------
The Manager declares that he is aware that the Law of Work and Rest Hours -
1951 does not apply to him, as long as he is in a senior administrative
position, and in a position demanding a certain measure of personal trust.
The Manager will dedicate all the time necessary to fulfill his position
and will not be entitled to a separate payment for overtime work.
5.6 Company Car
-----------
5.6.1 The Company will place at the disposal of the Manager for his work a
suitable car as is customary for a Manager in his position in the
Company.
5.6.2 The car will be the property of the Company, and the Company will
bear all expenses for maintenance, repairs, gasoline, licenses, car
insurance and parking fees.
5.6.3 The Manager will use the car in a professional and careful way, and
will take care of its proper maintenance, all according to the
regulations for use of a car established by the Company from time to
time, and in the absence of such regulations, will drive the vehicle
as he would want someone to drive a car he himself owns.
5.6.4 The Manager will return the car to the Company at the termination of
employer-employee relations between himself and the Company. If the
Manager does not do this, the Company is permitted to take the car
into its possession by itself.
5.6.5 The Manager will also be entitled to use the car for private needs.
5.6.6 The Manager will not be entitled to a lien on the car, not on any
other Company property.
<PAGE>
-8-
5.6.7 The Manager will bear all fines and other results from
committing violations of the transportation laws and any
other law by using the car. It is clear that if the
violation was committed by other Company employees, the
Manager will not be thus obligated. The burden of proof
regarding the identity of the driver committing the
violation is placed on the Manager.
5.6.8 The Manager will bear payment of any tax which will be
assessed for the benefit of use of the car, as is customary
in the Company.
5.6.9 The Company will exchange the car every 4 years, or when
the accelerometer reaches 200,000 km., whichever comes
first.
5.7 Telephone and Reimbursement of Expenses
---------------------------------------
5.7.1 The Manager is entitled to receive a cellular phone from
the Company for his use in the fulfillment of his job, and
the Company will bear all expenses therefore.
5.7.2 The Manager will be entitled to full reimbursement for the
telephone and FAX expenses in his home, which are used in
the fulfillment of his job, according to a report and
details which will be given to the Company.
6. BONUS DEPENDANT ON PROFITS
--------------------------
6.1 As long as he remains in his position, the Manager will be entitled
to an annual bonus, whose inclusive cost to the Company is 0.6% (six
tenths of a percent), from the net profits of the field of business,
as long as there are such profits. "Profits" means the annual profit
without capital gains of any sort, before taxes, according to the
audited financial reports of ORBIT/FR INC.
6.2 The annual bonus will be paid no later than 30 days after publishing
of the annual financial statement. Advancements on account of the
annual bonus will be paid subject to authorization of the General
Manager of ORBIT/FR INC.
<PAGE>
-9-
6.3 The parties declare that in establishing the bonus level it will be
brought into account that regarding the bonus the Company will not
incur any costs and/or additions and or benefits whatsoever, that
the Company will not bear any additional cost whatsoever, and that
no sums whatsoever will be allocated from it for funds or
remuneration or Director's insurance. The parties agree that if the
condition of things was such that they would establish the bonus
level at a sum that would reflect all the Company's costs, and agree
that if the Company will be required to pay the Manager, or his
representative, severance pay and/or social payments and/or any
other payment on the bonus, the sum of the annual bonus will be half
of the sum stated in para. 6.1 above (50% of the level stated in
para. 6.1).
6.4 In the event that the employer-employee relations will be severed
during and not at the end of a calendar year, the Manager will be
entitled to a relative part of the bonus, whose sum will be a ratio
of the number of days in that part of the year during which
employer-employee relations existed, and 365 days.
7. OWNERSHIP RIGHTS FOR INVENTIONS
-------------------------------
Instructions as stated in the Appendix to this Agreement apply to the
parties in this matter.
8. COMPENSATION AND INSURANCE
--------------------------
8.1 The Company will insure the Manager in a Director's Liability
Insurance for Directors and Officers, as is customary in the
Company.
8.2 The Company will compensate the Manager for any monetary obligation
which will be placed on him regarding reasonable activities, which
he will execute on its behalf, while he is an officer of the
Company, including attorney's fees at a reasonable level, and the
reasonable expenses which the Manager will incur, and all this
subject to provisions of the law, providing that the Manager's
activities are done in a bona fide manner, and for the best
interests of the Company.
<PAGE>
- 10 -
9. VALIDITY OF THE CONTRACT AND ITS TERMINATION
--------------------------------------------
9.1 Validity of this Agreement begins from the 1st of January 1997.
9.2 The Company or the Manager are allowed to terminate their
relationship with a written notice which will be tendered 90 days in
advance.
According to Company request the Manager will do a suitable
overlapping with the person replacing him in his job.
9.3 The Company will not be obligated to employ the Manager during the
period of advance notice, partly or wholly, according to its choice.
The Company is permitted to terminate the Manager's work at any time
during the advance notice period, and in this case will pay the
Manager a payment for the advance notice.
9.4 The Company will be permitted to have the Manager go on vacation
according to his accrued vacation days, if there are such, during
the advance notice period, subject to the limitations established by
the law.
9.5 The Company will be permitted to terminate the contract and
employment of the Manager immediately, by written notice, with no
advance notice whatsoever. If termination of employment is under
circumstances in which dismissed employee is not entitled to
severance pay by law, and/or in any case of serious breach of the
obligation of loyalty of the Manager to the Company.
10. MISCELLANEOUS
-------------
10.1 In any case in which a party will not use the rights given to it by
this Agreement or by any law, this will not be considered as a
relinquishment of its given rights, and will be entitled to use
these rights again.
A claim of delay or relinquishment will not be permitted to be used
by the party in breach.
10.2 There will be no validity to any amendment in this Agreement, except
if put in writing and signed by the parties.
<PAGE>
-11-
10.3 The headings in this Agreement are placed for convenience only and
will not be used to interpret the provisions of this Agreement.
10.4 Notices which will from one party to the other at the addresses
detailed in the preamble to the Agreement, will be considered as
having arrived at their destinations at the end of five business
days from the day they were sent by registered mail, or two business
days if they were sent by FAX or by courier to be delivered by hand.
And as witness, the parties come to sign
/s/ Joseph Aviv /s/ Moshe Pinkasy
- ----------------------------- -------------------------------
The Company The Manager
Joseph Aviv - Chairman Moshe Pinkasy - C.E.O.
<PAGE>
APPENDIX TO AGREEMENT
---------------------
Made and signed in Netanya on the 1st day of the month of January 1997
------- -------
Between ORBIT/FR Engineering Ltd.
of 18 Hakadar St., Netanya
(hereinafter: "The Company")
Party of the 1st Part
and Between Moshe Pinkasy, I.D. No. 50464817
of 9 Harimonim St., Hadera
(hereinafter: "The Manager")
Party of the 2nd Part
According to the following terms and conditions - Whereas:
A. The Manager is employed by the Company in a senior administrative
position;
B. And the parties wish to establish in this Agreement, as follows, regarding
the obligations of preservation of secrecy of the Company, the Parent
Company, subsidiary companies and affiliated companies, to which the
Manager will be subject, and the limitation of competition and business to
which he will be subject during the period of his employment, and after
termination of work relations between the parties;
C. And the work of the Manager is connected to fields which have a special
character, and which are sensitive and important to the Company, and which
involve access to exclusive knowledge, including vital information for the
success and growth of the Company;
D. And during his work, or because of the nature of his work, the Manager
will obtain knowledge in commercial/economic matters, business matters
and other matters in the fields of activity of the Company and its
subsidiary, including information connected to commercial relations, the
Company's programs, products in planning or under development, production
procedures, work methods, general procedures, lists of those people and
companies connected to it in business contacts, customers, details on
products, technology and financial information;
<PAGE>
-2-
Therefore, the parties agree as follows:
1. The preamble to the Agreement is an integral part of it.
2. DEFINITIONS
-----------
The terms listed below have the following definitions in this Agreement:
2.1 "The Company": The Company itself, ORBIT/FR, INC., and also all
-------------
subsidiaries of the Company, or any associated or affiliated company,
together or separately.
2.2 "Gives Services": Whoever gives services to the Company, and anyone
----------------
who was at any time during the 12 months preceding termination of the
Manager's employment, an agent of the Company, or one who gives
services to the Company, as a subcontractor, or consultant, in Israel
or abroad.
2.3 "Employee": An employee of the Company who works for the Company, or
----------
someone who is no longer working for the Company, but 18 months have
not yet passed since termination of his employment, and also an agent
of the Company or someone who was an agent of the Company, but 18
months have not yet passed since termination of his relations with the
Company.
2.4 "Supplier": Someone from whom the Company acquires or has acquired at
----------
any time during the 18 months prior to termination of the Manager's
employ, products or components, or services used for planning, or
development, or production, or sales of the product or technology; and
also someone with whom the Company was in contact at some time during
the 18 months prior to date of termination of the Manager's employ,
regarding negotiations to become a supplier.
2.5 "Customer": Someone to whom the Company sold, during the period of the
----------
Manager's employ, or at any time during the 18 months prior to
termination of the Manager's employ, products or components or
services used for planning, or development, or production, or sales of
the product or technology; and also someone with whom the Company was
in contact at some time during the 18 months prior to date of
termination of the Manager's employ, regarding negotiations to become
a customer.
<PAGE>
-3-
2.6 "Sale": Also includes sales promotion, renting, leasing, marketing,
------
sales, mediation, sales consulting, and giving services to the Seller
in sales matters.
2.7 "Product": Software, hardware, technology, or the device which is
---------
planned, developed, manufactured or sold by the Company, whether as a
stand-alone product, or as a major part of another product with which
the Company deals.
2.8 "Company Field of Activity": Engagement in planning, development,
---------------------------
production, acquisition and sales of:
2.8.1 A product is counted during the period of [the
Manager's] employment, as one of the products which was
planned, developed, manufactured or sold by the Company,
or acquired by it for the purpose of selling it, on the
provision that there is written documentation to this
effect.
2.8.2 A product, such as described in para. 2.8.1, which was
planned at some time during the 12 months prior to
termination of the Manager's employ, to be included in
the Company's field of activity;
2.8.3 Antenna Measurement systems;
2.8.4 Any field of activity in which the Company will do
business, or plans to be engaged in, during the time of
the Manager's employ;
2.8.5 Any product which is destined to replace a product, as
stated in paras. 2.8.1 - 2.8.4, or to increase or
decrease the use of such product.
2.9 "Classified Knowledge" or "Secret Information": All knowledge in
----------------------------------------------
matters concerning the Company, whose contents, form or method of
maintenance in the Company, testify that it is mandatory to keep it
classified, or: it is mandatory to keep it secret according to the
rules of secrecy accepted in business, or: that which includes names
of the suppliers, the agents, the employees, or the customers of the
Company, and any item which can influence the conditions of contact
between the Company and one of the above, provided that the knowledge
or information is not general property; and this also includes any
document which contains classified information, as stated above.
<PAGE>
-4-
2.10 "Document": In this context refers to the broadest meaning of the
----------
term, and includes all manner of collection, expression or
presentation of information, whether by physical, magnetic, visual or
electronic means, etc., being an original or copy.
2.11 "Competitor": One who is engaged in the same field or business as
------------
the Company.
3. PROPRIETARY AND INTELLECTUAL PROPERTY
-------------------------------------
3.1 The ownership and the rights of full use of every one of the
Manager's "creations", during the period of his employ, in the fields
which concern his work, and which are liable to be used as bearers of
intellectual property rights, belong to the Company.
3.2 It is, hereby, agreed that the Company has proprietary and
intellectual property rights to all classified information, document,
method, sketch or patent, which are found or were found in the
possession of the Manager, or are in his possession, and to every
item which is a part of the property of the Company, which has
reached and/or will reach his possession or come to his attention due
to his position in the Company, or due to his contact with the
Company, and are derived from the Company, or due to his contact with
the Company, and are derived from the Company or the supplier or the
customer (hereinafter: "classified property").
3.3 The Manager is not permitted to keep in his possession classified
property, except in order to fulfill his position in the Company, and
he is obligated to return to the Company all classified property in
his possession, at the time of termination of employment.
3.4 Without derogating from the stated above, the Manger is obligated not
to use classified property for any purpose whatsoever, except for the
aims and good of the Company.
<PAGE>
-5-
4. PRESERVATION OF SECRECY
-----------------------
4.1 The Manager will reveal to any individual secret knowledge or
classified information, including the fact of their existence, or their
contents, and will not use in any way for any purpose whatsoever, the
secret knowledge or classified information which he knows about, or
document which is in his possession or that he knows about, except if
all the following accumulated conditions are met: the use or revelation
were permitted by the Company in writing signed by the Chairman of the
Company's Board of Directors, the subject signed writ (document) was
given to the Manager in advance before the information was used or
revealed, and the use or revelation was done only for the good of the
Company and its aims.
4.2 Notwithstanding that which is stated in para. 4.1 above, only during
the period of his employ will the Manger be permitted to use his
judgement regarding a business revelation, in order to fulfill his
position for the benefit of the Company.
In this case he will report to the Chairman of the Board of Directors
in writing regarding revealing of the information within 48 hours of
its revelation.
4.3 The Manager will not transfer, and will not make use of any knowledge
or information which has reached or will reach him due to the
fulfillment of his position in the Company, and which pertain to the
Company, or to one of its owners, or one of its Managers, or one of its
employees, or one of its agents, or one of its customers, and will
preserve secrecy in everything connected businesswise with any of the
aforementioned, and will not reveal to anyone details regarding their
business or their abilities, or other facts about them, and no detail
regarding them which the Company has not permitted to be revealed and
has authorized in writing in advance. All this in the field of business
of the Company or other companies affiliated with ORBIT/FR INC or
ORBIT-ALCHUT TECHNOLIGIES LTD.
4.4 That which is stated in paras. 4.1-4.3 above will apply for the
duration of the period of the Manager's employ. That which is stated
in paras. 4.1 and 4.3 will also apply regarding the 18 months
immediately following the termination of his employ, and after this
period, all the obligations of secrecy, as decreed by all laws will
apply, both in content and scope, as decreed by the law.
<PAGE>
-6-
6. BUSINESS LIMITATIONS
--------------------
With his signature on this Agreement, the Manager accepts upon himself,
and is obligated that for 18 months commencing with the date of termination
of his employ:
6.1 To refrain from being employed in the field of activity of the
Company, or in companies affiliated with ORBIT-ALCHUT TECHNOLOGIES
LTD.
6.2 Not to compete with the Company, not to be engaged in competition
with the Company, not to work in the service of one of the Company's
competitors, and not to give services to a competitor, as stated
above.
6.3 Not to establish business contacts with a customer of the Company,
in any matter concerning the field of activity of the Company.
6.4 Not to establish business contacts with a supplier of the Company,
in any matter concerning the field of activity of the Company, or
companies affiliated with ORBIT-ALCHUT TECHNOLOGIES LTD. However,
the existence of business contacts with a supplier, in order to
acquire products which are themselves part of, or a component of,
an end product with which the Company deals, as described in the
terms listed in para. 2.7 above, when the above-mentioned part or
component will be used for end products, which are not in the field
of activity of the Company and on condition that the part or
component acquired does not include a change or characteristic which
was entered into if at the request of the Company, is permitted.
6.5 The limitations according to paras. 6.1 - 6.5 apply in every place in
Israel and the rest of the world.
6.6 Not to establish business relations of any kind with any employee of
the Company, and not to aid in any way, an employee of the Company,
in finding an alternate place of employment to the Company.
The limitations according to this para. apply to the entire period of
employ, and for 18 months immediately following termination of
employ, in every place in Israel and in the world.
<PAGE>
-7-
6.7 "Business" or "Existence of Business Contact" in this Agreement
means: all activity having a business character or for business
reasons, permanent or temporary, by the individual himself, or via
someone else, as self-employed, or salaried, or by agents or their
employees, as individuals,or in the framework of the corporation,
including an appeal to establish these contacts, including receiving
services, and giving services, and also consultation or aiding others
to establish business activity, or business contacts, as stated.
7. BREACHES AND RECOURSES
----------------------
7.1 A cardinal breach of this Agreement is as defined by law, and without
derogating from the above, includes breach of all obligations listed
above, which were not rectified within 30 days after requested by the
Company in writing.
7.2 For every cardinal breach, the Manager is obligated:
7.2.1 To pay the Company compensation, as agreed and established in
advance, paying attention to the damage that the parties
foresaw at the time of making the Agreement, as a result of
such breach, according to the higher of the following
alternatives: the sum of $100,000, linked from the date of
making this Agreement until date of payment to the Company,
plus legal interest, or the sum of the damage, proven that it
was caused to the Company by the cardinal breach, or a double
amount of the profit which was derived over a 3-year period
due to the cardinal breach, according to the Company's choice.
7.2.2 Not to claim that the above agreed compensation was
established without reasonable proportion to the damage that
could be forseen at the time of making the contract, or that
the sum should be decreased.
7.2.3 To pay the Company, in addition to the agreed compensation,
full compensation for sums the Company will expend to
discover the cardinal breach of the Agreement (and on
condition that there was such a breach), or in order to
frustrate continuance of the breach, or in order to enforce
the Agreement or claim compensation on its breaching.
<PAGE>
-8-
7.3 That which is stated in para. 7.2.1 above will not derogate from
the rights of the Company to sue immediately (but not in addition)
for the agreed compensation, compensation for the substantial
higher damage according to law, or it is the Company's right to
another recourse that the law allows, including injunctions,
temporary and permanent.
8. Only a writ signed by the Company will be a waiver of the right which has
been established for a party in this Agreement, and amendments to the
Agreement will be made only in writing.
And in witness thereof, the parties come to sign
/s/ Joseph Aviv /s/ Moshe Pinkasy
- ------------------------ -----------------------
The Company The Manager
<PAGE>
EXHIBIT 10.3
ORBIT/FR, INC.
1997 EQUITY INCENTIVE PLAN
--------------------------
1. Purpose
The purpose of the Orbit/FR, Inc. 1997 Equity Incentive Plan (the "Plan")
is to promote the long-term retention of key employees of Orbit/FR, Inc.
("Orbit") and its current and future subsidiaries (collectively, the "Company")
and other persons or entities who are in a position to make significant
contributions to the success of the Company, to further reward these employees
and other persons or entities for their contributions to the Company's success,
to provide additional incentive to these employees and other persons or entities
to continue to make similar contributions in the future, and to further align
the interests of these employees and other persons or entities with those of
Orbit's stockholders. These purposes will be achieved by granting to such
employees and other persons and entities, in accordance with the provisions of
this Plan, Options, Stock Appreciation Rights, Restricted Stock or Unrestricted
Stock Awards or Performance Awards, for shares of Orbit's common stock, no
par value per share ("Common Stock"), or Loans or Supplemental Grants, or
combinations thereof ("Awards").
2. Aggregate Number of Shares
2.1 The aggregate number of shares of Common Stock for which Awards
may be granted under the Plan will be 800,000 shares. Notwithstanding the
foregoing, if there is any change in the capitalization of Orbit, such as by
stock dividend, stock split, combination of shares, exchange of securities,
recapitalization or other event which the Board of Directors (the "Board") of
Orbit deems, in its sole discretion, to be similar circumstances, the aggregate
number and/or kind of shares for which Awards may be granted under the Plan
shall be appropriately adjusted in a manner determined by the Board. No
fractional shares of Common Stock will be delivered under the Plan.
2.2 Treasury shares, reacquired shares and unissued shares of Common
Stock may be used for purposes of the Plan, at Orbit's sole discretion.
2.3 Shares of Common Stock that were issuable pursuant to an Award
that has terminated but with respect to which such Award had not been exercised,
shares of Common Stock that are issued pursuant to an Award but that are
subsequently forfeited, and shares of Common Stock that were issuable pursuant
to an Award that was payable in Common Stock or cash but that was satisfied in
cash, shall be available for future Awards under the Plan.
<PAGE>
3. Eligible Employees and Participants
3.1 All current and future key employees of the Company, including
officers and directors who are employed by the Company ("Employees"), and all
other persons or entities, including directors of the Company who are not
Employees, who in the opinion of the Board are in a position to make a
significant contribution to the success of the Company, shall be eligible to
receive Awards under the Plan (a "Participant"). No eligible Employee or such
other person or entity shall have any right to receive an Award except as
expressly provided in the Plan.
3.2 The Participants who shall actually receive Awards under the Plan
shall be determined by the Board in its sole discretion. In making such
determinations, the Board shall consider the positions and responsibilities of
eligible Participants, their past performance and contributions to the Company's
growth and expansion, the value of their services to the Company, the difficulty
of finding qualified replacements, and such other factors as the Board deems
pertinent in its sole discretion.
4. Administration
4.1 The Plan shall be administered by the Board, unless the Board
determines to delegate such administration to a committee of the Board. If the
Board makes such delegation, (i) the Committee shall consist of at least two
directors, (ii) each member of such committee shall be a "non-employee director"
within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and (iii) the provisions of the Plan relating to the
Board shall apply to such committee. In addition to its other authority and
subject to the provisions of the Plan, the Board shall have the authority to
determine, in its sole discretion, the Participants who shall be eligible to
receive Awards, the Participants who shall actually receive Awards, the size of
each Award, including the number of shares of Common Stock subject to the Award,
the type or types of each Award, the date on which each Award shall be granted,
the terms and conditions of each Award, whether to waive compliance by a
Participant with any obligations to be performed by the Participant under an
Award or waive any term or condition of an Award, whether to amend or cancel an
existing Award in whole or in part (except that the Board may not, without the
consent of the holder of an Award or unless specifically authorized by the terms
of an Award, take any action under this clause with respect to such Award if
such action would adversely affect the rights of such holder), and the form or
forms of instruments that are required or deemed appropriate under the Plan,
including any written notices and elections required of Participants.
4.2 The Board may adopt such rules for the administration of the Plan
as it deems necessary or advisable, in its sole discretion. For all purposes of
the Plan, a majority of the members of the Board shall constitute a quorum, and
the vote or written consent of a majority of the members of the Board on a
particular matter shall constitute the act of the Board on that matter. The
Board shall have the exclusive right to construe the Plan and any Award, to
settle all controversies regarding the Plan or any Award, to correct defects and
omissions in the Plan and in any Award, and to take such further actions as the
Board deems necessary or advisable, in its sole discretion, to carry out the
purpose and intent of the Plan. Such actions shall be final, binding and
conclusive upon all parties concerned.
2
<PAGE>
4.3 No member of the Board shall be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the good faith
exercise of any authority or discretion granted in the Plan to the Board, or for
any act or omission of any other member of the Board.
4.4 All costs incurred in connection with the administration and
operation of the Plan shall be paid by the Company. Except for the express
obligations of the Company under the Plan and under Awards granted in accordance
with the provisions of the Plan, the Company shall have no liability with
respect to any Award, or to any Participant or any transferee of shares of
Common Stock from any Participant, including, but not limited to, any tax
liabilities, capital losses, or other costs or losses incurred by any
Participant or any such transferee.
5. Types of Awards
5.1 Options.
(a) An Option is an Award entitling the recipient on exercise
thereof to purchase Common Stock at a specified exercise price. Both "incentive
stock options," as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") (any Option intended to qualify as an incentive stock
option being hereinafter referred to as an "ISO"), and Options that are not
incentive stock options ("non-ISO"), may be granted under the Plan. ISOs shall
be awarded only to Employees.
(b) The exercise price of an Option will be determined by the
Board subject to the following:
(1) The exercise price of an ISO shall not be less than
100% (110% in the case of an ISO granted to a ten percent shareholder) of the
fair market value (as defined in Section 11.9) of the Common Stock subject to
the ISO, determined as of the time the ISO is granted. A "ten-percent
shareholder" is any person who at the time of grant owns, directly or
indirectly, or is deemed to own by reason of the attribution rules of
Section 424(d) of the Code, stock possessing more than 10% of the total combined
voting power of all classes of stock of Orbit or of any of its subsidiaries.
(2) The exercise price of a non-ISO shall not be less
than 85% of the fair market value of the Common Stock subject to the non-ISO,
determined as of the time the non-ISO is granted, provided that the discount
from fair market value is in lieu of a reasonable amount of cash compensation,
and provided further that the exercise price of a non-ISO granted pursuant to a
Performance Award may be determined either as of the time the Performance Award
is granted or as of the time the non-ISO is granted pursuant to the Performance
Award.
(3) In no case may the exercise price paid for Common
Stock which is part of an original issue of authorized Common Stock be less than
the par value per share of the Common Stock.
3
<PAGE>
(c) The period during which an Option may be exercised will be
determined by the Board, except that the period during which an ISO may be
exercised will not exceed ten years (five years, in the case of an ISO granted
to a ten-percent shareholder) from the day immediately preceding the date the
Option was granted.
(d) An Option will become exercisable at such time or times,
and on such terms and conditions, as the Board may determine. The Board may at
any time accelerate the time at which all or any part of the Option may be
exercised. Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1) any documents
required by the Board and (2) payment in full in accordance with Section 5.1(e)
below for the number of shares for which the Option is exercised.
(e) Stock purchased on exercise of an Option must be paid for
as follows: (1) in cash or by check (acceptable to Orbit in accordance with
guidelines established for this purpose), bank draft or money order payable to
the order of Orbit or (2) if so permitted by the instrument evidencing the
Option (or in the case of an Option which is not an ISO, by the Board at or
after grant of the Option), (i) through the delivery of shares of Common Stock
which have been outstanding for at least six months (unless the Board expressly
approves a shorter period) and which have a fair market value on the last
business day preceding the date of exercise equal to the exercise price, or (ii)
by delivery of a promissory note of the Option holder to Orbit, payable on such
terms and conditions as the Board may determine, or (iii) by delivery of an
unconditional and irrevocable undertaking by a broker to deliver promptly to
Orbit sufficient funds to pay the exercise price, or (iv) by any combination of
the permissible forms of payment; provided, that if the Common Stock delivered
upon exercise of the Option is an original issue of authorized Common Stock, at
least so much of the exercise price as represents the par value of such Common
Stock must be paid other than by the Option holder's promissory note.
(f) If the market price of shares of Common Stock subject to an
Option exceeds the exercise price of the Option at the time of its exercise, the
Board may cancel the Option and cause Orbit to pay in cash or in shares of
Common Stock (at a price per share equal to the fair market value per share) to
the person exercising the Option an amount equal to the difference between the
fair market value of the Common Stock which would have been purchased pursuant
to the exercise (determined on the date the Option is canceled) and the
aggregate exercise price which would have been paid. The Board may exercise its
discretion to take such action only if it has received a written request from
the person exercising the Option, but such a request will not be binding on the
Board.
5.2 Stock Appreciation Rights.
(a) A Stock Appreciation Right is an Award entitling the
recipient on exercise of the Right to receive an amount, in cash or Common Stock
or a combination thereof (such form to be determined by the Board), determined
in whole or in part by reference to appreciation in Common Stock value. In
general, a Stock Appreciation Right entitles the Participant to receive, with
respect to each share of Common Stock as to which the Right is exercised, the
excess of the share's fair market value on the date of exercise over its fair
market value on the date the Right was granted. However, the Board may provide
at the time of grant that the amount the recipient is entitled to
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<PAGE>
receive will be adjusted upward or downward under rules established by the Board
to take into account the performance of the Common Stock in comparison with the
performance of other stocks or an index or indices of other stocks. The Board
may also grant Stock Appreciation Rights that provide that following a Change in
Control of the Company (as defined in Section 6.3(b) hereof) the holder of such
Right will be entitled to receive, with respect to each share of Common Stock
subject to the Right, an amount equal to the excess of a specified value (which
may include an average of values) for a share of Common Stock during a period
preceding such Change in Control over the fair market value of a share of Common
Stock on the date the Right was granted.
(b) Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan. A Stock Appreciation Right
granted in tandem with an Option which is not an ISO may be granted either at or
after the time the Option is granted. A Stock Appreciation Right granted in
tandem with an ISO may be granted only at the time the Option is granted.
(c) When Stock Appreciation Rights are granted in tandem with
Options, the following rules will apply:
(1) The Stock Appreciation Right will be exercisable
only at such time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the procedure required
for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no
longer be exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less than the
full number of shares covered by an Option will not be reduced until the number
of shares as to which the related Option has been exercised or has terminated
exceeds the number of shares not covered by the Stock Appreciation Right.
(3) The Option will terminate and no longer be
exercisable upon the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable
only with the related Option.
(5) A Stock Appreciation Right granted in tandem with an
ISO may be exercised only when the market price of the Stock subject to the
Option exceeds the exercise Price of such option.
(d) A Stock Appreciation Right not granted in tandem with an
Option will become exercisable at such time or times, and on such terms and
conditions, as the Committee may specify. The Board may at any time accelerate
the time at which all or any part of the Right may be exercised. Any exercise of
an independent Stock Appreciation Right must be in writing, signed by the proper
person and delivered or mailed to Orbit, accompanied by any other documents
required by the Board.
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5.3 Restricted and Unrestricted Stock.
(a) A Restricted Stock Award entitles the recipient to acquire,
for a purchase price not less than the par value, shares of Common Stock subject
to the restrictions described in Section 5.3(d) below ("Restricted Stock").
(b) A Participant who is granted a Restricted Stock Award shall
have no rights with respect to such Award unless the Participant accepts the
Award by written instrument delivered or mailed to Orbit accompanied by payment
in full of the specified purchase price, if any, of the shares covered by the
Award. Payment may be by certified or bank check or other instrument acceptable
to the Board.
(c) A Participant who receives Restricted Stock shall have all
the rights of a stockholder with respect to such stock, including voting and
dividend rights, subject to the restrictions described in paragraph (d) below
and any other conditions imposed by the Board at the time of grant. Unless the
Board otherwise determines, certificates evidencing shares of Restricted Stock
will remain in the possession of Orbit until such shares are free of all
restrictions under the Plan.
(d) Except as otherwise specifically provided by the Plan or
the Award, Restricted Stock may not be transferred, sold, assigned, exchanged,
pledged, gifted or otherwise disposed of, and if a Participant suffers a Status
Change (as defined in Section 6.1 below) for any reason, must be offered to
Orbit for purchase for the amount of cash paid for the such stock, or forfeited
to Orbit if no cash was paid. These restrictions will lapse and the shares will
become unrestricted ("Unrestricted Stock") at such time or times, and on such
terms and conditions, as the Board may determine. The Board may at any time
accelerate the time at which the restrictions on all or any part of the shares
will lapse.
(e) Any Participant making, or required by an Award to make, an
election under Section 83(b) of the Code with respect to Restricted Stock shall
deliver to Orbit, within 10 days of the filing of such election with the
Internal Revenue Service, a copy of such election.
(f) The Board may, at the time any Award described in this
Section 5 is granted, provide that any or all the Common Stock delivered
pursuant to the Award will be Restricted Stock.
(g) The Board may, in its sole discretion, approve the sale to
any Participant of shares of Common Stock free of restrictions under the Plan
for a price which is not less than the par value of the Common Stock, provided
that the value of such Award, which equals the difference between the price and
the fair market value of such shares on the date of grant, is in lieu of a
reasonable amount of cash compensation.
5.4 Performance Awards. A Performance Award entitles the recipient to
receive, without payment, an Award or Awards described in this Section 5
following the attainment of such performance goals, during such measurement
period or periods, and on such other terms and conditions, all as the Board may
determine. Performance goals may be related to overall corporate
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performance, operating group or business unit performance, personal performance
or such other category of performance as the Board may determine. Financial
performance may be measured by revenue, operating income, net income, earnings
per share, number of days sales outstanding in accounts receivable,
productivity, return on equity, common stock price, price-earnings multiple, or
such other financial factors as the Board may determine.
5.5 Loans and Supplemental Grants.
(a) The Company may make a loan to a Participant ("Loan"),
either in connection with the purchase of Common Stock under the Award or the
payment of any Federal, state and local income tax with respect to income
recognized as a result of the Award. The Board shall have the authority, in its
sole discretion, to determine whether to make a Loan, the amount, terms and
conditions of the Loan, including the interest rate (which may be zero), whether
the Loan is to be secured or unsecured or with or without recourse against the
borrower, the terms on which the Loan is to be repaid and the terms and
conditions, if any, under which the Loan may be forgiven. In no event shall any
Loan have a term (including extensions) in excess of ten years.
(b) In connection with any Award, the Board may grant a cash
award to the Participant ("Supplemental Grant") not to exceed an amount equal to
(1) the amount of any Federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount on
a grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising from all
payments under this Section 5. Any payments under this Section 5.5(b) shall be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
6. Events Affecting Outstanding Awards
6.1 Termination of Service by Death or Disability. If a Participant
ceases to be an Employee or if there is a termination of the consulting service
or other relationship in respect of which a non-Employee Participant was granted
an Award (such termination of employment or other relationship being hereinafter
referred to as a "Status Change") by reason of death or permanent disability (as
determined by the Board), the following rules shall apply, unless otherwise
determined by the Board:
(a) All Options and Stock Appreciation Rights held by the
Participant at the time of such Status Change, to the extent then exercisable,
will continue to be exercisable by the Participant's heirs, executor,
administrator or other legal or personal representative, for a period of one
year after the Participant's Status Change. After the expiration of such one-
year period, all such Options and Stock Appreciation Rights shall terminate. In
no event, however, shall an Option or Stock Appreciation Right remain
exercisable beyond the latest date on which it could have been exercised without
regard to this Section 6. All Options and Stock Appreciation Rights held by a
Participant at the time of such Status Change that are not then exercisable
shall terminate upon such Status Change.
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(b) All Restricted Stock held by the Participant at the time of
such Status Change shall immediately become free of all restrictions and
conditions.
(c) Any payment or benefit under a Performance Award or
Supplemental Grant to which the Participant was not irrevocably entitled at the
time of such Status Change shall be forfeited and the Award canceled as of the
time of such Status Change.
6.2 Termination of Service Other Than by Death or Disability. If a
Participant suffers a Status Change other than by reason of death or permanent
disability (as determined by the Board), the following rules shall apply, unless
otherwise determined by the Board at the time of grant of an Award:
(a) All Options and Stock Appreciation Rights held by the
Participant at the time of such Status Change, to the extent then exercisable,
will continue to be exercisable by the Participant for a period of three months
after the Participant's Status Change. After the expiration of such three-month
period, all such Options and Stock Appreciation Rights shall terminate. In no
event, however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard to
this Section 6. All Options and Stock Appreciation Rights held by a Participant
at the time of such Status Change that are not then exercisable shall terminate
upon such Status Change.
(b) All Restricted Stock held by the Participant at the time of
such Status Change shall immediately become free of all restrictions and
conditions, unless such Status Change results from a voluntary resignation or
termination for Cause (as defined in Section 6.2(d)), in which event all
Restricted Stock held by the Participant at the time of the Status Change shall
be transferred to Orbit (and, in the event the certificates representing such
Restricted Stock are held by Orbit, such Restricted Stock shall be so
transferred without any further action by the Participant) in accordance with
Section 5.3 above.
(c) Any payment or benefit under a Performance Award or
Supplemental Grant to which the Participant was not irrevocably entitled at the
time of such Status Change shall be forfeited and the Award canceled as of the
date of such Status Change.
(d) A termination by the Company of a Participant's employment
with or service to the Company shall be for "Cause" only if: (1) the Board
determined that the Participant (i) was guilty of gross negligence or willful
misconduct in the performance of his or her duties for the Company, or (ii)
breached or violated, in a material respect, any agreement between the
Participant and the Company or any of the Company's policy statements regarding
conflicts-of-interest, insider trading or confidentiality, or (iii) committed a
material act of dishonesty or breach of trust; (2) such determination was made
at a duly convened meeting of the Board with respect to which the Participant
received at least 10 days prior written notice, had a reasonable opportunity to
make a statement and answer the allegations against him or her; and (3) either
(i) the Participant was given a reasonable opportunity to take remedial action
but failed or refused to do so, or (ii) the Board also determined, at such
meeting, that an opportunity to take remedial action would not have been
meaningful under the circumstances.
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(e) For all purposes of this Section 6.2, (1) if a Participant
is an Employee of a subsidiary of and such subsidiary ceases to be a subsidiary
of Orbit, then the Participant's employment with the Company will be deemed to
have been terminated by the Company without Cause, unless the Participant is
transferred to Orbit or another subsidiary of Orbit; (2) the employment with the
Company of a Participant will not be deemed to have been terminated if the
Participant is transferred from Orbit to a subsidiary of Orbit, or vice versa,
or from one subsidiary of Orbit to another; and (3) if a Participant terminates
his or her employment with the Company following a reduction in his or her rate
of compensation, then the Participant's employment with the Company will be
deemed to have been terminated by the Company without Cause.
7. Grant and Acceptance of Awards
7.1 The Board's approval of a grant of an Award under the Plan,
including the names of Participants and the size of the Award, including the
number of shares of Common Stock subject to the Award, shall be reflected in
minutes of meetings held by the Board or in written consents signed by members
of the Board. Once approved by the Board, each Award shall be evidenced by such
written instrument, containing such terms as are required by the Plan and such
other terms, consistent with the provisions of the Plan, as may be approved from
time to time by the Board.
7.2 Each instrument may be in the form of agreements to be executed by
both the Participant and Orbit, or certificates, letters or similar instruments,
which need not be executed by the Participant but acceptance of which shall
evidence agreement to the terms thereof. The receipt of an Award shall not
impose any obligation on the Participant to accept the Award.
7.3 Except as specifically provided by the Plan or the instrument
evidencing an Award, a Participant shall not become a stockholder of Orbit until
(i) the Participant makes any required payments in respect of the Common Stock
issued or issuable pursuant to the Award, (ii) the Participant furnishes Orbit
with any required agreements, certificates, letters or other instruments, and
(iii) the Participant actually receives the shares of Common Stock. Subject to
any terms and conditions imposed by the Plan or the instrument evidencing an
Award, upon the occurrence of all of the conditions set forth in the immediately
preceding sentence, a Participant shall have all rights of a stockholder with
respect to shares of Common Stock, including, but not limited to, the right to
vote such shares and to receive dividends and other distributions paid with
respect to such shares. The Board may, upon such conditions as it deems
appropriate, provide that a Participant will receive a benefit in lieu of cash
dividends that would have been payable on any and all Common Stock subject to
the Participant's Award, had such Common Stock been outstanding. Without
limitation, the Board may provide for payment to the Participant of amounts
representing such dividends, either currently or in the future, or for the
investment of such amounts on behalf of the Participant.
7.4 Notwithstanding any other provision of the Plan, the Company shall
not be obligated to deliver any shares of Common Stock pursuant to the Plan or
to remove any restriction from shares of Common Stock previously delivered under
the Plan (a) until all conditions to the Award have been satisfied or removed,
(b) until, in the opinion of counsel to Orbit, all applicable Federal and state
laws and regulations have been complied with, (c) if the outstanding Common
Stock is at the time listed on any stock exchange or included for quotation on
an inter-dealer system, until the shares to be
9
<PAGE>
delivered have been listed or included or authorized to be listed or included on
such exchange or system upon official notice of notice of issuance, (d) if it
might cause Orbit to issue or sell more shares of Common Stock than Orbit is
then legally entitled to issue or sell, and (e) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
counsel to Orbit. If the sale of Common Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a condition to
exercise of an Award, such representations or agreements as counsel to Orbit may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Common Stock bear an appropriate legend restricting
transfer. If an Award is exercised by the Participant's legal representative,
the Company shall be under no obligation to deliver Common Stock pursuant to
such exercise until the Company is satisfied as to the authority of such
representative.
8. Tax Withholding
The Company shall withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all Federal, state and local withholding
tax requirements (the "withholding requirements"). In the case of an Award
pursuant to which Common Stock may be delivered, the Board shall have the right
to require that the Participant or other appropriate person remit to the Company
an amount sufficient to satisfy the withholding requirements, or make other
arrangements satisfactory to the Board with regard to such requirements, prior
to the delivery of any Common Stock. If and to the extent that such withholding
is required, the Board may permit a Participant to elect at such time and in
such manner as the Board may determine to have the Company hold back from the
shares of Common Stock to be delivered, or to deliver to the Company, Common
Stock having a value calculated to satisfy the withholding requirement. If at
the time an ISO is exercised, the Board determines that the Company could be
liable for withholding requirements with respect to a disposition of the Common
Stock received upon exercise, the Board may require as a condition of exercise
that the person exercising the ISO agree (a) to inform the Company promptly of
any disposition (within the meaning of Section 424(c) of the Code) of Common
Stock received upon exercise, and (b) to give such security as the Board deems
adequate to meet the potential liability of the Company for the withholding
requirements and to augment such security from time to time in any amount
reasonably deemed necessary by the Board to preserve the adequacy of such
security.
9. Stockholder Approval, Effective Date and Term of Plan
The Plan was adopted by the Board on March 17, 1997 ("Effective Date"),
and approved by Orbit's stockholder on March 17, 1997. No Award shall be granted
more than ten years after the Effective Date.
10. Effect, Amendment, Suspension and Termination
Neither adoption of the Plan nor the grant of Awards to a Participant
will affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Common Stock as a bonus or
otherwise, or to adopt other plans or arrangements under which Common Stock may
be issued to Employees or other persons or entities. The Board reserves the
right, at any time and from time to time, to amend the Plan in any way, or to
suspend or terminate
10
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the Plan, effective as of the date specified by the Board when it takes such
action, which date may be before or after the date the Board takes such action;
provided that any such action shall not affect any Awards granted before the
actual date on which such action is taken by the Board; and further provided
that the approval of Orbit's stockholders shall be required whenever necessary
for the Plan to continue to satisfy the conditions of Section 422 of the Code
with respect to the award of ISOs (unless the Board determines that ISOs shall
no longer be granted under the Plan), any bylaw, rule or regulation of the
primary market system or stock exchange on which Orbit's Common Stock is then
listed or admitted to trading, or any other applicable law, rule or regulation.
11. Other Provisions
11.1 Nothing contained in the Plan or any Award shall confer upon any
Employee or other Participant the right to continue in the employ of, or to
continue to provide service to, the Company or any affiliated corporation, or
interfere in any way with the right of the Company or any affiliated corporation
to terminate the employment or service of any Employee or other Participant for
any reason.
11.2 Corporate action constituting an offer by Orbit of Common Stock to
any Participant under the terms of an Award shall be deemed completed as of the
date of grant of the Award, regardless of when the instrument, certificate, or
letter evidencing the Award is actually received or accepted by the Participant.
11.3 Except as otherwise specifically provided by an Award (other than
an ISO), neither any Award nor a Participant's rights under any Award or under
the Plan may be assigned or transferred in any manner other than by will or
under the laws of descent and distribution. An Award may be exercised only by
the Participant to whom such Award was granted (or by such Participant's heirs,
estate, beneficiary or personal or legal representative under Section 6.1). The
foregoing shall not, however, restrict a Participant's rights with respect to
Unrestricted Stock or the outright transfer of cash, nor shall it restrict the
ability of a Participant's heirs, estate, beneficiaries, or personal or legal
representatives to enforce the terms of the Plan with respect to Awards granted
to the Participant.
11.4 The Plan, and all Awards granted hereunder, shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
The headings of the Sections of the Plan are for convenience of reference only
and shall not affect the interpretation of the Plan. All pronouns and similar
references in the Plan shall be construed to be of such number and gender as the
context requires or permits. If any provision of the Plan is determined to be
unenforceable for any reason, then that provision shall be deemed to have been
deleted or modified to the extent necessary to make it enforceable, and the
remaining provisions of the Plan shall be unaffected.
11.5 All notices with respect to the Plan shall be in writing and shall
be hand delivered or sent by certified mail or reputable overnight delivery
service, expenses prepaid. Notices to the Company or the Board shall be
delivered or sent to Orbit's headquarters to the attention of its Chief
Financial Officer. Notices to any Participant or holder of shares of Common
Stock issued pursuant to an Award shall be sufficient if delivered or sent to
such person's address as it appears in the regular records of the Company or
Orbit's transfer agent.
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11.6 If there is any change in the capitalization of Orbit, such as by
stock dividend, stock split, combination of shares, exchange of securities,
recapitalization or other event which the Board deems, in its sole discretion,
to be similar circumstances, the Board may make such adjustments to the number
and/or kind of shares of stock or securities subject to Awards then outstanding
or subsequently granted, any exercise prices relating to such Awards and any
other provision of such Awards affected by such change, as the Board may
determine in its sole discretion. The Board may also make such adjustments to
take into account material changes in law or in accounting practices or
principles, mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, as the Board may determine in its
sole discretion.
11.7 The Board may agree at any time, upon request of a Participant, to
defer the date on which any payment under an Award shall be made.
11.8 In any case that a Participant purchases Common Stock under an
Award for a price equal to the par value of the Common Stock, the Board may
determine, in its sole discretion, that such price has been satisfied by past
services rendered by the Participant.
11.9 For the purposes of the Plan and any Award granted hereunder,
unless otherwise determined by the Board, the term "fair market value" of Common
Stock on or as of a specified date shall mean either (i) in the case of an
Option not granted under a Performance Award, the last sale price (as defined
below in this Section) for one share of Common Stock on the last trading day on
or before the specified date, or, if the foregoing does not apply, the market
value determined by the Board; or (ii) in the case of an Option granted under a
Performance Award, the average of the last sale prices during the first ten
trading days beginning on or after the specified date, or the average of the
last sale prices during such other period of time beginning on or after the
specified date as is determined by the Board, or, if the foregoing does not
apply, the market value determined by the Board. "Last sale price" means the
last sale price reported on The Nasdaq Stock Market or on such other primary
market system or stock exchange on which Orbit's Common Stock is then listed or
admitted to trading.
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EXHIBIT 10.4
SERVICES AGREEMENT
Parties: Orbit-Alchut Technologies, Ltd. ("Alchut")
- -------
18 Hakadar Street
Netanya
Israel
Orbit/FR, Inc. ("Orbit/FR")
506 Prudential Road
Horsham, Pennsylvania 19044
USA
Orbit/F.R. Engineering, Ltd. ("Engineering")
18 Hakadar Street
Netanya
Israel
Date: As of January 1, 1997
- -----
Background: Alchut owns all of the issued and outstanding shares of Orbit
- ----------
Advanced Technologies, Inc. ("Orbit"), and, together with certain of its other
subsidiaries, Alchut owns all of the issued and outstanding shares of
Engineering. In December, 1996, Alchut incorporated Orbit/FR, Inc. ("Orbit/FR")
and effective as of December 31, 1996, Alchut transferred or caused to be
transferred to Orbit/FR all of the issued and outstanding shares of Orbit and
Engineering, in exchange for shares of Orbit/FR.
Alchut is a supplier of production and administrative services to Orbit,
and Alchut is a subcontractor to Orbit. Orbit has been responsible for
operating the antennae measurement business for Alchut and its subsidiaries
(collectively, the "Alchut Group") and possesses the technical know-how
necessary for the operation of the antennae measurement business.
Alchut previously maintained an antennae measurement division, the
employees of which, although employed by Alchut, worked under the supervision of
Orbit. In contemplation of transferring its antennae measurement business in
Israel to Orbit/FR, Alchut incorporated Engineering for the purpose of
establishing its antennae measurement division as a separate entity. As of
December 31, 1996, Alchut transferred its antennae measurement related fixed
assets, based on the book value as of that date, to Engineering as a
contribution to capital. As of January 1, 1997, Alchut sold its antennae
measurement related receivables, inventory and work in process, for book value
as of that date, to Engineering in return for Engineering's agreement to pay for
the assets as set forth in the Purchase and Assignment Agreement, dated as of
January 1, 1997, between Alchut and Engineering. As of December 31, 1996, Alchut
transferred shares of Engineering and Orbit to
<PAGE>
Orbit/FR via a share exchange agreement, whereby Alchut and another member of
the Alchut Group received shares of Orbit/FR in exchange for all of their shares
of Engineering and Orbit. Effective January 1, 1997, the personnel formerly
employed in the antennae measurement division of Alchut are employed by
Engineering.
It is the intention of the parties that (i) Engineering will carry out all
antennae measurement activity in Israel for Orbit/FR, Orbit and Engineering
(collectively, the "Orbit A/M Group"), (ii) the Orbit A/M Group will purchase
certain of its electrical and mechanical production services required in Israel
from Alchut, and (iii) the team of engineers at Engineering will ensure that
those production orders received by Alchut for the Orbit A/M Group are processed
correctly. Among other things, all orders or proposals, marketing policies and
sales policies were subject to the approval of Orbit/FR.
In consideration of the mutual agreements contained herein, and intending
to be legally bound, the parties agree as follows:
SECTION 1: OBLIGATIONS
- -----------------------
1.1 Administrative Services.
-----------------------
(a) By Alchut to Engineering. For the duration of the term of this
------------------------
Agreement (as defined in Paragraph 3.1), Alchut will provide to Engineering the
administrative services described on attached Schedule 1.1(a) ("Administrative
Services"), required by Engineering in Israel that Alchut generally provides for
itself and to its subsidiaries and divisions (the "Alchut Group").
(b) Orbit/FR to Alchut. For the duration of this Agreement,
------------------
Orbit/FR will provide satellite tracking and/or avionics divisions and/or
subsidiaries of the Alchut Group certain Administrative Services required by
such members of the Alchut Group that Orbit/FR generally provides for itself and
to the other members of the Orbit A/M Group.
(c) Standard of Performance. Each party providing Administrative
------------------------
Services will perform all such services in conformity with the practices and
standards generally provided to itself and the other members of its group. In
the case of any conflict or potential conflict between the provision by a party
providing Administrative Services and the provision by such party of similar
services on behalf of itself, or other members of its group or third parties,
the provision of the Administrative Services to the other party pursuant to this
Agreement will be provided on an equitable basis.
1.2 Production Services.
--------------------
(a) By Alchut to Engineering. For the duration of the term of this
------------------------
Agreement, Alchut will provide to Engineering the production services described
in attached Schedule 1.2(a) ("Production Services") that are required by
Engineering in Israel and that are not otherwise
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performed by the Orbit A/M Group or Orbit/FR's other subsidiaries and that
Alchut provided for the antennae measurement business of Alchut Group prior to
this Agreement. ("Production Services").
(b) Standard of Performance. Alchut will perform all Production
------------------------
Services in conformity with the practices and standards generally provided to
the Alchut Group. In the case of any conflict or potential conflict between the
provision by Alchut of the Production Services and the provision by Alchut of
similar services on behalf of itself, its affiliates or third parties, the
provision of the Production Services to the Orbit A/M Group will be provided on
an equitable basis other services.
1.3 Lease of Office Space.
----------------------
(a) By Alchut to Engineering. For the duration of the term of this
------------------------
Agreement, or if shorter, the term of the lease for the main office facility
leased by Alchut in Israel (the "Alchut Premises"), Alchut will lease to
Engineering such office space at the Alchut Premises as may be agreed upon from
time to time by Alchut and Engineering (the "Engineering Office Space").
(b) For the duration of the term of this Agreement, or if shorter,
the term of the lease for the main office facility leased by Orbit/FR in
Horsham, Pennsylvania (the "Orbit/FR Premises"), Orbit/FR will lease to the
satellite tracking and/or avioncs divisions and/or subsidiaries of the Alchut
Group such office space at the Orbit/FR Premises as may be reasonably required
from time to time by Alchut (the "Alchut Office Space").
1.4 Other Obligations in Performing the Administrative and Production
-----------------------------------------------------------------
Services.
- ---------
(a) Each party providing Services hereunder will hire and/or retain
as employees of itself or its subsidiaries such persons as may be reasonably
necessary to provide the Administrative Services and Production Services
(collectively, the "Services") required to be provided by it. Each party will be
responsible for the management and supervision of all of its personnel
performing the Services, all decisions relating to the retention of such
personnel, all compensation, expenses and benefits of such personnel, and all
employment, payroll, withholding and other taxes relating to such personnel.
(b) Each party providing Services hereunder will maintain all office
facilities and equipment (including telecommunications equipment, computer
equipment and software, office and production and manufacturing equipment)
necessary to provide the Services under this Agreement.
(c) Each party providing Services hereunder will maintain complete
and accurate books, records and information relating to all the Services
provided under this Agreement and will furnish the other party and the relevant
members of the other party's group with such information as any such party
and/or member(s) may reasonably request.
3
<PAGE>
(d) Each party providing or receiving services hereunder will (i)
comply with all applicable laws, rules and regulations of all governmental,
administrative and industry authorities relating to its business and its
performance under this Agreement, and (ii) maintain in full force and effect all
licenses, permits certificates and authorizations of all governmental,
administrative and industry authorities necessary for its business and its
performance under this Agreement.
(e) Each party providing services hereunder will maintain, with
reputable and financially sound insurers, comprehensive general liability
insurance with such limits and in such form and substance as is currently
maintained by such party and will have the other party and the relevant members
of the other party's group as co-insureds under such insurance policy.
SECTION 2: COMPENSATION
- ------------------------
2.1 In consideration of the provision of the Services and leased spaced
described in this Agreement, the party providing the services shall receive the
following compensation:
(a) Alchut's Administrative Services to Engineering. As
------------------------------------------------
compensation for its provision of the Administrative Services, during the
calendar year 1997, Engineering shall pay to Alchut Three Hundred and Sixty
Thousand Dollars ($360,000). Such amount shall be payable in equal monthly
installments of $30,000 on the first day of each month with respect to the
Services received during the prior month. In the event that an amount shall not
be paid within thirty (30) days, the amount shall accrue interest at an annual
rate equal to the prime rate of UMB Ltd. in NIS, plus 2%. The amount to be paid
by Engineering for such Services in each calendar year after 1997 shall be
agreed upon by the parties prior to the end of the preceding calendar year.
(b) Orbit/FR's Administrative Services to Alchut. As compensation
--------------------------------------------
for its provision of Administrative Services, during the calendar year 1997,
Alchut shall pay to Orbit/FR the cost of such administrative services actually
provided by Orbit/FR to Alchut. Such amount shall be payable each month with
respect to the Services received during the prior month. In the event an amount
shall not be paid within thirty (30) days, the amount shall accrue interest at
an annual rate of the prime rate of PNC Bank in U.S. dollars, plus 2%. The
amount to be paid by Alchut for such Services shall be reviewed by the parties
prior to the end of the first year of this Agreement.
(c) Alchut's Production Services to Engineering. As compensation
-------------------------------------------
for its provision of Production Services Engineering shall pay to Alchut an
amount equal to the cost of providing such services, plus 5%. Alchut shall issue
invoices for such Services on a monthly basis which such invoice shall show the
costs for such Services for the prior month, plus 5%. Such invoice shall be paid
within 30 days after receipt of such invoice.
(d) Alchut's Lease of Space to Engineering. As compensation for its
--------------------------------------
provision of the Engineering Office Space in the Alchut Premises, Engineering
will pay to Alchut $22.80 for
4
<PAGE>
each square foot per year of Engineering Office Space, which amount shall
include the provision by Alchut of all taxes, utilities, maintenance, security
and cleaning.
(e) Orbit/FR's Lease of Space to Alchut. As compensation for its
-----------------------------------
provision of the Alchut Office Space in the Orbit/FR Premises, Alchut will pay
to Orbit/FR $2,000 for each month, which amount shall include the provision
and/or payment by Orbit/FR of all taxes, utilities, maintenance, security and
cleaning.
SECTION 3: DURATION AND TERMINATION
- ------------------------------------
3.1 Term of Services. The party providing Services hereunder will
-----------------
provide such Services for a term of one (1) year beginning on the date hereof,
and will continue to provide such Services thereafter unless terminated as
follows:
(a) A party may terminate this Agreement in its entirety or the
provisions relating to the Administrative Services or the Production Services,
after the completion of the initial one (1) year term by giving 90 days prior
written notice of termination to the other parties;
(b) If and whenever a party fails to perform or satisfy any of its
obligations under this Agreement for a period of ninety (90) days after the non-
defaulting party gives written notice of such failure to the defaulting party,
the non-defaulting party may immediately terminate this Agreement in its
entirety or the provisions relating to the Administrative Services or the
Production Services by giving written notice to the defaulting party; and
(c) If and whenever a party is in Default (as defined in Section
3.2), the non-defaulting party may immediately terminate this Agreement by
giving written notice of termination to the defaulting party.
3.2 Default of Services. The occurrence of any one or more of the
-------------------
following events will constitute a "Default" under this Agreement by the party
involved:
(a) The commencement of bankruptcy, reorganization, arrangement,
insolvency, dissolution, or liquidation proceedings by or against a party, if
such proceedings are not dismissed within 30 days following commencement
thereof;
(b) The appointment of a trustee, receiver, conservator, liquidator,
or other judicial representative for a party, or for a material part of the
property of a party;
(c) The suspension, dissolution, liquidation, or other cessation of
all or any material part of the business of a party; or
(d) The insolvency or bankruptcy of a party.
5
<PAGE>
3.3 Procedure Upon Termination. Upon termination of this Agreement in
--------------------------
its entirety or the provisions relating to the Administrative Services or the
Production Services for any reason:
(a) Each party will promptly return to the other party all copies of
the other party's Proprietary Information and all other materials and documents
supplied by the other party to such party or its affiliates, and all use of the
other party's Technology and Trademarks (as defined below) by such party or its
affiliates will immediately cease;
(b) Alchut will promptly provide the Orbit Group with a summary of
the status of all work in progress for or on behalf of Engineering and in
accordance with the instructions of the Orbit Group, Alchut will either complete
all work in progress for or on behalf of any member of the Orbit Group or
provide the Orbit Group or its designee with all information and documentation
necessary or desirable to properly complete such work in progress;
(c) Each will cooperate with the other party during such transition;
and
(d) Each party will pay to the other party all amounts owing to the
other party as of the date of termination within a commercially reasonable time.
3.4 Survival. The provisions of Paragraphs 3.3, 3.4, 4,5, and 6, will
--------
survive any termination of this Agreement.
SECTION 4: PROPRIETARY PROPERTY, COPYRIGHTS AND TRADEMARKS
- ------------------------------------------------------------
4.1 Confidentiality. Each party acknowledges and agrees that (i)
---------------
another party's Proprietary Information is a trade secret and confidential and
proprietary property of another party, (ii) neither it nor any of its affiliates
is acquiring title to any Proprietary Information or the right to use any
Proprietary Information of another party, except the right to use specific
Proprietary Information in connection with the provision of the Services in the
manner and for the purposes specified in this Agreement, (iii) Proprietary
Information in its or its affiliates' possession, whether or not authorized,
will be held in strict confidence, and (iv) all times during and after the term
of this Agreement, except as specifically authorized by this Agreement, no party
nor any of its affiliates will, directly or indirectly, communicate or disclose
any Proprietary Information of another party to any Person, or permit any Person
to have access to or possession of any Proprietary Information of another party,
or make or retain any copy of any Proprietary Information of another party.
Each party will take all actions reasonably necessary to preserve the
confidentiality of another party's Proprietary Information and to safeguard
against unauthorized disclosures of another party's Proprietary Information.
4.2 Copyrights, Trademarks and Technology. Each party acknowledges and
-------------------------------------
agrees that (i) the Copyrights, Trademarks and Technology of the other party are
and will remain the sole property of that other party, (ii) such party will use
those Copyrights, Trademarks and Technology
6
<PAGE>
only in the manner and for the purposes the owner of the Copyright, Trademark or
Technology may direct, and (iii) each such other party reserves the right to
direct such party to modify or discontinue use of any such Copyright, Trademark
or Technology at that other party's discretion. No party nor any of its
affiliates will, directly or indirectly, do anything, or assist any other Person
to do anything, which would infringe upon, impair or contest any other party's
rights in any of its Copyrights, Trademark or Technology or any other or such
similar rights. Each party will cooperate fully in any action any other party
may take relating to any claim of improper use, infringement of any of its
Copyrights, Trademarks or Technology or unfair competition.
4.3 Enforcement. Each party acknowledges that a breach by it of any of
-----------
the provisions of this Paragraph 4 could result in irreparable injury to the
other, non-breaching party for which money damages would not adequately
compensate. In the event of such breach, the non-breaching party will be
entitled, in addition to all other rights and remedies which it may have at law
or in equity, to have a decree of specific performance or an injunction issued
by a court of competent jurisdiction, requiring the breach to be cured or
enjoining all Persons involved from continuing the breach. The existence of any
claim or cause of action which the breaching party or any other Person may have
against the non-breaching party will not constitute a defense or bar to the
enforcement of any of the provisions of this Paragraph 4.
SECTION 5: LIMITATION OF LIABILITY
- ------------------------------------
Notwithstanding any other provision of this Agreement, no party will have
any liability to any other party or any affiliates of another for (i) any delay
in performing or failure to perform its obligations under this Agreement as a
result of any event or circumstance which is beyond such party's reasonable
control, including any act of God, act of governmental authority, change of law,
rule or regulation, loss of key employee, labor disturbance, unavailability of
supplies, power failure, weather condition, fire, flood, or similar type of
event; or (ii) any damages measured by lost revenues, profits, business or
business expectancy, or for any other indirect, incidental or consequential
damages, whether or not foreseeable, or for any special or punitive damages.
SECTION 6: GENERAL PROVISIONS
- ------------------------------
6.1 Notices. All notices, consents or other communications required or
-------
permitted to be given under this Agreement will be in writing and will be deemed
to have been duly given (i) when delivered personally, (ii) seven business days
after being mailed by first class certified mail, return receipt requested,
postage prepaid, or (iii) three business days after being sent by a reputable
overnight delivery service, postage or delivery charges prepaid, to the parties
at their respective addresses stated on the first page of this Agreement.
Notices may also be given by prepaid telegram or facsimile and will be effective
on the date transmitted if confirmed within 72 hours thereafter by a signed
original sent in the manner provided in the preceding sentence. Any party may
change its address for notice and the address to which copies must be sent by
giving notice of the new addresses to the other parties in accordance with this
Paragraph 6.1.
7
<PAGE>
6.2 Relationship Between Parties. Except as specifically authorized in
----------------------------
writing, no party has any authority to bind any other party in any manner, and
no party will be liable in any manner for the debts, liabilities or obligations
of another party.
6.3 Entire Understanding. This Agreement states the entire
--------------------
understanding among the parties with respect to the subject matter hereof, and
supersedes all prior oral and written communications and agreements, and all
contemporaneous oral communications and agreements, with respect to the subject
matter hereof. No amendment or modification of this Agreement will be effective
unless in writing, authorized in writing by the parties effected by the
amendment or modification.
6.4 Parties in Interest. This Agreement will bind, benefit, and be
-------------------
enforceable by and against each party hereto and, to the extent permitted
hereby, its successors and assigns. No party will assign any of its rights or
obligations under this Agreement to any other Person, whether by operation of
law or otherwise, without the prior written consent of the effected party.
6.5 No Waivers. No waiver with respect to this Agreement will be
----------
enforceable unless in writing and signed by the party against whom enforcement
is sought. No failure to exercise or partial exercise of any right or remedy by
any party, and no course of dealing among any of the parties, will constitute a
waiver of, or will preclude any other or further exercise of the same or any
other right or remedy.
6.6 Severability. If any of the provisions of this Agreement are for
------------
any reason be held to be invalid, illegal or unenforceable, the remaining
provisions of this Agreement will not be affected thereby and will be
enforceable without regard thereto. If any provision of this Agreement is held
to be invalid, illegal or unenforceable under the laws of a particular
jurisdiction, it is the intention of the parties that all of the provisions of
this Agreement will remain in full force and effect in all other jurisdictions.
6.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.
6.8 Section Headings. The section and subsection headings in this
----------------
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and will not affect its interpretation.
6.9 References. All words used in this Agreement will be construed to
----------
be of such number and gender as the context requires or permits. Unless a
particular context clearly provides otherwise, the words "hereof" and
"hereunder" and similar references in this Agreement refer to this Agreement in
their entirety and not to any specific section or subsection hereof of thereof.
For the purposes of this Agreement, "including" means "including but not limited
to."
8
<PAGE>
6.10 Controlling Law and Arbitration. This Agreement is made under, and
-------------------------------
shall be construed and enforced in accordance with, the laws of Israel, without
giving effect to principles of conflicts of law. The parties agree that, except
with respect to an action for equitable relief, all disputes or differences
arising under this Agreement shall be determined by arbitration in Israel. The
parties agree that such arbitration shall be conducted by one arbitrator
selected by the parties, but if the parties are unable to agree upon one
arbitrator, the arbitrator shall be selected by the President of the Israeli Bar
Association. The arbitrators shall determine the procedures and rules of
evidence in the arbitration, but the substantive laws of Israel shall govern the
decision. This section constitutes an arbitration agreement.
6.11 No Third Party Beneficiaries. No provision of this Agreement is
----------------------------
intended to or shall be construed to grant or confer any right to enforce this
Agreement, or any remedy for breach of this Agreement, to or upon any Person
other than the parties hereto.
6.12 Definitions.
-----------
(a) "Copyright"means any and all rights associated with the
---------
expression of an idea as they are defined and protected by any and all
applicable copyright laws.
(b) "Person" means any individual, sole proprietorship, joint
------
venture, partnership, corporation, association, trust, estate, governmental
agency, regulatory authority, or any other entity.
(c) "Proprietary Information" means all information and materials
-----------------------
which are confidential or proprietary to a party or its affiliates, or to a
party's clients, whether or not designated as such by such party, and whether or
not reduced to writing or other tangible documentation, including (i) all trade
secrets, know-how, inventions, and computer software (and all modifications,
enhancements and improvements thereof), whether or not a patent or copyright
application has been filed on such, (ii) all user and operator manuals,
production and manufacturing procedures and techniques, (iii) all testing and
research data, including such that would be generated by quality control and
research and development, (iv) all pricing policies, business strategies and
operations, marketing plans and methods, management policies and procedures,
financial information, accounting records, training techniques and manuals, and
other business and financial records (including all information furnished by
such party pursuant to the Agreement), and (v) all information relating to such
party's clients, suppliers, employees, agents or representatives and the terms
of any agreement, arrangement or understanding to which such party or any of its
affiliates is a party. Notwithstanding the foregoing, Proprietary Information
does not include any information of a party which (a) is currently or
subsequently becomes part of the public domain through no fault of the other
party or any of its affiliates, (B) is independently developed or created by the
other party, (C) is disclosed to the other party by any Person who is not then
bound by a confidentiality obligation, or (D) is known by the other party at the
time of disclosure.
9
<PAGE>
(d) "Technology" means all computer software programs developed,
----------
being developed, and/or owned by a party or its affiliates and all
modifications, enhancements, improvements, updates and new releases thereof.
(e) "Trademarks" means all trademarks, trade names, service marks,
----------
service names and other similar or related rights and property owned or used by
a party or its affiliates and all derivations or modifications thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
ORBIT-ALCHUT TECHNOLOGIES, LTD. ORBIT/FR, INC.
By: /s/ Joseph Aviv By: /s/ Aryeh Trabelsi
--------------------------------- ----------------------------------
Name: Name:
Title: Chairman Title: President
ORBIT/FR ENGINEERING, LTD.
By: /s/ Moshe Pinkasy
---------------------------------
Name:
Title: Chief Executive Officer
10
<PAGE>
SCHEDULE 1.1(a)
---------------
ALCHUT'S ADMINISTRATIVE SERVICES
--------------------------------
1. Accounting, costing and budgeting support; accounts receivable, including
billing, processing and tracking; collection and application of receipts
including deposits to Engineering's bank account, accounts payable including
processing and payment of invoices, payroll; supply information for tax returns,
management reports, and financial statements; internal auditing services.
2. Management information systems, including provision of all required
computer systems, computer system backup, accounting systems, word processing
and management reports.
3. Other services and support, including office services, general
administration, facsimile, telephone, mail and common purchasing.
4. Production support, including, purchasing, inventory, drawing, packaging,
shipping, quality control, administration and monitoring of warehousing,
importing of product and parts, arranging for and monitoring transportation of
product (domestic and international).
5. Legal, directorship services and internal auditing services.
11
<PAGE>
SCHEDULE 1.2(a)
---------------
ALCHUT'S PRODUCTION SERVICES
----------------------------
Electrical and mechanical services.
12
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Registrant is the holding company for Orbit Advanced Technologies, Inc.,
a Delaware corporation and its wholly owned subsidiary, Flam & Russell, Inc.,
a Delaware corporation, and Orbit F.R. Engineering, Ltd., an Israeli
corporation.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 12, 1997, in the Registration Statement (Form S-1
No. 333-00000) and related Prospectus of ORBIT/FR, Inc. for the registration of
2,300,000 shares of its common stock.
/s/ Ernst & Young LLP
Philadelphia, PA
April 11, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and the use
of our report dated August 2, 1996 except as to Note P, which is as of March 14,
1997, in the Registration Statement (Form S-1 No. 333-00000) and related
prospectus of ORBIT/FR, Inc. for the registration of 2,300,000 shares of its
common stock.
/s/ Messina, Ceci, Archer
Stamford, CT & Company, P.C.
April 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ORBIT/FR, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 325,039
<SECURITIES> 0
<RECEIVABLES> 4,864,415
<ALLOWANCES> 0
<INVENTORY> 2,241,234
<CURRENT-ASSETS> 8,591,596
<PP&E> 1,535,524
<DEPRECIATION> 541,244
<TOTAL-ASSETS> 9,902,926
<CURRENT-LIABILITIES> 5,321,378
<BONDS> 2,722,000
0
0
<COMMON> 40,000
<OTHER-SE> 1,819,548
<TOTAL-LIABILITY-AND-EQUITY> 9,902,926
<SALES> 10,404,176
<TOTAL-REVENUES> 10,404,176
<CGS> 6,450,177
<TOTAL-COSTS> 6,450,177
<OTHER-EXPENSES> 2,686,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,062
<INCOME-PRETAX> 1,270,066
<INCOME-TAX> 439,000
<INCOME-CONTINUING> 1,270,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831,066
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
