<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1997
REGISTRATION NO. 333-25015
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ORBIT/FR, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 3825 23-2874370
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
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. [_]
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 MAY 19, 1997
PROSPECTUS
2,000,000 SHARES
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.
Upon completion of this offering, the principal stockholder of the Company will
beneficially own approximately 65.6% of the outstanding Common Stock of the
Company. See "Risk Factors -- Control by Principal Stockholder."
The Common Stock has been approved for listing on the Nasdaq National Market,
upon 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>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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>
[A DIAGRAM APPEARS HERE OF A PHOTO-COLLAGE SHOWING A GENERIC CELLULAR TELEPHONE
HANDSET, THE SPACE SHUTTLE, A SATELLITE MOUNTED ON A TESTING MAST, AND AN
AUTOMOBILE.]
[A DIAGRAM APPEARS HERE OF A 3-D REPRESENTATION OF A PLANET IN SPACE WITH AN
ORBITING BAND.]
[THE COMPANY'S LOGO APPEARS HERE.]
"Supplier of microwave test and measurement systems to companies in the
wireless communications, satellite, automotive and aerospace/defense
industries."
[A DIAGRAM APPEARS HERE OF A LARGE 3-D REPRESENTATION OF A PLANET IN SPACE WITH
TWO ORBITING BANDS.]
[A PHOTOGRAPH APPEARS HERE OF A LARGE POSITIONER MANUFACTURED BY THE COMPANY.]
[A PHOTOGRAPH APPEARS HERE OF A COMPACT RANGE MANUFACTURED BY THE COMPANY.]
[A PHOTOGRAPH APPEARS HERE OF A RADIAL POWER COMBINER MANUFACTURED BY THE
COMPANY.]
[A PHOTOGRAPH APPEARS HERE OF A TYPICAL TEST AND MEASUREMENT CONTROL ROOM WITH A
SMALL PHOTO OF A 3-D IMAGE GENERATED BY THE COMPANY'S SOFTWARE.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING".
[A PHOTOGRAPH APPEARS HERE OF A LARGE RADAR ANTENNA MANUFACTURED BY THE
COMPANY.]
[A PHOTOGRAPH APPEARS HERE OF A POSITIONING SYSTEM FOR RADOME TESTING
MANUFACTURED BY THE COMPANY.]
"Microwave test and measurement solutions for a wireless world."
"The Company does not manufacture cellular handsets or antennas, aircraft,
satellites or automobiles."
<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 52.
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 since January 1, 1994 have included 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 Aircraft, BMW and Boeing; and
telecommunications service providers that rely on microwave technology, such as
AT&T, NTT and Korea Mobile Telecom. The Company's customers also include the
United States government and several foreign governments. In 1996, none of the
Company's customers accounted for more than 5% of the Company's total revenues.
At March 31, 1997, the Company's backlog was approximately $8.5 million,
compared to approximately $3.6 million at March 31, 1996.
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.
3
<PAGE>
THE OFFERING
<TABLE>
<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.
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1996 1997 1997
------ ------ ------ ------ ------- -------- ------ ------ --------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
------------------------------------ -------- ------------- --------
(UNAUDITED)
<S> <C> <C> <C> <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 $1,533 $4,906 $5,839
Gross profit............ 1,050 1,794 1,906 2,853 3,954 5,482 445 1,765 2,170
Operating income
(loss)................. 228 703 (106) 756 1,267 1,698 41 953 1,158
Net income.............. 67 353 84 493 831 1,058 27 586 696
Net income per common
share.................. $ 0.02 $ 0.09 $ 0.02 $ 0.12 $ 0.21 $ 0.26 $ 0.01 $ 0.15 $ 0.17
Weighted average number
of common shares....... 4,000 4,000 4,000 4,000 4,000 4,081 4,000 4,000 4,081
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------------------------
PRO FORMA
AS
ACTUAL ACTUAL PRO FORMA(1) ADJUSTED(2)
----------------- ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital......... $3,270 $3,922 $3,740 $18,865
Total assets............ 9,903 9,936 11,446 26,571
Total long-term debt.... 2,722 2,722 3,007 3,007
Stockholders' equity.... 1,860 2,446 3,134 18,259
</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 the 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. All of the Company's
electro-mechanical production requirements, primarily in connection with the
production of positioners, are currently subcontracted to Alchut. The amounts
paid by the Company to Alchut for its subcontracted production during 1994,
1995 and 1996 were $1.5 million, $1.4 million and $1.5 million, which
represented 28%, 26% and 23% of the Company's cost of revenues, respectively.
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. Such conditions may create production delays or stoppages which could
adversely affect the Company's ability to conduct operations.
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
6
<PAGE>
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,
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 of employees and in the scope of its business. 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, strains on its management, administrative,
operating and financial resources, as well as increased demands on its
internal systems, procedures and controls. For example, as the Company further
expands, existing management will be required to supervise more wide-spread
and diversified operations and additional management personnel will have to be
hired and trained. The Company's ability to manage recent and future growth
will require the Company to devote additional management time to its financial
and management controls, reporting systems and procedures 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
revenues in 1996 were denominated in U.S. dollars, and the Company intends to
continue to enter into U.S. dollar-denominated contracts. 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. During the five quarters ended March
31, 1997, the Company's revenues were $1.5 million, $1.8 million, $2.8
million, $4.2 million and $4.9 million, respectively, and the Company's net
income was $27,000, $50,000, $193,000, $561,000 and $586,000, respectively.
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 -- Quarterly 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
7
<PAGE>
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
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 Mr. 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, except that Mr. Moshe
Pinkasy has an agreement that is 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 control the outcome of
all 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
8
<PAGE>
holders of the Company's Common Stock might otherwise receive a premium over
current market prices for their shares. See "Principal Stockholders."
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 $5.66 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."
9
<PAGE>
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 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
to the Company 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. At the time it was acquired by the
Company, Flam & Russell was one of the Company's direct competitors and
offered products that were both complementary to and competitive with the
Company's products.
On March 31, 1997, the Company entered into an agreement with Advanced
Electromagnetics, Inc., a California corporation ("AEMI"), and its
stockholders, 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 a maximum of $1.6 million, subject to a possible
downward 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. Founded in 1980, AEMI manufactures
anechoic foam, a microwave absorbing material that is used to line indoor test
chambers and that is an integral component of microwave test and measurement
systems. For the year ended December 31, 1996, AEMI had revenues of $3.2
million and a pre-tax profit of $544,000. As of and for the quarter ended
March 31, 1997, AEMI had revenues of $933,000, a pre-tax profit of $205,000,
assets of $1.2 million and net equity of $510,000. 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 March
31, 1997 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>
MARCH 31, 1997
---------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
---------- ---------- -----------
<S> <C> <C> <C>
Long-term debt............................ $2,722,000 $3,006,854 $ 3,006,854
---------- ---------- -----------
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....................... 1,955,457 1,955,457 1,955,457
---------- ---------- -----------
Total stockholders' equity............ 2,445,713 3,134,213 18,259,213
---------- ---------- -----------
Total capitalization.................. $5,167,713 $6,141,067 $21,266,067
========== ========== ===========
</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 the 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 March 31, 1997, the pro forma net tangible book value of the Company was
$2,117,775 or $0.52 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
March 31, 1997 would have been $17,242,775 or $2.84 per share of Common Stock.
This represents an immediate increase in pro forma net tangible book value of
$2.32 per share to the existing stockholders and an immediate dilution of pro
forma net tangible book value of $5.66 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....... $0.52
Increase in net tangible book value attributable to new
investors................................................... 2.32
-----
Pro forma net tangible book value after this offering.......... 2.84
-----
Dilution to new investors...................................... $5.66
=====
</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
balance sheet data as of March 31, 1997 and the statement of operations data
for the three months ended March 31, 1996 and 1997 are derived from unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of its operations for these periods. Operating results for the three
months ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1997. 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ ---------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Contract revenues...... $1,277 $1,852 $7,128 $7,957 $10,267 $ 1,520 $ 4,906
Commission revenues.... 592 1,151 43 342 137 13 --
------ ------ ------ ------ ------- ------- -------
Total revenues........ 1,869 3,003 7,171 8,299 10,404 1,533 4,906
Cost of revenues....... 819 1,209 5,265 5,446 6,450 1,088 3,141
------ ------ ------ ------ ------- ------- -------
Gross profit............ 1,050 1,794 1,906 2,853 3,954 445 1,765
General and
administrative
expenses............... 501 737 989 864 1,315 195 319
Sales and marketing
expenses............... 234 265 786 994 791 112 273
Research and development
expenses............... 87 89 237 239 581 97 220
------ ------ ------ ------ ------- ------- -------
Operating income
(loss)................. 228 703 (106) 756 1,267 41 953
Other income (expense).. -- 38 71 38 3 6 (23)
------ ------ ------ ------ ------- ------- -------
Income (loss) before
income taxes........... 228 741 ( 35) 794 1,270 47 930
Income tax expense
(benefit).............. 161 388 (119) 301 439 20 344
------ ------ ------ ------ ------- ------- -------
Net income.............. $ 67 $ 353 $ 84 $ 493 $ 831 $ 27 $ 586
====== ====== ====== ====== ======= ======= =======
Net income per common
share.................. $ 0.02 $ 0.09 $ 0.02 $ 0.12 $ 0.21 $ 0.01 $ 0.15
====== ====== ====== ====== ======= ======= =======
Weighted average number
of common shares....... 4,000 4,000 4,000 4,000 4,000 4,000 4,000
====== ====== ====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ---------
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................... $ 357 $ 768 $3,300 $3,875 $3,270 $3,922
Total assets...................... 3,843 2,758 7,674 6,799 9,903 9,936
Total long-term debt.............. 380 164 3,129 3,220 2,722 2,722
Stockholder's equity.............. 98 451 535 1,028 1,860 2,446
</TABLE>
14
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA DATA
The following Unaudited Pro Forma Balance Sheets at March 31, 1997 and the
following Unaudited Pro Forma Statements of Operations for the three months
ended March 31, 1997 give effect to the acquisition of AEMI as if it occurred
on January 1, 1997. AEMI's fiscal year end is March 31. The results of AEMI's
operations for the twelve months ended December 31, 1996 have been compiled
and presented on a calendar year basis. The following Unaudited Pro Forma
Statements of Operations for the year ended December 31, 1996 give effect to
the acquisitions of Flam & Russell and AEMI as if they occurred on January 1,
1996. See "Notes to Unaudited Consolidated Pro Forma Data."
The Unaudited Consolidated Pro Forma Data should be read in conjunction with
"Use of Proceeds," "Capitalization," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" appearing elsewhere herein.
The Unaudited Consolidated Pro Forma Data do not purport to represent what the
Company's actual results of operations or financial position would have been
had such transactions in fact occurred on such dates. The Pro Forma Statements
of Operations for the three months ended March 31, 1997 also do not purport to
project the results of operations of the Company for 1997 or for any other
period.
15
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA DATA
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEETS
MARCH 31, 1997
<TABLE>
<CAPTION>
ADVANCED
ORBIT/FR, ELECTROMAGNETICS
INC. INC. ADJUSTMENTS PRO FORMA
---------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................. $ 801,141 $ 47,198 $(688,500)(1) $ 159,839
Accounts receivable... 3,957,651 752,629 4,710,280
Inventory............. 2,270,970 242,658 2,513,628
Costs and estimated
earnings in excess of
billings on
uncompleted
contracts............ 809,518 809,518
Deferred income
taxes................ 388,000 388,000
Other................. 463,293 463,293
---------- ---------- --------- -----------
Total current
assets............. 8,690,573 1,042,485 (688,500) 9,044,558
---------- ---------- --------- -----------
Property and equipment,
net.................... 946,431 188,412 250,000 (1) 1,384,843
Purchased software,
net.................... 299,437 299,437
Goodwill................ 717,001 (1) 717,001
---------- ---------- --------- -----------
Total assets........ $9,936,441 $1,230,897 $ 278,501 $11,445,839
========== ========== ========= ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable...... $1,033,490 $ 398,006 $ $ 1,431,496
Accounts payable--
Alchut............... 379,000 379,000
Accrued expenses...... 1,464,995 10,110 1,475,105
Income taxes payable.. 373,676 21,428 395,104
Customer advances..... 440,000 6,500 446,500
Billings in excess of
costs and estimated
earnings on
uncompleted
contacts............. 420,067 420,067
Deferred income
taxes................ 657,500 100,000 (1) 757,500
---------- ---------- --------- -----------
Total current
liabilities........ 4,768,728 436,044 100,000 5,304,772
Notes payable to
Alchut............... 2,722,000 2,722,000
Notes payable to
officer.............. 284,854 284,854
---------- ---------- --------- -----------
Total liabilities... 7,490,728 720,898 100,000 8,311,626
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..... 1,955,457 54,883 (54,883)(1) 1,955,457
---------- ---------- --------- -----------
Total stockholders'
equity............. 2,445,713 509,999 178,501 3,134,213
---------- ---------- --------- -----------
Total liabilities
and stockholders'
equity............. $9,936,441 $1,230,897 $ 278,501 $11,445,839
========== ========== ========= ===========
</TABLE>
See notes to Unaudited Consolidated Pro Forma Data.
16
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA DATA
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
ADVANCED
ORBIT/FR, ELECTROMAGNETICS,
INC. INC. ADJUSTMENTS PRO FORMA
---------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Contract revenues....... $4,906,430 $932,601 $ $5,839,031
Cost of revenues........ 3,141,168 515,037 12,500 (2) 3,668,705
---------- -------- -------- ----------
Gross profit............ 1,765,262 417,564 (12,500) 2,170,326
Operating expenses:
General and adminis-
trative.............. 319,193 99,436 8,963 (3) 427,592
Sales and marketing... 273,362 92,273 365,635
Research and develop-
ment................. 219,390 219,390
---------- -------- -------- ----------
Total operating ex-
penses............. 811,945 191,709 8,963 1,012,617
---------- -------- -------- ----------
Operating income........ 953,317 225,855 (21,463) 1,157,709
Other income (expense):
Interest income....... 9,519 1,174 10,693
Interest expense...... (1,817) (8,300) (10,117)
Other................. (30,854) (14,000) (44,854)
---------- -------- -------- ----------
Total other income
(expense).......... (23,152) (21,126) (44,278)
---------- -------- -------- ----------
Income before income
taxes.................. 930,165 204,729 (21,463) 1,113,431
Income tax expense...... 344,000 21,425 51,881 (4) 417,306
---------- -------- -------- ----------
Net income.............. $ 586,165 $183,304 $(73,344) $ 696,125
========== ======== ======== ==========
</TABLE>
See notes to Unaudited Consolidated Pro Forma Data.
17
<PAGE>
UNAUDITED CONSOLIDATED PRO FORMA DATA
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
YEAR ENDED 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 50,000 (2) 11,529,291
40,172 (5)
----------- ---------- ---------- --------- -----------
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 45,015 (3) 2,023,067
4,600 (5)
35,228 (6)
(53,466) (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 (8) (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 (4) 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.
18
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA DATA
Consolidated Pro Forma Balance Sheets -- March 31, 1997
(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 March 31, 1997). The purchase is assumed to be paid
one-half in shares of Common Stock at the Offering Price and one-half in cash.
The difference between the assumed purchase price and the net assets of AEMI
as of March 31, 1997 is preliminarily allocated to property and equipment for
$250,000, related deferred income tax liabilities for $100,000 and goodwill
for $717,001.
Consolidated Pro Forma Statements of Operations -- Three Months Ended March
31, 1997 and Year Ended December 31, 1996
(2) To record additional depreciation as calculated on the fair values of
property and equipment acquired from AEMI over a five-year life.
(3) To record amortization of goodwill resulting from the AEMI acquisition
over a 20-year life.
(4) To reflect, at 40%, the income tax effect of the pro forma columns and
adjustments.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
19
<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 March 31, 1997, the Company had a backlog of approximately $8.5 million,
compared to a backlog of approximately $3.6 million at March 31, 1996. The
Company's backlog includes only those orders for which it has received and
accepted a completed purchase order. The backlog at March 31, 1997 is expected
to be delivered in 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
20
<PAGE>
enable the Company to update and expand upon its existing product line. During
the years ended December 31, 1996, 1995 and 1994, 47.2%, 66.8% and 66.5%,
respectively, of the Company's total research and development expenses are
included in the cost of revenues.
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 a maximum of $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>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ------------
1994 1995 1996 1996 1997
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 73.4 65.6 62.0 71.0 64.0
------- ------- ------- ----- -----
Gross profit.......................... 26.6 34.4 38.0 29.0 36.0
General and administrative expenses... 13.8 10.4 12.6 12.7 6.5
Sales and marketing expenses.......... 11.0 12.0 7.6 7.3 5.6
Research and development expenses..... 3.3 2.9 5.6 6.3 4.5
------- ------- ------- ----- -----
Operating income (loss)............... (1.5) 9.1 12.2 2.7 19.4
Other income (loss)................... 1.0 0.5 -- 0.4 (0.5)
------- ------- ------- ----- -----
Income (loss) before income taxes..... (0.5) 9.6 12.2 3.1 18.9
Income tax (benefit) expense.......... (1.7) 3.6 4.2 1.3 7.0
------- ------- ------- ----- -----
Net income............................ 1.2% 6.0% 8.0% 1.8% 11.9%
======= ======= ======= ===== =====
</TABLE>
21
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
Revenues. Revenues for the three months ended March 31, 1997 were $4.9
million compared to $1.5 million for the three months ended March 31, 1996, an
increase of approximately $3.4 million or 226.7%. Revenues from microwave test
and measurement accounted for virtually all of the increase. Approximately
$2.0 million of the increase was attributable to the aerospace/defense
industry, which resulted from an improvement in the Company's ability to
capture opportunities within that industry following the acquisition of Flam &
Russell and strong growth in the industry's domestic commercial sector.
Approximately $900,000 of the increase was attributable to the wireless
communications industry and the remaining $500,000 of the increase was
attributable to the satellite industry.
Cost of revenues. Cost of revenues for the three months ended March 31, 1997
were $3.1 million compared to $1.1 million for the three months ended March
31, 1996, an increase of approximately $2.0 million or 181.8%. Gross margins
rose from 29.0% for the three months ended March 31, 1996 to 36.0% for the
three months ended March 31, 1997, as a result of improved efficiencies in the
proposal, production and delivery stages of providing turnkey systems and the
implementation of the Company's strategy to sell standard systems and
proprietary off-the-shelf products, which generate higher margins. Cost of
revenues and gross margin for the three months ended March 31, 1997 were
negatively impacted by the completion of a $540,000 revenue contract with a
relatively low gross margin which the Company assumed when it acquired Flam &
Russell.
General and administrative expenses. General and administrative expenses for
the three months ended March 31, 1997 were $319,000 compared to $195,000 for
the three months ended March 31, 1996, an increase of approximately $124,000
or 63.6%. As a percentage of revenues, general and administrative expenses
decreased from 12.7% for the three months ended March 31, 1996 to 6.5% for the
three months ended March 31, 1997 due to an increase in revenues without a
corresponding increase in general and administrative expenses.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended March 31, 1997 were $273,000 compared to $112,000 for the three
months ended March 31, 1996, an increase of approximately $161,000 or 143.8%.
As a percentage of revenues, sales and marketing expenses were 5.6% for the
three months ended March 31, 1997, a decrease from 7.3% for the three months
ended March 31, 1996. Approximately $65,000 of this increase represents higher
commissions due to increased sales, approximately $64,000 reflects the
addition of the Flam & Russell sales force and approximately $30,000 is
attributable to market research efforts.
Research and development expenses. Research and development expenses for the
three months ended March 31, 1997 were $220,000 compared to $97,000 for the
three months ended March 31, 1996, an increase of $123,000 or 126.8%. This
increase reflects the additional development relating to the modification of
the Flam & Russell software to support the Company's hardware products and the
development required to support the needs of the Company's test and
measurement systems for the "smart" automobile and wireless communications
industries.
Income taxes. Income tax expense for the three months ended March 31, 1997
was $344,000 compared to $20,000 for the three months ended March 31, 1996, an
increase of $324,000. The Company's effective tax rate decreased from 42.6%
for the three months ended March 31, 1996 to 37.0% for the three months ended
March 31, 1997 as a result of the implementation of new domestic tax
strategies designed to reduce its effective tax rate.
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
22
<PAGE>
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 of approximately $1.0 million
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 $436,000 or 50.5%. As a percentage of revenues, general and
administrative expenses were 12.6% in 1996 and 10.4% in 1995. Approximately
$196,000 of this increase was the result of the expansion and centralization
of the administrative and finance functions related to the growth of the
Company. Approximately $162,000 of this increase was due to the acquisition of
Flam & Russell in June 1996, which included certain transition costs and
temporary redundancies, and approximately $82,000 of the increase was
attributable to 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. Approximately $290,000 of this decrease was the result
of the Company's decision during 1996 to consolidate its sales and marketing
operations at the Company's headquarters in Horsham, Pennsylvania, in addition
to lower commissions negotiated with some of the Company's independent sales
representatives in the Far East. This decrease was partially offset by an
increase in the Company's direct sales force and marketing personnel resulting
from the acquisition of Flam & Russell and a decision to expand the Company's
direct sales force in the United States which together increased sales and
marketing expenses by $115,000.
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
143.1%. The increase reflected the additional research and development
relating to the modification of the Flam & Russell software to support the
Company's hardware products, 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 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 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 the completion of a $2.5 million project in the satellite industry
23
<PAGE>
in 1994 and 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 2.0%. 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 an improvement in the Company's
ability to forecast and manage the costs associated with fixed-price contracts
for turnkey systems, an on-going effort to develop and build proprietary off-
the-shelf products and increased sales of approximately $1.3 million to
customers in the Far East where 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,
thereby decreasing general and administrative expenses by approximately
$100,000. 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.
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly results in dollar amounts
and as a percentage of total revenues for each quarter during 1996 and for the
first quarter of 1997. The information has been prepared on a basis consistent
with the Company's annual consolidated financial statements and, in the
opinion of management, includes all adjustments, consisting only of
adjustments of a normal and recurring nature, which, in the opinion of
management, are necessary for a fair presentation of the information for such
periods. 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. See "Risk Factors--Potential Fluctuations in Quarterly
Results."
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues.................. $1,533 $1,803 $2,821 $4,247 $4,906
Cost of revenues................ 1,088 1,131 1,697 2,534 3,141
------ ------ ------ ------ ------
Gross profit.................... 445 672 1,124 1,713 1,765
General and administrative ex-
penses ........................ 195 256 412 452 319
Sales and marketing expenses ... 112 188 263 228 273
Research and development ex-
penses ........................ 97 149 155 180 220
------ ------ ------ ------ ------
Operating income................ 41 79 294 853 953
Other income (expense).......... 6 (3) -- -- (23)
------ ------ ------ ------ ------
Income before income taxes...... 47 76 294 853 930
Income tax expense.............. 20 26 101 292 344
------ ------ ------ ------ ------
Net income...................... $ 27 $ 50 $ 193 $ 561 $ 586
====== ====== ====== ====== ======
Net income per common share..... $ 0.01 $ 0.01 $ 0.05 $ 0.14 $ 0.15
====== ====== ====== ====== ======
Weighted average number of com-
mon shares..................... 4,000 4,000 4,000 4,000 4,000
====== ====== ====== ====== ======
<CAPTION>
QUARTER ENDED
---------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................ 71.0 62.7 60.2 59.7 64.0
------ ------ ------ ------ ------
Gross profit.................... 29.0 37.3 39.8 40.3 36.0
General and administrative ex-
penses......................... 12.7 14.2 14.6 10.6 6.5
Sales and marketing expenses.... 7.3 10.4 9.3 5.4 5.6
Research and development ex-
penses......................... 6.3 8.3 5.5 4.2 4.5
------ ------ ------ ------ ------
Operating income................ 2.7 4.4 10.4 20.1 19.4
Other income (expense).......... 0.4 (0.2) -- -- (0.5)
------ ------ ------ ------ ------
Income before income taxes...... 3.1 4.2 10.4 20.1 18.9
Income tax expense.............. 1.3 1.4 3.6 6.9 7.0
------ ------ ------ ------ ------
Net income...................... 1.8% 2.8% 6.8% 13.2% 11.9%
====== ====== ====== ====== ======
</TABLE>
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 $1,150,000. At March 31, 1997, no amounts
under these lines were outstanding. These lines of credit are renewable
annually in April, have been extended by the bank through July 31, 1997 and
bear interest at rates ranging from 0.5% to 1.5% over the bank's prime rate.
Both lines of credit are secured by accounts receivable, and one line of
credit requires a compensating cash balance of 50% of the outstanding amount
of the line. 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 March 31, 1997, 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 the end
of 1996.
Net cash provided by (used in) operating activities in 1994, 1995 and 1996
amounted to ($1.8 million), ($290,000) and $1.1 million, respectively. The
increase in cash provided by operating activities in 1996
25
<PAGE>
compared to 1995 and 1994 was principally due to the increase in net income to
$831,000 in 1996 from $493,000 and $84,000 in 1995 and 1994, respectively, the
reduction in inventory levels from $2.6 million in 1994 to $2.5 million in
1995 and $2.2 million in 1996 and changes in accounts payable to Alchut in all
periods.
Net cash used in investing activities increased by $794,000 in 1996 compared
to 1995. This increase was principally due to the purchase of property and
equipment of $349,000 in 1996 versus $129,000 in 1995 and the net cash paid
during 1996 for the purchase of Flam & Russell amounting to $573,000.
Net cash provided by (used in) financing activities in 1994, 1995 and 1996
amounted to $3.0 million, $91,000 and ($648,000), respectively. These changes
were principally due to net repayments on the Company's line of credit
agreements amounting to $150,000 in 1996 and fluctuations in the proceeds from
the note payable to Alchut in 1994 and 1995 in the amounts of $3.0 million and
$91,000, respectively, and a net repayment of $498,000 of the note payable to
Alchut in 1996.
During 1996, the Company spent or incurred an obligation for approximately
$1.0 million for the Flam & Russell acquisition, which was paid in its
entirety during May 1997. During 1997, the Company plans to spend up to a
maximum of $1.6 million on the AEMI acquisition, $800,000 of which will be
payable in cash, 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 three months ended March 31, 1997, approximately 3% 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 except for
wages for Engineering employees which are denominated in local currency. The
Company intends to continue to enter into U.S. dollar-denominated contracts.
INFLATION AND SEASONALITY
The Company does not believe that inflation or seasonality has had a
significant effect on the Company's operations to date.
26
<PAGE>
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 since January 1, 1994 have included 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 Aircraft, BMW and Boeing; and
telecommunications service providers that rely on microwave technology, such
as AT&T, NTT and Korea Mobile Telecom. The Company's customers also include
the United States government and several foreign governments. In 1996, none of
the Company's customers accounted for more than 5% of the Company's total
revenues. At March 31, 1997, the Company's backlog was approximately $8.5
million, compared to approximately $3.6 million at March 31, 1996.
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
27
<PAGE>
procedures, it is not uncommon for a manufacturer or service provider to own
and operate more than one microwave test and measurement system.
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, between 486 and 555 communications satellites are expected to be
manufactured 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
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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.
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. A turnkey system is one that has been assembled, integrated and
tested as a fully-operational system prior to a customer's use. 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
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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.
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. Approximately 92% of the Company's revenues in 1996 were denominated in
U.S. dollars, and the Company intends to continue to enter into U.S. dollar-
denominated contracts.
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.
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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 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 APPEARS HERE OF AN AUTOMATED MICROWAVE TEST AND MEASUREMENT SYSTEM,
WHICH INCLUDES A PERSONAL COMPUTER, A MICROWAVE RECEIVER, A SIGNAL SOURCE, A
POWER CONTROL UNIT, A PROBE AND A DEVICE UNDER TEST.]
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
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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 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. Additionally, the Company is investigating the use of an
outdoor mobile testing system for cellular/PCS base stations.
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
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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.
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,
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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 25 feet x 80 feet.
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.
Microwave absorber. Following the acquisition of AEMI contemporaneously with
this offering, the Company will add microwave absorber material to its product
line. This material consists of specially-treated
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polyurethane foam which absorbs electromagnetic waves and is an important
component of most microwave test and measurement systems.
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 distributors and representatives for sales, marketing and customer support
in Austria, 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.
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 revenues. In
1996, none of the Company's customers accounted for more than 5% of the
Company's total revenues. Representative customers that have purchased
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systems from the Company and its predecessor, either directly or through its
sales representatives and distributors, in an amount of at least $25,000 since
January 1, 1994, include:
Wireless Communications....
Andrew, AT&T, Bosch Telecom, Celwave, Ericsson,
GTE, Korea Mobile Telecom, Lucent Technologies,
Motorola, NEC, Nokia, Northern Telecom, NTT,
Qualcomm, Siemens Plessey, Sierra Com, Telebras
and Toshiba.
Satellite..................
Canadian Space Agency, DASA, Harris, Hughes Space
and Communications, Lockheed Martin, Space
Systems/Loral, Matra Marconi, Raytheon and TRW.
Automotive.................
BMW, FUBA, Honda, SAAB and Samsung.
Aerospace/Defense..........
Ball, Boeing, British Aerospace, General
Electric, Hughes Aircraft, Israel Aircraft
Industry, ITT Avionics, Lockheed Martin/Loral,
McDonnell Douglas, Mitsubishi Heavy Industries,
NASA, Northrop-Grumman, Pratt & Whitney, Raytheon
E-Systems, Rockwell International, SAAB Military
Aircraft, 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 March 31, 1996 and 1997, the Company's backlog was approximately $3.6
million and $8.5 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
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.
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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, and
approximately $20,000 and $127,000, respectively, for the three months ended
March 31, 1996 and 1997. In addition, the Company invested $237,000, $239,000
and $581,000 during 1994, 1995 and 1996, respectively, and approximately
$97,000 and $219,000 for the three months ended March 31, 1996 and 1997,
respectively, 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.
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
37
<PAGE>
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.
38
<PAGE>
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 Vice President, Near-Field Strategic Business Unit
John Aubin........ 43 Vice President, Far Field/RCS Strategic Business Unit
Sean Mallon....... 30 Vice President, Business Development
Zeev Stein........ 45 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.
39
<PAGE>
David Farina has served as the Vice President of the Near-Field Strategic
Business Unit of the Company since May 1997. From August 1995 to May 1997, Mr.
Farina served as the Director of such Unit for the Company and its
predecessor. 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 Vice President of the Far Field/RCS Strategic
Business Unit of the Company since May 1997. From June 1996 to May 1997, Mr.
Aubin served as the Director of such Unit for the Company and its predecessor.
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 Vice President of Business Development of the
Company since May 1997. From November 1996 to May 1997, Mr. Mallon served as
the Director of Business Development for the Company and its predecessor. 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., a manufacturer of costume jewelry 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 Bylaws provide 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.
The Company has identified three additional independent directors who will
be appointed to the Board promptly after the completion of this offering. The
Company intends to grant each independent director upon his appointment to the
Board an option to purchase 30,000 shares of Common Stock at an exercise price
of not less than the fair market value per share of the Common Stock on the
date of grant, which option will vest in five equal annual installments
beginning 12 months after the date of grant.
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.
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 in four equal annual installments beginning 24 months after the
completion of this offering.
BOARD COMMITTEES
The Board of Directors plans to establish an Audit Committee in May 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 May 1997 to set compensation and bonuses for management. The
Company's Audit Committee and Compensation Committee each will be composed of
at least three directors, a majority of which will be independent directors.
40
<PAGE>
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.
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.
Mr. Aviv divides his time between Alchut and each of its subsidiaries,
including the Company. In addition to his compensation from Alchut, since
November 1, 1996, Mr. Aviv has been compensated for the portion of his time
spent on matters involving the Company. During the year ended December 31,
1996, Mr. Aviv received compensation of $14,000 for such services. Mr. Aviv
will receive compensation of $84,000 for services to be rendered to the
Company in 1997.
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 will
vest in four equal annual installments 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
41
<PAGE>
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 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. 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.
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
42
<PAGE>
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.
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.
43
<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
through Alchut's divisions or 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 and for the
three months ended March 31, 1996 and 1997, the Company's commission revenues
were approximately $43,000, $342,000, $137,000 and $13,000 and $0,
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 and for the three months ended March 31, 1996
and 1997 are approximately $1,492,000, $1,423,000, $1,496,000 and $298,000 and
$323,000, respectively, relating to the production services provided by Alchut.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 19, 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. The
following table 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.
<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.
45
<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, dividend,
conversion, redemption and liquidation rights which could adversely affect the
rights 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
46
<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.
47
<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.
48
<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
49
<PAGE>
of this Prospectus. In addition, the Company has agreed not to sell, issue,
contract to sell, offer to sell or 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 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
50
<PAGE>
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.
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 Citicorp 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 herein represent summaries of such
contents. As a result, such summaries 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.
51
<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
52
<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.
53
<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 and as of
March 31, 1997 (Unaudited).............................................. F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995, and 1996 and for the three months ended March 31, 1996 and
1997 (Unaudited)........................................................ F-4
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1994, 1995 and 1996 and for the three months ended March
31, 1997 (Unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the three months ended March 31, 1996 and
1997 (Unaudited)........................................................ 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, MARCH 31,
---------------------- -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 775,732 $ 325,039 $ 801,141
Accounts receivable........................ 2,053,907 4,864,415 3,957,651
Inventory.................................. 2,503,212 2,241,234 2,270,970
Costs and estimated earnings in excess of
billings on uncompleted contracts......... 846,865 573,345 809,518
Deferred income taxes...................... 112,000 381,500 388,000
Other...................................... 134,348 206,063 463,293
---------- ---------- ----------
Total current assets..................... 6,426,064 8,591,596 8,690,573
Property and equipment, net................. 373,355 994,280 946,431
Purchased software, less accumulated
amortization of $35,228 at December 31,
1996 and $52,841 at March 31, 1997......... -- 317,050 299,437
---------- ---------- ----------
Total assets................................ $6,799,419 $9,902,926 $9,936,441
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................... $ 394,502 $ 671,051 $1,033,490
Accounts payable -- Parent................. 183,610 1,051,683 379,000
Accrued expenses........................... 584,195 1,551,813 1,464,995
Income taxes payable....................... 109,253 72,667 373,676
Customer advances.......................... 195,000 359,000 440,000
Billings in excess of costs and estimated
earnings on uncompleted contracts......... 717,377 931,664 420,067
Deferred income taxes...................... 367,000 683,500 657,500
---------- ---------- ----------
Total current liabilities................ 2,550,937 5,321,378 4,768,728
Note payable to Parent...................... 3,220,000 2,722,000 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 40,000
Additional paid-in capital................. (29,744) 450,256 450,256
Retained earnings.......................... 968,226 1,369,292 1,955,457
Parent's equity in division................ 50,000 -- --
---------- ---------- ----------
Total stockholder's equity............... 1,028,482 1,859,548 2,445,713
---------- ---------- ----------
Total liabilities and stockholder's
equity.................................. $6,799,419 $9,902,926 $9,936,441
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues...... $7,127,810 $7,957,033 $10,267,319 $1,520,373 $4,906,430
Commission revenues.... 43,098 341,896 136,857 12,512 --
---------- ---------- ----------- ---------- ----------
Total revenues....... 7,170,908 8,298,929 10,404,176 1,532,885 4,906,430
Cost of revenues....... 5,265,002 5,445,607 6,450,177 1,088,273 3,141,168
---------- ---------- ----------- ---------- ----------
Gross profit............ 1,905,906 2,853,322 3,953,999 444,612 1,765,262
Operating expenses:
General and
administrative........ 988,605 864,023 1,314,684 195,363 319,193
Sales and marketing.... 785,851 994,010 790,573 111,497 273,362
Research and
development........... 237,456 239,370 581,266 97,000 219,390
---------- ---------- ----------- ---------- ----------
Total operating
expenses............ 2,011,912 2,097,403 2,686,523 403,860 811,945
---------- ---------- ----------- ---------- ----------
Operating income
(loss)................. (106,006) 755,919 1,267,476 40,752 953,317
Other income (expense):
Interest income........ 37,349 36,826 23,024 5,666 9,519
Interest expense....... -- -- (19,062) -- (1,817)
Other.................. 33,745 1,518 (1,372) 224 (30,854)
---------- ---------- ----------- ---------- ----------
Total other income
(expense)........... 71,094 38,344 2,590 5,890 (23,152)
---------- ---------- ----------- ---------- ----------
Income (loss) before
income taxes........... (34,912) 794,263 1,270,066 46,642 930,165
Income tax (benefit)
expense................ (119,000) 301,000 439,000 19,688 344,000
---------- ---------- ----------- ---------- ----------
Net income.............. $ 84,088 $ 493,263 $ 831,066 $ 26,954 $ 586,165
========== ========== =========== ========== ==========
Net income per common
share.................. $ 0.02 $ 0.12 $ 0.21 $ 0.01 $ 0.15
========== ========== =========== ========== ==========
Weighted average number
of common shares....... 4,000,000 4,000,000 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
Net income
(Unaudited)........... -- -- -- 586,165 -- 586,165
--------- ------- -------- ---------- --------- ----------
Balance, March 31, 1997
(Unaudited)............ 4,000,000 $40,000 $450,256 $1,955,457 $ -- $2,445,713
========= ======= ======== ========== ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- --------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 84,088 $ 493,263 $ 831,066 $ 26,954 $ 586,165
Adjustments to
reconcile net income
to net cash (used in)
provided by operating
activities:
Depreciation.......... 107,965 119,716 179,985 32,833 77,701
Amortization.......... -- -- 35,228 -- 17,613
Deferred income tax
(benefit) provision.. (367,000) 216,000 210,000 9,450 (12,000)
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) 657,965 906,764
Inventory............ (2,344,738) 55,586 627,001 169,365 (29,736)
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (579,053) (11,809) 420,674 79,283 (236,173)
Other assets......... (37,475) (26,356) (56,917) (29,026) (257,230)
Accounts payable and
accrued expenses.... 713,796 29,874 205,138 (122,720) 275,621
Accounts payable --
Parent............. 1,543,504 (1,730,175) 868,073 176,089 (672,683)
Income taxes
payable............. 127,361 (113,375) (64,259) 10,238 280,509
Customer advances.... -- 195,000 164,000 63,845 81,000
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... 365,550 144,664 21,122 (295,653) (511,597)
----------- ----------- ----------- --------- ---------
Net cash (used in)
provided by
operating
activities......... (1,801,202) (289,653) 1,119,387 778,623 505,954
Cash flows from
investing activities:
Purchase of property
and equipment......... (408,147) (128,352) (348,910) (53,000) (29,852)
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) (53,000) (29,852)
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) (866,000) --
----------- ----------- ----------- --------- ---------
Net cash provided by
(used in) financing
activities......... 2,965,000 91,000 (648,000) (866,000) --
----------- ----------- ----------- --------- ---------
Net increase (decrease)
in cash................ 755,651 (327,005) (450,693) (140,377) 476,102
Cash at beginning of
period................. 347,086 1,102,737 775,732 775,732 325,039
----------- ----------- ----------- --------- ---------
Cash at end of period... $ 1,102,737 $ 775,732 $ 325,039 $ 635,355 $ 801,141
=========== =========== =========== ========= =========
Supplemental disclosures
of cash flow
information
Cash paid during the
period for income
taxes................. $ 107,374 $ 309,353 $ 75,033 $ 62,131 $ 63,415
=========== =========== =========== ========= =========
Cash paid during the
period for interest... $ -- $ -- $ 16,238 $ -- $ 637
=========== =========== =========== ========= =========
</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 Asia, Europe, Israel and North and South America (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.
Interim Financial Information
The consolidated financial statements and disclosures included herein for
the three months ended March 31, 1996 and 1997 are unaudited. These financial
statements and disclosures have been prepared by the Company in accordance
with generally accepted accounting principles and include all adjustments,
consisting of adjustments of a normal and recurring nature, which in the
opinion of management, are necessary for a fair presentation of the Company's
financial position and the results of its operations and cash flows for these
periods.
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.
F-7
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, and $20,000 and
$127,000 for the three months ended March 31, 1996 and 1997, 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 and March 31, 1997,
irrevocable letters of credit were posted for three and six of the Company's
foreign customers, respectively.
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.
F-8
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 and for the three months ended March 31, 1997,
approximately 8% and 3%, respectively, of the Company's revenues were 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, except for wages of Engineering
which are denominated in local currency.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted on December 31,
1997. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
No. 128 on the calculation of the Company's primary and fully diluted earnings
per share is not expected to be material.
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 123 provides companies with a choice to follow the
provision of SFAS 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 123. SFAS 123 did not have
an impact on the Company's financial condition or results of operations.
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, Disclosures About
Fair Value of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties. Cash, accounts receivable, other
current assets, accounts payable and accrued expenses reported in the
consolidated balance sheets equal or approximate fair value due to their short
maturities. Based on the borrowing rates currently available to the Company,
the fair value of the Company's long-term debt is approximately $3 million.
F-9
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- -----------
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Work-in-process..................... $1,600,000 $1,211,000 $1,164,320
Parts and components................ 903,212 1,030,234 1,106,650
---------- ---------- ----------
$2,503,212 $2,241,234 $2,270,970
========== ========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -----------
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment.......................... $364,812 $ 656,432 $ 694,284
Lab and computer equipment................ 188,367 667,430 667,430
Transportation equipment.................. 111,359 163,161 155,161
Furniture and fixtures.................... 57,161 44,359 44,359
Leasehold improvements.................... 12,915 4,142 4,142
-------- ---------- ---------
734,614 1,535,524 1,565,376
Less accumulated depreciation............. 361,259 541,244 618,945
-------- ---------- ---------
Property and equipment, net............... $373,355 $ 994,280 $ 946,431
======== ========== =========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -----------
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation.................... $371,330 $ 435,930 $ 456,115
Accrued contract costs.................. 41,676 413,430 462,822
Purchase price payable relating to Flam
& Russell, Inc. ....................... -- 275,000 275,000
Accrued commissions..................... -- 92,128 --
Accrued royalties....................... 21,072 87,185 85,585
Accrued warranty........................ 15,000 81,000 81,000
Other accrued expenses.................. 135,117 167,140 104,473
-------- ---------- ----------
$584,195 $1,551,813 $1,464,995
======== ========== ==========
</TABLE>
F-10
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1996 and for the three months ended March 31, 1996 and 1997, are approximately
$1,492,000, $1,423,000, $1,496,000, and $298,000 and $323,000, respectively,
relating to the production services provided by the Parent. 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 no amounts
were outstanding 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. During May 1997, the $500,000 letter of
credit was terminated in connection with the final payment of the Flam &
Russell purchase price (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.
The terms of these line of credit agreements have been extended by the bank
through July 31, 1997.
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 and for the three
months ended March 31, 1996 and 1997 was approximately $10,500 and $55,000
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.
F-11
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CERTAIN CONCENTRATIONS
The Company's contract revenues were concentrated in the following markets as
follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States
Commercial............................ 55% 20% 37% 18% 48%
Government............................ 10 12 11 6 14
--- --- --- ------- -------
65 32 48 24 62
Foreign
Commercial............................ 24 58 45 66 33
Government............................ 11 10 7 10 5
--- --- --- ------- -------
35 68 52 76 38
--- --- --- ------- -------
100% 100% 100% 100% 100%
=== === === ======= =======
</TABLE>
The Company's foreign contract revenues were concentrated in the following
geographic regions as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Asia.................................... 22% 36% 24% 61% 22%
Europe.................................. 9 25 18 8 13
Israel.................................. 4 7 4 7 3
Americas................................ -- -- 6 -- --
--- --- --- ------- -------
35% 68% 52% 76% 38%
=== === === ======= =======
</TABLE>
Included in the consolidated balance sheets at December 31, 1995 and 1996 and
at March 31, 1997 are net assets of the Company's foreign subsidiary,
Engineering, which aggregated $50,000, $480,000 and $641,000, respectively.
Sales to one customer exceeded 10% of total revenues during each of the years
ended December 31, 1994 and 1995. There were no sales to any customer exceeding
10% of total revenues during the year ended December 31, 1996.
9. INCOME TAXES
Pretax income (loss) from continuing operations was taxed in the following
jurisdictions:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- -----------------
1994 1995 1996 1996 1997
--------- --------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Domestic..................... $(356,912) $ 990,263 $ 678,066 $(1,358) $678,165
Foreign...................... 322,000 (196,000) 592,000 48,000 252,000
--------- --------- ---------- ------- --------
$ (34,912) $ 794,263 $1,270,066 $46,642 $930,165
========= ========= ========== ======= ========
</TABLE>
F-12
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES (CONTINUED)
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, MARCH 31,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Operating loss and credit
carryforwards...................... $ -- $ 313,600 $ 297,000
Allowance for losses on contracts... 60,000 8,100 --
Accrued compensation................ 45,000 53,700 85,000
Other............................... 7,000 6,100 6,000
--------- --------- ---------
Total deferred tax assets........... 112,000 381,500 388,000
--------- --------- ---------
Deferred tax liabilities:
Accounting for long-term contracts.. (352,000) (393,500) (393,500)
Prepaid and other................... (15,000) (55,000) (39,000)
Purchase accounting basis
differences........................ -- (235,000) (225,000)
--------- --------- ---------
Total deferred tax liabilities........ (367,000) (683,500) (657,500)
--------- --------- ---------
Net deferred tax liabilities.......... $(255,000) $(302,000) $(269,500)
========= ========= =========
</TABLE>
Deferred tax assets at December 31, 1996 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.
The components of income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ -----------
1994 1995 1996 1997
--------- --------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current
Federal.................... $ 163,000 $ 138,000 $ 67,000 $220,000
State...................... 65,000 55,000 -- 45,000
Foreign.................... 20,000 (108,000) 162,000 91,000
--------- --------- -------- --------
248,000 85,000 229,000 356,000
Deferred
Federal.................... (261,000) 163,000 141,000 (8,000)
State...................... (106,000) 53,000 69,000 (4,000)
Foreign.................... -- -- -- --
--------- --------- -------- --------
(367,000) 216,000 210,000 (12,000)
--------- --------- -------- --------
Total income tax (benefit)
expense..................... $(119,000) $ 301,000 $439,000 $344,000
========= ========= ======== ========
</TABLE>
F-13
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES (CONTINUED)
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>
DECEMBER 31,
----------------------------- MARCH 31,
1994 1995 1996 1997
--------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory U.S. Federal rate.......... $ (12,000) $270,000 $432,000 $316,000
State taxes, net..................... (31,000) 71,000 47,000 27,000
Foreign rate difference.............. (89,000) (41,000) (39,000) 5,000
Other, net........................... 13,000 1,000 (1,000) (4,000)
--------- -------- -------- --------
$(119,000) $301,000 $439,000 $344,000
========= ======== ======== ========
</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, and approximately $3,000 in each of the
three-month periods ended March 31, 1996 and 1997. At December 31, 1996 and
March 31, 1997, the Company had an outstanding contingent obligation to BIRD in
the amount of $34,000 and $31,000, respectively. 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, and
for the three months ended March 31, 1996 and 1997, $12,000, and $13,000,
respectively. At December 31, 1996 and March 31, 1997, the Company had an
outstanding contingent obligation to the Chief Scientist of $976,000 and
$963,000, respectively.
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 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 and for the three
months ended March 31, 1996 and 1997, the Company's contributions to the plans
were $8,000, $1,000 and $18,000, and $2,000 and $21,000, respectively.
F-14
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LONG-TERM CONTRACTS
Long-term contracts in process accounted for using the percentage of
completion method are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1995 1996 1997
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accumulated expenditures on
uncompleted contracts............. $4,567,586 $ 8,913,893 $12,217,768
Estimated earnings thereon......... 647,941 1,031,484 2,700,228
---------- ----------- -----------
5,215,527 9,945,377 14,917,996
Less: applicable progress
billings.......................... 5,086,039 10,303,696 14,528,545
---------- ----------- -----------
Total.............................. $ 129,488 $ (358,319) $ 389,451
========== =========== ===========
</TABLE>
The long-term contracts are shown in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Costs and estimated earnings on
uncompleted contracts in excess of
billings........................... $ 846,865 $ 573,345 $809,518
Billings on uncompleted contracts in
excess of costs and estimated
earnings........................... (717,377) (931,664) (420,067)
--------- --------- --------
$ 129,488 $(358,319) $389,451
========= ========= ========
</TABLE>
At December 31, 1995 and 1996 and at March 31, 1997, as a result of delays
and other production and delivery difficulties, the Company has provided for
$10,000, $20,000, and $0, respectively, of anticipated losses on contracts in
process and nearing completion. These amounts are included in accrued expenses
at December 31, 1995 and 1996 and at March 31, 1997.
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 and March 31, 1997, and was paid in May 1997.
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. At December 31, 1996, 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-15
<PAGE>
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
13. ACQUISITION OF FLAM & RUSSELL, INC. (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..................... $ 0.09 $ 0.20
=========== ===========
</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.
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 a maximum of
$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.
Stamford, Connecticut
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>
[A DIAGRAM APPEARS HERE OF A 3-D REPRESENTATION OF A PLANET IN SPACE WITH AN
ORBITING BAND.]
"Automotive" [A PHOTOGRAPH APPEARS HERE OF AN AUTOMOBILE BEING TESTED IN AN
ANECHOIC CHAMBER MANUFACTURED BY AEMI.]
"Aerospace/Defense" [A PHOTOGRAPH APPEARS HERE OF AN AIRCRAFT BEING TESTED ON A
MAST AND POSITIONING SYSTEM MANUFACTURED BY THE COMPANY.]
"Satellite" [A PHOTOGRAPH APPEARS HERE OF A SATELLITE BEING TESTED ON A
POSITIONING SYSTEM MANUFACTURED BY THE COMPANY.]
"Wireless Communications" [A PHOTOGRAPH APPEARS HERE OF A CELLULAR BASE STATION
ANTENNA BEING TESTED IN A MEASUREMENT SYSTEM MANUFACTURED BY THE COMPANY.]
<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........................................................... 20
Business................................................................. 27
Management............................................................... 39
Certain Transactions..................................................... 44
Principal Stockholders................................................... 45
Description of Securities................................................ 46
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 49
Legal Matters............................................................ 50
Experts.................................................................. 50
Available Information.................................................... 51
Glossary................................................................. 52
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
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 (Draft of May 13, 1997).
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>
- --------
*Previously filed.
(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
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Horsham,
Pennsylvania, on the date indicated.
ORBIT/FR, INC.
/s/ Aryeh Trabelsi
Date: May 19, 1997 By: _________________________________
Aryeh Trabelsi
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Aryeh Trabelsi
- ----------------------------- President, Chief May 19, 1997
ARYEH TRABELSI Executive Officer and
Director (Principal
Executive Officer)
Chairman of the Board of
* Directors May 19, 1997
- -----------------------------
JOSEPH AVIV
Director
* May 19, 1997
- -----------------------------
ZEEV STEIN
Director
* May 19, 1997
- -----------------------------
DAVID BEN-BASSAT
/s/ Joseph E. Sullivan Director of Finance and May 19, 1997
- ----------------------------- Treasurer (Principal
JOSEPH E. SULLIVAN Financial and Accounting
Officer)
/s/ Aryeh Trabelsi
*By: ___________________
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
1.1 Form of Underwriting Agreement (Draft of May 13, 1997).
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>
- --------
* Previously filed.
<PAGE>
DRAFT OF 5/13/97
EXHIBIT 1.1
-----------
ORBIT/FR, INC.
2,000,000 Common Shares
-----------------------
UNDERWRITING AGREEMENT
-----------------------
West Conshohocken, Pennsylvania
June , 1997
Pennsylvania Merchant Group Ltd
Unterberg Harris
As Representatives of the Several
Underwriters Named in Schedule I
Attached Hereto
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428
Dear Sirs:
Orbit/FR, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell an aggregate of 2,000,000 shares of its common stock to Pennsylvania
Merchant Group Ltd and Unterberg Harris (the "Representatives") and the several
underwriters named in Schedule I hereto (collectively with the Representatives,
the "Underwriters" and individually, an "Underwriter," which terms shall also
include any Underwriter substituted as hereinafter provided in Section 11). The
shares of the Company's common stock, par value $.01 per share, are hereinafter
referred to as the "Common Shares," and the 2,000,000 Common Shares to be issued
and sold to the Underwriters by the Company are hereinafter referred to as the
"Offered Shares." The initial public offering price per Offered Share (the
"Offering Price") and the purchase price per Offered Share for the Offered
Shares to be paid by the several Underwriters shall be agreed upon by the
Company, the Selling Stockholder and the Representatives, acting on behalf of
the several Underwriters, and such agreement shall be set forth in a separate
written instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company, the Selling Stockholder and the Representatives and shall specify such
applicable information as is indicated in Exhibit A hereto. The offering of the
Shares will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date
<PAGE>
of execution and delivery of the Price Determination Agreement, this Agreement
shall be deemed to incorporate, and, unless the context otherwise indicates, all
references contained herein to "this Agreement" and to the phrases "herein" and
"hereof" shall be deemed to include the Price Determination Agreement.
In addition, the Underwriters, in order to cover over-allotments in the
sale of the Offered Shares, may purchase from Orbit-Alchut Technologies, Ltd.,
an Israeli corporation (the "Selling Stockholder") within 30 business days
after the Effective Date (as hereinafter defined), for their own account for
offering to the public at the Offering Price, up to 300,000 additional Common
Shares (the "Optional Shares"), upon the terms and conditions set forth in
Section 4 hereof. The Selling Stockholder has executed and delivered a Power of
Attorney and a Custody Agreement in the form attached hereto as Exhibit B
(collectively, the "Agreement and Power of Attorney") pursuant to which the
Selling Stockholder has placed the Optional Shares in custody and appointed the
person or persons designated therein with authority to execute and deliver this
Agreement on behalf of the Selling Stockholder and to take certain other actions
with respect thereto and hereto. The Offered Shares and the Optional Shares are
hereinafter collectively referred to as the "Shares." The Company and the
Selling Stockholder, intending to be legally bound hereby, confirm their
respective agreements with each of the Underwriters as follows:
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) The Company has prepared in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"),
and the rules, regulations, releases and instructions (the
"Regulations") of the Securities and Exchange Commission (the "SEC")
under the Act in effect at all applicable times and has filed with the
SEC a registration statement on Form S-1 (File No. 333-25015) and one
or more amendments thereto registering the Shares under the Act. If
the Company elects to rely on Rule 462(b) of the Regulations to
register a portion of the Shares, a registration statement on Form S-1
relating to the Shares (the "Rule 462 registration statement") has
been or will be prepared by the Company under the Act and the
Regulations and has been or will be filed with the SEC. Any
preliminary prospectus included in such registration statement or
filed with the SEC pursuant to Rule 424(a) of the Regulations is
hereinafter called a "Preliminary Prospectus." The various parts of
such initial registration statement, including all exhibits thereto
and the information contained in the form of final prospectus filed
with the SEC pursuant to Rule 424(b) of the Regulations in accordance
with Section 5(a) of this Agreement and deemed by virtue of Rule 430A
of the Regulations to be part of the registration statement at the
time it was declared effective, each as amended at the time
-2-
<PAGE>
the registration statement became effective, and any Rule 462
registration statement at the time it becomes or became effective, are
hereinafter collectively called the "Registration Statement." The
final prospectus in the form included in the Registration Statement
and any Rule 462 registration statement or first filed with the SEC
pursuant to Rule 424(b) of the Regulations and any amendments or
supplements thereto is hereinafter collectively called the
"Prospectus."
(ii) The Registration Statement and any Rule 462 registration
statement have become effective under the Act as of their respective
Effective Date (as defined below), and the SEC has not issued any stop
order suspending the effectiveness of such Registration Statement or
Rule 462 registration statement or preventing or suspending the use of
the Preliminary Prospectus nor, to the knowledge of the Company, has
the SEC instituted, contemplated or threatened to institute
proceedings with respect to such an order. No stop order suspending
the sale of the Shares in any jurisdiction designated by the
Representatives pursuant to Section 5(f) hereof has been issued, and
no proceedings for that purpose, to the knowledge of the Company, have
been instituted or are contemplated or threatened. The Company has
complied in all material respects with any request of the SEC, or any
state securities commission in a state designated by the
Representatives pursuant to Section 5(f) hereof, for additional
information to be included in the Registration Statement or Prospectus
or otherwise. Each Preliminary Prospectus conformed to the Act and the
Regulations as of its date in all material respects and did not as of
its date contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading, except the foregoing shall not apply
to statements in or omissions from any Preliminary Prospectus in
reliance upon and in conformity with information furnished to the
Company in writing by or on behalf of any Underwriter through the
Representatives expressly for use therein. The Registration Statement
and any Rule 462 registration statement on the date on which it is
declared effective by the SEC (the "Effective Date") conformed, and
any post-effective amendment thereof on the date it shall become
effective, and the Prospectus at the time it is filed with the SEC
pursuant to Rule 424(b) and on the Closing Date (as defined in Section
3 hereof) and any Option Closing Date (as defined in Section 4(b)
hereof), will conform in all material respects to the requirements of
the Act and the Regulations, and neither the Registration Statement,
any Rule 462 registration statement, any post-effective amendment
thereof nor the Prospectus will, on any of such respective dates,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
-3-
<PAGE>
statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the
Registration Statement, any Rule 462 registration statement or the
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by or on behalf of any Underwriter
through the Representatives expressly for use therein.
(iii) Each of the Company and the Subsidiaries (as defined
herein) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation with all
necessary power and authority, corporate and other, and all required
licenses, permits, certifications, registrations, approvals, consents
and franchises, to own or lease and operate its properties and to
conduct its business as described in the Prospectus. The Company has
full power and authority, corporate and other, to execute, deliver and
perform this Agreement. Each of the Company and the Subsidiaries is
duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which such qualification is required,
except where the failure so to qualify would not have a material
adverse effect on the general affairs, properties, condition
(financial or otherwise), results of operations, stockholders' equity,
business or prospects of the Company and the Subsidiaries. The Company
does not own any stock or other equity interest in any corporation,
partnership, joint venture or other entity other than Orbit Advanced
Technologies, Inc., a Delaware corporation and its wholly owned
subsidiary, Flam & Russell, Inc., a Delaware corporation ("Flam &
Russell") and Orbit F. R. Engineering, Ltd., an Israeli corporation
(collectively, the "Subsidiaries"). For the purposes of this
Agreement, the term "Subsidiary") shall also include Advanced
Electromagnetics, Inc. ("AEMI"), a California corporation. No
Subsidiary is currently prohibited, directly or indirectly, from
paying any dividends to the Company, from making other distributions
on such Subsidiary's capital stock, from repaying to the Company any
loans or advances to such Subsidiary or from transferring any of such
Subsidiary's property or assets to the Company or any other
Subsidiary, except as disclosed in the Prospectus. All material
transactions between the Company and the Subsidiaries and the
officers, directors and stockholder of the Company have been
accurately disclosed in the Registration Statement and the terms of
each such transaction are fair to the Company and no less favorable to
the Company than the terms that could have been obtained from
unrelated parties.
(iv) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned beneficially, or will be owned
beneficially in the case of AEMI upon the Closing Date, by the Company
free and clear of all liens, security interests, pledges, charges,
encum-
-4-
<PAGE>
brances, defects, stockholders' agreements, voting trusts, equities or
claims of any nature whatsoever.
(v) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming due execution by the
Representatives, constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy,
insolvency and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general
equitable principles and except as the enforceability of rights to
indemnity and contribution hereunder may be limited by federal or
state securities laws or principles of public policy underlying such
laws.
(vi) The issue and sale of the Shares to be issued and sold by
the Company and the execution, delivery and performance of this
Agreement by the Company does not and will not, with or without the
giving of notice or the lapse of time, or both, (A) conflict with any
terms or provisions of the Certificate of Incorporation or By-laws, as
amended to the date hereof of the Company or any of the Subsidiaries;
(B) result in a breach of, constitute a default under, result in the
termination or modification of or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the
properties of the Company or any of the Subsidiaries pursuant to, any
indenture, mortgage, deed of trust, contract, commitment or other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which any of the properties of the
Company or any of the Subsidiaries are bound or affected; (C) violate
any law, rule, regulation, judgment, order or decree of any government
or governmental agency, instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of the Subsidiaries or any
of the properties or business of the Company or any of the
Subsidiaries or (D) result in a breach, termination or lapse of the
power and authority of the Company or any of the Subsidiaries to own
or lease and operate its properties and conduct its business as
described in the Prospectus.
(vii) At the date or dates indicated in the Prospectus, the
Company had the capitalization set forth under the caption
"Capitalization" in the Prospectus and will have the pro forma
capitalization and the pro forma as adjusted capitalization set forth
under the caption "Capitalization" in the Prospectus. On the Effective
Date, the Closing Date and any Option Closing Date, there will be no
options or warrants for the purchase of, other outstanding rights to
purchase, agreements or obligations to issue or agreements or other
rights to convert or exchange any obligation or security into, capital
stock of the Company or any of the Subsidiaries or securities
convertible into or exchangeable
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<PAGE>
for capital stock of the Company or any such Subsidiary, except as
described in the Registration Statement or the Prospectus with respect
to the (A) outstanding options that have been granted to employees and
directors to purchase 492,300 Common Shares (the "Employee Options")
and (B) the Over-allotment Option granted hereunder.
(viii) The authorized capital stock of the Company, including,
without limitation, the outstanding Common Shares and the Shares being
issued on the Closing Date and any Option Closing Date, conforms in
all material respects with the descriptions thereof in the Prospectus,
and such descriptions conform in all material respects with the
descriptions thereof set forth in the instruments defining the same.
The information in the Prospectus insofar as it relates to the
Employee Options as of the Effective Date and immediately prior to the
Closing Date is true and correct in all material respects.
(ix) The outstanding Common Shares have been duly authorized
and are validly issued, fully paid and non-assessable and the Employee
Options have been duly authorized and validly issued and are legal,
valid and binding obligations enforceable against the Company in
accordance with the terms thereof. The Common Shares issuable pursuant
to the Employee Options, when issued in accordance with the terms
thereof, will be duly authorized, validly issued, fully-paid and
nonassessable. None of such outstanding Common Shares, Employee
Options or shares of capital stock of each Subsidiary were, and none
of such issuable Common Shares will be, issued in violation of any
preemptive rights of any security holder of the Company or any
Subsidiary that have not been waived. The Company has reserved a
sufficient number of Common Shares for issuance pursuant to the
Employee Options. The holders of the outstanding Common Shares are not
subject to personal liability solely by reason of being such holders,
and the holders of the Common Shares issuable pursuant to the Employee
Options will not be subject to personal liability solely by reason of
being such holders. The offers and sales of the outstanding Common
Shares, the Employee Options and the shares of capital stock of each
Subsidiary were, and the issuance of the Common Shares pursuant to the
Employee Options will be, made in conformity with applicable
registration requirements or exemptions therefrom under federal and
applicable state securities laws.
(x) The issuance and sale of the Shares by the Company have
been duly authorized and, when the Shares have been duly delivered
against payment therefor as contemplated by this Agreement, the Shares
will be validly issued, fully paid and nonassessable, and the holders
thereof will not be subject to personal liability solely by reason of
being such holders. None of the Shares will be issued in violation of
any preemptive rights of any stockholder of
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<PAGE>
the Company. The certificates representing the Shares are in proper
legal form under, and conform in all respects to the requirements of,
the Delaware General Corporation law, as amended (the "DGCL"). Neither
the filing of the Registration Statement nor the offering or sale of
the Shares as contemplated by this Agreement gives any security holder
of the Company any rights, other than those which have been waived,
for or relating to the registration of any Common Shares or other
security of the Company.
(xi) No consent, approval, authorization, order, registration,
license or permit of any court, government, governmental agency,
instrumentality or other regulatory body or official is required for
the valid authorization, issuance, sale and delivery by the Company of
any of the Shares, or for the execution, delivery or performance by
the Company of this Agreement, except such as may be required for the
registration of the Shares under the Act, the Regulations and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which consent, approval and authorization have been obtained, and for
compliance with the applicable state securities or Blue Sky laws, or
the By-laws, rules and other pronouncements of the National
Association of Securities Dealers, Inc. ("NASD"). Upon the
effectiveness of the Registration Statement, the Common Shares will be
registered pursuant to Section 12(g) of the Exchange Act, and will be
listed on the National Market System ("NMS") of the NASD Automated
Quotation System ("Nasdaq"). The Company has taken no action designed
to, or likely to, have the effect of terminating the registration of
the Common Shares from the Nasdaq NMS, nor has the Company received
any notification that the SEC or the NASD is contemplating terminating
such registration or listing.
(xii) The statements in the Registration Statement and the
Prospectus, insofar as they are descriptions of or references to
statutes, legal and governmental proceedings or contracts, agreements
or other documents, are accurate in all material respects and present
or summarize fairly, in all material respects, the information
required to be disclosed under the Act or the Regulations, and there
are no contracts, agreements or other documents required to be
described or referred to in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
under the Act or the Regulations that have not been so described,
referred to or filed, as required.
(xiii) The consolidated financial statements of the Company and
its consolidated subsidiaries and the financial statements of Flam &
Russell (including the notes thereto) filed as part of the Preliminary
Prospectus, the Prospectus and the Registration Statement present
fairly, in all material respects, the financial position of the
Company as of the respective dates thereof, and the results of
operations and cash flows of the Company and its consolidated
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<PAGE>
subsidiaries, on a consolidated basis, and of Flam & Russell,
respectively at the dates and for the periods indicated therein, all
in conformity with generally accepted accounting principles
consistently applied. The supporting schedules included in the
Registration Statement fairly state in all material respects the
information required to be stated therein in relation to the basic
financial statements taken as a whole. The financial information
included in the Prospectus under the captions "Prospectus Summary" and
"Selected Consolidated Financial Data" presents fairly the information
shown therein and has been compiled on a basis consistent with that of
the audited financial statements included in the Registration
Statement. No other financial statements or schedules of any
Subsidiary are required by the Act or the Regulations to be included
in the Registration Statement or the Prospectus.
(xiv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, there has not been (A) any material adverse
change, including, whether or not insured against, any material loss
or damage to any assets, or development involving a prospective
material adverse change, in the general affairs, properties, assets,
management, condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company or any of
the Subsidiaries, (B) any transaction entered into by the Company or
any of the Subsidiaries that is material to the Company and the
Subsidiaries, (C) any dividend or distribution of any kind declared,
paid or made by the Company or any of the Subsidiaries on their
respective capital stock, (D) any liabilities or obligations, direct
or indirect, incurred by the Company or any of the Subsidiaries that
are material to the Company and the Subsidiaries or (E) any material
change in the short-term debt or long-term debt of the Company or any
of the Subsidiaries. Neither the Company nor any of the Subsidiaries
has any contingent liabilities or obligations that are material and
that are not disclosed in the Prospectus.
(xv) The Company has not distributed and, prior to the later to
occur of the Closing Date, the Option Closing Date or the completion
of the distribution of the Shares, will not distribute any offering
material in connection with the offering and sale of the Shares other
than the Registration Statement, the Preliminary Prospectus, the
Prospectus and other materials, if any, permitted by the Act and the
Regulations.
(xvi) The Company and each of the Subsidiaries has filed with
the appropriate federal state and local governmental agencies, and all
foreign countries and political subdivisions thereof, all material tax
returns that are required to be filed or has duly obtained extensions
of time for the filing thereof and has paid all taxes shown on
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<PAGE>
such returns and all material assessments received by it to the extent
that the same have become due. The Company and each of the
Subsidiaries has not executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment
or collection of any income or other taxes, is not a party to any
pending action or proceeding by any foreign or domestic governmental
agencies for the assessment or collection of taxes, and no claims for
assessment or collection of taxes have been asserted against the
Company or any of the Subsidiaries that might materially adversely
affect the general affairs, assets, properties, assets, condition
(financial or otherwise), results of operations, stockholders' equity,
business or prospects of the Company and the Subsidiaries.
(xvii) To the best of the Company's knowledge, Ernst & Young LLP,
which has certified certain financial statements of the Company and
its consolidated subsidiaries and of Flam & Russell including in the
Registration Statement and the Prospectus, are independent public
accountants as required by the Act, the Exchange Act and the
Regulations. The statements included in the Registration Statement
with respect to Ernst & Young LLP pursuant to Rule 509 of Regulation
S-K are true and correct in all material respects.
(xviii) Neither the Company nor any of the Subsidiaries is, or
with the giving of notice or the passage of time or both would be, in
violation of, or in default under, any of the terms or provisions of
(A) its Certificate of Incorporation or By-laws, as amended to the
date hereof, or (B) except to the extent such action would not have a
material adverse effect on the general affairs, properties, assets,
condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company and the
Subsidiaries, (1) any indenture, mortgage, deed of trust, contract,
loan agreement, commitment or other agreement or instrument to which
it is a party or by which it or any of its properties is bound or
affected; (2) any law, rule, regulation, judgment, order or decree of
any government or governmental agency, instrumentality or court,
domestic or foreign, having jurisdiction over it or any of its
properties or business or (3) any license, permit, certification,
registration, approval, consent or franchise referred to in subsection
(iii) of this Section 1(a).
(xix) Other than as disclosed in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or
inquiries pending before or, to the knowledge of the Company,
threatened or contemplated by, any governmental agency,
instrumentality, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, relating to or affecting the Company or
any of the Subsidiaries or any of their respective properties or
business that might affect the issuance or validity of any of the
Shares or the validity of any of the outstanding
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<PAGE>
Common Shares, or that, if determined adversely to the Company, would,
in any case or in the aggregate, result in any material adverse change
in the general affairs, properties, assets, condition (financial or
otherwise), results of operations, stockholders' equity, business or
prospects of the Company and the Subsidiaries; nor, to the knowledge
of the Company, is there any reasonable basis for any such claim,
action, suit, proceeding, arbitration, investigation or inquiry. There
are no outstanding orders, judgments or decrees of any court,
governmental agency, instrumentality or other tribunal enjoining the
Company or any Subsidiary from, or requiring the Company to take or
refrain from taking, any action, or to which the Company or any
Subsidiary, or their respective properties, assets or business is
bound or subject.
(xx) Except as disclosed in the Prospectus, the Company and
each of the Subsidiaries owns, or possesses adequate rights to use,
all patents, patent applications, trademarks, trademark registrations,
applications for trademark registration, trade names, service marks,
licenses, inventions, copyrights, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
technology, information, systems, design methodologies and devices or
procedures developed or derived from the Company's or a Subsidiary's
business), trade secrets, confidential information, processes and
formulations necessary for, used in or proposed to be used in the
conduct of its business as described in the Prospectus (collectively,
the "Intellectual Property") that, if not so owned, would materially
adversely affect the general affairs, properties, condition (financial
or otherwise), results of operations, stockholders' equity, business
or prospects of the Company and the Subsidiaries; neither the Company
nor any of the Subsidiaries has knowingly infringed, is infringing or
has received any notice of conflict with the asserted rights of others
with respect to the Intellectual Property that, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the general affairs,
properties, condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company and the
Subsidiaries, and the Company does not know of any reasonable basis
therefor; and, to the knowledge of the Company, no others have
infringed upon or are in conflict with its Intellectual Property.
(xxi) The Company and each of the Subsidiaries has good and
marketable title to all personal property (tangible and intangible)
described in the Prospectus as being owned by it, free and clear of
all liens, security interests, charges or encumbrances, except such as
are described in the Prospectus or such as do not materially affect
the value or the transferability of such property and do not
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<PAGE>
interfere in any material respect with the use made, or proposed to be
made, of such property by the Company or such Subsidiary. The Company
and each of the Subsidiaries has adequately insured with insurers of
recognized financial responsibility its personal property against loss
or damage by fire or other casualty and maintains, in adequate
amounts, insurance against such other risks as are prudent and
customary in the businesses in which they are engaged. The Company
does not own any real property, and all real property used or leased
by the Company or any of the Subsidiaries, as described in the
Prospectus (collectively, the "Premises"), is held by the Company or
such Subsidiary under a valid, subsisting and enforceable lease. The
Premises, and all operations conducted thereon, are now and, since the
Company or such Subsidiary began to use such Premises, always have
been and, to the knowledge of the Company, prior to when the Company
or such Subsidiary began to use such Premises, always had been, in
compliance with all federal, state and local statutes, ordinances,
regulations, rules, standards and requirements of common law
concerning or relating to industrial hygiene and the protection of
health and the environment (collectively, "the Environmental Laws"),
except to the extent that any failure to be in such compliance would
not materially adversely affect the general affairs, properties,
condition (financial or otherwise), results of operations,
stockholders' equity, business or prospects of the Company and the
Subsidiaries. To the knowledge of the Company, there are no conditions
on, about, beneath or arising from the Premises that might give rise
to liability, the imposition of a statutory lien or require a
"Response," "Removal" or "Remedial Action," as defined herein, under
any of the Environmental Laws, and that would materially adversely
affect the general affairs, properties, condition (financial or
otherwise), results of operations, stockholders' equity, business or
prospects of the Company and the Subsidiaries. Neither the Company nor
any of the Subsidiaries has received notice, and does not have actual
or constructive knowledge, of any claim, demand, investigation,
regulatory action, suit or other action instituted or threatened
against it or the Premises relating to any of the Environmental Laws.
Neither the Company nor any of the Subsidiaries has received any
notice of material violation, citation, complaint, order, directive,
request for information or response thereto, notice letter, demand
letter or compliance schedule to or from any governmental or
regulatory agency arising out of or in connection with Hazardous
Substances (as defined by applicable Environmental Laws) on, about,
beneath, arising from or generated at the Premises. As used in this
subsection, the terms "Response," "Removal" and "Remedial Action"
shall have the respective meanings assigned to such terms under
Sections 101 (23)-101 (25) of the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund
Amendments and Reauthorization Act.
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<PAGE>
(xxii) Each of the Company and the Subsidiaries maintains a
system of internal accounting controls sufficient to provide
reasonable assurances that: (A) transactions are executed in
accordance with management's general or specific authorization; (B)
transactions are recorded as necessary in order to permit preparation
of the Company's consolidated financial statements in accordance with
generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization and (D)
the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxiii) All offers and sales of the Company's capital stock prior
to the date hereof were at all relevant times duly registered under
the Act or exempt from the registration requirements of the Act by
reasons of Sections 3(b), 4(2) or 4(6) thereof and were duly
registered or the subject of an available exemption from the
registration requirements of applicable state securities or blue sky
laws.
(xxiv) Each contract or other instrument (however characterized
or described) to which the Company or any of the Subsidiaries is a
party or by which any of its properties or business is bound or
affected and to which reference has been made in the Prospectus or
which has been filed as an exhibit to the Registration Statement has
been duly and validly executed by the Company or such Subsidiary and,
to the knowledge of the Company, by the other parties thereto. Except
as described in the Prospectus, each such contract or other instrument
is in full force and effect in all material respects and, to the
knowledge of the Company, is enforceable against the parties thereto
in all material respects in accordance with its terms, and neither the
Company nor such Subsidiary is and, to the knowledge of the Company,
no other party is in material default thereunder and no event has
occurred that, with the lapse of time or the giving of notice, or
both, would constitute a material default thereunder.
(xxv) Except for the Company's 401(k), disability, health and
life insurance plans, neither the Company nor any Subsidiary has had
any employee benefit plan, profit sharing plan, employee pension
benefit plan or employee welfare benefit plan or deferred compensation
arrangements (collectively, "Plans") that are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations thereunder ("ERISA"). All Plans
that are subject to ERISA are, and have been at all times since their
establishment, in compliance with ERISA in all material respects and,
to the extent required by the Internal Revenue Code of 1986, as
amended (the "Code"), in compliance with the Code in all material re-
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<PAGE>
spects. Neither the Company nor any Subsidiary has had any employee
pension benefit plan that is subject to Part 3 of Subtitle B of Title
I of ERISA or any defined benefit plan or multiemployer plan. Neither
the Company nor any Subsidiary has maintained retired life and retired
health insurance plans that are employee welfare benefit plans
providing for continuing benefit or coverage for any employee or any
beneficiary of any employee after such employee's termination of
employment, except as required by Section 4980B of the Code. To the
knowledge of the Company, no fiduciary or other party in interest with
respect to any of the Plans has caused any of such Plans to engage in
a prohibited action as defined in Section 406 of ERISA. As used in
this subsection, the terms "defined benefit plan," "employee benefit
plan," "employee pension benefit plan," "employee welfare benefit
plan," "fiduciary" and "multiemployer plan" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
(xxvi) No labor dispute exists with the employees of the Company
or any of the Subsidiaries and, to the knowledge of the Company, no
such labor dispute is imminent. The Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers, contractors or customers that would materially
adversely affect the general affairs, properties, condition (financial
or otherwise), results of operations, stockholders' equity, business
or prospects of the Company and the Subsidiaries.
(xxvii) Except as disclosed in the Prospectus, the Company has not
incurred any liability for any finder's fees or similar payments in
connection with the transactions contemplated herein.
(xxviii) Except as described in the Prospectus, neither the Company
nor any Subsidiary is a party to, nor is it bound by, any agreement
pursuant to which royalties, honoraria or fees are payable by the
Company or such Subsidiary to any person by reason of the ownership or
use of any Intellectual Property that is material to the business of
the Company or such Subsidiary.
(xxix) The Company is familiar with the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future
to continue to conduct, its affairs in such a manner to ensure that it
will not become an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(xxx) Neither the Company nor any of its officers, directors or
affiliates has (A) taken, directly or indirectly, any action designed
to cause or result in, or that has constituted or might reasonably be
expected to consti-
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<PAGE>
tute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares or (B)
since the filing of the Registration Statement (1) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of,
the Shares or (2) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the
Company.
(xxxi) The Company has obtained for the benefit of the Company
and the Underwriters from the Selling Stockholder and each of the
Company's directors and executive officers a written agreement that
for a period of 180 days from the date of the Prospectus such Selling
Stockholder, director or executive officer will not, without the prior
written consent of the Representatives, offer, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any shares of Common Stock.
(xxxii) Neither the Company, any of the Subsidiaries, nor any
director, officer, employee or other person associated with or acting
on behalf of the Company or any Subsidiary has, directly or
indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political
activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
Any certificate signed by any officer of the Company in such capacity
and delivered to the Representatives or to counsel for the Underwriters
pursuant to this Agreement shall be deemed a representation and warranty by
the Company to the several Underwriters as to the matters covered thereby.
(b) Representations and Warranties of the Selling Stockholder. The
Selling Stockholder represents and warrants to, and agrees with, each of
the several Underwriters and the Company that:
(i) The Selling Stockholder is a corporation in good standing
under the laws of the State of Israel. The Selling Stockholder has
full power and authority to own its assets and to conduct its business
as described in the Prospectus and is duly qualified to do business in
each jurisdiction in which it owns or leases real property or in which
the conduct of its business requires such qualification.
(ii) The Selling Stockholder has full right, power (corporate
and other) and authority to enter into this
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<PAGE>
Agreement and the Agreement and Power of Attorney and to sell, assign,
transfer and deliver to the Underwriters the Shares to be sold by the
Selling Stockholder hereunder; and the execution and delivery of this
Agreement and the Agreement and Power of Attorney have been duly
authorized by all necessary action of the Selling Stockholder.
(iii) The Selling Stockholder has duly executed and delivered
this Agreement and the Agreement and Power of Attorney and, assuming
due execution of this Agreement by the Representatives of the
Underwriters, this Agreement and the Agreement and Power of Attorney
constitute the valid and binding agreements of the Selling Stockholder
enforceable against the Selling Stockholder in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and moratorium laws and other laws relating
to or affecting the enforcement of creditors' rights generally and to
general equitable principles and, with respect to this Agreement and
the Agreement and Power of Attorney, except as the enforceability of
rights to indemnity and contribution under this Agreement may be
limited under applicable securities laws or the public policy
underlying such laws.
(iv) No consent, approval, authorization, order or declaration
of or form, or registration, qualification or filing with, any court
or governmental agency or body is required for the sale of the Shares
to be sold by the Selling Stockholder or the consummation of the
transactions contemplated by this Agreement and the Agreement and
Power of Attorney, except the registration of such Shares under the
Act (which, if the Registration Statement is not effective as of the
time of execution hereof, shall be obtained as provided in this
Agreement) and such as may be required under state securities or blue
sky laws in connection with the offer, sale and distribution of such
Shares by the Underwriters.
(v) The sale of the Shares to be sold by the Selling
Stockholder and the performance of this Agreement and the Agreement
and the Power of Attorney and the consummation of the transactions
therein and herein contemplated will not conflict with, or, with or
without the giving of notice or the passage of time or both, result in
a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which the
Selling Stockholder or any of its subsidiaries is a party or to which
any of their respective properties or assets is subject, nor will such
action conflict with or violate any provision of the charter documents
or by-laws of the Selling Stockholder or governing instruments of any
of its subsidiaries or any statute, rule or regulation or any order,
judgement or decree of any court or governmental agency or body having
jurisdiction over the Selling Stock-
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<PAGE>
holder or any of the Selling Stockholder's properties or assets.
(vi) The Selling Stockholder has, and immediately prior to the
Option Closing Date (as defined in Section 4 hereof), the Selling
Stockholder will have, good and valid title to the Shares to be sold
by the Selling Stockholder hereunder, free and clear of all liens,
security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of any
nature whatsoever (other than pursuant to the Agreement and Power of
Attorney); and, upon delivery of such Shares against payment therefor
as provided herein, good and valid title to such Shares, free and
clear of all liens, security interests, pledges, charges,
encumbrances, defects, stockholders' agreements, voting trusts,
equities or claims of any nature whatsoever, will pass to the several
Underwriters.
(vii) Neither the Selling Stockholder nor any of its officers,
directors or affiliates has (A) taken, directly or indirectly, any
action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Shares or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(viii) To the best knowledge of the Selling Stockholder, the
representations and warranties of the Company contained in Section
1(a) hereof are true and correct.
(ix) When any Preliminary Prospectus was filed with the SEC it
(A) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the
requirements of, the Act and the Regulations thereunder, and (B) did
not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto
was or is declared effective and at the Option Closing Date, it (A)
contained or will contain all statements required to be stated therein
in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the Regulations
thereunder and (B) did not or will not include any untrue statement of
a material fact or omit to state any material fact necessary to make
the statements therein not misleading. When the Prospectus or any
amendment or supplement thereto is filed with the SEC pursuant to Rule
424(b) (or,
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<PAGE>
if the prospectus or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or is
declared effective), and at the Option Closing Date, the Prospectus,
as amended or supplemented at any such time, (A) contained or will
contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with the
requirements of, the Act and the Regulations thereunder and (B) did
not or will not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(viii) do not apply to statements or omissions made in any Preliminary
Prospectus, the Registration Statement or any amendment thereto or the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein.
(x) Certificates in negotiable form for the Optional shares to
be sold hereunder by the Selling Stockholder have been placed in
custody, for the purpose of making delivery of such Optional Shares
under this Agreement, under the Agreement and Power of Attorney which
appoints ___________ as custodian (the "Custodian") for the Selling
Stockholder. The Selling Stockholder agrees that the Optional Shares
represented by the certificates held in custody for it under the
Agreement and Power of Attorney are for the benefit of and coupled
with and subject to the interest hereunder of the Custodian, the
Underwriters and the Company, that the arrangements made by the
Selling Stockholder for such custody and the appointment of the
Custodian by the Selling Stockholder are irrevocable, and that the
obligations of the Selling Stockholder hereunder shall not be
terminated by operation of law, the liquidation of the Selling
Stockholder or any other event, and after any such liquidation or
event, certificates for the Optional Shares shall be delivered by the
Custodian in accordance with the terms and conditions of this
Agreement and any actions taken by the Custodian pursuant to the
Agreement and Power of Attorney shall be as valid as if such
liquidation or other event had not occurred, regardless of whether or
not the Custodian shall have received notice thereof.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Code, with respect to the transactions
herein contemplated, the Selling Stockholder agrees to deliver to the
Representatives prior to or at the Option Closing Date, a properly
completed and executed United States Treasury Department Form W-9 or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof.
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2. Purchase and Sale of Offered Shares. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company shall sell the
Offered Shares to the several Underwriters at the Offering Price less the
underwriting discount shown on the cover page of the Prospectus (the
"Underwriting Discount"), and the Underwriters, severally and not jointly,
shall purchase from the Company on a firm commitment basis, at the Offering
Price less the Underwriting Discount, the respective Offered Shares set forth
opposite their names on Schedule I hereto. In making this Agreement, each
Underwriter is contracting severally, and not jointly, and except as provided in
Sections 4 and 11 hereof, the agreement of each Underwriter is to purchase only
that number of Offered Shares specified with respect to that Underwriter in
Schedule I. The Underwriters shall offer the Offered Shares to the public as
set forth in the Prospectus.
3. Payment and Delivery. Payment for the Offered Shares shall be made to
the Company by certified or official bank check payable to its order in
Philadelphia Clearing House funds, at the offices of Duane, Morris & Heckscher,
4200 One Liberty Place, Philadelphia, Pennsylvania 19103, or at such other
location as shall be agreed upon by the Company and the Representatives, or in
immediately available funds wired to such account as the Company may specify
(with all costs and expenses incurred by the Underwriters in connection with
such settlement in immediately available funds (including, but not limited to,
interest or cost of funds expenses) to be borne by the Company), against
delivery of the Offered Shares to the Representatives at the offices of The
Depository Trust Company, 55 Water Street, New York, New York 10041, for the
respective accounts of the Underwriters. Such payment and delivery will be made
at 10:00 A.M., Philadelphia time, on the fifth business day after the date of
this Agreement or at such other time and date not later than five business days
thereafter as the Representatives and the Company shall agree upon. Such time
and date are referred to herein as the "Closing Date." The certificates
representing the Offered Shares to be sold and delivered will be in such
denominations and registered in such names as the Representatives request not
less than two full business days prior to the Closing Date, and will be made
available to the Representatives for inspection, checking and packaging at the
office of The Depository Trust Company in New York, New York or at such other
location in New York, New York as is specified by the Representatives, not less
than one full business day prior to the Closing Date.
4. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection
with the distribution and sale of the Offered Shares as contemplated by the
Prospectus, subject to the terms and conditions herein set forth, the
several Underwriters are hereby granted an option by the Selling
Stockholder to purchase all or any part of the Optional Shares from the
Selling Stockholder (the "Over-allotment Option"). The purchase price to be
paid for the Optional Shares shall be the Offering Price less the
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Underwriting Discount. The Over-allotment Option granted hereby may be
exercised by the Representatives on behalf of the several Underwriters as
to all or any part of the Optional Shares at any time and from time to time
within 30 business days after the Effective Date. No Underwriter shall be
under any obligation to purchase any Optional Shares prior to an exercise
of the Over-allotment Option.
(b) The Over-allotment Option granted hereby may be exercised by the
Representatives on behalf of the several Underwriters by giving notice to
the Selling Stockholder by a letter sent by registered or certified mail,
postage prepaid, telex, telegraph, telegram or facsimile (such notice to be
effective when sent), addressed as provided in Section 13 hereof, setting
forth the number of Optional Shares to be purchased, the date and time for
delivery of and payment for the Optional Shares and stating that the
Optional Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale of
the Offered Shares. If such notice is given prior to the Closing Date, the
date set forth therein for such delivery and payment shall not be earlier
than either five full business days thereafter or the Closing Date,
whichever occurs later. If such notice is given on or after the Closing
Date, the date set forth therein for such delivery and payment shall be a
date selected by the Representatives that is not later than five full
business days after the exercise of the Over-allotment Option. The date and
time set forth in such a notice is referred to herein as an "Option Closing
Date," and a closing held pursuant to such a notice is referred to herein
as an "Option Closing." The number of Optional Shares to be sold to each
Underwriter pursuant to each exercise of the Over-allotment Option shall be
the number that bears the same ratio to the aggregate number of Optional
Shares being purchased through such Over-allotment Option exercise as the
number of Offered Shares opposite the name of such Underwriter in Schedule
I hereto bears to the total number of all Offered Shares; subject, however,
to such adjustment as the Representatives may approve to eliminate
fractional shares and subject to the provisions for the allocation of
Optional Shares purchased for the purpose of covering over-allotments set
forth in Sections 9 and 12 of the Agreement Among Underwriters. Upon each
exercise of the Over-allotment Option, the Selling Stockholder shall become
obligated to issue and sell to the Representatives for the respective
accounts of the Underwriters, and on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the
terms and conditions herein set forth, the several Underwriters shall
become severally but not jointly obligated to purchase from the Selling
Stockholder, the number of Optional Shares specified in each notice of
exercise of the Over-allotment Option.
(c) Payment for the Optional Shares shall be made to the Selling
Stockholder by certified or official bank check payable to its order in
Philadelphia Clearing House funds, at the offices of Duane, Morris &
Heckscher, 4200 One Liberty Place,
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Philadelphia, PA 19103, or such other location as shall be agreed upon by
the Selling Stockholder and the Representatives, or in immediately
available funds wired to such account as the Selling Stockholder may
specify (with all costs and expenses incurred by the Underwriters in
connection with such settlement in immediately available funds (including,
but not limited to, interest or cost of funds expenses) to be borne by the
Selling Stockholder), against delivery of the Optional Shares to the
Representatives at the offices of The Depository Trust Company, 55 Water
Street, New York, New York 10041, for the respective accounts of the
Underwriters. The certificates representing the Optional Shares to be
issued and delivered will be in such denominations and registered in such
names as the Representatives request not less than two full business days
prior to the Option Closing Date, and will be made available to the
Representatives for inspection, checking and packaging at the office of
The Depository Trust Company in New York, New York or at such other
location in New York, New York as is specified by the Representatives not
less than one full business day prior to the Option Closing Date.
5. Certain Covenants and Agreements of the Company and the Selling
Stockholder.
(a) Covenants of the Company. The Company covenants and agrees
with the several Underwriters as follows:
(i) If Rule 430A of the Regulations is employed, the Company
will timely file the Prospectus pursuant to and in compliance with
Rule 424(b) of the Regulations and will advise the Representatives of
the time and manner of such filing.
(ii) The Company will not at any time, whether before or after
the Registration Statement shall have become effective, during such
period as, in the opinion of counsel for the Underwriters, the
Prospectus is required by law to be delivered in connection with
sales by the Underwriters or a dealer, file or publish any amendment
or supplement to the Registration Statement or the Prospectus of
which the Representatives have not been previously advised and
furnished a copy, or which is not in compliance with the Regulations,
or, during the period before the distribution of the Offered Shares
and the Optional Shares is completed, file or publish any amendment
or supplement to the Registration Statement or the Prospectus to
which the Representatives reasonably object in writing.
(iii) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to
become effective and will advise the Representatives immediately, and
confirm such advice in writing, (A) when the Registration Statement,
or any post-effective amendment to the Registration Statement, is
filed
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with the SEC, (B) of the receipt of any comments from the SEC, (C)
when the Registration Statement has become effective and when any
post-effective amendment thereto becomes effective, or when any
supplement to the Prospectus or any amended Prospectus has been
filed, (D) of any request of the SEC for amendment or supplementation
of the Registration Statement or Prospectus or for additional
information, (E) during the period when the Prospectus is required to
be delivered under the Act and Regulations, of the happening of any
event which in the Company's judgment makes any material statement in
the Registration Statement or the Prospectus untrue or which requires
any changes to be made in the Registration Statement or the
Prospectus in order to make any material statements therein not
misleading and (F) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any Preliminary Prospectus
or the Prospectus, the suspension of the qualification of any of the
Shares for offering or sale in any jurisdiction in which the
Underwriters intend to make such offers or sales, or of the
initiation or threatening of any proceedings for any of such
purposes. The Company will use its best efforts to prevent the
issuance of any such stop order or of any order preventing or
suspending such use and, if any such order is issued, to obtain as
soon as possible the lifting thereof.
(iv) The Company has delivered to the Representatives, without
charge, and will continue to deliver from time to time until the
Effective Date, as many copies of each Preliminary Prospectus as the
Representatives may reasonably request. The Company will deliver to
the Representatives, without charge, as soon as possible after the
Effective Date, and thereafter from time to time during the period
when delivery of the Prospectus is required under the Act, such
number of copies of the Prospectus (as supplemented or amended, if
the Company makes any supplements or amendments to the Prospectus) as
the Representatives may reasonably request. The Company hereby
consents to the use of such copies of the Preliminary Prospectus and
the Prospectus for the purposes permitted by the Act, the Regulations
and the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the
Prospectus is required by the Act to be delivered in connection with
sales by any Underwriter or dealer. The Company has furnished or will
furnish to the Representatives two signed copies of the Registration
Statement as originally filed and of all amendments thereto, whether
filed before or after the Effective Date, two copies of all exhibits
filed therewith and two signed copies of all consents and
certificates of experts, and will deliver to the Representatives such
number of conformed copies of the Registration State-
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ment, including financial statements and exhibits, and all
amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act, the Regulations, the
Exchange Act and the rules and regulations thereunder so as to permit
the continuance of sales of and dealings in the Shares for as long as
may be necessary to complete the distribution of the Shares as
contemplated hereby. The Company will comply with all of the
provisions of any undertakings contained in the Registration
Statement.
(vi) The Company will furnish such information as may be
required and otherwise cooperate in the registration or qualification
of the Shares, or exemption therefrom, for offering and sale by the
several Underwriters and by dealers under the securities or Blue Sky
laws of such jurisdictions in which the Representatives determine to
offer the Shares, after consultation with the Company, and will file
such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification;
provided, however, that no such qualification shall be required in
any jurisdiction where, solely as a result thereof, the Company would
be subject to taxation or qualification as a foreign corporation
doing business in such jurisdiction where it is not now so qualified
or to take any action which would subject it to service of process
in suits, other than those arising out of the offering or sale of the
Shares, in any jurisdiction where it is not now so subject. The
Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in
effect for so long a period as is required under the laws of such
jurisdictions for such offering and sale.
(vii) Subject to subsection (ii) of this Section 5(a), in case
of any event, at any time within the period during which, in the
opinion of counsel for the Underwriters, a prospectus is required to
be delivered under the Act and the Regulations, as a result of which
event any Preliminary Prospectus or the Prospectus, as then amended
or supplemented, would contain in the judgment of the Company or in
the opinion of counsel for the Underwriters an untrue statement of a
material fact, or omit to state any material fact necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, if it is necessary at any
time to amend any Preliminary Prospectus or the Prospectus to comply
with the Act and the Regulations or any applicable securities or Blue
Sky laws, the Company promptly will prepare and file with the SEC,
and any applicable state securities commission, an amendment or
supplement that will correct such statement or omission or an
amendment that will effect such compliance and will furnish to the
Representatives such
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<PAGE>
number of copies of such amendment or amendments or supplement or
supplements to the Prospectus, in form and substance satisfactory to
the Representatives and counsel for the Underwriters, as the
Representatives may reasonably request. For purposes of this
subsection, the Company will furnish such information to the
Representatives, the Underwriters' counsel and counsel to the
Company as shall be necessary to enable such persons to consult with
the Company with respect to the need to amend or supplement the
Prospectus, and shall furnish to the Representatives and the
Underwriters' counsel such further information as each may from time
to time reasonably request. If the Company and the Representatives
agree that the Prospectus should be amended or supplemented, the
Company, if requested by the Representatives, will, if and to the
extent required by law, promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or
supplement.
(viii) The Company will make generally available to its security
holders as soon as practicable and in any event not later than 45
days after the end of the period covered thereby, an earnings
statement of the Company, which need not be audited unless required
by the Act or the Regulations, that shall comply with Section 11(a)
of the Act and Rule 158 under the Regulations and cover a period of
at least 12 consecutive months beginning not later than the first day
of the Company's fiscal quarter next following the Effective Date.
(ix) For a period of five years from the Effective Date, the
Company will deliver to the Representatives: (i) a copy of each
report or document, including, without limitation, reports on Forms
8-K, 10-Q and 10-K (or such similar forms as may be designated by the
SEC), registration statements and any exhibits thereto, filed or
furnished to the SEC or any securities exchange or the NASD, on the
date each such report or document is so filed or furnished; (ii) as
soon as practicable, copies of any reports or communications
(financial or other) of the Company mailed to its security holders
and (iii) every material press release in respect of the Company or
its affairs that was released or prepared by the Company.
(x) For a period of three years from the Effective Date, the
Company will deliver to the Representatives, subject to execution of
an appropriate confidentiality agreement, such additional information
concerning the business and financial condition of the Company as the
Representatives may from time to time reasonably request in writing,
and which can be prepared or obtained by the Company without
unreasonable effort or expense.
(xi) Neither the Company nor any of its officers, directors or
affiliates will (A) take, directly or indi-
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rectly, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to cause or to
result in, or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares, (B) sell, bid
for, purchase or pay anyone any compensation for soliciting purchases
of, the Shares or (C) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities
of the Company.
(xii) The Company will cause each person listed on Schedule II
hereto to execute a legally binding and enforceable agreement (a
"lock-up agreement") in the form of Exhibit C hereto to, for a period
of 180 days from the Effective Date, not sell, offer to sell,
contract to sell, grant any option for the sale of or otherwise
transfer or dispose of any Common Shares, any options to purchase
Common Shares or any securities convertible into or exchangeable for
Common Shares (excluding the issuance of Common Shares pursuant to
the Employee Options) without the prior written consent of the
Representatives, which consent will not be unreasonably withheld,
which lock-up agreement shall be in form and substance satisfactory
to the Representatives and the Underwriters' counsel, and shall
deliver such agreement to the Representatives prior to the Effective
Date. Appropriate stop transfer instructions with respect to any
Common Shares held by such person will be issued by the Company to
the transfer agent for the Common Shares.
(xiii) The Company will not sell, issue, contract to sell, offer
to sell or otherwise dispose of any Common Shares, options to
purchase Common Shares or any other security convertible into or
exchangeable for Common Shares, from the date of the Effective Date
through the period ending 180 days after the Effective Date, without
the prior written consent of the Representatives, which consent shall
not be unreasonably withheld, except for (i) the sale of the Shares
as contemplated by this Agreement and the granting of options, (ii)
the issuance of Common Shares upon the exercise of options under the
Company's 1997 Equity Incentive Plan described in the Prospectus
and (iii) in connection with the acquisition of AEMI.
(xiv) The Company will use all reasonable efforts to maintain
the listing of the Common Shares on the Nasdaq NMS.
(xv) The Company shall, at its sole cost and expense, supply
and deliver to the Representatives and the Underwriters' counsel (in
the form they require), within a reasonable period from the Closing
Date, six transaction binders, each of which shall include the
Registration Statement, as amended or supplemented, all exhibits to
the
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Registration Statement, the Prospectus, the Preliminary Blue Sky
Memorandum and any supplement thereto and all other underwriting and
closing documents.
(xvi) Upon the Representatives' request, individually and not
as the Representatives of the several Underwriters, the Company shall
make available its stock transfer records for examination by the
Representatives at the offices of the Company's transfer agent for a
period of 12 months after the Effective Date.
(xvii) The Company will use the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance
with the description set forth in the Prospectus and shall file such
reports with the SEC with respect to the sale of such Shares and the
application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(xviii) Following the Closing Date, the Company shall nominate
as directors for election by the Company's stockholders and, to the
extent permitted by applicable law, shall use its best efforts to
effectuate such election so that for the three years following the
Effective Date, the Company's Board of Directors shall include three
individuals who are not affiliates of the Company or its affiliates.
(xix) If at any time during the period beginning on the
Effective Date and ending on the later of (A) the date 30 days after
such Effective Date and (B) the date that is the earlier of (1) the
date on which the Company first files with the SEC a Quarterly Report
on Form 10-Q after the Effective Date and (2) the date on which the
Company first issues a quarterly financial report to stockholders
after the Effective Date, (x) any publication or event relating to or
affecting the Company shall occur as a result of which in the
reasonable opinion of the Representatives the market price of the
Shares has been or is likely to be materially affected, regardless of
whether such publication or event necessitates an amendment of or
supplement to the Prospectus, the Company will, after written notice
from the Representatives advising the Company to the effect set forth
above, forthwith prepare, consult with the Representatives
concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to the Representatives,
responding to or commenting on such publication or event and (y) any
rumor relating to or affecting the Company shall occur as a result of
which in the reasonable opinion of the Representatives the market
price of the Shares has been or is likely to be materially affected,
regardless of whether such rumor necessitates an amendment of or
supplement to the Prospectus, the Company will consult with the
Representatives concerning the necessity of a press release or other
public statement, and, if
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<PAGE>
the Company determines that a press release or other public statement
is necessary, the Company will forthwith prepare, consult with the
Representatives concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to the
Representatives, responding to or commenting on such rumor.
(xx) For a period of three years following the Closing Date,
the Company grants Pennsylvania Merchant Group Ltd the right of first
refusal to act as the managing underwriter for any and all future
public offerings (excluding offerings to Company employees or to
others as consideration for the purchase of assets for use in the
Company's business or in one or more business combinations) of any
equity securities of the Company, or any successor to or any
subsidiary of the Company. Pennsylvania Merchant Group Ltd shall
notify the Company of the decision whether or not to exercise this
right of first refusal within 30 days of receipt of written notice of
the intention of the Company or its successor or subsidiary to offer
equity securities for sale.
(b) Covenants of the Selling Stockholder. The Selling Stockholder
covenants and agrees with each of the Underwriters:
(i) The Selling Stockholder will execute a lock-up agreement,
which lock-up agreement shall be in form of Exhibit C hereto, and
shall deliver such agreement to the Representatives prior to the
Effective Date. Appropriate stop transfer instructions with respect
to the Common Shares held by the Selling Stockholder, other than the
Optional Shares, will be issued by the Company to the transfer agent
for the Common Shares.
(ii) Neither the Selling Stockholder nor any of its officers,
directors or affiliates will (A) take, directly or indirectly, prior
to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facili-
tate the sale or resale of any of the Shares, (B) sell, bid for,
purchase or pay anyone any compensation for soliciting purchases of,
the Shares or (C) pay to or agree to pay any person any compensation
for soliciting another to purchase any other securities of the
Company.
(iii) The Selling Stockholder will not, without the prior
written consent of the Representatives, make any bid for or purchase
any Common Shares during the 180-day period following the date
hereof.
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<PAGE>
6. Payment of Expenses.
(a) Whether or not the transactions contemplated by this Agreement are
consummated and regardless of the reason this Agreement is terminated, the
Company and the Selling Stockholder will pay or cause to be paid, and bear or
cause to be borne, all costs and expenses incident to the performance of their
respective obligations under this Agreement pro rata based on the number of
Shares to be sold by the Company and the Selling Stockholder, including: (i) the
fees and expenses of the accountants and counsel for the Company incurred in
the preparation of the Registration Statement and any post-effective amendments
thereto (including financial statements and exhibits), the Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; (ii)
printing and delivery expenses associated with the Registration Statement and
any post-effective amendments thereto, the Preliminary Prospectus, the
Prospectus, this Agreement, the Agreement Among Underwriters, the Underwriters'
Questionnaire, the Power of Attorney, the Selected Dealer Agreement and related
documents and the Preliminary Blue Sky Memorandum and any supplement thereto;
(iii) the costs (other than fees and expenses of the Underwriters' counsel
except in connection with Blue Sky filings or exemptions as provided herein)
incident to the authentication, issuance, sale and delivery of the Shares to the
Underwriters; (iv) all taxes, if any, on the issuance, delivery and transfer of
the Shares to be sold by the Company and the Selling Stockholders; (v) the fees,
expenses and all other costs of qualifying the Shares for sale under the
securities or Blue Sky laws of those states in which the Shares are to be
offered or sold, including the reasonable fees and disbursements of
Underwriters' counsel and such local counsel as may have been reasonably
required and retained for such purpose; (vi) the fees, expenses and other costs
of, or incident to, securing any review or approvals by or from the NASD
exclusive of fees of the Underwriters' counsel; (vii) the filing fees of the
SEC; (viii) the cost of furnishing to the Underwriters copies of the
Registration Statement, the Preliminary Prospectuses and the Prospectuses as
herein provided; (ix) the Company's travel expenses in connection with meetings
with the brokerage community and institutional investors; (x) the costs and
expenses associated with settlement in same day funds (including, but not
limited to, interest or cost of funds expenses), if desired by the Company or
the Selling Stockholder; (xi) the fees for listing the Shares on the Nasdaq NMS;
(xii) the cost of printing certificates for the Shares; (xiii) the cost and
charges of any transfer agent; (xiv) the costs of advertising the offering,
including any "tombstone" advertisements and (xv) all other costs and expenses
reasonably incident to the performance of their respective obligations hereunder
that are not otherwise specifically provided for in this Section 6, provided
that except as specifically set forth in subsection (c) of this Section 6 the
Underwriters shall be responsible for their out-of-pocket expenses, including
those associated with meetings with the brokerage community and institutional
investors, other than the Company's travel ex-
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<PAGE>
penses, and the fees and expenses of their counsel for other than Blue Sky work.
(b) The Company shall pay as due any state registration, qualification
and filing fees and any accountable out-of-pocket disbursements in connection
with such registration, qualification or filing in the states in which the
Representatives determine, after consultation with the Company, to offer or sell
the Shares.
(c) In order to reimburse the Representatives for those costs and
expenses customarily incurred during the registration process: (i) if the
issuance and sale of the Offered Shares to the Underwriters is consummated as
contemplated by this Agreement, then the Company will pay the Representatives
on the Closing Date a non-accountable expense allowance in the amount of
$100,000 and (ii) in the event that the Underwriters are willing to proceed with
the offering of the Offered Shares at an initial public offering price per share
equal to or above the low end of the offering price range stated on the cover of
the Preliminary Prospectus circulated to the public and the Company elects not
to proceed with the offering of the Offered Shares for any reason, the Company
will reimburse the Representatives for their out-of-pocket expenses relating to
the offering of the Offered Shares (including but not limited to the fees and
disbursements of its counsel) in an amount not to exceed $150,000.
7. Conditions of the Underwriters' Obligations. The obligation of each
Underwriter to purchase and pay for the Offered Shares that it has agreed to
purchase hereunder on the Closing Date, and to purchase and pay for any Optional
Shares as to which it exercises its right to purchase under Section 4 on any
Option Closing Date, is subject at the date hereof, the Closing Date and any
Option Closing Date to the continuing accuracy of the respective representations
and warranties of the Company and of the Selling Stockholder set forth herein,
to the performance by the Company and by the Selling Stockholder of their
respective covenants and obligations hereunder and to the following additional
conditions precedent:
(a) The Registration Statement shall have become effective not
later than 5:30 p.m., Philadelphia time, on the date of this Agreement, or
at such later time or on such later date as the Representatives may agree
to in writing; if required by the Regulations, the Prospectus shall have
been filed with the SEC pursuant to Rule 424(b) of the Regulations within
the applicable time period prescribed for such filing by the Regulations
and in accordance with subsection (a) of Section 5 hereof; on or prior to
the Closing Date or any Option Closing Date, as the case may be, no stop
order or other order preventing or suspending the effectiveness of the
Registration Statement or the sale of any of the Shares shall have been
issued under the Act or any state securities law and no proceedings for
that purpose shall have been initiated or shall be pending or, to the
Representatives' knowledge or the knowledge of the Company, shall be
contemplated
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by the SEC or by any authority in any jurisdiction designated by the
Representatives pursuant to subsection (f) of Section 5 hereof and any
request on the part of the SEC for additional information shall have been
complied with to the reasonable satisfaction of counsel to the
Underwriters.
(b) All corporate proceedings and other matters incident to the
authorization, form and validity of this Agreement, the Shares and the form
of the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby, shall be satisfactory in all respects to counsel to the
Underwriters; the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters; and the Representatives shall have received from
the Underwriters' counsel, Duane, Morris & Heckscher, a favorable opinion,
dated as of the Closing Date and any Option Closing Date, as the case may
be, and addressed to the Representatives individually and as the
Representatives of the several Underwriters with respect to the due
authorization, execution and delivery of this Agreement, that the issuance
and sale of the Shares have been duly authorized by the Company and the
Selling Stockholder, that when the Offered Shares have been duly delivered
against payment therefor as contemplated by this Agreement, they will be
validly issued, fully paid and nonassessable and that the Registration
Statement has become effective under the Act.
(c) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of any of the Shares.
(d) The Representatives shall have received copies of the lock-up
agreements described in subsection (xii) of Section 5(a) and subsection (i)
of Section 5(b) signed by those persons set forth on Schedule II annexed
hereto.
(e) The Representatives shall have received at or prior to the
Closing Date from the Underwriters' counsel a memorandum or summary, in
form and substance satisfactory to the Representatives, with respect to
the qualification for offering and sale by the Underwriters of the Shares
under the securities or Blue Sky laws of such jurisdictions designated by
the Representatives pursuant to subsection (vii) of Section 5(a) hereof.
(f) On the Closing Date and any Option Closing Date, there shall
have been delivered to the Representatives a signed opinion of Blank Rome
Comisky & McCauley, counsel for the Company ("Company Counsel"), dated as
of each such date and addressed to the Representatives individually and as
the Representatives of the several Underwriters to the effect that:
(i) The Company has been incorporated and is validly existing
and in good standing under the laws of Delaware, with corporate power
and authority to own or lease and
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operate its properties and to conduct its business as described in
the Prospectus and to execute, deliver and perform this Agreement.
The Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions in which it owns or
leases properties, or conducts any business, so as to require such
qualification, except where the failure so to qualify would not have
a material adverse effect on the general affairs, properties,
condition (financial or otherwise), results of operations,
stockholders' equity or business of the Company. To the knowledge of
Company Counsel, the Company does not own any stock or other equity
interest in any corporation, partnership or other entity other than
the Subsidiaries.
(ii) Each Subsidiary has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and
authority to own or lease its properties and conduct its business as
described in the Prospectus. Each Subsidiary is duly qualified to
transact business as a foreign corporation and is in good standing
under the laws of each other jurisdiction in which it owns or leases
property, or conducts any business, so as to require such
qualification, except where the failure so to qualify would not have
a material adverse effect on the general affairs, properties,
condition (financial or otherwise), results of operations,
stockholders' equity or business of the Company and its Subsidiaries.
(iii) This Agreement has been duly authorized, executed and
delivered by the Company.
(iv) The execution, delivery and performance of this Agreement
by the Company and the Selling Stockholder does not and will not,
with or without the giving of notice or the lapse of time, or both,
(A) conflict with any terms or provisions of the Certificate of
Incorporation or By-laws, as amended to the date hereof of each of
the Company, the Selling Stockholder or the Subsidiaries; (B) result
in a breach of, or constitute a default under, result in the
termination or modification of or result in the creation or
imposition of any lien, security interest, charge or encumbrance
upon any of the properties of the Company, the Selling Stockholder or
any Subsidiary pursuant to, any indenture, mortgage, deed of trust,
contract, commitment or other agreement or instrument, known to
Company Counsel, to which the Company, the Selling Stockholder or any
Subsidiary is a party or by which any of the properties or assets of
the Company, the Selling Stockholder or any Subsidiary is bound or
subject or (C) violate any law, rule or regulation, or any judgment,
order or decree, known to Company Counsel, of any government or
governmental agency, instrumentality or court, domestic or foreign,
having jurisdiction over the Company, the Selling Stockholder or any
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Subsidiary or any of the properties of the Company, the Selling
Stockholder or any Subsidiary.
(v) The Company has the authorized and outstanding
capitalization as set forth in the Prospectus. There are no options
or warrants for the purchase of, other outstanding rights to
purchase, agreements or obligations to issue or agreements or other
rights to convert or exchange any obligation or security into,
capital stock of the Company or securities convertible into or
exchangeable for capital stock of the Company, except as described in
the Registration Statement or the Prospectus.
(vi) The authorized capital stock of the Company, including,
without limitation, the outstanding Common Shares and the Shares
being issued on the Closing Date and any Option Closing Date,
conforms in all material respects with the descriptions thereof in
the Prospectus, and such descriptions conform in all material
respects with the descriptions thereof set forth in the instruments
defining the same. The information in the Prospectus insofar as it
relates to the Employee Options is true and correct in all material
respects.
(vii) The Common Shares outstanding immediately prior to the
Closing Date, including the Common Shares to be sold by the Selling
Stockholder, have been duly authorized and are validly issued, fully
paid and nonassessable; the Employee Options have been duly
authorized and validly issued and are legal, valid and binding
obligations, enforceable against the Company in accordance with
their respective terms; the Common Shares issuable pursuant to the
Employee Options, when issued in accordance with the respective terms
thereof, will be duly authorized and validly issued, fully-paid and
nonassessable; the Company has reserved a sufficient number of Common
Shares for issuance pursuant to the Employee Options, and none of
such outstanding Common Shares or Employee Options are, and none of
such issuable Common Shares will be, issued in violation of any
preemptive rights, known to Company Counsel, of any security holder
of the Company that have not been waived.
(viii) All of the issued shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are
fully paid and non-assessable, and, except for AEMI, are, and, in the
case of AEMI, will be, owned beneficially by the Company free and
clear of all liens, security interests, pledges, charges,
encumbrances, stockholders agreements, voting trusts, defects,
equities or claims of any nature whatsoever. To such counsel's
knowledge, other than the subsidiaries listed on Exhibit 21.1 to the
Registration Statement, the Company does not own, directly or
indirectly, any capital stock or other equity securities of any other
corporation or any ownership interest in any partnership, joint
venture or other association.
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(ix) The issuance and sale of the Shares by the Company have
been duly authorized and, when the Shares have been duly delivered
against payment therefor as contemplated by this Agreement, the
Shares will be validly issued, fully paid and nonassessable. None of
the Shares will be issued in violation of any preemptive rights of
any stockholder of the Company pursuant to the Certificate of
Incorporation or By-laws, as amended to the date hereof, of the
Company and, to the knowledge of Company Counsel, there are no
contractual preemptive rights that have not been waived that exist
with respect to the Shares. The certificates representing the Shares
are in proper legal form under, and conform in all respects to the
requirements of, the DGCL. To the knowledge of Company Counsel,
neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives any
security holder of the Company any rights, other than those which
have been waived, for or relating to the registration of any Common
Shares and there are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person.
(x) No consent, approval, authorization, order, registration,
license or permit of any court, government, governmental agency,
instrumentality or other regulatory body or official is required for
the valid authorization, issuance, sale and delivery by the Company
or the Selling Stockholder of any of the Shares or for the execution,
delivery or performance by the Company or the Selling Stockholder of
this Agreement, except such as may be required for the registration
of the Shares under the Act, the Regulations or the Exchange Act, or
for compliance with the applicable state securities or Blue Sky laws,
or the By-laws, rules and other pronouncements of the NASD.
(xi) The descriptions contained in the Registration Statement
and the Prospectus of statutes or regulations, legal and governmental
proceedings and of contracts and other documents are accurate in all
material respects and fairly present in all material respects the
information required to be shown. To Company Counsel's knowledge,
there are no contracts, agreements or other documents required to be
described or referred to in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
under the Act or the Regulations that have not been so described,
referred to or filed as required.
(xii) To Company Counsel's knowledge, there are no claims,
actions, suits, proceedings, arbitrations, investigations or
inquiries pending before, or threatened or contemplated by, any
governmental agency, instrumentality,
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court or tribunal, domestic or foreign, or before any private
arbitration tribunal, to which the Company is a party or is
threatened to be made a party that, if determined adversely to the
Company, would, in any case or in the aggregate, result in any
material adverse change in the general affairs, properties, condition
(financial or otherwise), results of operations, stockholders'
equity or business of the Company and the Subsidiaries.
(xiii) The Registration Statement has become effective under
the Act, as of the Effective Date, and, to Company Counsel's
knowledge, the SEC has not issued any stop order suspending the
effectiveness of the Registration Statement, nor has the SEC
instituted or threatened to institute proceedings with respect to any
such order. Any and all filings required to be made by Rule 424 and
Rule 430A under the Act have been made.
(xiv) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its
effective or issue date (except for the financial statements and
notes thereto, and related schedules, included therein or omitted
therefrom, as to which Company Counsel need not express an opinion)
comply as to form in all material respects with the applicable
requirements of the Act and Regulations.
(xv) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940.
(xvi) Company Counsel has participated in the preparation of
the Registration Statement and the Prospectus, including reviews and
discussions of the contents thereof, and while such Counsel has no
particular expertise with respect to the financial statements and
notes thereto and related schedules and the technical and scientific
information contained in the Prospectus, and is not passing upon the
accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, other than those
specifically referred to in the other clauses of this subsection (f)
of this Section 7, in the course of such reviews and discussions, no
facts came to its attention that would cause it to have reason to
believe that (A) the Registration Statement or any post-effective
amendment thereto, on the date it became effective and on the Closing
Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that (B)
the Prospectus on the Effective Date, on the date it was filed
pursuant to Rule 424(b) and on the Closing Date or Option Closing
Date, as the case may
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be, contained any untrue statement of material fact or omitted any
material fact necessary to make the statements therein, in light of
the circumstances under which made, not misleading.
(xvii) Nothing has come to the attention of Company Counsel
which causes it to believe that there exists any defect in title or
leasehold interest, or any lien, claim or encumbrance which would
materially affect the use made and, to such Counsel's knowledge,
proposed to be made, of any of the personal or real property of the
Company and the Subsidiaries.
(xviii) Nothing has come to the attention of Company Counsel
that causes it to believe that each of the Company and the
Subsidiaries does not have all licenses, permits, certifications,
registrations, approvals, consents and franchises (collectively,
"Permits") required to own or lease and operate its properties and to
conduct its business as described in the Prospectus in all material
respects or that there are any proceedings pending or threatened
against the Company or any Subsidiary that may cause any such Permit
that is material to the conduct of the business of the Company or any
of the Subsidiaries as presently conducted to be revoked, withdrawn,
canceled, suspended or not renewed.
(xix) The Common Shares have been approved for inclusion on the
Nasdaq National Market.
The foregoing opinion may be limited to the laws of the United States
and the DGCL and Company Counsel may rely as to certain legal matters on
other counsel to the Company provided that in each case, Company Counsel
shall state that they believe that they and the Underwriters are justified
in relying on such other counsel and shall deliver signed copies of any
such opinion to the Representatives and as to questions of fact upon the
representations of the Company set forth in this Agreement and upon
certificates of officers of the Company and of government officials, all
of which certificates must be reasonable and satisfactory in form and scope
to counsel to the Underwriters provided that in each case, Company Counsel
shall deliver signed copies of any such certificate to the Representatives.
(g) On the Closing Date and any Option Closing Date, there shall
have been delivered to the Representatives a signed opinion of Blank Rome
Comisky & McCauley, counsel to the Selling Stockholder, dated as of each
such date and addressed to the Representatives, individually and as
Representatives of the several Underwriters, in form and substance
satisfactory to counsel to the Underwriters, to the effect that:
(i) The Selling Stockholder is an existing corporation in good
standing under the laws of the State of Israel. The Selling
Stockholder has full power and authority
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to own its assets and to conduct its business as described in the
Prospectus and is duly qualified to do business in each jurisdiction
in which it owns or leases real property or in which the conduct of
its business requires such qualification.
(ii) This Agreement and the Agreement and Power of Attorney
have been duly authorized, executed and delivered by or on behalf of
the Selling Stockholder; to the best of such counsel's knowledge, the
sale of the Shares to be sold by the Selling Stockholder at the
Option Closing Date and the performance of this Agreement and the
Agreement and Power of Attorney and the consummation of the
transactions therein and herein contemplated will not, in any
material respect, conflict with, or, with or without the giving of
notice or the passage of time or both, result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which such
Selling Stockholder is a party or to which any of its properties or
assets is subject, nor will such action conflict with or violate any
provision of the charter documents or Bylaws of the Selling
Stockholder or any statute, rule or regulation or, to the best of
such counsel's knowledge, any order, judgment or decree of any court
or governmental agency or body having jurisdiction over the Selling
Stockholder or any of the Selling Stockholder's properties or
assets.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing
with, any court or governmental agency or body is required for the
issue and sale of the Shares being sold by the Selling Stockholder or
the consummation of the transactions contemplated by this Agreement
and the Agreement and Power of Attorney, except the registration of
such Shares under the Act and such as may be required under the state
securities or blue sky laws in connection with the offer, sale and
distribution of such Shares by the Underwriters.
(iv) To the best of such counsel's knowledge, the Selling
Stockholder has, and immediately prior to the Option Closing Date the
Selling Stockholder will have, good and valid title to the Shares to
be sold by the Selling Stockholder hereunder, free and clear of all
liens, security interests, pledges, charges, encumbrances, defects,
stockholders' agreements, voting trusts, equities or claims of any
nature whatsoever; and, upon delivery of such Shares against payment
therefor as provided herein, good and valid title to such Shares,
free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, stockholders' agreements, voting trusts,
equities or claims of any nature whatsoever, will pass to the several
Underwriters.
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(v) There are no transfer or similar taxes payable in
connection with the sale and delivery of the Optional Shares by the
Selling Stockholder to the Underwriters.
In rendering such opinion, such counsel may relay as to certain legal
matters on other legal counsel to the Selling Stockholder provided
that, in each case, such counsel shall state that they believe that
they and the Underwriters are justified in relying on such other
counsel and shall deliver signed copies of any such opinion to the
Representatives and, as to questions of fact, upon the
representations of the Selling Stockholder set forth in this
Agreement and upon certificates of officers of the Selling
Stockholder and of government officials, all of which certificates
must be reasonable and satisfactory in form and scope to counsel to
the Underwriters provided that in each case, such counsel shall
deliver signed copies of any such certificate to the Representatives.
(h) At the Closing Date and any Option Closing Date: (i) the
Registration Statement and any post-effective amendment thereto and the
Prospectus and any amendments or supplements thereto shall contain all
statements that are required to be stated therein in accordance with the
Act and the Regulations and in all material respects shall conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor any post-effective amendment thereto nor the Prospectus and
any amendments or supplements thereto shall contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; (ii) since the
respective dates as of which information is given in the Registration
Statement and any post-effective amendment thereto and the Prospectus and
any amendments or supplements thereto, except as otherwise stated therein,
there shall have been no material adverse change in the properties,
condition (financial or otherwise), results of operations, stockholders'
equity, business or management of the Company and the Subsidiaries from
that set forth therein, whether or not arising in the ordinary course of
business, other than as referred to in the Registration Statement or the
Prospectus; (iii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus or any amendment or
supplement thereto, there shall have been no transaction, contract or
agreement entered into by the Company or any Subsidiary, other than in the
ordinary course of business and as set forth in the Registration Statement
or the Prospectus, that has not been, but would be required to be, set
forth in the Registration Statement or the Prospectus and (iv) no action,
suit or proceeding at law or in equity shall be pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary
that would be required to be set forth in the Prospectus, other than as set
forth therein, and no proceedings shall be pending or, to the knowledge of
the Company, threatened against the Company or any Subsidiary before or by
any federal, state or other commission,
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board or administrative agency wherein an unfavorable decision, ruling or
finding would materially adversely affect the properties, condition
(financial or otherwise), results of operations, stockholders' equity or
business of the Company and the Subsidiaries other than as set forth in
the Prospectus. The Representatives shall have received at the Closing
Date certificates of the Chief Executive Officer and the Chief Financial
Officer of the Company dated as of the date of the Closing Date or Option
Closing Date, as the case may be, and certificates of the Chief Executive
Officer and the Chief Financial Officer of the Selling Stockholder dated as
of the date of any Option Closing Date, and addressed to the
Representatives, individually and as the Representatives of the several
Underwriters, to the effect, to the knowledge of such persons, that the
conditions set forth in this subsection have been satisfied and as to the
accuracy and performance, to the knowledge of such persons, as of the
Closing Date or the Option Closing Date, as the case may be, of the
agreements, representations and warranties of the Company set forth herein
and as to the accuracy and performance to the knowledge of such persons, as
of the Option Closing Date, the agreements, representations and warranties
of the Selling Stockholder set forth herein.
(i) At the time this Agreement is executed and at the Closing Date
and any Option Closing Date, the Representatives shall have received a
letter addressed to the Representatives, individually and as the
Representatives of the several Underwriters, and in form and substance
satisfactory to the Representatives in all respects, including the non-
material nature of the changes or decreases, if any, referred to in clause
(iv) below, from Ernst & Young LLP dated as of the date of this Agreement,
the Closing Date or any Option Closing Date, as the case may be:
(i) confirming that they are independent public accountants
with respect to the Company and its consolidated subsidiaries within
the meaning of the Act and the Regulations and stating that the
section of the Registration Statement under the caption "Experts" is
correct insofar as it relates to them;
(ii) stating that, in their opinion, the consolidated financial
statements of the Company and the Subsidiaries (other than AEMI)
audited by them and included in the Registration Statement and in the
Prospectus comply in form in all material respects with the
applicable accounting requirements of the Act and the Regulations;
(iii) the consolidated financial statements of the Company and
the Subsidiaries (other than AEMI) as of and for the three-month
period ended March 31, 1997, were reviewed by them in accordance with
the standards established by the American Institute of Certified
Public Accountants and based upon their review they are not aware of
any material modifications that should be made to such
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financial statements for them to be in conformity with generally accepted
accounting principles, and such financial statements comply as to form in
all material respects with the applicable accounting requirements of the
Act and the Regulations thereunder;
(iv) stating that, on the basis of specified procedures, not
constituting an audit in accordance with generally accepted accounting
principles, which included a reading of the unaudited interim consolidated
financial statements of the Company and the Subsidiaries (other than AEMI)
for period ended March 31, 1997, a reading of the minutes of the meetings
of the stockholders and the Board of Directors of the Company and audit and
compensation committees of such Board, if any, and inquiries to certain
officers and other employees of the Company who are responsible for
financial and accounting matters and other specified procedures and
inquiries, nothing has come to their attention that would cause them to
believe that (A) the unaudited consolidated financial statements and
related schedules of the Company and the Subsidiaries included in the
Registration Statement, if any (1) do not comply in form in all material
respects with the applicable accounting requirements of the Act and the
Regulations or (2) were not fairly presented in conformity with generally
accepted accounting principles on a basis substantially consistent with
that of the audited consolidated financial statements and related schedules
included in the Registration Statement or (B)(1) at a specified date, not
more than five business days prior to the date of such letter, there was
more than a 10% change in the capital stock, inventories or short-term or
long-term debt of the Company and the Subsidiaries or any decrease
(increase) of more than 10% in net current assets, total assets or
stockholders' equity compared with the amounts shown in the March 31, 1997
consolidated balance sheet of the Company included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement and the Prospectus, or if there was any such change or decrease
(increase), setting forth the amount of such change or decrease
(increase), and (2) during the period from March 31, 1997 to a specified
date not more than five business days prior to the date of such letter,
there has been any decrease of more than 10% in revenues or any increase of
more than 10% in loss before interest income (expense), net and taxes or
net loss of the Company and the Subsidiaries on a consolidated basis other
than as set forth in or contemplated by the Registration Statement or the
Prospectus; and
(v) stating that they have compared specific dollar amounts,
percentages, numbers of shares and other information (including pro forma
information) pertaining to the Company and the Subsidiaries set forth in
the Registration Statement and the Prospectus that have been specified by
the Representatives prior to the date of this Agreement, to
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the extent that such amounts, percentages, numbers and information may be
derived from the general accounting or other records of the Company and the
Subsidiaries, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures, which procedures do
not constitute an audit in accordance with generally accepted auditing
standards, set forth in the letter, and found them to be in agreement.
(vi) in the event that the letters referred to in this Section 7(i)
set forth any changes, decreases or increases in the items specified in
subsection (v) of this Section 7(i), it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied
by a written explanation by the Company as to the significance thereof,
unless the Representatives deem such explanation unnecessary, and (B) such
changes, decreases or increases do not, in their sole judgment, make it
impractical or inadvisable to proceed with the purchase, sale and delivery
of the Shares being delivered at the Closing Date or any Option Closing
Date, as the case may be, as contemplated by the Registration Statement,
as amended as of the date of such letter.
(j) At the time the Agreement is executed and at the Closing Date and any
Option Closing Date, the Representatives shall have received a letter addressed
to the Representatives individually and as the Representatives of the several
Underwriters, and in form and substance satisfactory to the Representatives in
all respects, from Messina, Ceci, Archer & Company, P.C. dated as of the date of
this Agreement, the Closing Date or any Option Closing Date, as the case may be:
(i) confirming that they are independent public accountants with
respect to Flam & Russell within the meaning of the Act and the Regulations
and stating that the section of the Registration Statement under the
caption "Experts" is correct insofar as it relates to them; and
(ii) stating that, in their opinion, the financial statements of Flam
& Russell audited by them and included in the Registration Statement and in
the Prospectus comply in form in all material respects with the applicable
accounting requirements of the Act and the Regulations.
(k) There shall have been duly tendered to the Representatives for the
respective accounts of the Underwriters certificates representing all of the
Shares to be purchased by the Underwriters on the Closing Date or any Option
Closing Date, as the case may be.
(l) At the Closing Date and any Option Closing Date, the Representatives
shall have been furnished such additional documents and certificates as they
shall reasonably request.
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(m) No action shall have been taken by the NASD the effect of which is to
make it improper, at any time prior to the Closing Date or any Option Closing
Date, for members of the NASD to execute transactions as principal or as agent
in the Shares or to trade or deal in the Shares, and no proceedings for the
purpose of taking such action shall have been instituted or shall be pending or,
to the Company's or the Representatives' knowledge, shall be contemplated by the
NASD.
If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or any Option Closing Date, as the case may be,
is not fulfilled, the Representatives may on behalf of the several Underwriters
terminate this Agreement or, if they so elect, waive any such conditions which
have not been fulfilled or extend the time for their fulfillment.
8. Indemnification.
(a) The Company and the Selling Stockholder, jointly and severally, shall
indemnify and hold harmless each Underwriter, and each person, if any, who
controls each Underwriter within the meaning of the Act or the Exchange Act,
against any and all loss, liability, claim, damage and expense whatsoever,
whether joint or several, to which such Underwriter may become subject, under
the Act or otherwise, including, but not limited to, any and all expense
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever or in connection
with any investigation or inquiry of, or action or proceeding that may be
brought against, the respective indemnified parties, arising out of or based
upon any untrue statements or alleged untrue statements of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any application or other document (in this Section 8
collectively called "application") executed by the Company and based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify all or any part of the Shares under the
securities laws thereof or filed with the SEC or the NASD, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing
indemnity of the Company and the Selling Stockholder (i) shall not apply in
respect of any statement or omission made in reliance upon and in conformity
with written information furnished to the Company by any Underwriter through
the Representatives expressly for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment thereto or
supplement thereof, or in any application or in any communication to the SEC,
as the case may be, (ii) with respect to any Preliminary Prospectus, shall not
inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages, liabilities or expenses purchased the Shares
that are the subject thereof (or to the benefit of any person
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controlling such Underwriter) if at or prior to the written confirmation of
the sale of such Shares a copy of an amended Preliminary Prospectus or the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the amended
Preliminary Prospectus or Prospectus (or the Prospectus as amended or
supplemented) and (iii) the Selling Stockholder's total liability under
this Section 8 shall be limited to an amount equal to the purchase price
received by the Selling Stockholder from the sale of the Optional Shares by
it pursuant to this Agreement. Neither the Company nor the Selling Stock-
holder will, without the prior written consent of the Underwriters, settle
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of action
or portion thereof) in respect of which indemnification may be sought
hereunder, whether or not any Underwriter is a party to such claim, action,
suit or proceeding, unless such settlement, compromise or consent includes
an unconditional release of each Underwriter from all liability arising out
of such claim, action, suit or proceeding (or related cause of action or
portion thereof). This indemnity agreement will be in addition to any
liability the Company or the Selling Stockholder may otherwise have.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company and the Selling Stockholder, each of the
directors of the Company and the Selling Stockholder, each of the officers
of the Company who shall have signed the Registration Statement and each
other person, if any, who controls the Company or the Selling Stockholder
within the meaning of the Act or the Exchange Act to the same extent as the
foregoing indemnities from the Company and the Selling Stockholder to the
several Underwriters, but only with respect to any loss, liability, claim,
damage or expense resulting from statements or omissions, or alleged
statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereto or
supplement thereof or any application in reliance upon, and in conformity
with written information furnished to the Company by any Underwriter
through the Representatives with respect to any Underwriter by or on behalf
of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any amendment thereto or
supplement thereof or any application, as the case may be, or from the
failure of any Underwriter at or prior to the written confirmation of the
sale of Shares to send or deliver a copy of an amended Preliminary
Prospectus or the Prospectus (or the Prospectus as amended or supplemented)
to the person asserting any such losses, claims, damages, liabilities or
expenses who purchased the Shares that are the subject thereof and the
untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the amended Preliminary Prospectus
or Prospectus (or the Prospectus as amended or supplemented). This
indemnity
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<PAGE>
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) If any action, inquiry, investigation or proceeding is brought
against any person in respect of which indemnity may be sought pursuant to
any of the two preceding paragraphs, such person (hereinafter called the
"indemnified party") shall, promptly after formal notification of, or
receipt of service of process for, such action, inquiry, investigation or
proceeding, notify in writing the party or parties against whom
indemnification is to be sought (hereinafter called the "indemnifying
party") of the institution of such action, inquiry, investigation or
proceeding and the indemnifying party, upon the request of the indemnified
party, shall assume the defense of such action, inquiry, investigation or
proceeding, including the employment of counsel, reasonably satisfactory to
such indemnified party, and payment of expenses. No indemnification
provided for in this Section 8 shall be available to any indemnified party
who shall fail to give such notice if the indemnifying party does not have
knowledge of such action, inquiry, investigation or proceeding and shall
have been materially prejudiced by the failure to give such notice, but the
omission so to notify the indemnifying party shall not relieve the
indemnifying party otherwise than under this Section 8. Such indemnified
party or controlling person shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless the employment of such
counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action or the indemnifying party shall
not have employed counsel to have charge of the defense of such action,
inquiry, investigation or proceeding or such indemnified party or parties
shall have been advised by counsel that there is a conflict of interest
that would prevent counsel to the indemnifying party from representing both
parties, in any of which events the reasonable fees and expenses of such
counsel shall be borne by the indemnifying party. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses
of more than one separate counsel, in addition to one local counsel in each
jurisdiction in which any proceeding may be brought, for all indemnified
parties. In the case of any such separate counsel for the Underwriters,
such firm shall be designated in writing by the Representatives. Expenses
covered by the indemnification in this subsection (c) of this Section 8
shall be paid by the indemnifying party as they are incurred by the
indemnified party. Anything in this subsection to the contrary notwith-
standing, the indemnifying party shall not be liable for any settlement of
any such claim effected without its written consent. The indemnifying party
shall promptly notify the indemnified party of the commencement of any
litigation, inquiry, investigation or proceeding against the indemnifying
party or any of its officers or directors in connection with the issue and
sale of any of the Shares or in connection with such
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<PAGE>
Preliminary Prospectus, Registration Statement or Prospectus, or any
amendment thereto or supplement thereof or any such application.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsections (a) or (b) of this Section 8 in respect of any losses,
liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof) referred to therein
except either by reason of the proviso set forth in subsection (a) or the
failure to give notice as required in subsection (c) (provided that the
indemnifying party does not have knowledge of the action, inquiry,
investigation or proceeding and has been materially prejudiced by the
failure to give such notice), then each indemnifying party shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, liabilities, claims, damages or expenses (or actions, inquiries,
investigations or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Selling Stockholder on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or
the indemnified party failed to give the notice required under subsection
(c) then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Stockholder on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted
in such losses, liabilities, claims or reasonable expenses (or actions,
inquiries, investigations or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company and the Selling Stockholder bear to the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company and the Selling Stockholder on the one
hand or the Underwriters on the other hand and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Stockholder
and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to above
-43-
<PAGE>
in this subsection (d). The amount paid or payable by an indemnified party
as a result of the losses, liabilities, claims, damages or reasonable
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
9. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Date and any Option Closing Date; and such
representations, warranties and agreements of the Underwriter, the Company and
the Selling Stockholder, including without limitation the indemnity and
contribution agreements contained in Section 8 hereof and the agreements
contained in Sections 6, 9, 10 and 13 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person thereof, and shall survive delivery of the
Shares and termination of this Agreement, whether before or after the Closing
Date or any Option Closing Date. With respect to any obligation of the Company
and the Selling Stockholder hereunder to make any payment, to indemnify for any
liability or to reimburse for any expense, notwithstanding the fact that such
obligation is a joint and several obligation of the Company and the Selling
Stockholder, the Underwriters, or any other person to whom such payment,
indemnification or reimbursement is owed, may pursue the Company with respect
thereto prior to pursuing the Selling Stockholder.
10. Effective Date of this Agreement and Termination Thereof.
(a) This Agreement shall become effective immediately as to Sections
6, 8, 9, 10 and 13 and, as to all other provisions, (i) if at the time of
execution and delivery of this Agreement the Registration Statement has not
become effective, at 11:00 a.m., Philadelphia time, on the first business
day following the Effective Date, or (ii) if at the time of execution and
delivery of this Agreement the Registration Statement has been declared
effective, at 11:00 a.m., Philadelphia time, on the date of execution of
this Agreement; but this Agreement shall nevertheless become effective at
such earlier time after the Registra-
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<PAGE>
tion Statement becomes effective as the Representatives may determine by
notice to the Company or by release of any of the Shares for sale to the
public. For the purposes of this Section 10, the Shares shall be deemed to
have been so released upon the release for publication of any newspaper
advertisement relating to the Shares or upon the release by the
Representatives of telegrams (i) advising the Underwriters that the Shares
are released for public offering or (ii) offering the Shares for sale to
securities dealers, whichever may occur first. The Representatives may
prevent the provisions of this Agreement (other than those contained in
Sections 6, 8, 9, 10 and 13) from becoming effective without liability of
any party to any other party, except as noted below, by giving the notice
indicated in subsection (c) of this Section 10 before the time the other
provisions of this Agreement become effective.
(b) The Representatives shall have the right to terminate this
Agreement at any time prior to the Closing Date as provided in Sections 7
and 11 hereof or if any of the following have occurred: (i) since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and the Subsidiaries,
or the earnings, business affairs, management or business prospects of the
Company and the Subsidiaries, whether or not arising in the ordinary course
of business; (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic, political or
financial market conditions if such outbreak, calamity, crisis or change
would, in the Representatives' reasonable judgment, have a material adverse
effect on the Company, the financial markets of the United States or the
offering or delivery of the Shares; (iii) suspension of trading generally
in securities on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities or the
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which in the Representatives'
reasonable opinion materially and adversely affects trading on such
Exchange or the over-the-counter market; (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation,
rule or order of any court or other governmental authority which in the
Representatives' reasonable opinion materially and adversely affects or
will materially or adversely affect the business or operations of the
Company and the Subsidiaries; (v) declaration of a banking moratorium by
either federal or state authorities; (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Representatives' reasonable opinion has a
material adverse effect on the securities markets in the United States;
(vii) declaration of a moratorium in foreign exchange trading by major
international banks or other institutions or (viii) trading in
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<PAGE>
any securities of the Company shall have been suspended or halted by the
NASD or the SEC.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 10, the Representatives shall notify the Company and the Selling
Stockholder thereof promptly by telephone, telex, telegraph, telegram or
facsimile, confirmed by letter.
11. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Offered Shares or Optional Shares hereunder, and if
the Offered Shares or Optional Shares with respect to which such default
relates do not exceed the aggregate of 10% of the number of Offered Shares
or Optional Shares, as the case may be, that all Underwriters have agreed
to purchase hereunder, then such Offered Shares or Optional Shares to which
the default relates shall be purchased severally by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
(b) If such default relates to more than 10% of the Offered Shares or
the Optional Shares, as the case may be, the Representatives may in their
discretion arrange for another party or parties (including a non-defaulting
Underwriter) to purchase such Offered Shares or Optional Shares to which
such default relates, on the terms contained herein. In the event that the
Representatives do not arrange for the purchase of the Offered Shares or
the Optional Shares to which a default relates as provided in this Section
11, this Agreement may be terminated by the Representatives or by the
Company, in the case of the Offered Shares, or by the Representatives or by
the Selling Stockholder, in the case of the Optional Shares, without
liability on the part of the several Underwriters (except as provided in
Section 8 hereof) or the Company or the Selling Stockholder (except as
provided in Sections 6 and 8 hereof), but nothing herein shall relieve a
defaulting Underwriter of its liability, if any, to the other several
Underwriters and to the Company or the Selling Stockholder for damages
occasioned by its default hereunder.
(c) If the Offered Shares or Optional Shares to which the default
relates are to be purchased by the non-defaulting Underwriters, or are to
be purchased by another party or parties as aforesaid, the Representatives
or the Company shall have the right to postpone the Closing Date or the
Representatives or the Selling Stockholder shall have the right to postpone
any Option Closing Date, as the case may be, for a reasonable period but
not in any event exceeding seven days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the
Prospectus or in any other documents and arrangements, and the Company
agrees to file promptly any amendment to the Registration Statement or
supplement to the
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<PAGE>
Prospectus which in the opinion of counsel for the Underwriters may thereby
be made necessary. The terms "Underwriters" and "Underwriter" as used in
this Agreement shall include any party substituted under this Section 11
with like effects as if it had originally been a party to this Agreement
with respect to such Offered Shares or Optional Shares.
12. Information Furnished by Underwriters. The statement set forth on the
inside cover page regarding stabilization and under the caption "Underwriting"
in any Preliminary Prospectus and the Prospectus constitutes the written
information furnished by or on behalf of any Underwriter referred to in
subsection (ii) of Section 1(a) hereof and subsection (a) and (b) of Section 8
hereof.
13. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to any Underwriter,
shall be mailed, delivered, telexed, telegrammed, telegraphed or telecopied and
confirmed to such Underwriter, c/o Pennsylvania Merchant Group Ltd, Four Falls
Corporate Center, West Conshohocken, Pennsylvania 19428, Attention: Mr. Richard
A. Hansen, with a copy to Duane, Morris & Heckscher, 4200 One Liberty Place,
Philadelphia, Pennsylvania 19103, Attention: Frederick W. Dreher, Esquire; or if
sent to the Company or the Selling Stockholder shall be mailed, delivered,
telexed, telegrammed, telegraphed or telecopied and confirmed to Orbit/FR, Inc.,
506 Prudential Road, Horsham, Pennsylvania 19044, Attention: Aryeh Trabelsi,
with a copy to Blank Rome Comisky & McCauley, 1200 Four Penn Center Plaza,
Philadelphia, Pennsylvania 19103, Attention: Arthur H. Miller, Esquire.
14. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the several Underwriters, the Company, the Selling
Stockholder and the controlling persons, directors and officers referred to in
Section 8 hereof, and their respective successors, assigns, heirs and legal
representatives, and no other person shall have or be construed to have any
legal or equitable right, remedy or claim under or in respect of or by virtue of
this Agreement or any provision herein contained. The terms "successors" and
"assigns" shall not include any purchaser of the Shares merely because of such
purchase.
15. Definition of Business Day. For purposes of this Agreement, "business
day" means any day on which the New York Stock Exchange, Inc. is opened for
trading.
16. Counterparts. This Agreement may be executed in one or more
counterparts and all such counterparts will constitute one and the same
instrument.
17. Waiver of Jury Trial. The Company, the Selling Stockholder and the
Underwriters each hereby irrevocably waive any right they may have to a trial by
jury in respect of any claim based upon or arising out of this Agreement or the
transactions contemplated hereby.
18. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsyl-
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<PAGE>
vania applicable to agreements made and performed entirely within such
Commonwealth.
If the foregoing correctly sets forth the understanding among the
Underwriters, the Company and the Selling Stockholder, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement by and among the Underwriters, the Company and the Selling
Stockholder.
Very truly yours,
ORBIT/FR, INC.
By:
----------------------------
Aryeh Trabelsi, President
ORBIT-ALCHUT TECHNOLOGIES, LTD.
By:
----------------------------
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
PENNSYLVANIA MERCHANT GROUP LTD
UNTERBERG HARRIS
By: Pennsylvania Merchant Group Ltd
Acting severally on behalf of itself
and the several Underwriters named
in Schedule I hereto
By:
--------------------------
Authorized Officer
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<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Offered
Underwriter Shares to be Purchased
- ----------- ----------------------
<S> <C>
Pennsylvania Merchant Group Ltd......................
Unterberg Harris.....................................
---------
Total...................... 2,000,000
=========
</TABLE>
<PAGE>
SCHEDULE II
List of Persons Who Are to Deliver 180-Day Lock-Up Agreements
Called for Sections 5(a)(xii), 5(b)(i) and 7(d)
Name
----
Joseph Aviv
Aryeh Trabelsi
Moshe Pinkasy
Marcel Boumans
Joseph Sullivan
David Farina
John Aubin
Sean Mallon
Zeev Stein
David Ben-Bassat
Orbit-Alchut Technologies, Ltd.
<PAGE>
EXHIBIT A
---------
PRICE DETERMINATION AGREEMENT
June __, 1997
PENNSYLVANIA MERCHANT GROUP LTD
UNTERBERG HARRIS
As Representatives of the
several Underwriters
Four Falls Corporate Center
West Conshohocken, PA 19428
Dear Sirs:
Reference is made to the Underwriting Agreement, dated June __, 1997 (the
"Underwriting Agreement"), among Orbit/FR, Inc., a Delaware corporation (the
"Company"), Orbit-Alchut Technologies, Ltd. (the "Selling Stockholder") and the
several Underwriters named in Schedule I thereto or hereto (the "Underwriters"),
for whom Pennsylvania Merchant Group Ltd and Unterberg Harris are acting as
representatives (the "Representatives"). The Underwriting Agreement provides
for the purchase by the Underwriters from the Company, subject to the terms and
conditions set forth therein, of an aggregate of 2,000,000 shares (the "Offered
Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Shares") and for the purchase by the Underwriters, at their sole option to cover
over-allotments in the sale of the Offered Shares, from the Selling Stockholder,
subject to the terms and conditions set forth therein, of an aggregate of
300,000 Common Shares (the "Optional Shares"). This Agreement is the Price
Determination Agreement referred to in the Underwriting Agreement.
Pursuant to the Underwriting Agreement, the undersigned agree with the
Representatives as follows:
1. The initial public offering price per share for the Offered Shares and
the Optional Shares shall be $_____.
2. The purchase price per share for the Offered Shares and, if the
Representatives shall exercise their option as to the Optional Shares, for the
Optional Shares to be paid by the several Underwriters shall be $____
representing an amount equal to the initial public offering price set forth
above, less $____ per share.
The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 1(a) of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
A-1
<PAGE>
The Selling Stockholder represents and warrants to each of the Underwriters
that the representations and warranties of the Selling Stockholder set forth in
Section 1(b) of the Underwriting Agreement are accurate as though expressly made
at and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as Schedule I is a
completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
If the foregoing is in accordance with your understanding of the agreement
among the Underwriters, the Company and the Selling Stockholder, please sign and
return to the Company a counterpart hereof, whereupon this instrument along with
all counterparts and together with the Underwriting Agreement, shall be a
binding agreement among the Underwriters, the Company and the Selling
Stockholder in accordance with its terms and the terms of the Underwriting
Agreement.
Very truly yours,
ORBIT/FR, INC.
By:
---------------------------------
Aryeh Trabelsi, President
ORBIT-ALCHUT TECHNOLOGIES, LTD.
By:
---------------------------------
Confirmed as of the date
first above mentioned:
PENNSYLVANIA MERCHANT GROUP LTD
UNTERBERG HARRIS
By: PENNSYLVANIA MERCHANT GROUP LTD
Acting severally and on behalf
of and the several Underwriters
named in Schedule I hereto
By:
------------------------------
Authorized Officer
A-2
<PAGE>
EXHIBIT B
---------
AGREEMENT AND POWER OF ATTORNEY
ORBIT/FR, INC.
Common Stock
- ---------------------------
- ---------------------------
- ---------------------------
c/o Orbit/FR, Inc.
506 Prudential Road
Horsham, PA 19044
Dear Sirs:
The undersigned understands that Orbit/FR, Inc., a Delaware corporation
(the "Company"), has filed a registration statement (together with any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act") relating to the prior
registration statement, the "Registration Statement") under the Act, in
connection with the proposed public offering and sale by the Company and
Orbit-Alchut Technologies, Ltd. (the "Selling Stockholder") of the Company's
Common Stock, par value $.01 per share (the "Common Shares").
The Selling Stockholder desires to sell certain Common Shares and to
include such shares among the shares covered by the Registration Statement. The
number of Common Shares which the undersigned desires to sell (the "Shares") are
set forth beneath the signature of the Selling Stockholder below.
Concurrently with the execution and deliver of this Agreement and Power of
Attorney (the "Power of Attorney"), the undersigned is delivering to you, or
requesting the Company to deliver to you, certificates for the Shares, which you
are authorized to deposit with _________________________, as custodian (the
"Custodian"), pursuant to a custody agreement in the form attached as
Attachment A hereto (the "Custody Agreement").
1. In connection with the foregoing, the Selling Stockholder hereby
makes, constitutes and appoints you collectively, and each of you, individually
(a "Member") and each of your respective substitutes under Section 3, the true
and lawful attorneys-in-fact of the undersigned (the Members or any of them or
their respective substitutes being herein referred to collectively as the
"Committee"), with full power and authority, in the name and on behalf of the
Selling Stockholder:
B-1
<PAGE>
(a) To enter into the Custody Agreement and deposit with the Custodian
pursuant thereto the certificates for the Shares delivered to the Committee
concurrently herewith;
(b) For the purpose of effecting the sale of the Shares, to execute and
deliver (i) an Underwriting Agreement ( the "Underwriting Agreement"), by and
among the Company, the Selling Stockholder and the representatives (the
"Representatives") of the several Underwriters (the "Underwriters") and (ii) a
Price Determination Agreement (as defined in the Underwriting Agreement) by and
among the Company, the Selling Stockholder and the Representatives of the
several Underwriters;
(c) To endorse, transfer and deliver certificates for the Shares to or on
the order of the Representatives or their nominee or nominees, and to give such
orders and instructions to the Custodian as the Committee may in its sole
discretion determine with respect to (i) the transfer on the books of the
Company of the Shares in order to effect such sale, including the names in which
new certificates for such Shares are to be issued and the denominations thereof,
(ii) the delivery to or for the account of the Representatives of the
certificates for the Shares against receipt by the Custodian of the full
purchase price to be paid therefor, (iii) the remittance to the Selling
Stockholder of the Selling Stockholder's share of the proceeds, after payment of
the expenses described in the Underwriting Agreement, from any sale of Shares
and (iv) the return to the Selling Stockholder of certificates representing the
number of Shares, if any, deposited with the Custodian but not sold by the
Selling Stockholder under the Registration Statement for any reason;
(d) To take for the Selling Stockholder all steps deemed necessary or
advisable by the Committee in connection with the registration of the Shares
under the Act, including without limitation filing amendments to the
Registration Statement, filing a registration statement under Rule 462(b)
relating to the Registration Statement, requesting acceleration of the
effectiveness of the Registration Statement, informing the Securities and
Exchange Commission (the "SEC") that the Selling Stockholder has no knowledge of
any material adverse information with regard to the current and prospective
operations of the Company which is not stated in the Registration Statement, and
such other steps as the Committee may in its absolute discretion deem necessary
or advisable;
(e) To make, acknowledge, verify and file on the behalf of the Selling
Stockholder applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners or
officers administering state securities or Blue Sky laws and to take any other
action required to facilitate the qualification of the Shares under the
securities or Blue Sky laws of the jurisdictions in which the Shares are to be
offered;
B-2
<PAGE>
(f) If necessary, to endorse (in blank or otherwise) on behalf of
the Selling Stockholder the certificate or certificates representing the
Shares, or a stock power or powers attached to such certificate or
certificates; and
(g) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
letters and other writings and, in general, to do all things and to take
all action which the Committee in its sole discretion may consider
necessary or proper in connection with or to carry out the aforesaid sale
of Shares, as fully as could the Selling Stockholder if personally present
and acting.
2. This Power of Attorney and all authority conferred hereby is granted
and conferred subject to and in consideration of the interest of the Company,
the Representatives and the Underwriters and, for the purpose of completing the
transactions contemplated by this Power of Attorney, this Power of Attorney and
all authority conferred hereby shall be irrevocable and shall not be terminated
by any act of the Selling Stockholder or by operation of law, whether by the
liquidation of the Selling Stockholder or by the occurrence of any other event
or events, and if, after the execution hereof, the Selling Stockholder shall be
liquidated, or if any other such event or events shall occur before the
completion of the transactions contemplated by this Power of Attorney, the
Committee shall nevertheless be authorized and directed to complete all such
transactions as if such liquidation or other event or events had into occurred
and regardless of notice thereof.
3. Each Member shall have the full power to make and substitute any
person in the place and stead of such Member, and the Selling Stockholder hereby
ratifies and confirms all that each Member or substitute or substitutes shall do
by virtue of these presents. All actions hereunder may be taken by any one
Member or his substitute. In the event of the death, disability or incapacity of
any Member, the remaining Member or Members shall appoint a substitute therefor.
4. The Selling Stockholder hereby represents, warrants and covenants
that:
(a) All information furnished to the Company by or on behalf of the
Selling Stockholder for use in connection with the preparation of the
Registration Statement is and will be true and correct in all material
respects and does not and will not omit any material fact necessary to
make such information not misleading;
(b) The Selling Stockholder, having full right, power and
authority to do so, has duly executed and delivered this Power of Attorney.
(c) The Selling Stockholder has carefully reviewed the Registration
Statement and will carefully review each amendment
B-3
<PAGE>
thereto immediately upon receipt thereof from the Company and will promptly
advise the Company in writing if:
(i) The name and address of the Selling Stockholder is not
properly set forth in each preliminary prospectus (collectively, the
"Preliminary Prospectus") contained in the Registration Statement at
the time it becomes effective;
(ii) The Selling Stockholder has reason to believe the (A)
any information furnished to the Company by or on behalf of the
Selling Stockholder for use in connection with the Registration
Statement, the Preliminary Prospectus or the final prospectus (the
"Prospectus") is not true and complete; and (B) any Preliminary
Prospectus, the Prospectus or any supplements thereto contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
(iii) The Selling Stockholder knows of any material adverse
information with regard to the current or prospectus operations of
the Company or any of its subsidiaries which is not disclosed in any
Preliminary Prospectus, the Prospectus or the Registration Statement;
or
(iv) Except as indicated in the Prospectus, the Selling
Stockholder knows of any arrangements made or to be made by any
person, or of any transaction already effected, (A) to limit or
restrict the sale of the Common Shares during the period of the
public distribution, (B) to stabilize the market for the Common
Shares or (C) to withhold commissions or otherwise to hold any other
person responsible for the distribution of the Shares;
(d) In connection with the offering of the Shares, the Selling
Stockholder has not taken and will not knowingly take, directly or
indirectly, any action intended to, or which might reasonably be expected
to, cause or result in stabilization or manipulation of the price of the
Shares or the Common Shares to facilitate the sale or resale of the Shares;
(e) The Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares other than a Preliminary Prospectus, the
Prospectus or other material permitted by the Act;
(f) The Selling Stockholder will notify the Company in writing
immediately of any changes in the foregoing information which should be
made as a result of developments occurring after the date hereof and prior
to the Closing Date and any Option Closing Date under the Underwriting
Agreement, and the Committee
B-4
<PAGE>
may consider that there has not been any such development unless advised to
the contrary;
(g) The Selling Stockholder has, and at the time of delivery of the
Shares to the Representatives it will have, full power and authority to
enter into this Power of Attorney, to carry out the terms and provisions
hereof and to make all the representations, warranties and covenants
contained herein; and
(h) This Power of Attorney is the valid and binding agreement of
the Selling Stockholder and is enforceable against the Selling Stockholder
in accordance with its terms, except as such enforceability may be limited
by general principles of equity, whether applied in a court of law or a
court of equity, and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
5. The representations, warranties and covenants of the Selling
Stockholder in this Power of Attorney are made for the benefit of, and may be
relied upon by the Committee, the Company and its counsel, and their
representatives, agents and counsel, the Custodian, the Underwriters and the
Representatives.
6. The Committee shall be entitled to act and rely upon any statement,
request, notice or instructions respecting this Power of Attorney given to it by
the Selling Stockholder, not only as to the authorization, validity and
effectiveness thereof, but also as to truth and acceptability of any information
therein contained.
It is understood that the Committee assumes no responsibility or liability
to any person other than to deal with the Shares deposited with it and the
proceeds from the sale of the Shares in accordance with the provisions hereof.
The Committee makes no representations with respect to and shall have no
responsibility for the Registration Statement, the Prospectus or any Preliminary
Prospectus nor, except as herein expressly provided, for any aspect of the
offering of the Common Shares, and it shall not be liable for any error of
judgment or for any act done or omitted or for any mistake of fact or law except
for its own negligence or bad faith. The Selling Stockholder agrees to
indemnify the Committee for and to hold the Committee harmless against any loss,
claim, damage or liability incurred on its part arising out of or in connection
with it acting as the Committee under this Power of Attorney, as well as the
cost and expense of investigating and defending against any such loss, claim,
damage or liability, except to the extent such loss, claim, damage or liability
is due to the negligence or bad faith of the Member seeking indemnification;
provided that the maximum amount for which the Selling Stockholder shall
be liable under this Agreement shall be the net proceeds from the offering
received by such Selling Stockholder less any amounts for which such Selling
Stockholder is liable under Section 8 of the Underwriting Agreement and Section
7 of the Custodian Agreement. The Selling Stockholder agrees that the Committee
may consult with the counsel of its own choice, who may be counsel for the
Company, and it shall have full and complete authorization
B-5
<PAGE>
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel.
7. It is understood that the Committee shall serve entirely without
compensation.
8. This Power of Attorney shall be governed by the laws of the
Commonwealth of Pennsylvania.
This Power of Attorney may be signed in two or more counterparts with the
same effect as if the signature thereto and hereto upon the same instrument.
In case any provision in this Power of Attorney shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Power of Attorney shall be binding upon the Committee and the Selling
Stockholder and the legal representatives, distributees, successors and assigns
of the Selling Stockholder.
Dated: ________________, 1997
Very truly yours,
--------------------------------
--------------------------------
Signature of Selling Stockholder
ORBIT-ALCHUT TECHNOLOGIES, LTD.
By:
-----------------------------
SHARES TO BE SOLD:
_________ shares of Common Stock
ACKNOWLEDGED AND ACCEPTED
THE COMMITTEE:
- -------------------------
- -------------------------
NOTE: SIGNATURES MUST BE NOTARIZED
B-6
<PAGE>
ATTACHMENT A
------------
CUSTODY AGREEMENT
CUSTODY AGREEMENT, dated ________________, 1997, among ___________________,
as Custodian (the "Custodian"), and Orbit-Alchut Technologies, Ltd. (the
"Selling Stockholder").
Orbit/FR, Inc., a Delaware corporation (the "Company"), has filed a
registration statement (together with any subsequent registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Act") relating to the prior registration statement, the "Registration
Statement") with the Securities and Exchange Commission to register for sale to
the public under the Act, shares of the Company's Common Stock, par value $.01
per share (the "Common Shares").
The shares to be covered by the Registration Statement shall consist of
(a) up to 2,000,000 Common Shares to be sold by the Company and (b) up to
300,000 Common Shares (the "Shares") to be sold by the Selling Stockholder.
The Selling Stockholder has executed and delivered a Power of Attorney (the
"Power of Attorney") naming _______________________ and _______________________,
and each of them, as its attorney-in-fact (the "Committee"), for certain
purposes, including the execution, delivery and performance of this Agreement in
its name, place and stead, in connection with the proposed sale by the Selling
Stockholder of the Shares.
1. A custody arrangement is hereby established by the Selling
Stockholder with the Custodian with respect to the Shares, and the Custodian is
hereby instructed to act in accordance with the Agreement and any amendments or
supplements hereto authorized by the Committee.
2. There are herewith delivered to the Custodian, and the Custodian
hereby acknowledges receipt of, certificates representing the Shares, which
certificates have been endorsed in blank or are accompanied by duly executed
stock powers, in each case with all signatures accompanied by the signature of
another officer of the Selling Stockholder. Such certificates are to be held by
the Custodian for the account of the Selling Stockholder and are to be disposed
of by the Custodian in accordance with this Agreement.
3. The Custodian is authorized and directed by the Selling Stockholder:
(a) To hold the certificates representing the Shares delivered by
the Selling Stockholder in the Custodian's custody;
(b) On or prior to any closing date for any Shares sold pursuant to
the Registration Statement (an "Option Closing Date"), to cause such Shares to
be transferred on the books of
B-7
<PAGE>
the Company into such names as the Custodian shall have been instructed by
the representatives (the "Representatives") of the several Underwriters
(the "Underwriters"); to cause to be issued, against surrender of the
certificates for the Shares, a new certificate or certificates for such
Shares, free of any restrictive legend, registered in such name or names;
to deliver such new certificates in such name or names, to deliver such new
certificates representing such Shares to the Representatives, as instructed
by the Representatives on the Option Closing Date for their account or
accounts against full payment therefor and to give receipt for such
payment; and
(c) To disburse such payments in the following manner: (i) to itself,
as agent for the Selling Stockholder, a reserve amount to be designated in
writing by the Committee from which amount the Custodian shall pay, as soon
as reasonably practicable, any applicable stock transfer taxes and (ii) to
the Selling Stockholder, pursuant to the written instructions of the
Committee, (A) on the Option Closing Date, a sum equal to the proceeds to
which the Selling Stockholder is entitled, as determined by the Committee,
less the reserve amount designated by the Committee and (B) promptly after
all proper charges, disbursements, costs and expenses shall have been paid,
any remaining balance of the amount reserved under clause (i) above. Before
making any payment from the amount reserved under clause (i) above, except
payments made pursuant to subclause (B) of clause (ii) above, the Custodian
shall request and receive the written approval of the Committee.
4. Subject in each case to the indemnification obligations set forth in
Section 7, in the event Shares of the Selling Stockholder are not sold prior to
August 31, 1997, the Custodian shall deliver to the Selling Stockholder as soon
as practicable after the earlier to occur of such date and termination of the
offering of the Shares, certificates representing such Shares deposited by the
Selling Stockholder. Certificates returned to the Selling Stockholder shall be
returned with any related stock powers, and any new certificates issued to the
Selling Stockholder with respect to such Shares shall bear any appropriate
legend reflecting the unregistered status thereof under the Act.
5. This Agreement is for the express benefit of the Company and the
Selling Stockholder, the Underwriters and the Representatives. The obligations
and authorizations of the Selling Stockholder hereunder are irrevocable and
shall not be terminated by any act of the Selling Stockholder or by operation of
law, whether by the incapacity of the Selling Stockholder or by the occurrence
of any other event or events, and if after the execution hereof the Selling
Stockholder shall be incapacitated, or if any other event or events shall occur
before the delivery of the Selling Stockholder's Shares hereunder to the
Representatives, such Shares shall be delivered to the Representatives in
accordance with the terms and conditions of this Agreement, as if such event had
not occurred, regardless of whether or not the Custodian shall have received
notice of such event.
B-8
<PAGE>
6. Until payment of the purchase price for the Shares has been made to
the Selling Stockholder or to the Custodian, the Selling Stockholder shall
remain the owner of, and shall retain the right to receive dividends and
distributions on, and to vote, the number of Shares delivered by it to the
Custodian hereunder. Until such payment in full has been made or until the
offering of Shares has been terminated, the Selling Stockholder agrees that it
will not give, assign, sell, agree to sell, pledge, hypothecate, grant any lien
on, transfer, or otherwise dispose of the Shares or any interests therein.
7. The Custodian shall assume no responsibility to any person other than
to deal with the certificates for the Shares and the proceeds from the sale of
the Shares represented thereby in accordance with the provisions hereof, and
the Selling Stockholder hereby agrees to indemnify the Custodian for and to
hold the Custodian harmless against any and all losses, claims, damages or
liabilities incurred on its part arising out or in connection with it acting as
the Custodian pursuant hereto, as well as the costs and expenses of
investigating and defending any such losses, claims, damages or liabilities,
except to the extent such losses, claims, damages or liabilities are due to the
negligence or bad faith of the Custodian; provided that the maximum amount for
which the Selling Stockholder shall be liable under this Agreement shall be the
net proceeds from the offering received by the Selling Stockholder less any
amounts for which the Selling Stockholder is liable for indemnification under
Section 8 of the Underwriting Agreement and Section 6 of the Agreement and Power
of Attorney. The Selling Stockholder agrees that the Custodian may consult with
counsel of its own choice, who may be counsel for the Company, and the Custodian
shall have full and complete authorization and protection for any action taken
or suffered by the Custodian hereunder in good faith and in accordance with the
opinion of such counsel.
8. The Selling Stockholder hereby represents and warrants that: (a) it
has, and at the time of delivery of its Shares to the Representatives it will
have, full power and authority to enter into this Agreement and the Power of
Attorney, to carry out the terms and provisions hereof and thereof and to make
all of the representations, warranties and agreements contained herein and
therein and (b) this Agreement and the Power of Attorney are the valid and
binding agreements of the Selling Stockholder and are enforceable against the
Selling Stockholder in accordance with their respective terms.
9. The Custodian's acceptance of this Agreement by the Custodian's
execution hereof shall constitute an acknowledgment by the Custodian of the
authorization herein conferred and shall evidence the Custodian's agreement to
carry out and perform this Agreement in accordance with its terms.
10. The Custodian shall be entitled to act and rely upon any statement,
request, notice or instruction with respect to this Agreement given to it on
behalf of the Selling Stockholder if the same shall be made or given to the
Custodian by the Committee, not only as to the authorization, validity and
effectiveness thereof, but
B-9
<PAGE>
also as to the truth and acceptability of any information therein contained.
11. This Agreement may be executed in two or more counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument. Execution by the Custodian of one counterpart hereof and its
delivery thereof to the Committee shall constitute the valid execution of this
Agreement by the Custodian.
12. This Agreement shall be binding upon the Custodian, the Selling
Stockholder and the respective, legal representatives, distributees, successors
and assigns of the Selling Stockholder.
13. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
14. Any notice given pursuant to this Agreement shall be deemed given if in
writing and delivered in person, or if given by telephone or telegraph if
subsequently confirmed by letter: (i) if to the Selling Stockholder, to it, c/o
Orbit/FR, Inc., 506 Prudential Road, Horsham, Pennsylvania 19044 and (ii) if to
the Custodian, to it at ______________________________________________________.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
-------------------------------
By:
----------------------------
ORBIT-ALCHUT TECHNOLOGIES, LTD.
By:
----------------------------
B-10
<PAGE>
EXHIBIT C
---------
June , 1997
--
PENNSYLVANIA MERCHANT GROUP LTD
UNTERBERG HARRIS
As Representatives of the
several Underwriters
Four Falls Corporate Center
West Conshohocken, PA 19428
Dear Sirs:
In consideration of the agreement (the "Underwriting Agreement") of the
several Underwriters for which Pennsylvania Merchant Group Ltd and Unterberg
Harris (the "Representatives"), intend to act as Representatives, to underwrite
a proposed public offering (the "Offering") of 2,000,000 shares of Common Stock,
$.01 par value (the "Common Shares") of Orbit/FR, Inc., a Delaware corporation
(the "Company"), as contemplated by a registration statement with respect to
such shares filed with the Securities and Exchange Commission on Form S-1
(Registration No. 333-25015), the undersigned hereby agrees that the undersigned
will not, for a period of 180 days after the commencement of the public offering
of such shares, without the prior written consent of the Representatives, (i)
directly or indirectly assign, transfer, offer, sell, agree to sell, hypothecate
or otherwise dispose of any Common Shares of the Company or securities
convertible into or exchangeable for or any rights to acquire Common Shares or
(ii) in any other way reduce his risk of ownership or investment in any Common
Shares; provided, however, that bona fide gifts to persons who agree in writing
with the Representatives to be bound by the provisions hereof, and sales of
Common Shares pursuant to the Underwriting Agreement, shall not be prohibited.
Very truly yours,
By:
-----------------------------
--------------------------------
[Print Name]
C-1
<PAGE>
Exhibit 3.1
ORBIT/FR, INC.
Amended and Restated
Certificate of Incorporation
ORBIT/FR, Inc., a Delaware corporation (the "Corporation"), does hereby
certify that:
FIRST: The present name of the Corporation is "ORBIT/FR, Inc.," which is
the name under which the Corporation was originally incorporated. The date of
filing of the original Certificate of Incorporation of the Corporation with the
Secretary of State of the State of Delaware was December 16, 1996.
SECOND: This Amended and Restated Certificate of Incorporation (this
"Certificate") amends and restates in its entirety the present Certificate of
Incorporation of the Corporation. This Certificate has been duly adopted and
approved by the board of directors of the Corporation and the sole stockholder
of the Corporation in accordance with the provisions of Section 141(f), 228 and
242 of the General Corporation Law of the State of Delaware.
THIRD: This Certificate shall become effective immediately upon its filing
with the Secretary of State of the State of Delaware.
FOURTH: Upon the filing with the Secretary of State of the State of
Delaware of this Certificate, the Certificate of Incorporation of the
Corporation shall be amended and restated in its entirety to read as set forth
in Exhibit "A" hereto.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by a duly authorized officer this ___ day of __________, 1997.
ORBIT/FR, INC.
By:
------------------------------------
Name:
Title:
<PAGE>
Exhibit "A"
-----------
ORBIT/FR, INC.
Amended and Restated
Certificate of Incorporation
FIRST: The name of the Corporation is ORBIT/FR, Inc.
SECOND: The address of its registered office in the state of Delaware is
1013 Centre Road, Wilmington, Delaware 19805, County of New Castle. The name of
the registered agent at such address is Corporation Service Company.
THIRD: The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 12,000,000 shares, consisting of
2,000,000 shares of Preferred Stock, par value $0.01 per share, as more fully
described in Section A below (the "Preferred Stock"), and 10,000,000 shares of
Common Stock, par value $0.01 per share, as more fully described in Section B
below (the "Common Stock").
A. Preferred Stock. The shares of Preferred Stock may be divided
---------------
and issued from time to time in one or more series as may be designated by the
Board of Directors of the Corporation, each such series to be distinctly titled
and to consist of the number of shares designated by the Board of Directors.
All shares of any one series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that shares of any one
series issued at different times may differ as to the dates from which dividend
thereon (if any) shall accrue or be cumulative (or both). The designations,
preferences and relative, participating, optional or other special rights (if
any) and the qualifications, limitations or restrictions thereof (if any), of
any series of Preferred Stock may differ from those of any and all other series
at any time outstanding. The Board of Directors of the Corporation is hereby
expressly vested with authority to fix by resolution the powers, designations,
preferences and relative, participating, optional or other special rights (if
any), and the qualifications, limitations or restrictions and (if any), of the
Preferred Stock and each series thereof which may be designated by the Board of
Directors, including, but without limiting the generality of the foregoing, the
following:
(1) The voting rights and power (if any) of the Preferred Stock
and each series thereof;
(2) The rates and times at which, and the terms and conditions
on which, dividends (if any) on the Preferred Stock, and each series thereof,
will be paid and any dividend preferences or rights of cumulation;
(3) The rights (if any) of holders of the Preferred Stock, and
each series thereof, to convert the same into, or exchange the same for, shares
of other classes (or series of
<PAGE>
classes) of capital stock of the Corporation and the terms and conditions for
such conversion or exchange, including provisions for adjustment of conversion
or exchange prices or rates in such events as the Board of Directors shall
determine;
(4) The redemption rights (if any) of the Corporation and of the
holders of the Preferred Stock, and each series thereof, and the times at which,
and the terms and conditions on which, the Preferred Stock, and each series
thereof, may be redeemed; and
(5) The rights and preferences (if any) of the holders of the
Preferred Stock, and each series thereof, upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
B. Common Stock. All shares of Common Stock shall be identical and
------------
shall entitle the holders thereof to the same rights and privileges.
(1) Dividends. When and as if dividends are declared upon the
---------
Common Stock, whether payable in cash, in property or in shares of stock of the
Corporation, the holders of Common Stock shall be entitled to share equally,
share for share, in such dividends.
(2) Voting Rights. Each holder of Common Stock shall be
-------------
entitled to one vote per share.
(3) Liquidation. In the event of any liquidation, dissolution
-----------
or winding up of the Corporation, whether voluntary or involuntary, after
payment shall have been made to holders of the Preferred Stock of the full
amounts to which they shall be entitled as stated and expressed herein or as may
be stated and expressed pursuant hereto, the holders of Common Stock shall be
entitled, to the exclusion of the holders of the Preferred Stock, to share
ratably according to the number of shares of the Common Stock held by them in
all remaining assets of the Corporation available for distribution to its
stockholders.
(4) Redemption. Shares of Common Stock are not redeemable.
----------
C. Other Provisions. No holder of any of the shares of any class or
----------------
series of stock or options, warrants or other rights to purchase shares of any
class of stock or of other securities of the Corporation shall have any
preemptive right to purchase or subscribe for any unissued stock of any class or
series of any additional shares of any class or series to be issued by reason of
any increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations,
whether any such person, firms, corporations or associations are
-2-
<PAGE>
holders or others, and upon such terms as may be deemed advisable by the Board
of Directors in the exercise of its sole discretion.
FIFTH: The number of directors of the Corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders. Election of directors need not be by written
ballot.
SIXTH: The Board of Directors of the Corporation shall have the right to
adopt, amend and repeal the Bylaws of the Corporation, subject to the power of
the stockholders of the Corporation to adopt, amend or repeal any Bylaw made by
the Board of Directors.
SEVENTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provisions contained in this
Certificate of Incorporation; and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
EIGHTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Eighth
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to an acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned has signed this Amended and Restated
Certificate of Incorporation this __day of ________, 1997.
ORBIT/FR, INC.
By:
---------------------------
Name:
Title:
-3-
<PAGE>
Exhibit 3.2
BYLAWS
OF
ORBIT/FR, INC.
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 1013 Centre Road, Wilmington, DE 19805, County of New
Castle. The name of the registered agent of the corporation shall be The
Corporation Service Company.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware."
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Place of Meetings: Meetings of stockholders shall be held at
-----------------
the registered office of the corporation in this state or at such place, either
within or without this state, as may be selected from time to time by the Board
of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
---------------
be held on such date and at such time as may be determined by the Board of
Directors. The stockholders shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting. Any business
which is a proper subject for stockholder action may be transacted at the annual
meeting, irrespective of whether the notice of said meeting contains any
reference thereto, except as otherwise provided by applicable statute or
regulation.
Section 3. Special Meetings: Special meetings of the stockholders may be
----------------
called at any time by the Chairman of the Board of Directors, or the Board of
Directors, or stockholders entitled to cast at least 33 1/3% of the votes which
all stockholders are entitled to cast at the particular meeting. At any time,
upon written request of any person or persons who have duly called a special
meeting, it shall be the duty of the Secretary to fix the date of the meeting,
to be held not more than sixty days after receipt of the request, and to give
due notice thereof. If the Secretary shall neglect or refuse to fix the date of
the meeting and give notice thereof, the person or persons calling the meeting
may do so. Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent. Written notice of a special meeting of
stockholders stating the time and place and purpose or purposes thereof, shall
be given to each stockholder entitled to vote thereat in accordance with Article
III, Section 7, unless a greater period of notice is required by statute in a
particular case.
<PAGE>
Section 4. Conduct of Stockholders' Meetings. The Chairman of the Board
---------------------------------
shall preside at all stockholders' meetings, or, in his absence, the Board of
Directors shall select the presiding officer of the meeting. The officer
presiding over a stockholders' meeting shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts and
things as are necessary or desirable for the proper conduct of the meetings at
which he presides, including, without limitation, the establishment of the
procedures for the maintenance of order, safety, limitations on the time
allotted to questions or comments on the affairs of the corporation,
restrictions on entry to any such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls. The
revocation of a proxy shall not be effective until written notice thereof has
been given to the Secretary of the corporation.
Section 5. Quorum and Voting: A majority of the outstanding shares of the
-----------------
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares entitled to vote is represented at a meeting, a majority
of the shares so represented may adjourn the meeting, provided that written
notice of such adjourned meeting shall be given to stockholders not less than
ten nor more than sixty days before the date of such adjourned meeting. At such
adjourned meeting at which a quorum shall then be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum. Every stockholder of record
who is entitled to vote shall at every meeting of the stockholders be entitled
to one vote for each share of stock held by him on the record date. At all
meetings of the stockholders at which a quorum is present, all matters shall be
decided by a majority vote of the shares of stock present in person or by proxy
and entitled to vote thereon, except as otherwise required by law or the
Certificate of Incorporation.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
-------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. All proxies shall be filed with the
Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken
---------------------------
at any annual or special meeting of stockholders of the corporation, or any
action which may be taken at any annual or special meeting of such stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
this State, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature
2
<PAGE>
of each stockholder who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by this
Section to the corporation, written consents signed by a sufficient number of
holders to take action are delivered to the corporation by delivery to its
registered office in this State, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 9. List of Stockholders: The officer who has charge of the stock
--------------------
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. Powers: The business and affairs of this corporation shall be
------
managed by its Board of Directors.
Section 2. Election and Term: The directors shall be elected by the
-----------------
stockholders at the annual meeting of stockholders of the corporation. Each
director shall be elected for the term of one year and until his successor shall
have been elected and shall qualify or until his earlier resignation or removal.
Section 3. Number: The number of directors shall consist of not less than
------
three nor more than thirteen. The exact number of directors shall be such
number as shall be determined from time to time by the Board of Directors.
Section 4. Nomination for Directors. Nominations for election of the
------------------------
Board of Directors may be made by the Board of Directors or by any stockholder
of any outstanding class of capital stock of the corporation entitled to vote
for the election of Directors, subject to any contrary provisions contained in
the Certificate of Incorporation, as amended from time to time. Nominations,
other then those made by or on behalf of the Board of Directors of the
corporation, shall be made in writing, and shall be delivered to the Chairman of
the Board of the corporation not later than (i) with respect to an election to
be held at an annual meeting of stockholders, the latest date upon which
stockholder proposals must be submitted to the Corporation for inclusion in the
Corporation's proxy statement relating to such meeting pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, or other applicable rules
or regulations under the federal securities laws or, if no such rules apply, at
least ninety days prior to the date one year from the date of the immediately
preceding annual meeting of stockholders, and (ii) with respect to an election
to be held at a special meeting of stockholders, the close of business on the
tenth day following the date on which notice of such meeting is first given to
stockholders. Each such nomination shall be accompanied by the
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written consent of the proposed nominee and shall contain the following
information to the extent known to the notifying shareholder:
(a) The name and address of each proposed nominee;
(b) The principal occupation of each proposed nominee;
(c) The total number of shares of capital stock of the corporation
that will be voted for each of the proposed nominees;
(d) The name and residence of the notifying shareholder;
(e) The number of shares of capital stock owned by the notifying
shareholder;
(f) The information regarding the proposed nominee which would be
required to be disclosed in a proxy statement filed under the
Securities Exchange Act of 1934.
Nominations not made in accordance herewith may be disregarded by the Chairman
of the meeting and, upon his instructions, the judges of election may disregard
all votes cast for each such nominee.
Section 5. Resignations. Any director may resign at any time. Such
------------
resignation shall be in writing, but the acceptance thereof shall not be
necessary to make it effective.
Section 6. Regular Meetings: Regular meetings of the Board of Directors
----------------
shall be held quarterly at such time and place as shall be determined by the
Board of Directors. Notice of a regular meeting of the Board of Directors shall
be given at least 24 hours (in the case of notice by telephone, telex, TWX or
telecopier) or 48 hours (in the case of notice by telegraph, courier service or
express mail) or 5 days (in the case of notice by first class mail) before the
time at which the meeting is to be held. Neither the business to be transacted
at, nor the purpose of, any regular meeting of the Board of Directors need be
specified in a notice of the meeting.
Section 7. Special Meetings: Special Meetings of the Board of Directors
----------------
may be called by the Chairman of the Board or the President and shall be called
by the Secretary in like manner on the written request of a majority of the
directors in office. Notice of all special meetings shall be given at least 24
hours (in the case of notice by telephone, telex, TWX or telecopier) or 48 hours
(in the case of notice by telegraph, courier service or express mail) or 5 days
(in the case of notice by first class mail) before the time at which the meeting
is to be held. Neither the business to be transacted at, nor the purpose of, any
special meeting of the Board of Directors need be specified in a notice of the
meeting.
Section 8. Quorum and Manner of Acting: A majority of the total number of
---------------------------
directors shall constitute a quorum for the transaction of business. At all
meetings of directors at which a quorum is present, all matters shall be decided
by the affirmative vote of a majority of the directors present, except as
otherwise required by law. The Board of Directors may hold its meetings at such
place or places inside or outside of the State of Delaware as the Board may
determine.
Section 9. Consent in Lieu of Meeting: Any action required or permitted
--------------------------
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board of Directors
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee.
Section 10. Conference Telephone: One or more directors may participate
--------------------
in a meeting of the Board of Directors, of a committee of the Board of Directors
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
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Section 11. Compensation: The Board of Directors shall have the authority
------------
to fix the compensation of directors.
Section 12. Removal: Any director may be removed, with or without cause,
-------
by a majority of the directors or by the holders of a majority of the shares
then entitled to vote at an election of directors.
Section 13. Reports and Records. The reports of officers and committees
-------------------
shall be filed with the Secretary of the Board. The Board of Directors shall
keep complete records of its proceedings in a minute book kept for that purpose.
When a director shall request it, the vote of each director upon a particular
question shall be recorded in the minutes.
ARTICLE V - COMMITTEES
Section 1. Committees: The Board of Directors may, by resolution passed
----------
by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, which, to the extent provided in the resolution and permitted by
law, shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. The
Board of Directors may designate one or more directors as alternate members at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
Board of Directors. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
Section 2. Appointment of Additional Members to Committees: In the
-----------------------------------------------
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another director to act at the meeting in the place of any such absent or
disqualified member.
ARTICLE VI - OFFICERS
Section 1. Officers: The following officers of the corporation shall be
--------
chosen by the Board of Directors: the Chairman of the Board, Vice Chairman of
the Board (if any), President, Secretary and Treasurer. The Chairman of the
Board and the President shall each have the authority to choose one or more Vice
Presidents and such other officers as he shall deem necessary. Any number of
offices may be held by the same person.
Section 2. Salaries: The salaries and compensation of the Chairman of the
--------
Board, the President and all other officers and assistant officers shall be
fixed by the Board of Directors.
Section 3. Term of Office: Any officer or agent elected or appointed by
--------------
the Board of Directors or by the President may be removed at any time by the
Board of Directors with or without cause.
Section 4. Chairman of the Board: Unless otherwise provided, the Chairman
---------------------
of the Board shall preside at all meetings of the Board of Directors and of the
stockholders of the corporation. The Chairman of the Board shall perform such
duties as may be prescribed by the Board, including carrying out the policies,
programs, orders and resolutions adopted or approved by the Board of Directors.
He shall have the authority to execute and seal or cause to be sealed, all
agreements and instruments requiring such execution, except
5
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to the extent that signing and execution thereof shall have been expressly
delegated by the Board of Directors to some other officer or agent of the
corporation. He shall be ex-officio a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of Chairman of the Board of a corporation. In the event of the absence or
disability of the President, the Chairman of the Board shall perform the duties
and have the powers and authorities of the President.
Section 5. Vice Chairman: A Vice Chairman, if there be one, shall have the
-------------
powers and duties as may be delegated to him or her by the Board of Directors.
Unless otherwise provided by the Board, in the event of the absence or
disability of the Chairman of the Board, the Vice Chairman shall perform the
duties and have the powers and authorities of the Chairman.
Section 6. President: Subject to such supervisory powers given to the
---------
Chairman of the Board, the President shall be the Chief Executive Officer of the
corporation; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board of Directors
are carried into effect, subject, however, to the right of the directors to
delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the corporation.
He shall have the authority to execute and seal or cause to be sealed, all
agreements and instruments requiring such execution, except to the extent that
signing and execution thereof shall have been expressly delegated by the Board
of Directors to some other officer or agent of the corporation. He shall be ex-
officio a member of all committees, and, subject to the powers conferred to the
Chairman of the Board, shall have the general power and duties of supervision
and management usually vested in the office of President of a corporation.
Section 7. Vice President: A Vice President, if there be one, shall have
--------------
the powers and duties as may be delegated to him or her by the President. One
Senior Vice President shall be designated by the Board of Directors to perform
the duties and exercise the powers of the President in the event of the
President's absence or disability.
Section 8. Secretary: The Secretary shall attend all sessions of the
---------
Board and all meetings of the stockholders and act as clerk thereof, and record
all the votes of the corporation and the minutes of all its transactions in a
book to be kept for that purpose, and shall perform like duties for all
committees of the Board of Directors when required. He or she shall give, or
cause to be given, notice of all meetings of the stockholders and of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or President, and under whose supervision he or she shall be.
He or she shall keep in safe custody the corporate seal of the corporation, and
when authorized by the Board of Directors, affix the same to any instrument
requiring it.
Section 9. Treasurer: The Treasurer shall have custody of the corporate
---------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
or she shall disburse the funds of the corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and directors, at the regular meetings of the Board of
Directors, or whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the corporation.
Section 10. Assistant Officers: Any assistant officers to the Secretary,
------------------
Treasurer or any Vice-President shall have such duties as may be prescribed by
the President, or the officer to whom they are an assistant. Assistant officers
shall perform the duties and have the power of the officer to whom they are an
assistant in the event of such officer's absence or disability.
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ARTICLE VII - VACANCIES
Section 1. Vacancies: Any vacancy occurring in any directorship or
---------
in the office of Chairman of the Board, President, Secretary or Treasurer of the
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors or, in the case of any Vice President or other officer, by
the Chairman of the Board or the President. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. If at any time, by reason of death or
resignation or other cause, the corporation should have no directors in office,
then any officer or any stockholder or an executor, administrator, trustee or
guardian of a stockholder, or other fiduciary entrusted with like responsibility
for the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
-------------------------------------
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective.
ARTICLE VIII - INDEMNIFICATION
Section 1. General: Every person who was or is a director, officer,
-------
employee or agent of the corporation or of any other corporation, partnership,
joint venture, trust or other enterprise, in which he served as such at the
request of the corporation, and in which the corporation owned or owns stocks or
other beneficial or legal interests or of which the corporation is a creditor,
may be indemnified by the corporation to the fullest extent allowed by the
Delaware General Corporation Law, as amended from time to time, against any and
all liability and reasonable expense (which terms include, but are not limited
to, counsel fees, disbursements and the amount of judgments, fines and penalties
against, and amounts paid in settlement by, such person) incurred by him in
connection with or resulting from any civil or criminal claim, action, suit or
proceeding, whether brought by or in the right of the corporation or such other
corporation, partnership, joint venture, trust or enterprise, in which he may be
involved as a party or otherwise by reason of his being or having been such
director, officer or employee if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, in a criminal action or proceeding, if he had no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon a plea of nolo
----
contendere or its equivalent shall not, of itself, create a presumption that the
- ----------
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation or that he had
reasonable cause to believe his conduct was unlawful. Indemnification as
provided by this Section shall be made by the corporation only as authorized in
the specific case, and only upon a determination that the person claiming
indemnification met the applicable standards of conduct set forth herein. Such
determination shall be made in the manner provided by the Delaware General
Corporation Law.
Section 2. Advancing Expenses: Expenses incurred in connection with
------------------
a claim, suit or proceeding may be paid by the corporation in advance of the
final disposition thereof if authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of a person who may
be entitled to indemnification to repay such expenses unless he is ultimately
determined to be entitled to indemnification.
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Section 3. Benefit to Survive: The rights of indemnification
------------------
provided herein shall survive the death of the person otherwise entitled thereto
and shall extend to his legal representatives and heirs.
Section 4. General Provisions:
-------------------
(a) The term "to the fullest extent permitted by applicable
law," as used in this Article, shall mean the maximum extent permitted by public
policy, common law or statute. Any person covered by Section 1 hereof may, to
the fullest extent permitted by applicable law, elect to have the right to
indemnification or to advancement or reimbursement of expenses, interpreted, at
such person's option, (i) on the basis of the applicable law on the date this
Article was approved by stockholders, or (ii) on the basis of the applicable law
in effect at the time of the occurrence of the event or events giving rise to
the action, suit or proceeding, or (iii) on the basis of the applicable law in
effect at the time indemnification is sought.
(b) The indemnification and advancement or reimbursement of
expenses provided by, or granted pursuant to, this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement or reimbursement of expenses may be entitled under any By-law,
agreement, vote of stockholders or directors or otherwise, both as to action in
such official capacity and as to action in another capacity while holding that
office.
(c) The provisions of this Article may, at any time (and
whether before or after there is any basis for a claim for indemnification or
for the advancement or reimbursement of expenses pursuant hereto), be amended,
supplemented, waived, or terminated, in whole or in part, with respect to any
person covered by Section 1 hereof by a written agreement signed by the
corporation and such person.
(d) The corporation shall have the right to appoint the
attorney for a person covered by Section 1 hereof, provided such appointment is
not unreasonable under the circumstances.
Section 5. Optional Indemnification: The corporation may, to the
------------------------
fullest extent permitted by applicable law, indemnify, and advance or reimburse
expenses for, persons in all situations other than that covered by this Article.
ARTICLE IX - CORPORATE RECORDS
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in this state or at its principal
place of business.
ARTICLE X - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. Stock Certificates: The stock certificates of the
------------------
corporation shall be numbered and registered in the share ledger and transfer
books of the corporation as they are issued. They shall bear the corporate seal
and shall be signed by the Chairman of the Board or the President and Secretary.
8
<PAGE>
Section 2. Transfers: Transfers of shares shall be made on the books
---------
of the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law. The corporation may
appoint, or authorize any principal officer or officers to appoint, one or more
transfer clerks or one or more transfer agents and one or more registrars, and
may require all certificates of stock to bear the signature or signatures of any
of them.
Section 3. Lost Certificate: The corporation may issue a new
----------------
certificate of stock in the place of any certificate theretofore signed by it,
alleged to have been lost, stolen, mutilated or destroyed, and the corporation
may require the owner of the lost, stolen, mutilated or destroyed certificate,
or his legal representative to give the corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft, mutilation or destruction of any such certificate or the
issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted and
which record date shall not be more than sixty nor less than ten days before the
date of any meeting of stockholders, nor more than sixty days prior to the time
for such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting. In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall be not more than ten days after
the date upon which the resolution fixing the record date is adopted. If no
record date has been fixed by the Board of Directors and no prior action by the
Board of Directors is required by the Delaware General Corporation Law, the
record date shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the corporation
in the manner prescribed by Article III, Section 8 hereof. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by the Delaware General Corporation Law with respect to the proposed
action by written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
Section 5. Dividends: The Board of Directors may declare and pay
---------
dividends upon the outstanding shares of the corporation, from time to time and
to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by statute and the Certificate of Incorporation.
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ARTICLE XI - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
------
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year of the corporation shall
-----------
be fixed by the Board of Directors.
Section 3. Emergency Bylaws: In the event of any emergency resulting
-----------------
from an attack on the United States or on a locality in which the corporation
conducts its business or customarily holds meetings of its Board of Directors or
its stockholders, or during any nuclear or atomic disaster, or during the
existence of any catastrophe, or other similar emergency condition, as a result
of which a quorum of the Board of Directors or a standing committee thereof
cannot readily be convened for action, the Board of Directors may adopt
emergency bylaws subject to repeal or change by action of the stockholders. The
emergency bylaws may make any provision that may be practical and necessary for
the circumstances of the emergency, including provisions that:
(a) A meeting of the Board of Directors or of any committee
thereof may be called by any officer or director in such manner and under such
condition as shall be prescribed in the emergency bylaws and notice of any
meeting of the Board of Directors during an emergency may be given only to such
of the directors as it may be feasible to reach at the time and by such means as
may be feasible at the time, including publication or radio;
(b) The director or directors in attendance at the meeting of
the Board of Directors or of any committee thereof, or any greater number fixed
by the emergency bylaws, shall constitute a quorum;
(c) The officers or other persons designated on a list
approved by the Board of Directors before the emergency, all in such order of
priority and subject to such conditions and for such period of time (not longer
than reasonably necessary after the termination of the emergency) as may be
provided in the emergency bylaws or in the resolution approving the list, shall,
to the extent required to provide a quorum at any meeting of the Board of
Directors, be deemed directors for such meeting;
(d) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such emergency any or all officers or agents of the
corporation shall for any reason be rendered incapable of discharging their
duties;
(e) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the head office or designate
several alternative head offices or regional offices, or authorize the officers
so to do;
(f) No officer, director or employee acting in accordance with
any emergency bylaws shall be liable except for wilful misconduct; and
(g) To the extent not inconsistent with any emergency bylaws
so adopted, these Bylaws of the corporation shall remain in effect during any
emergency and upon its termination the emergency bylaws shall cease to be
operative.
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Section 5. Severability: If any provision of these Bylaws is illegal
------------
or unenforceable as such, such illegality or unenforceability shall not affect
any other provision of these Bylaws and such other provisions shall continue in
full force and effect.
ARTICLE XII - AMENDMENTS
These Bylaws may be amended or repealed, in whole or in part, by the
Board of Directors at any regular or special meeting of the Board of Directors
or by the vote of stockholders of record entitled to cast at least a majority of
the votes which all stockholders are entitled to cast thereon, at any regular or
special meeting of the stockholders, duly convened after notice to the
stockholders of that purpose. Bylaws, whether made or altered by the
stockholders or the Board of Directors, shall be subject to amendment or repeal
by the stockholders as provided in this Article XII. The text of all amendments
and repeals to these Bylaws shall be attached to the Bylaws with a notation of
the date of each such amendment or repeal and a notation of whether such
amendment or repeal was adopted by the Board of Directors or the stockholders.
ARTICLE XIII
APPROVAL OF BYLAWS AND
RECORD OF AMENDMENTS AND REPEALS
--------------------------------
Section 1. Approval and Effective Date: These Bylaws have been
---------------------------
approved as the Bylaws of the corporation as of the day of May, 1997
----
and shall be effective as of said date.
Section 2. Amendments or Repeals:
---------------------
Date Amended or
Section Involved Repealed Approved By
- ---------------- -------------------- -----------
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EXHIBIT 4.1
[LOGO OF ORBIT/FR INC. APPEARS HERE]
NUMBER SHARES
ORBIT/FR, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 591261 10 2
THIS CERTIFIES THAT
Is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
------------------------- -----------------------------
- ------------------------------- ORBIT/FR, INC. ---------------------------------
------------------------- -----------------------------
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and held subject
to the laws of The State of Delaware, the Certificate of Incorporation of the
Corporation as amended, and the By-Laws of the Corporation, as amended.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and sealed with the
facsimile seal of the Corporation.
[SEAL OF ORBIT/FR, INC. APPEARS HERE]
Dated: /s/ Irene Honeycutt /s/ Aryeh Trabelsi
------------------- --------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
ORBIT/FR, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A
STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (Cust.) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------------
---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
- ----------------------------------------------------------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution on the premises.
</TABLE>
Dated ___________________________________________
---------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER
SIGNATURE(S) GUARANTEED:
------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO SEC RULE 17Ad-15
<PAGE>
Exhibit 5.1
[LETTERHEAD OF BLANK ROME COMISKY & McCAULEY]
215-569-5500
May 19, 1997
ORBIT/FR, Inc.
506 Prudential Road
Horsham, Pennsylvania 19044
Re: ORBIT/FR, Inc.
Registration Statement on Form S-1
File No. 333-25015
------------------
Gentlemen:
We have acted as counsel to ORBIT/FR, Inc. (the "Company") in connection
with the preparation of the Registration Statement on Form S-1, as amended
("Registration Statement") filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the offer
and sale (i) by the Company of up to 2,000,000 shares (the "Firm Shares") of its
common stock, par value $.01 per share ("Common Stock"), and (ii) by a selling
stockholder of up to 300,000 shares of Common Stock to be purchased at the
option of the Underwriters to cover over-allotments, if any (the "Option
Shares").
Although as counsel to the Company we have advised the Company in
connection with a variety of matters referred to us by it, our services are
limited to specific matters so referred. Consequently, we may not have knowledge
of many transactions in which the Company engaged or its day-to-day operations.
In rendering this opinion, we have examined only the following documents:
(i) the Company's Certificate of Incorporation and Bylaws, as amended and
restated since the inception of the Company; (ii) resolutions adopted by the
Company's Board of Directors and its sole stockholder as contained in the
Company's minute books; and (iii) the Registration Statement.
We have not made any independent investigation in rendering this opinion
other than the document examination described above. Our opinion is therefore
qualified in all respects by the scope of that document examination. We make no
representation as to the sufficiency of our
<PAGE>
ORBIT/FR, Inc.
May 19, 1997
Page 2
investigation for your purposes. We have assumed and relied on the truth,
completeness, authenticity and due authorization of all documents and records
examined and the genuineness of all signatures. This opinion is limited to the
Delaware General Corporation Law. In rendering this opinion, we have assumed
compliance with all other laws, including federal laws.
Based upon and subject to the limitations stated herein, we are of the
opinion that (i) the Firm Shares which are being offered and sold by the Company
pursuant to the Registration Statement, when sold in the manner and for the
consideration contemplated by the Registration Statement, will be legally
issued, fully paid and non-assessable, and (ii) the Option Shares are legally
issued, fully paid and non-assessable.
This opinion is given as of the date hereof. We assume no obligation to
update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to our attention or any changes in laws which may hereafter
occur.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Prospectus that is a part of the Registration Statement.
Sincerely,
/s/ Blank Rome Comisky & McCauley
BLANK ROME COMISKY & McCAULEY
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated March
12, 1997, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-
25015) 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
May 16, 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 Amendment No. 1 to the Registration Statement (Form S-1 No. 333-25015)
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.
May 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORBIT/FR,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 325,039 801,141
<SECURITIES> 0 0
<RECEIVABLES> 4,864,415 3,957,651
<ALLOWANCES> 0 0
<INVENTORY> 2,241,234 2,270,970
<CURRENT-ASSETS> 8,591,596 8,690,573
<PP&E> 1,535,524 1,565,376
<DEPRECIATION> 541,244 618,945
<TOTAL-ASSETS> 9,902,926 9,936,441
<CURRENT-LIABILITIES> 5,321,378 4,768,728
<BONDS> 2,722,000 2,722,000
0 0
0 0
<COMMON> 40,000 40,000
<OTHER-SE> 1,819,548 2,405,713
<TOTAL-LIABILITY-AND-EQUITY> 9,902,926 9,936,441
<SALES> 10,404,176 4,906,430
<TOTAL-REVENUES> 10,404,176 4,906,430
<CGS> 6,450,177 3,141,168
<TOTAL-COSTS> 6,450,177 3,141,168
<OTHER-EXPENSES> 2,686,523 811,945
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,062 1,817
<INCOME-PRETAX> 1,270,066 930,165
<INCOME-TAX> 439,000 344,000
<INCOME-CONTINUING> 1,270,066 930,165
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 831,066 586,165
<EPS-PRIMARY> .21 .15
<EPS-DILUTED> .21 .15
</TABLE>
