<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994 Commission File No.: 0-16182
VERNITRON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1962029
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
645 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
(212) 593-7900
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
$1.20 Cumulative Exchangeable Redeemable Preferred Stock,
par value $.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [X].
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on February 28, 1995: $4,283,000
Common Stock outstanding at February 28, 1995: 12,538,012 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
DOCUMENT FORM 10-K REFERENCE
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Portion of Vernitron Corporation Notice of Annual
Meeting of Stockholders and Proxy Statement. Part III, Items 10-13
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PART I
ITEM 1. BUSINESS
GENERAL
Vernitron Corporation (the "Company"), incorporated in New York in 1959 and
reincorporated in Delaware in 1968, is primarily engaged in the design,
manufacture, distribution and sale of electromagnetic sub-systems, specialty AC
(alternating current) and DC (direct current) motors, position and pressure
sensing components, connectors, and the distribution and service of precision
ball bearings. The Company's products are manufactured primarily for use in
high reliability applications in the aerospace, defense, communications, medical
equipment, office equipment and industrial markets.
BUSINESS OF THE COMPANY
The Company operates in three manufacturing plants and three distribution
facilities located in the United States in one business segment,
electromechanical components and sub-systems, which is organized into two
product groups: the Motion Control group and the Industrial Components group.
The Company also uses contract production capacity in Mexico.
Motion Control group sales accounted for 42% and Industrial Components
group sales made up 58% of consolidated net sales of $62.1 million in 1994 (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations for three year sales comparisons).
MOTION CONTROL GROUP. The Motion Control group designs, manufactures and
sells electromagnetic sub-systems, specialty AC and DC motors, synchros and
resolvers, optical and contact shaft encoders, potentiometers and pressure
transducers. These product lines produce all of the Company's motor and sensor
products sold either as individual components or in sub-systems.
The group's products generally involve a high degree of interactive
applications engineering to meet each customer's unique requirements for
reliability and accuracy under demanding and often hostile environmental or
shock conditions, such as space flight or industrial automation. Unit prices
generally exceed $100 and range upward to more than $1,000. In the military and
aerospace markets, contract quantities are relatively low while contract awards
may be large in dollar value. In the commercial market, contract quantities may
be significantly greater while the average sales price is generally lower.
Approximately 65% of current bookings by this group are for military (both U.S.
and foreign government) and aerospace applications. The remainder of the
business is spread over a variety of industrial automation and instrumentation
applications. A large percentage of the military/aerospace business is used in
or to support tactical missile programs, shipboard instruments and infrared
night vision systems. Markets for the group's products are generally fragmented
and competition is focused and often well entrenched.
Motors manufactured by the Company are used in applications which require
extremely reliable and precise motion control, such as computer disk drives,
laser scanners in high-speed printers and bar code readers, missile guidance
systems, industrial controls, aircraft instrumentation and controls and
robotics. Motor technology includes AC and both brush and brushless DC motors.
Synchros and resolvers are each used to measure absolute angular position.
These rugged devices have military and aerospace applications in the guidance
systems of ships, aircraft and missiles. In commercial applications, resolvers
are used to measure the absolute position and velocity of a shaft.
Optical and contact shaft encoders are devices which accurately measure
rotational motion or shaft position in a digital format and have applications in
satellites, weapon systems, radar and industrial control systems.
The Company's precision potentiometers are variable resistors, utilizing
either wire wound or conductive film technologies. These products generally
sense position and produce a feedback signal for use in high reliability
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military, aerospace and industrial applications. Other related products include
pressure transducers which, among other applications, monitor pressure in
hydraulic and HVAC applications.
INDUSTRIAL COMPONENTS GROUP. The Industrial Components group manufactures
connector products and distributes and services precision miniature ball
bearings.
The group's products are almost always sold as components, require a
minimum amount of specialized application engineering and are sold through a
network of manufacturers' representatives and distributors. Average unit
selling prices range from $1 to $3 and individual purchase orders generally
cover large unit quantities. Competition is often fragmented and focused on
niches within the markets served. Quality, customer service and competitive
cost are the critical factors in serving these markets. Substantially all of
the Industrial Components group sales are to domestic commercial and industrial
markets.
The group's connector product line focuses mainly on safety agency approved
barrier terminal blocks in the .5 amp to 50 amp range. The products are used in
a broad range of power applications, including telecommunications, power
supplies, security and fire alarms and industrial controls. The group produces
power connectors for frequent connect/disconnect applications, such as vending
machines and coin changers.
The group also distributes precision miniature ball bearings from three
warehouse locations - Montville, New Jersey, Irvine, California and Dallas,
Texas - to bearing distributors and to end users in a variety of industries,
including manufacturers of computer equipment, medical equipment and a variety
of other precision instruments.
MARKETING. The Company's products are sold directly to original equipment
manufacturers and U.S. Government agencies and contractors, and are also sold
through distributors and representatives.
DOMESTIC AND FOREIGN SALES. The following table sets forth, for each of
the last three fiscal years, information concerning the Company's domestic and
foreign net sales and operating income from continuing operations and
identifiable assets (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Net sales:
USA . . . . . . . . . . . . . . . . . . . . . . . . . . . $57,752 $53,668 $57,091
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 4,380 4,981 5,821
------- ------- -------
$62,132 $58,649 $62,912
------- ------- -------
------- ------- -------
Export sales as a % of total sales: . . . . . . . . . . . . 7.0% 8.5% 9.3%
------- ------- -------
------- ------- -------
Operating income (loss):
USA . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,363 $ 1,969 $ 1,447
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 314 183 148
Restructuring/inventory writedown charges (USA) . . . . . (1,315) (3,500)
------- ------- -------
$ 2,362 $(1,348) $ 1,595
------- ------- -------
------- ------- -------
Identifiable assets:
USA . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,197 $47,261 $52,247
------- ------- -------
------- ------- -------
</TABLE>
COMPETITION. The Company competes primarily on the basis of its ability to
design and engineer its products to meet relatively stringent shape, performance
and other requirements of its customers, most of whom are original equipment
manufacturers who purchase the component parts for inclusion in their end
products.
There are a limited number of competitors in each of the markets for the
various types of electromechanical products manufactured and sold by the
Company. Some of these competitors have substantially greater resources than
the Company. Imports of end products incorporating foreign manufactured
electromechanical components have increased in recent years resulting, in part,
in smaller available domestic markets for the Company's components.
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In addition, reductions in Government defense spending have resulted in
shrinking markets and increased competition for the remaining business.
While price is a competitive factor, the Company believes that its
applications engineering capability, which enables it to meet a customer's
special needs, is its principal competitive strength.
CUSTOMERS. There is no customer or group of affiliated customers to which
sales during the fiscal year ended December 31, 1994 were in the aggregate 10%
or more of the Company's consolidated net sales, and there is no customer, the
loss of which would have a material adverse effect on the Company's operations
taken as a whole.
In fiscal 1994, the Company had aggregate sales, both military and non-
military, of approximately $3.6 million directly to the U.S. Government,
including its agencies and departments. These sales accounted for approximately
6% of total net sales in 1994 as compared to 5% in 1993 and 7% in 1992.
Approximately 18% of net sales in 1994 were derived from subcontracts with U.S.
Government contractors as compared to 21% in 1993 and 22% in 1992. The majority
of these contracts may be subject to termination at the convenience of the
Government, and certain of them may also be subject to renegotiation.
Currently, the Company is not aware of any termination or renegotiation of such
contracts which would have a material adverse effect on its business. Because
approximately 24% of the Company's business is derived directly from contracts
with the U.S. Government or agencies or departments thereof, or indirectly
through subcontracts with U.S. Government contractors, the Company's results of
operations could be materially affected by changes in Government expenditures
for products using component parts it produces. However, the Company believes
that its exposure to such risk may be lessened by the conventional tactical
nature of the programs it participates in as well as the broad number and
diversity of its product applications and the strength of its engineering
capabilities.
BACKLOG; SEASONALITY. As of December 31, 1994 and December 31, 1993, the
Company had a backlog of orders of $23.0 million and $24.0 million,
respectively. Management believes that a substantial portion of the backlog of
orders at December 31, 1994 will be filled during fiscal 1995. Bookings and
shipments, while subject to fluctuation due to the build-to-order nature of a
substantial portion of the Company's business, are not subject to significant
seasonal variations.
PRODUCT DEVELOPMENT. The Company develops new electromechanical sub-
systems and components and improves existing products in order to keep pace with
the technological advances which generally characterize its markets. During
fiscal 1994, combined Company and customer sponsored engineering expense
associated with product development, before customer reimbursement, was $695,000
compared to $639,000 in fiscal 1993 and $535,000 in fiscal 1992. In general,
the Company recovers from customers between a quarter and a third of such
engineering expense.
RAW MATERIALS; OTHER SUPPLIERS. There is no one supplier whose delivery of
raw materials or other products is material to the operations of the Company.
While several divisions use substantial amounts of cobalt, chromium, titanium,
gold, silver and copper in certain of their products, the Company has not
experienced any serious difficulty in obtaining adequate supplies.
PATENTS, TRADEMARKS AND LICENSES. The Company's business is not dependent
on any patent or trademark.
ENVIRONMENTAL REGULATIONS. The Company does not believe that its
compliance with federal, state and local laws and regulations governing the
discharge of materials into the environment or otherwise relating to the
protection of the environment has or will have any material effect upon its
capital expenditures, earnings or competitive position. There can be no
assurance, however, (i) that changes in federal, state or local laws or
regulations, changes in regulatory policy or the discovery of unknown problems
or conditions will not in the future require substantial expenditures, or (ii)
as to the extent of the Company's liabilities, if any, for past failures, if
any, to comply with applicable environmental laws, regulations and permits.
EMPLOYEES. The Company employs approximately 600 persons, all in the
United States. Approximately 120 of such employees are subject to union
contracts, before giving effect to the disposition of the Electronic Components
business (see Note 2 to the Financial Statements). Following this disposition,
approximately 70
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employees will be covered by union contracts. The Company considers its
relations with its employees to be satisfactory. There has been no significant
interruption of operations due to labor disputes.
WORKING CAPITAL PRACTICES. The markets in which the Company competes are
not characterized by any unusual inventory or collection practices.
ITEM 2. PROPERTIES
The Company leases its executive office, located at 645 Madison Avenue, New
York, New York. The principal plants and other materially important properties
at December 31, 1994 are:
<TABLE>
<CAPTION>
OWNED OR
TYPE OF SQUARE LEASED;
LOCATION FACILITY FOOTAGE EXPIRATION
- -------- -------- ------- ----------
<S> <C> <C> <C>
St. Petersburg, FL Industrial 52,500 Owned
Deer Park, NY Industrial 69,600 Owned
San Diego, CA Industrial 60,100 Leased; 2000
Montville, NJ Industrial 76,200 Leased; 1999
Gilford, NH Industrial 84,250 Owned
Irvine, CA Industrial 7,800 Leased; 1995
Dallas, TX Industrial 1,400 Leased; 1997
</TABLE>
All of the facilities owned by the Company are subject to mortgages or
security interests which secure the Company's obligations under its revolving
credit facility or industrial development bonds (see Note 4 to the Financial
Statements).
The Deer Park, NY facility is classified as held for disposal (see Notes 1
and 8 to the Financial Statements).
The Company believes that its properties are suitable and adequate for its
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, none of which is expected
to have a material adverse affect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has traded on the National Association of Securities
Dealers Automated Quotation Small-Cap Market ("NASDAQ") under the symbol VRNT,
since the completion of the Exchange Offer on August 13, 1991. The following
table sets forth the range of high and low market prices for the fiscal quarters
indicated as quoted on NASDAQ:
1994 1993
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High Low High Low
---- --- ---- ---
Fiscal Years Ended December 31:
First Quarter $ 5/8 $ 5/8 $ 1 3/4 $ 1 5/8
Second Quarter 1 1/8 5/8 1 5/8 1 5/8
Third Quarter 1 11/16 1 5/8 1 1/16
Fourth Quarter 3/4 5/8 1 1/16 5/8
The high and low market price information presented above is based on real-
time sales.
On March 1, 1995, the high and low sales price was $5/8.
On March 1, 1995, the approximate number of holders of record of the Common
Stock was 1,068.
The Company did not pay cash dividends on the Common Stock during the three
fiscal years ended December 31, 1994. The Company's policy is to retain
earnings for the foreseeable future. The Company's credit facility prohibits
the payment of cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five fiscal years presented
below is derived from the audited Financial Statements of the Company as
adjusted to reflect the discontinuance of the Electronic Components group (see
Note 2 to the Financial Statements). The data should be read in conjunction
with the Financial Statements and the related Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $ 62,132 $ 58,649 $ 62,912 $ 67,091 $ 62,763
Income from continuing
operations before interest and
special charges . . . . . . . . . . . . . . . . . 3,606 2,081 1,555 2,036 1,182
Interest expense . . . . . . . . . . . . . . . . . 2,264 2,437 2,597 3,371 3,696
Special charges (1). . . . . . . . . . . . . . . . (1,315) (3,500) -- -- (13,650)
Income (loss) from continuing
operations. . . . . . . . . . . . . . . . . . . . 27 (3,856) (1,042) (1,335) (16,164)
Loss from continuing operations
per common share (2). . . . . . . . . . . . . . . (.04) (.82) (.23) (.39) (7.47)
Total assets (3) . . . . . . . . . . . . . . . . . 42,197 47,261 52,247 54,479 79,244
Total debt (4) . . . . . . . . . . . . . . . . . . 12,363 26,470 26,920 28,836 32,000
$3.75 Cumulative Exchangeable
Redeemable Preferred Stock (5). . . . . . . . . . -- -- -- -- 38,580
Shareholders' Equity (5) . . . . . . . . . . . . . 13,269 5,076 9,603 9,463 (9,663)
<FN>
(1) In 1994 and 1993, the Company recorded restructuring/inventory writedown
charges related to the restructuring of its Motion Control group (see Note
8 to the Financial Statements). In 1990, the Company recorded a charge as
a result of the termination of the Company's efforts to acquire Kollmorgen
and the termination of all outstanding litigation and the mutual release of
claims between the parties.
(2) The Company's earnings per share information has been restated for 1990 to
reflect an Exchange Offer completed in 1991 and a reverse stock split
effected on June 20, 1991.
(3) At December 31, 1991, the Company elected to adjust its balance sheet to
fair value in accordance with quasi-reorganization accounting principles,
resulting in, among other adjustments, a $16.2 million reduction in the
carrying value of goodwill.
(4) Includes short-term debt and current portion of long-term debt of $442,000
in 1994, $1,200,000 in 1993 $1,000,000 in 1992, $2,130,000 in 1991 and
$3,000,000 in 1990.
(5) As a result of the Exchange Offer, the Company's $3.75 Cumulative
Exchangeable Redeemable Preferred Stock was either exchanged for Common
Stock or amended (see Note 3 to the Financial Statements for a description
of the amended terms).
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales by product group for continuing operations for the past three
years are presented in the table below. The Company has adopted a plan to
dispose of its Electronic Components business which, together with the
Industrial Components business, was previously reported as part of the Precision
Components product group (see Note 2 to the Financial Statements). As a result,
the net sales and results of operations of the discontinued product group have
been excluded from the table and the discussion which follow.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Motion Control $26,052 $26,648 $32,024
Industrial Components 36,080 32,001 30,888
------- ------- -------
Net Sales $62,132 $58,649 $62,912
------- ------- -------
------- ------- -------
</TABLE>
1994 VS. 1993
Net sales increased by $3.5 million, or 6%, in 1994, compared to 1993.
The Motion Control group's sales declined by $.6 million, or 2%, in 1994,
as compared to 1993, primarily as a result of lower shipments of AC motors and
potentiometers due largely to lower U.S. and foreign government bookings and
lower bookings for certain technologically mature product applications. These
lower shipments were partially offset by higher shipments of resolvers, due to
the timing of certain large orders received in 1993, and higher electromagnetic
sub-system shipments due to new product introductions.
The Industrial Components group's sales increased in 1994 by $4.1 million,
or 13%, as compared to 1993. Sales of bearings were up by $2.9 million, or 16%,
reflecting sales to new customers and an improvement in general economic
conditions. Sales of connector products rose by $1.2 million, or 9%,
principally as a result of sales to new customers in the OEM market, higher
sales of Eurostyle connectors and an improvement in general economic conditions.
The Company's backlog at December 31, 1994 of $23.0 million was $1.0
million, or 4% lower, than 1993 year-end, while bookings of $61.2 million were
substantially the same as the prior year. The lower backlog was primarily due
to a reduction of backlog in the Motion Control group of $1.9 million resulting
from lower bookings in resolvers, primarily due to timing as several large
orders received in 1993 did not repeat in 1994, and potentiometers, primarily
due to lower U.S. Government and foreign bookings. These lower bookings were
partially offset by higher bookings of electromagnetic sub-systems due to new
product introductions. The Industrial Components group's backlog increased $1.0
million due primarily to increased bookings in the bearings product line
resulting from an improvement in general economic conditions.
Operating income, excluding restructuring/inventory writedown charges of
$1.3 million and $3.5 million in 1994 and 1993, respectively, was $3.7 million
in 1994, as compared to $2.2 million in 1993, representing a $1.5 million
increase. This increase was primarily due to the gross margin earned on the
incremental sales volume and improved profit margins in the Motion Control
product group resulting from restructuring actions taken in 1993, which were
partially offset by higher selling, general and administrative expenses. Gross
margins were 27.7% in 1994, up from 26.1% in 1993. Productivity, as measured by
the value-added per employee, increased 24.9% to approximately $65,900 in 1994,
from approximately $52,800 in 1993.
Selling, general and administrative expense, as a percentage of sales,
declined to 21.5% in 1994 from 22.1% in 1993. Selling, general and
administrative expense was up by $.4 million in 1994 as a result of increased
expenses related to the relocation of Motion Control's potentiometer and
pressure transducer product lines from the Company's Deer Park, New York
facility to St. Petersburg, Florida and the reinstatement of certain profit
sharing provisions.
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These incremental costs were partially offset by efficiencies resulting from the
aforementioned Motion Control restructuring initiated in 1993.
In 1993, the Company recorded a $3.5 million charge related to the
restructuring of the Motion Control group, of which $2.3 million was related to
the write-down of certain slow-moving and excess raw material inventory (see
discussion of 1993 vs. 1992 below). As part of this restructuring, the Company
also announced its intention to close and sell the Deer Park, New York facility.
In 1994, the Company recorded an additional $1.3 million charge related to this
restructuring, $1.0 million of which is to provide additional inventory reserves
to reflect slower turnover of the inventory than was anticipated in the 1993
charge calculation. The remaining $.3 million of the 1994 charge is to adjust
the carrying amount of the other assets held for disposal in connection with the
restructuring to reflect current market values.
Interest expense declined by $.2 million in 1994 as a result of lower
average borrowings due primarily to the repurchase of the Company's bank
indebtedness at a discount (see Note 4 to the Financial Statements). This was
partially offset by higher interest rates.
At December 31, 1994, the Company had approximately $11 million of net
operating loss carryforwards available to reduce future taxable income.
1993 VS. 1992
Net sales declined by $4.3 million, or 7%, in 1993, compared to 1992.
The Motion Control group's sales accounted for $5.4 million of this
decline, primarily due to lower U.S. and foreign military sales in 1993 and to
the completion of deliveries for certain commercial equipment and space programs
in 1992.
Industrial Components group sales increased by $1.1 million, a 4% increase,
compared to 1992. Sales of connector products rose by 7% as the result of
increased market penetration and the introduction of the Eurostyle connector.
Sales of bearings were up 1%, reflecting some pickup in general economic
activity.
The Company's total bookings increased approximately 3% in 1993 over 1992,
while backlog at December 31, 1993 was approximately 13% higher compared to
year-end 1992. Motion Control group bookings were up approximately 3% in 1993
over 1992, primarily as a result of increased bookings of military products.
Bookings for the Motion Control group's sensor products (comprised of
potentiometers, encoders, resolvers and synchros), which declined in 1992,
increased slightly in 1993 over their 1992 level. Backlog for the Motion
Control group at December 31, 1993 was up by approximately $.7 million compared
to backlog at December 31, 1992. Industrial Components group bookings increased
by approximately 4% in 1993 compared to 1992 due primarily to the introduction
of the Eurostyle connector. Backlog for the Industrial Components group
increased by approximately $1.3 million at December 31, 1993, compared to
backlog at December 31, 1992.
Operating income of $2.2 million, excluding the $3.5 million
restructuring/inventory writedown charge described below, was $.6 million above
1992. Cost reductions and productivity improvements achieved through reduced
headcount and improved operating efficiencies in the Motion Control group and
the connector product line of the Industrial Components group and lower selling,
general and administrative expense (see below) more than offset the negative
impact on operating income of the lower sales volume in the Motion Control
group. Gross margins were 26.1% in 1993, up from 25.2% in 1992. Productivity,
as measured by the value-added per employee, increased 13.5% to approximately
$52,800 in 1993 from approximately $46,500 in 1992.
Selling, general and administrative expense was $1.1 million lower in 1993
primarily as a result of staff reductions and elimination of profit sharing
provisions due to lower earnings.
During 1993, the company determined to restructure its Motion Control
group, which had operated as two separate divisions. The restructuring provided
for the consolidation of the two separate divisions under a single operating
management based in San Diego, California. The Company also determined to
increase its reserves for slow moving and excess inventories in the Motion
Control group. The Company determined to consolidate the two divisions because
it believed that the combination would allow the use of more productive, higher
quality
9
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manufacturing techniques in San Diego. In addition, the Company believed that
the consolidation in San Diego would substantially increase the interaction of
the Motion Control group's various engineering disciplines in response to
commercial and industrial requirements. The Company determined to increase its
reserves for slow moving and excess inventory in the Motion Control group to
reflect its determination of a permanent reduction in the demand for certain
wire wound potentiometer product lines based on the Company's belief that demand
for such products, which had declined in prior years, was not likely to return
in sufficient amounts. The reduced demand for such products contributed to the
decision to consolidate the Motion Control group in San Diego and the other
steps taken as part of the restructuring.
The Company recorded a charge of $3.5 million related to the restructuring
of its Motion Control group. The charge included $2.3 millon for the write-down
of slow moving and excess raw material and finished good inventories of wire
wound potentiometers. In addition, $1.2 million was recorded for severance,
early retirement, other employee-related benefits and other costs of the
restructuring. Of the $1.2 million accrued in 1993, approximately $250,000 and
$850,000 were charged against such accrual in 1993 and 1994, respectively. It
is expected that the balance will be charged against the accrual in 1995 (see
Note 8 to the Financial Statements).
In connection with the restructuring, major cost reduction programs were
initiated. The plan included reducing the group's workforce by more than 15%,
mostly in non-production positions, and the consolidation of engineering staff
and design facilities. The Company expects that the reduction in workforce will
result in lower labor costs and, together with other reductions in costs
resulting from the consolidation, should increase the Company's competitiveness.
Interest expense declined by $.2 million in 1993 as a result of both lower
average borrowings and lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company obtained a new $15.0 million four-year, senior
secured credit facility (see Note 4 to the Financial Statements). In addition,
the Company completed a rights offering of Common Stock which provided $2.3
million of proceeds, net of expenses (see Note 3 to the Financial Statements).
The proceeds of the new credit facility, along with the net proceeds of the
rights offering, were used to repurchase the Company's then existing bank
indebtedness at a discount and to provide additional working capital.
Subsequent to December 31, 1994, the Company negotiated an amendment to its new
credit facility increasing the amount that can be borrowed under the facility to
$17.5 million, subject to availability based on the satisfaction of certain
borrowing base formulas.
During 1994, the Company received proceeds of $.6 million from the sale of
certain product lines of the discontinued Electronic Components business.
Subsequent to December 31, 1994, the Company has sold the remaining product line
of this business for $1.5 million, of which $1.0 million has been collected as
of February 24, 1995. The remaining $.5 million is scheduled to be collected in
the first half of 1995. The proceeds from these sales will be used to fund
expenses related to the decision to discontinue the Electronic Components group,
to pay down bank indebtedness and to provide additional working capital.
The Company had no material commitments for capital expenditures as of
December 31, 1994.
The Company believes that its $17.5 million credit facility, cash generated
from operations and proceeds from the sale of assets included in net assets held
for disposal, will be sufficient to meet its future capital expenditure and
working capital requirements and required debt amortization.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is included in Item 14(a) of this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. See Item 14(b) of this Report.
10
<PAGE>
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its 1994 Annual Meeting
of Stockholders to be filed with the Securities and Exchange Commission within
120 days following the end of the Company's fiscal year ended December 31, 1994.
If such proxy statement is not so filed, such information will be filed as an
amendment to this Form 10-K within 120 days following the end of the Company's
fiscal year ended December 31, 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) AND (2) FINANCIAL STATEMENTS
See accompanying index to financial statements and schedules.
(a)(3) EXHIBITS
See accompanying index to Exhibits.
(b) REPORTS ON FORM 8-K
During the quarter ended December 31, 1994, the Company filed no reports on
Form 8-K.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: VERNITRON CORPORATION
(REGISTRANT)
By /s/ STEPHEN W. BERSHAD
STEPHEN W. BERSHAD
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated this 28th day of March, 1994.
/s/ Stephen W. Bershad Chairman of the Board of
STEPHEN W. BERSHAD Directors and Chief Executive
Officer
/s/ Raymond F. Kunzmann Vice President - Finance, Controller
RAYMOND F. KUNZMANN and Chief Financial Officer
/s/ Anthony J. Fiorelli, Jr. Director
ANTHONY J. FIORELLI, JR.
/s/ Eliot M. Fried Director
ELIOT M. FRIED
12
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
VERNITRON CORPORATION
<PAGE>
FORM 10-K -- ITEM 14(a)(1) AND (2) AND ITEM 14(d)
VERNITRON CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Vernitron Corporation are included in
Item 8:
Balance sheets -- December 31, 1994 and 1993. . . . . . . . . . . . . . F-4
Statements of operations -- For the years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statements of cash flows -- For the years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Statements of shareholders' equity -- For the years ended December 31,
1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to financial statements . . . . . . . . . . . . . . . . . . . . . F-9
The following financial statement schedule of Vernitron Corporation is
included in Item 14(d):
Schedule II -- Valuation and qualifying accounts. . . . . . . . . . . .F-17
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Vernitron Corporation:
We have audited the accompanying balance sheets of Vernitron Corporation (a
Delaware corporation) as of December 31, 1994 and 1993, and the related
statements of operations, shareholders' equity and cash flows for the three
years ended December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 Vernitron Corporation as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the three years ended December 31, 1994 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 24, 1995
F-3
<PAGE>
BALANCE SHEETS
VERNITRON CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
------- -------
<S> <C> <C>
A S S E T S
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . $ 27 $ 103
Accounts receivable, net of allowance
for doubtful accounts of $345 in 1994
and $278 in 1993 . . . . . . . . . . . . 9,293 8,323
Inventories, net . . . . . . . . . . . . . 14,527 18,797
Other current assets . . . . . . . . . . . 468 1,025
------- -------
TOTAL CURRENT ASSETS . . . . . . . . . 24,315 28,248
NET PROPERTY, PLANT AND EQUIPMENT. . . . . . 7,990 9,389
EXCESS OF COST OVER NET ASSETS ACQUIRED,
net of accumulated amortization of $627
in 1994 and $418 in 1993 . . . . . . . . . 6,832 7,041
NET ASSETS HELD FOR DISPOSAL . . . . . . . . 2,507 1,886
OTHER ASSETS . . . . . . . . . . . . . . . . 553 697
------- -------
TOTAL ASSETS . . . . . . . . . . . . . $42,197 $47,261
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
BALANCE SHEETS - (CONTINUED)
VERNITRON CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
------- -------
<S> <C> <C>
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . $ 6,394 $ 6,524
Accrued expenses and other liabilities . . 5,941 5,051
Current portion of long-term debt. . . . . 442 1,200
------- -------
TOTAL CURRENT LIABILITIES . . . . . . . 12,777 12,775
LONG-TERM DEBT, less current portion . . . . 11,921 25,270
OTHER LONG-TERM LIABILITIES. . . . . . . . . 3,579 3,357
DEFERRED INCOME. . . . . . . . . . . . . . . 651 783
SHAREHOLDERS' EQUITY:
$1.20 CUMULATIVE EXCHANGEABLE REDEEMABLE
PREFERRED STOCK, $.01 PAR VALUE: authorized
1,400,000 shares, issued and outstanding
672,344 shares in 1994 and 577,946 shares
in 1993 . . . . . . . . . . . . . . . . . . 7 6
COMMON STOCK, $.01 PAR VALUE:
authorized 20,000,000 shares, issued and
outstanding 12,538,012 in 1994 and
5,185,070 shares in 1993. . . . . . . . . . 125 52
CAPITAL IN EXCESS OF PAR . . . . . . . . . . 13,982 9,544
RETAINED DEFICIT (Reflects application of
quasi-reorganization accounting principles
as of December 31, 1991 eliminating a
deficit of $14,094). . . . . . . . . . . . (845) (4,526)
------- -------
TOTAL SHAREHOLDERS' EQUITY. . . . . . . 13,269 5,076
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,197 $47,261
------- -------
------- -------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STATEMENTS OF OPERATIONS
VERNITRON CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
NET SALES $ 62,132 $ 58,649 $ 62,912
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,903 43,338 47,081
Selling, general and
administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,343 12,950 14,027
Restructuring/inventory writedown charges. . . . . . . . . . . . . . . . . . . . 1,315 3,500
Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . 209 209 209
----------- ----------- ------------
OPERATING INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,362 (1,348) 1,595
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,264 2,437 2,597
Other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 71 13
----------- ----------- ------------
Income (loss) from continuing operations before taxes and extraordinary gain . . 44 (3,856) (1,015)
Charge in lieu of taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 27
----------- ----------- ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN . . . . . . . 27 (3,856) (1,042)
Discontinued Operations:
Income (loss) from operations, net of tax benefit of $92 in 1994 . . . . . . . (143) (670) 1,144
Loss on disposal, net of tax benefit of $1,317 in 1994 . . . . . . . . . . . . (2,059)
----------- ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . (2,175) (4,526) 102
Extraordinary gain on debt repurchase,
net of charge in lieu of taxes of $3,744 in 1994 . . . . . . . . . . . . . . . 5,856
----------- ----------- ------------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,681 (4,526) 102
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 375 158
----------- ----------- ------------
Net income (loss) applied to common shareholders'equity. . . . . . . . . . . . . $ 3,326 $ (4,901) $ (56)
----------- ----------- ------------
----------- ----------- ------------
NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.04) $ (.82) $ (0.23)
Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.26) (.13) 0.22
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.69
----------- ----------- ------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.39 $ (.95) $ (0.01)
----------- ----------- ------------
----------- ----------- ------------
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . 8,509,003 5,185,070 5,182,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
STATEMENTS OF CASH FLOWS
VERNITRON CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,681 $ (4,526) $ 102
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Extraordinary gain on debt repurchase, net. . . . . . . . . . . . . . . . . . (5,856)
Loss on disposal of discontinued operations, net. . . . . . . . . . . . . . . 2,059
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,742 1,732 1,588
(Increase) decrease in accounts receivable. . . . . . . . . . . . . . . . . . (970) 934 1,268
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 2,019 507
Decrease in other current assets. . . . . . . . . . . . . . . . . . . . . . . 498 449 72
Increase (decrease) in accounts payable and accrued expenses. . . . . . . . . 365 10 (469)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (810) 200 37
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . 1,391 818 3,105
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (797) (381) (1,122)
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . 605
------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . (192) (381) (1,122)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,665 3,900 8,800
Repayment of borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,272) (4,350) (10,716)
Net proceeds from common stock rights offering . . . . . . . . . . . . . . . . 2,332
Other, net.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
------- ------- --------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . (1,275) (450) (1,896)
------- ------- --------
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . (76) (13) 87
Cash at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 116 29
------- ------- --------
CASH AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27 $ 103 $ 116
------- ------- --------
------- ------- --------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY
VERNITRON CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED
------------------ ------------------- IN EXCESS EARNINGS
SHARES AMOUNT SHARES AMOUNT OF PAR (DEFICIT)
------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 . . . . . . 415,593 $ 4 5,170,671 $ 52 $ 9,407 $ --
Net Income . . . . . . . . . . . . . . 102
Amount realized from utilization
of pre quasi-reorganization
tax benefits. . . . . . . . . . . . . 18
Dividends (b). . . . . . . . . . . . . 70,770 1 157 (158)
Contribution to 401(k) plan. . . . . . 14,399 27
Transfer to Capital in Excess
of Par (a). . . . . . . . . . . . . . (56) 56
Other. . . . . . . . . . . . . . . . . 9,533 (7)
------- --- ---------- ---- ------- -------
Balance at December 31, 1992 . . . . . . 495,896 5 5,185,070 52 9,546 --
------- --- ---------- ---- ------- -------
Net Loss . . . . . . . . . . . . . . . (4,526)
Dividends (b). . . . . . . . . . . . . 82,050 1 374 (375)
Transfer to Capital in Excess
of Par (a). . . . . . . . . . . . . . (375) 375
Other. . . . . . . . . . . . . . . . . (1)
------- --- ---------- ---- ------- -------
Balance at December 31, 1993 . . . . . . 577,946 6 5,185,070 52 9,544 (4,526)
------- --- ---------- ---- ------- -------
Net Income . . . . . . . . . . . . . . 3,681
Dividends (b). . . . . . . . . . . . . 94,398 1 354 (355)
Transfer to Capital in Excess
of Par (a). . . . . . . . . . . . . . (355) 355
Common Stock rights
offering . . . . . . . . . . . . . . 7,352,942 73 2,259
Amount realized from utilization
of pre quasi-reorganization
tax benefits . . . . . . . . . . . . 2,182
Other. . . . . . . . . . . . . . . . . (2)
------- --- ---------- ---- ------- -------
Balance at December 31, 1994 . . . . . . 672,344 $ 7 12,538,012 $125 $13,982 $ (845)
------- --- ---------- ---- ------- -------
------- --- ---------- ---- ------- -------
<FN>
(a) Represents transfer of the excess of Preferred Stock dividends over
available Retained Earnings.
(b) Represents a 15% dividend paid in additional shares and valued at the
average of the closing bid and ask price as of the dividend record date.
The per share amounts of these dividends were $.34, $.70 and $.57 per share
of Preferred Stock in 1992, 1993 and 1994, respectively.
</TABLE>
See notes to financial statements.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories are priced at the lower of cost (principally first-in, first-
out, or specific identification) or market.
Deferred financing costs are amortized ratably over the life of the
corresponding debt or commitment.
The excess of cost over net assets acquired is being amortized over thirty-
five years using the straight-line method.
Depreciation and amortization are provided primarily by the straight-line
method over the estimated useful lives of property, plant and equipment, which
are stated at cost, except as otherwise indicated in Note 2.
Other assets held for disposal are stated at the lower of cost or estimated
net realizable value (see Note 8).
Inter-division items and transactions have been eliminated in
consolidation.
Certain items in the 1993 and 1992 financial statements have been
reclassified to conform to the 1994 presentation.
Per share data is based upon the weighted average of common shares
outstanding during each period. Outstanding common stock options or warrants
have not been included in the 1994, 1993 or 1992 computation of per share data
as they were deemed to have been anti-dilutive.
NOTE 2 - DISCONTINUED OPERATIONS
Effective September 30, 1994, the Company adopted a plan to dispose of all
of its Electronic Components business which was comprised of the trimmer,
transformer and microwave component product lines. The disposal is being
accounted for as a discontinued operation and, accordingly, the related net
assets and operating results have been reported separately from continuing
operations. The Company's prior year's Statements of Operations have been
restated to reflect continuing operations. The loss on disposal of the
Electronic Components business for the year ended December 31, 1994 is comprised
of the estimated loss on disposal of the net assets of the business and a
provision for anticipated operating losses until disposal.
During 1994, the Company sold a portion of the assets of its Electronic
Components business for gross proceeds of $605. Subsequent to December 31,
1994, the Company has sold the remaining discontinued business' assets for
$1,500, of which $1,000 has been collected as of February 24, 1995. The
remaining $500 is scheduled to be collected in the first half of 1995.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 2 - DISCONTINUED OPERATIONS (CONT'D)
Net assets held for disposal as of December 31, 1994 consisted of the
following:
<TABLE>
<S> <C>
Inventory $1,992
Machinery and equipment 365
Other current assets 59
Current liabilities (478)
Reserve for anticipated operating losses
until disposal (75)
Reserve for estimated loss on disposal
of net assets (990)
------
Net assets of discontinued operations 873
Other assets held for disposal 1,634
------
Net assets held for disposal $2,507
------
------
</TABLE>
Revenues applicable to the discontinued business for the years ended
December 31, 1994, 1993 and 1992 were $6,897, $9,095, and $11,355, respectively.
The loss from operations of the discontinued Electronic Components business from
September 30, 1994 to December 31, 1994, which is included in the loss on
disposal, was $326, net of a tax benefit of $209.
NOTE 3 - SHAREHOLDERS' EQUITY
COMMON STOCK -
On July 20, 1994, the Company completed a rights offering of Common Stock
in which 7,352,942 shares were issued for gross proceeds of $2,500 ($2,332, net
of expenses). As a result of the completion of the rights offering, the total
number of outstanding shares of Common Stock as of December 31, 1994 is
12,538,012.
PREFERRED STOCK -
The certificate of designation (as amended in 1991) setting forth the
amended terms of the Company's $1.20 (formerly $3.75) Cumulative Exchangeable
Redeemable Preferred Stock provides for, among other things, (1) a liquidation
preference of $8 per share, (2) an annual dividend of $1.20 per share, and (3)
the ability to pay dividends thereon in additional shares instead of cash up to
March 1, 1996. The Company's Senior Credit Facility, however, prohibits the
payment of cash dividends (see Note 4). The Company at its option may redeem
the Preferred Stock at a price of $8.00 per share or an amount per share equal
to the product of 1.1 and the average of the NASDAQ daily closing prices per
share (defined in general to be the average of the highest reported bid and the
lowest reported asked prices) for ten consecutive trading days, as defined,
together with all accrued and unpaid dividends to the redemption date.
Since August, 1991, the Company has paid quarterly dividends on the
Preferred Stock in additional shares at an annual rate of 15% based on the
shares outstanding.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Credit Facility . . . . . . . . . . $10,493 $24,600
Industrial Revenue Bond . . . . . . 1,870 1,870
------- -------
12,363 26,470
Less current portion. . . . . . . . 442 1,200
------- -------
$11,921 $25,270
------- -------
------- -------
</TABLE>
On July 20, 1994, the Company obtained a new $15,000 four-year, senior
secured credit facility (the "Senior Credit Facility"). The proceeds of the
Senior Credit Facility along with the net proceeds of the rights offering (see
Note 3) were used to repurchase the Company's bank indebtedness at a discount
and to provide additional working capital. As a result of the repurchase of
indebtedness, an extraordinary gain of $5,856, net of a charge in lieu of taxes
of $3,744, was recorded.
Subsequent to December 31, 1994, the Company negotiated an amendment to the
Senior Credit Facility increasing the amount that can be borrowed under the
facility to $17,500, subject to availability based on the satisfaction of
certain borrowing base formulas. Had this amendment been effective as of
December 31, 1994, $15,800 of the $17,500 credit facility would have been
available to the Company.
Borrowings under the Senior Credit Facility bear interest at a fluctuating
rate per annum equal to the rate of interest publicly announced by Chemical Bank
as its prime rate plus 2.5% (the prime rate was 8.5% at December 31, 1994). A
commitment fee of .5% is payable on any unused amount of the Senior Credit
Facility. The Senior Credit Facility contains certain restrictive covenants
which, among other things, impose limitations with respect to the incurrence of
additional liens, mergers, consolidations and specified sale of assets. In
addition, the Senior Credit Facility prohibits the payment of cash dividends.
Borrowings under the Senior Credit Facility are secured by substantially all of
the assets of the Company.
The Company had outstanding at December 31, 1993, industrial development
revenue bonds (the "Bonds") in the amount of $1,870 secured by its Gilford, NH
manufacturing facility which has a net carrying amount of approximately $2,400.
The bonds are payable in 2005. During 1994, the bonds were remarketed and, as a
result, a letter of credit securing repayment was released and the interest rate
was converted from a floating rate to a fixed rate of 13% per annum.
Scheduled debt maturities during the next five years, which are comprised
solely of payment under the Company's Senior Credit Facility (as amended) are
$442 (1995), $589 (1996), $589 (1997) and $8,873 (1998).
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 5 - BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
INVENTORIES:
Raw materials . . . . . . . . . . . . . $ 2,551 $ 5,820
Work-in-process . . . . . . . . . . . . 5,879 5,225
Finished goods. . . . . . . . . . . . . 6,097 7,752
-------- -------
$14,527 $18,797
-------- -------
-------- -------
NET PROPERTY, PLANT AND EQUIPMENT:
Land. . . . . . . . . . . . . . . . . . $ 600 $ 600
Buildings and improvements. . . . . . . 3,562 3,506
Machinery and equipment . . . . . . . . 7,490 7,942
------- -------
11,652 12,048
Less accumulated depreciation
and amortization . . . . . . . . . . . 3,662 2,659
------- -------
$ 7,990 $ 9,389
------- -------
------- -------
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation and related benefits . . . $ 2,180 $ 1,813
Motion Control relocation . . . . . . . 81 953
Legal . . . . . . . . . . . . . . . . . 443 236
Other . . . . . . . . . . . . . . . . . 3,237 2,049
------- -------
$ 5,941 $ 5,051
------- -------
------- -------
</TABLE>
NOTE 6 - INCOME TAXES
At December 31, 1994, the Company has net operating loss carryforwards of
approximately $11,250 which expire in the years 2005 through 2008 and
alternative minimum tax credit carryforwards of approximately $320. In
addition, the Company has approximately $8,200 of previously unrecognized tax
benefits, principally related to inventories. As the portion of the loss
carryforwards and deferred tax benefits originating prior to the 1991 quasi-
reorganization are realized, the corresponding tax effect will be credited to
Capital in Excess of Par under quasi-reorganization accounting principles rather
than reducing the Provision for Taxes. In 1994, $2,182 was credited to Capital
in Excess of Par representing the utilization of such pre quasi-reorganization
tax benefits to offset current year tax expense related to both continuing and
discontinued operations as well as the extraordinary gain. As of December 31,
1994, $5,008 of the pre quasi-reorganization tax effected benefits remain
unutilized. The utilization and realization of the carryforwards and future tax
benefits will substantially reduce or eliminate the amount of cash taxes payable
on taxable income in the future.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 6 - INCOME TAXES (CONT'D)
The Company utilizes the liability method (SFAS No. 109) in accounting for
income taxes. Income (loss) from continuing operations before taxes is from
domestic sources only for the three years ended December 31, 1994.
The provision for taxes on income from continuing operations consists of:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current taxes:
U.S. Federal
- charge in lieu of taxes . . . . . . . $ 14 $ -- $ 18
State and local. . . . . . . . . . . . . 3 9
---- ----- -----
17 -- 27
---- ----- -----
Deferred taxes:
U.S. Federal . . . . . . . . . . . . . .
---- ----- -----
$ -- $ -- $ 27
---- ----- -----
---- ----- -----
</TABLE>
The reasons for the difference between the provision for taxes and the
amount computed by applying the statutory federal income tax rate to income
(loss) before taxes are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
U.S. federal statutory rate. . . . . . . . . . 34% 34% 34%
Computed expected tax provision (benefit). . . $ 15 $(1,539) $ 44
Increase (decrease) in taxes
resulting from:
State and local taxes, net of federal
tax benefit. . . . . . . . . . . . . . . . 2 6
Recognition of previously unrecognized
deferred tax assets. . . . . . . . . . . . (71) (94)
Amortization of goodwill. . . . . . . . . . 71 71 71
Portion of loss not currently realizable . . . 1,468
---- ------- -----
Actual tax provision . . . . . . . . . . . . . $ 17 $ -- $ 27
---- ------- -----
---- ------- -----
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1994 1993
------- -------
<S> <C> <C>
Tax net operating loss carryfowards . . . . $ 4,130 $ 5,100
Inventory valuation differences . . . . . . 1,736 3,050
Other, net. . . . . . . . . . . . . . . . . 1,057 486
------- -------
Sub-Total . . . . . . . . . . . . . . . . 6,923 8,636
Valuation allowance . . . . . . . . . . . . (6,923) (8,636)
------- -------
Total deferred taxes. . . . . . . . . . . . $ -- $ --
------- -------
------- -------
</TABLE>
Total federal, foreign and state and local income taxes paid (refunded),
net of refunds, in 1994, 1993 and 1992 were $(9), $(8) and $57, respectively.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 7 - PENSION ARRANGEMENTS
The Company terminated its noncontributory defined benefit plan covering
substantially all employees not subject to a collective bargaining agreement in
1992. Included in the determination of 1992 pension expense is a curtailment
loss of $16 relating to this plan. The Company has two other plans for which
benefits and participation have been frozen. Pension benefits under these plans
are generally based upon years of service and compensation.
The Company's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as the
Company may determine to be appropriate from time to time.
Multi-employer plans covering certain union members generally provided
benefits of stated amounts for each year of service. During 1994, in connection
with the restructuring of the Motion Control group (see Note 8), the employment
of the union members participating in these multi-employer plans ended and, as a
result, contributions to these plans ceased. As of December 31, 1994, there
were no unpaid contributions to multi-employer plans.
A summary of components of net periodic pension cost for the defined
benefit plans and the total contribution charged to pension expense for the
multi-employer plans follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned
during the period. . . . . . . . . . . . . $ -- $ -- $ 14
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . . 73 105 163
Actual return on plan assets. . . . . . . . 1 5 (30)
Net amortization and deferral . . . . . . . (5) (10) (16)
---- ---- ----
Net pension cost of defined benefit
plans. . . . . . . . . . . . . . . . . . . 69 100 131
Multi-employer plans. . . . . . . . . . . . 59 301 427
Curtailment loss. . . . . . . . . . . . . . 16
---- ---- ----
Total pension expense . . . . . . . . . . . $128 $401 $574
---- ---- ----
---- ---- ----
</TABLE>
Assumptions used in accounting for the defined benefit plans as of the
plans' measurement dates were:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Weighted-average discount rate. . . . . . . 7.5% 7.5% 7.3%
Expected long-term rate of return
on assets . . . . . . . . . . . . . . . . 6.0% 7.3% 7.0%
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 7 - PENSION ARRANGEMENTS, (CONT'D)
The following table sets forth the funded status and amount recognized in
the consolidated balance sheets for the Company's defined benefit pension plans.
Computations for certain plans were made using a September 30 measurement date.
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation. . . . . . . . . $1,026 $1,003 $1,866
------ ------ ------
------ ------ ------
Accumulated benefit obligation . . . . . . $1,026 $1,003 $1,866
------ ------ ------
------ ------ ------
Projected benefit obligation . . . . . . . $1,026 $1,003 $1,866
Less plan assets at fair market value. . . 32 35 642
------ ------ ------
Projected benefit obligation in excess of
plan assets . . . . . . . . . . . . . . . 994 968 1,224
Unrecognized net gain. . . . . . . . . . . 83 80 111
------ ------ ------
Net pension liability recognized in the
balance sheet . . . . . . . . . . . . . . $1,077 $1,048 $1,335
------ ------ ------
------ ------ ------
</TABLE>
Unrecognized net gains and losses are amortized over the average future
service lives of participants. Plan assets are primarily invested in fixed
income instruments.
Under the Company's 401(k) plan, eligible employees may elect to contribute
a percentage of their earnings which the Company has matched up to 3% of gross
earnings based on the level of consolidated income. Company matching
contributions were $363 in 1994 and $423 in 1992. The Company made no matching
contribution in 1993.
NOTE 8 - OTHER INFORMATION
RESTRUCTURING PLAN -
During 1993, the Company announced its plan to restructure its Motion
Control group. The motion control business had been organized as two separate
divisions. The plan consolidated the two divisions under a single operating
management based in San Diego.
In connection with the restructuring, the Company recorded a charge of
$3,500. The charge included $2,300 for the write-down of slow moving and excess
inventory to net realizable value. In addition, $1,200 was recorded for
severance, early retirement, other employee-related benefits and other related
charges. As part of the restructuring, the Company has closed and is in the
process of selling the Deer Park, New York facility.
During 1994, the Company recorded an additional $1,315 charge related to
this restructuring, $1,015 of which is to provide additional inventory reserves
to reflect slower turnover of the inventory than was anticipated in the 1993
charge calculation. The remaining $300 of the 1994 charge is to adjust the
carrying amount of other assets held for disposal in connection with the
restructuring to reflect current market values.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
VERNITRON CORPORATION
NOTE 8 - OTHER INFORMATION, (CONT'D)
STOCK OPTIONS -
Options to purchase up to 218,000 shares of Vernitron common stock, with
exercise prices of $.75 - $.83 per share, have been issued to certain key
employees of the Company. Of that amount, 102,000 options are vested, with the
balance becoming vested as follows: 47,900 (1995), 37,800 (1996) and 30,300
(1997). These options are exercisable for up to seven years from the date of
grant. There are 532,000 shares available for future grant.
INTEREST PAID - in 1994, 1993 and 1992 was $1,883, $2,168 and $2,346,
respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Future minimum payments, under noncancellable operating leases (exclusive
of property expenses and net of sublease rental income), as of December 31,
1994, are as follows:
1995 . . . . . . . . . . . . . $ 1,581
1996 . . . . . . . . . . . . . 1,542
1997 . . . . . . . . . . . . . 1,489
1998 . . . . . . . . . . . . 1,257
1999 . . . . . . . . . . . . . 1,176
2000 and thereafter. . . . . . 409
-------
$ 7,454
-------
-------
Rent expense under such leases, net of sublease rental income, amounted to
$1,379 in 1994, $1,348 in 1993 and $1,308 in 1992.
In February 1990, the Company sold and leased back its San Diego,
California facility under an operating lease. The Company has a deferred gain
as of December 31, 1994 on this transaction of $651, which is being amortized to
income over the ten year lease term as a reduction of annual rent expense.
The Company is a defendant in various lawsuits, none of which is expected
to have a material adverse effect on the Company's financial position or results
of operations.
F-16
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
VERNITRON CORPORATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Classification of Period Expenses Accounts Deductions End of Period
-------------- ---------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1994: $278 $124 $ 57(a) $345
Year ended December 31, 1993: $291 $ 40 $ 53(a) $278
Year ended December 31, 1992: $466 $ 51 $226(a) $291
- --------------------
<FN>
(a) Uncollectible accounts written off, net of recoveries.
</TABLE>
F-17
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- ------- ----------- ------------
3(1) Certificate of Incorporation of the Registrant
(filed as Exhibit 1 to the Form 8-A, filed on
August 8, 1991 (the "Form 8-A") and incorporated
herein by reference).
3(2) By-Laws of the Registrant (filed as Exhibit 2 to
the Form 8-A and incorporated herein by
reference).
4(1) Certificate of the Designation, Powers,
Preferences and Rights of the $3.75 Cumulative
Exchangeable Redeemable Preferred Stock
("Preferred Stock") (filed as Exhibit 4(2) to
the Registrant's Registration Statement on Form
S-4 (Registration Number 33-16310), filed on
August 6, 1987 (the "Registration Statement")
and incorporated herein by reference).
4(2) Certificate of Amendment of Certificate of
Incorporation Effecting the Amendment and
Restatement of the Certificate of the
Designation, Powers, Preferences and Rights of
the Preferred Stock, dated as of August 14, 1991
(filed as Exhibit 4(2) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1991 (the "1991 Form 10-K") and
incorporated herein by reference).
4(3) Form of Indenture between Registrant and the
Bank of Montreal Trust Company, as Trustee,
relating to the 15% Subordinated Debentures of
the Registrant, issuable at the option of the
Registrant in exchange for the Preferred Stock
(filed as Exhibit 4(1) to the Registration
Statement and incorporated herein by reference).
10(1) Indenture of Trust by and between the Industrial
Development Authority of the State of New
Hampshire and Laconia Peoples National Bank and
Trust Company for $3,000,000 principal amount of
Industrial Development Authority of the State of
New Hampshire Floating Rate Monthly Demand
Industry Facility Bonds (filed as Exhibit 10(18)
to the Registrant's Annual Report or Form 10-K
for the fiscal year ended December 28, 1985,
filed on April 15, 1986 (the "1985 Form 10-K")
and incorporated herein by reference).
10(2) Loan Agreement by and among the Industrial
Development Authority of the State of New
Hampshire, the Registrant and V Land Corporation
for $3,000,000 principal amount of Industrial
Development Authority of the State of New
Hampshire Floating Rate Monthly Demand Industry
Facility Bonds (filed as Exhibit 10(19) to the
1985 Form 10-K and incorporated herein by
reference).
10(3) Reimbursement Agreement by and among V Land
Corporation, the Registrant and National
Westminster Bank PLC for $3,000,000 principal
amount of Industrial Development Authority of
the State of New Hampshire Floating Rate Monthly
Demand Industry Facility Bonds (filed as Exhibit
10(20) to the 1985 Form 10-K and incorporated
herein by reference).
E-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- ------- ----------- ------------
10(4) Bond Purchase Agreement by and between E.F.
Hutton & Company, Inc. and the Industrial
Development Authority of the State of New
Hampshire for $3,000,000 principal amount of the
Industrial Development Authority of the State of
New Hampshire Floating Rate Monthly Demand
Industry Facility Bonds (filed as Exhibit 10(21)
to the 1985 Form 10-K and incorporated herein by
reference).
10(5) Amended and Restated Credit Agreement, dated as
of March 28, 1991 (the "Credit Agreement") by
and among the Registrant, The Bank of New York
and National Westminster Bank USA (filed as
Exhibit 10(5) to the Form 10-K for the fiscal
year ended December 30, 1990, filed on March 28,
1991 (the "1990 Form 10-K") and incorporated
herein by reference).
10(6) Amendment No. 1 to the Credit Agreement, dated
as of December 31, 1991 (filed as Exhibit 10(6)
to the 1991 Form 10-K and incorporated herein by
reference).
10(7) Security Agreement dated as of August 28, 1987
among the Registrant, certain subsidiaries of
the Registrant, Irving Trust Company, National
Westminster Bank USA and Irving Trust Company,
as Collateral Agent (filed as Exhibit 10(79) to
Post-Effective Amendment No. 1, filed on
September 2, 1987 to the Registration Statement
(the "Post-Effective Amendment") and
incorporated herein by reference).
10(8) Stock Pledge and Security Agreement dated as of
August 28, 1987 among the Registrant, certain
subsidiaries of the Registrant, Irving Trust
Company, National Westminster Bank USA and
Irving Trust Company as Collateral Agent (filed
as Exhibit 10(80) to the Post-Effective
Amendment and incorporated herein by reference).
10(9) Reimbursement, Contribution and Subrogation
Agreement (the "Reimbursement Agreement") dated
as of August 28, 1987 among certain subsidiaries
of the Registrant (filed as Exhibit 10(81) to
the Post-Effective Amendment and incorporated
herein by reference).
10(10) Waiver/Amendment dated as of August 28, 1987 to
Reimbursement Agreement, as amended, between the
Registrant, V Land Corporation and National
Westminster Bank PC (filed as Exhibit 10(78) to
the Post-Effective Amendment and incorporated
herein by reference).
10(11) Fifth amendment dated as of June 15, 1990, to
Reimbursement Agreement (filed as Exhibit 10(10)
to the 1990 Form 10-K and incorporated herein by
reference).
E-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION SEQ. PG. NO.
- ------- ----------- ------------
10(12) Employment Agreement dated as of September 5,
1989, by and between the Registrant and Edward M.
Murchie (filed as Exhibit 10(32) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989, filed on March 28,
1990 (the "1989 Form 10-K") and incorporated
herein by reference).
10(13) Agreement by and between the Registrant and John
R. Slowik, dated as of September 17, 1990 (filed
as Exhibit 10(14) to the 1990 Form 10-K and
incorporated herein by reference).
10(14) Agreement by and between the Registrant and One
Lambda, Inc., dated as of December 27, 1990
(filed as Exhibit 10(15) to the 1990 Form 10-K
and incorporated herein by reference).
10(15) Form of Indemnification Agreement (filed as
Exhibit 10(16) to the 1990 Form 10-K and
incorporated herein by reference).
10(16) Vernitron Corporation Long-Term Stock Incentive
Plan (filed as Exhibit 10(16) to the 1991 Form
10-K and incorporated herein by reference).
10(17) Form of Stock Option Agreement, dated as of
September 30, 1991 (filed as Exhibit 10(17) to
the 1991 Form 10-K and incorporated herein by
reference).
10(18) Amendment No. 2 to the Credit Agreement, dated
as of December 31, 1992 (filed as Exhibit 10(18)
to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992 (the "1992
Form 10-K") and incorporated herein by
reference).
10(19) Amendment No. 3 to the Credit Agreement, dated
as of September 30, 1993 (filed as Exhibit
10(19) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 (the
"1993 Form 10-K") and incorporated herein by
reference).
10(20) Amendment No. 4 to the Credit Agreement, dated
as of December 29, 1993 (filed as Exhibit 10(20)
to the 1993 Form 10-K and incorporated herein by
reference).
10(21) Amendment No. 5 to the Credit Agreement, dated as
of March 15, 1994 (filed as Exhibit 10(21) to
the 1993 Form 10-K and incorporated herein by
reference).
10(22) Letter Agreement, dated March 15, 1994, between
Vernitron Corporation and The Bank of New York
and National Westminster Bank USA (filed as
Exhibit 10(1) to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended
March 31, 1994 (the "1994 First Quarter Form 10-
Q") and incorporated herein by reference).
10(23) Letter Agreement, dated May 4, 1994, between
Vernitron Corporation and The Bank of New York
and National Westminster Bank USA (filed as
Exhibit 10(2) to the 1994 First Quarter Form 10-
Q and incorporated herein by reference).
E-3
<PAGE>
March 17, 1995
THE CIT GROUP/CREDIT FINANCE, INC.
135 West 50th Street
New York, New York 10020
Re: AMENDMENT TO FINANCING AGREEMENTS
Gentlemen:
Reference is made to certain financing arrangements heretofore entered into
between VERNITRON CORPORATION ("Borrower") and THE CIT GROUP/CREDIT FINANCE,
INC. ("Lender") pursuant to certain financing agreements, including, but not
limited to, the Loan and Security Agreement dated July 20, 1994 entered into
between Borrower and Lender (the "Loan Agreement"), the $2,451,000 Promissory
Note dated July 20, 1994 (the "Note") and related agreements, documents,
instruments, notes, mortgages and guaranties creating or evidencing indebtedness
or granting collateral security therefor, executed and delivered in connection
therewith (all of the foregoing, as the same may now exist or may hereafter be
amended, modified, supplemented, renewed, extended or replaced are hereinafter
collectively referred to as the "Financing Agreements"). All capitalized terms
used herein which are not otherwise defined herein, shall have the respective
meaning ascribed to such terms as set forth in the Loan Agreement.
Borrower has requested that Lender make additional loans available to
Borrower and modify and amend certain provisions of the Financing Agreements,
and Lender is willing to do so subject to the terms and conditions of this
Letter Re: Amendment to Financing Agreements (the "Amendment").
In consideration of the foregoing, the parties hereto hereby agree as
follows:
1. (a) Contemporaneously herewith, Lender is making an additional
advance to Borrower in the original principal amount of $837,050.62 (the
"Additional Term Loan"). The Additional Term Loan shall be consolidated with
the outstanding principal balance of the Term Loan (collectively, the "Term
Loan") which Term Loan shall be evidenced by that certain Promissory Note dated
of even date herewith in the original principal amount of $2,701,334 executed
and delivered by Borrower in favor of Lender (the "Note"). All references to
the "Term Loan" or "Note" (as each said quoted term is defined in the Loan
Agreement) shall be deemed amended to mean the Term Loan or Note, respectively,
as defined in this paragraph 1.
<PAGE>
(b) Contemporaneously with the execution and delivery of the
Note to Lender, Lender is delivering to Borrower the original Promissory Note
dated July 20, 1994 by Borrower in favor of Lender in the original principal
amount of $2,451,000, marked "Amended and Restated and Replaced by Promissory
Note dated March 17, 1995 in the original principal amount of $2,701,334".
2. (a) As a one time financial accommodation to the Borrower,
Lender has agreed to make a supplemental advance to Borrower in respect of
Eligible WIP Inventory. As of the date hereof, after giving effect to such
advance, the outstanding principal amount of the WIP Advance, as defined in
Section 2.1(e)(ii) of the Loan Agreement, is $825,000.
(b) Notwithstanding anything to the contrary contained in
Section 2.1(e)(ii) of the Loan Agreement, (i) the WIP Advance shall be repaid in
forty-eight (48) consecutive monthly installments, on the first (1st) day of
each month, commencing April 1, 1995, of which the first forty-seven (47)
installments shall each be in the amount of $17,187.50 and the last and forty-
eighth (48th) installment shall be in the amount of the then unpaid outstanding
balance of the WIP Advance; and (ii) if for any fiscal quarter (i.e., at March
31, June 30, September 30 or December 31 of any year) commencing with Borrower's
fiscal quarter ending March 31, 1995, the Borrower's net loss before
extraordinary items, and excluding any loss arising from the sale of Borrower's
owned real estate located in Deer Park, New York and St. Petersburg, Florida,
determined in accordance with GAAP, and as reported on Borrower's quarterly or
annual financial statements, as the case may be, provided for under Section
6.1(c) of the Loan Agreement ("Quarterly Net Loss") exceeds $250,000, then, from
and after the last day of such fiscal quarter, the monthly installments payable
in respect of the WIP Advance shall be in the amount of $22,916.67 until the
repayment in full of the WIP Advance; EXCEPT THAT, if, for any subsequent fiscal
quarter following any fiscal quarter in which the Quarterly Net Loss exceeds
$250,000, Borrower reports net income before extraordinary items, excluding any
loss arising from the sale of Borrower's owned real estate located in Deer Park,
New York and St. Petersburg, Florida, determined in accordance with GAAP, in
excess of $500,000, then, commencing with the immediately following month, the
monthly installments payable in respect of the WIP Advance shall be in the
amount of $17,187.50 until the WIP Advance is paid in full, PROVIDED HOWEVER,
that if during any subsequent fiscal quarter the Borrower's Quarterly Net Loss
again exceeds $250,000 then the monthly installments payable thereafter shall be
in the increased amount of $22,916.67 as set forth above in this paragraph
2(b)(ii), subject to further reduction to $17,187.50 and to further increase to
$22,916.67 in accordance with the terms hereof.
(c) In addition to, and not in limitation of, the foregoing,
Borrower shall make mandatory prepayments against the outstanding principal
balance of the WIP
-2-
<PAGE>
Advance in an amount equal to the amount by which the value at cost of Eligible
WIP Inventory (as determined by Lender in its sole discretion) is less than
$2,000,000. Such mandatory prepayments shall be made at such times and from
time to time as Lender determines that the value, at cost, of Eligible WIP
Inventory is less than $2,000,000. All payments required to be paid hereunder
may, at Lender's option, be charged to any account(s) of Borrower maintained
with Lender.
3. Section 3.1(b) of the Loan Agreement is hereby amended and
replaced in its entirety as follows:
"(b) Notwithstanding anything to the contrary contained herein,
if (i) as of any Interest Adjustment Date (as defined below), the outstanding
amount of loans by Lender to Borrower: (1) against Borrower's real property
located in St. Petersburg, Florida as provided in Section 10.2(a)(i) hereof does
not exceed 50% of the quick-sale value thereof, as determined by Lender in its
sole discretion, AND (2) against Borrower's Equipment, as provided for in
Section 10.2(a)(iii) hereof does not exceed 80% of the auction value of such
Equipment, as determined by Lender in its sole discretion, AND (3) against
Borrower's inventory does not exceed 75% of the orderly liquidation value
thereof, as determined by Lender in Lender's sole discretion, AND (4) against
Borrower's AST Bearings and Beau Interconnect Accounts, as determined by Lender
in its sole discretion, does not exceed 85% of the value thereof, AND (5)
against Borrower's Motion Control Accounts, as determined by Lender in its sole
discretion, does not exceed 83% of the value thereof AND (6) against Borrower's
Precision Components Accounts, as determined by Lender in its sole discretion,
does not exceed 79% of the value thereof, then from and after the Interest
Adjustment Date and so long as all such advance rate limitations described above
continue to be met, the Interest Rate as provided under Section 3.1 (a) and
Section 10.4(a) then in effect (after giving effect to any adjustment as
provided for under Section 2.1(g) hereof) shall be reduced by one-quarter of one
(.25%) percent per annum; and (ii) as of any Interest Adjustment Date, if (x)
all advance rate limitations under Section 3.1(b)(i) are met AND (y) the
Borrower's Cash Flow (as defined below), calculated quarterly on a cumulative
basis, is positive, then, from and after the Interest Adjustment Date and so
long as all such advance rate limitations under Section 3.1(b)(i) continue to be
met, THEN, the Interest Rate as provided under Section 3.1(a) and Section
10.4(a) then in effect (after giving effect to any adjustments as provided for
under Section 2.1(g) hereof) shall be reduced, in addition to the reduction as
set forth in Section 3.1(b)(i) hereof, by an additional one-quarter of one
(.25%) percent per annum."
4. Notwithstanding anything to the contrary contained in Section 9.2
of the Loan Agreement, if Lender terminates the Loan Agreement upon or after the
occurrence of an Event of Default, or if Borrower shall terminate the Loan
Agreement as
-3-
<PAGE>
permitted therein effective prior to the end of the then-current Term for any
reason other than an Acquisition Financing Termination Event (as defined below),
in addition to all other Obligations, Borrower shall pay to Lender, upon the
effective date of termination, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits, an early termination
fee equal to (a) three (3%) percent of the Maximum Credit if such termination
occurs on or prior to the first anniversary of this Amendment, (b) two (2%)
percent of the Maximum Credit if such termination occurs after the first
anniversary and on or before the second anniversary of this Amendment, (c) one
(1%) percent of the Maximum Credit if such termination occurs after the second
anniversary of this Amendment. In the event the Borrower terminates the Loan
Agreement in accordance with Section 9 in connection with an Acquisition
Financing Termination Event, Borrower shall pay to Lender the early termination
fee as set forth in Section 9.2 of the Loan Agreement.
For purposes hereof, "Acquisition Financing Termination Event" shall
mean a termination by Borrower of the then existing financing arrangements
between Lender and Borrower resulting from Lender's inability or unwillingness
to provide, upon terms reasonably acceptable to Borrower, financing for the
purchase by Borrower of all or substantially all of the capital stock and/or
assets of another entity, including, in connection with the financing of such
purchase, the continuation, amendment or refinancing, upon terms reasonably
acceptable to Borrower, of the then existing financing arrangements between
Lender and Borrower.
5. Sections 10.1 and 10.2 of the Loan Agreement are hereby amended
and replaced in their entirety as follows:
"10.1 (a) Maximum Credit: $17,500,000
(b) Gross Availability Formulas:
(i) Eligible Accounts Percentages (the term "Quarterly Net Loss"
shall have the meaning as set forth in that certain Letter
Re: Amendment to Financing Agreements dated March __, 1995
(the "Amendment")):
(1) AST BEARINGS AND BEAU INTERCONNECT ELIGIBLE ACCOUNTS
PERCENTAGE: Subject to the succeeding terms of this
Section 10.1(b)(i)(1), the applicable AST Bearings and
Beau Interconnect Eligible Accounts Percentage for AST
Bearings and Beau Interconnect Accounts shall
-4-
<PAGE>
be 90% PROVIDED, HOWEVER, that in the event that
Borrower's Quarterly Net Loss for any fiscal quarter,
commencing with Borrower's fiscal quarter ending March
31, 1995, exceeds $250,000 (whether the same occurs
prior to or subsequent to any fiscal quarter in which
Borrower reports, in any fiscal quarter, quarterly net
income before extraordinary items, excluding any loss
arising from the sale of Borrower's owned real estate
located in Deer Park, New York and St. Petersburg,
Florida (determined in accordance with GAAP) in excess
of $500,000) the AST Bearings and Beau Interconnect
Eligible Accounts Percentage shall be reduced in each
succeeding month by .25%, FURTHER PROVIDED, however,
that in no event shall the AST Bearings and Beau
Interconnect Eligible Accounts Percentage be thereby
reduced below 85%. In the event that, AFTER a fiscal
quarter, commencing with Borrower's fiscal quarter
ending March 31, 1995, in which Borrower's Quarterly
Net Loss exceeded $250,000, Borrower reports in any
such fiscal quarter quarterly net income prior to
extraordinary items, excluding any loss arising from
the sale of Borrower's owned real estate located in
Deer Park, New York and St. Petersburg, Florida
(determined in accordance with GAAP) exceeding
$500,000, unless and until Borrower's Quarterly Net
Loss in any succeeding fiscal quarter exceeds $250,000,
the AST Bearings and Beau Interconnect Eligible
Accounts Percentage shall be increased in each month by
.25%, PROVIDED HOWEVER, that in no event shall the AST
Bearings and Beau Interconnect Eligible Accounts
Percentage exceed 90%. If the aggregate amount of
Borrower's credits, allowances, discounts, write-offs,
contra-accounts, and other offsets which reduce the
value of AST Bearings and Beau Interconnect Accounts,
as determined by Lender in its sole discretion, divided
by gross AST Bearings and Beau Interconnect Accounts
invoices ("AST BEARINGS AND BEAU INTERCONNECT DILUTION
PERCENTAGE") is equal to or greater than two (2%)
percent, then the AST Bearings and Beau Interconnect
Eligible Accounts Percentage then in
-5-
<PAGE>
effect shall be reduced by one (1%) percentage point
for each percentage point, by which the AST Bearings
and Beau Interconnect Dilution Percentage exceeds two
(2%) percent. Any such adjustment resulting from the
AST Bearings and Beau Interconnect Dilution Percentage
shall be in addition to any adjustment in the AST
Bearings and Beau Interconnect Eligible Accounts
Percentage as provided for above. The AST Bearings and
Beau Interconnect Dilution Percentage shall be
calculated on a rolling 90 day average.
(2) MOTION CONTROL ELIGIBLE ACCOUNTS PERCENTAGE: Subject to
the succeeding terms of this Section 10.1(b)(i)(2), the
applicable Motion Control Eligible Accounts Percentage
shall be 85% PROVIDED, HOWEVER, that in the event that
Borrower's Quarterly Net Loss for any fiscal quarter,
commencing with Borrower's fiscal quarter ending March
31, 1995, exceeds $250,000 (whether the same occurs
prior to or subsequent to any fiscal quarter in which
Borrower reports quarterly net income before
extraordinary items, excluding any loss arising from
the sale of Borrower's owned real estate located in
Deer Park, New York and St. Petersburg, Florida
(determined in accordance with GAAP) in excess of
$500,000) the Motion Control Eligible Accounts
Percentage shall be reduced in each succeeding month by
.25%, FURTHER PROVIDED, however, that in no event shall
the Motion Control Eligible Accounts Percentage be
thereby reduced below 80%. In the event that, AFTER a
fiscal quarter, commencing with Borrower's fiscal
quarter ending March 31, 1995, in which Borrower's
Quarterly Net Loss exceeded $250,000, Borrower reports
in any such fiscal quarter quarterly net income prior
to extraordinary items, excluding any loss arising from
the sale of Borrower's owned real estate located in
Deer Park, New York and St. Petersburg, Florida
(determined in accordance with GAAP) exceeding
$500,000, unless and until Borrower's Quarterly Net
Loss in any succeeding fiscal quarter exceeds $250,000,
the Motion Control Eligible Accounts Percentage shall
be increased in each month
-6-
<PAGE>
by .25% PROVIDED HOWEVER, that in no event shall the
Motion Control Eligible Accounts Percentage exceed 85%.
If the aggregate amount of Borrower's credits,
allowances, discounts, write-offs, contra-accounts, and
other offsets which reduce the value of Motion Control
Accounts, as determined by Lender in its sole
discretion, divided by gross Motion Control invoices
("MOTION CONTROL DILUTION PERCENTAGE") is equal to or
greater than five (5%) percent, then the Motion Control
Eligible Accounts Percentage then in effect shall be
reduced by one (1%) percentage point for each
percentage point, by which the Motion Control Dilution
Percentage exceeds five (5%) percent. Any such
adjustment resulting from the Motion Control Dilution
Percentage shall be in addition to any adjustment in
the Motion Control Eligible Accounts Percentage as
provided for above. The Motion Control Dilution
Percentage shall be calculated on a rolling 90 day
average.
(3) PRECISION COMPONENTS ELIGIBLE ACCOUNTS PERCENTAGE:
Subject to the succeeding terms of this Section
10.1(b)(i)(3), the applicable Precision Components
Eligible Accounts Percentage shall be 84% PROVIDED,
HOWEVER, that in the event that Borrower's Quarterly
Net Loss for any fiscal quarter, commencing with
Borrower's fiscal quarter ending March 31, 1995,
exceeds $250,000 (whether the same occurs prior to or
subsequent to any fiscal quarter in which Borrower
reports quarterly net income before extraordinary
items, excluding any loss arising from the sale of
Borrower's owned real estate located in Deer Park, New
York and St. Petersburg, Florida (determined in
accordance with GAAP) in excess of $500,000) the
Precision Components Eligible Accounts Percentage shall
be reduced in each succeeding month by .25%, FURTHER
PROVIDED, however, that in no event shall the Precision
Components Eligible Accounts Percentage be thereby
reduced below 79%. In the event that, AFTER a fiscal
quarter, commencing with Borrower's fiscal quarter
ending March 31, 1995, in which Borrower's
-7-
<PAGE>
Quarterly Net Loss exceeded $250,000, Borrower reports
in any such fiscal quarter quarterly net income prior
to extraordinary items, excluding any loss arising from
the sale of Borrower's owned real estate located in
Deer Park, New York and St. Petersburg, Florida
(determined in accordance with GAAP) exceeding
$500,000, unless and until Borrower's Quarterly Net
Loss in any succeeding fiscal quarter exceeds $250,000,
the Precision Components Eligible Accounts Percentage
shall be increased in each month by .25%, PROVIDED
HOWEVER, that in no event shall the Precision
Components Eligible Accounts Percentage exceed 84%.
If the aggregate amount of Borrower's credits,
allowances, discounts, write-offs, contra-accounts, and
other offsets which reduce the value of Precision
Component Accounts, as determined by Lender in its sole
discretion, divided by gross Precision Component
Accounts invoices ("PRECISION COMPONENT ACCOUNTS
DILUTION PERCENTAGE") is equal to or greater than six
(6%) percent, then the Precision Component Eligible
Accounts Percentage then in effect shall be reduced by
one (1%) percentage point for each percentage point, by
which the Precision Component Accounts Dilution
Percentage exceeds six (6%) percent. Any adjustment
resulting from the Precision Component Accounts
Dilution Percentage shall be in addition to any
adjustment in the Precision Component Accounts
Percentage as provided for above. The Precision
Component Accounts Dilution Percentage shall be
calculated on a rolling 90 day average.
(ii) Eligible Inventory Percentages - Borrower hereby
acknowledges, confirms and agrees that each of the Eligible
Inventory Percentages as set forth below in this Section
10.1(b)(ii) is based upon 90% of the orderly liquidation
value as set forth in the Accuval Associates, Inc. appraisal
dated March, 1994 ("INVENTORY APPRAISAL"). In addition to,
and not in limitation of, Lender's rights hereunder,
commencing with Borrower's fiscal year ending December 31,
1995, after any fiscal year in which Borrower's net loss
(before extraordinary items and excluding any loss arising
from the sale of
-8-
<PAGE>
Borrower's owned real estate located in Deer Park, New York
and St. Petersburg, Florida) exceeds $1,000,000, Lender
shall in the succeeding year have the right to update the
Inventory Appraisal, at Borrower's sole cost and expense,
and Lender shall have the right to adjust the Eligible
Inventory Percentages as set forth herein accordingly. The
Borrower further acknowledges, confirms and agrees that in
the event that Borrower's Quarterly Net Loss exceeds
$250,000 during the Term of this Agreement (whether the same
occurs prior to or subsequent to any fiscal quarter in which
Borrower reports quarterly net income before extraordinary
items, excluding any loss arising from the sale of
Borrower's owned real estate located in Deer Park, New York
and St. Petersburg, Florida (determined in accordance with
GAAP) in excess of $500,000), then commencing with the first
month immediately following said quarter, each of the
Eligible Inventory Percentages as set forth in this Section
10.1(b)(ii) shall be recalculated based upon an orderly
liquidation value reduced by .25% each month, PROVIDED,
however, that in no event shall the advance rate be
calculated on less than 80% of the orderly liquidation value
of the Eligible Inventory as set forth in the Inventory
Appraisal. In the event that, AFTER a fiscal quarter in
which Borrower's Quarterly Net Loss exceeded $250,000,
Borrower reports net income prior to extraordinary items,
excluding any loss arising from the sale of Borrower's owned
real estate located in Deer Park, New York and St.
Petersburg, Florida (determined in accordance with GAAP) for
any fiscal quarter exceeding $500,000, unless and until
Borrower's Quarterly Net Loss in any succeeding fiscal
quarter exceeds $250,000, each of the Eligible Inventory
Percentages as set forth in this Section 10.1(b)(ii) shall
be recalculated each month based upon an orderly liquidation
value increasing by .25% each month, PROVIDED, HOWEVER, that
in no event shall such advance rates be calculated based
upon greater than 90% of the orderly liquidation value of
the Eligible Inventory as set forth in the Inventory
Appraisal:
(1) For acceptable and eligible finished good inventory of
each of the following Divisions or Groups of Borrower,
as Lender may in its sole discretion classify inventory
-9-
<PAGE>
of Borrower, the following shall be the respective
applicable Eligible Inventory Percentages:
(A) AST Bearings Division
Slow Moving (as defined below) ball bearing
inventory 36%
(B) AST Bearings Division
Fast Moving (as defined below) ball bearing
inventory 54%
(C) INTENTIONALLY OMITTED
(D) Precision Components Group
Non-Trimmer inventory located in
St. Petersburg, Florida 9%
(E) Beau Interconnect Systems Division
Inventory #1 (Standard) 45%
(F) Beau Interconnect Systems Division
Inventory #2 (Purch. For Resale) 14%
(G) Beau Interconnect Systems Division
Inventory #3 (Std. Allocated) 68%
(H) Beau Interconnect Systems Division
Inventory #4 (Purch. For Resale) 23%
(I) Beau Interconnect Systems Division
Inventory #5 (On The Floor) 45%
For the purposes of this Section 10.1(b)(ii), "SLOW
MOVING" is defined as finished goods inventory that
turns less than once a year but more than once every
five years (as determined by Lender in its discretion)
and "FAST MOVING" is defined as finished goods
inventory that turns more than once a year (as
determined by Lender in its discretion).
-10-
<PAGE>
(2) For acceptable and eligible raw material inventory of
each of the following Divisions or Groups of Borrower,
as Lender may in its sole discretion classify inventory
of Borrower, the following shall be the respective
applicable Eligible Inventory Percentages:
(A) Motion Control Group
raw materials 9%
(B) Precision Components Group
raw materials 9%
(C) Beau Interconnect Systems Division
raw materials #1 (Metal) 54%
(D) Beau Interconnect Systems Division
raw materials #2 (Compound) 63%
(E) Beau Interconnect Systems Division
raw materials #3 (Screws Purch.) 45%
(F) Beau Interconnect Systems Division
raw materials #4 (Purch. Hdwre-Europe) 27%
(G) Beau Interconnect Systems Division
raw materials #5 (Other Purchased) 9%
(H) Beau Interconnect Systems Division
raw materials #6 (On The Floor) 45%
(I) Beau Interconnect Systems Division
raw materials #7 (Brass Salvage) 72%
(J) Beau Interconnect Systems Division
raw materials #8 (Bulk) 23%
(K) Beau Interconnect Systems Division
raw materials #9 (QC Awaiting) 45%
(L) Beau Interconnect Systems Division
raw materials #10 (Screw Adj.) 23%
-11-
<PAGE>
(c) Inventory Sublimit(s): The maximum aggregate outstanding amount
of Revolving Loans against Eligible Inventory, plus the WIP
Advance then outstanding, shall not exceed, at any one time
outstanding, the aggregate principal amount of $6,000,000
("INVENTORY SUBLIMIT"). Additionally, the maximum aggregate
amount of Revolving Loans against Eligible Inventory outstanding
at any one time PLUS the then outstanding principal balance of
the WIP Advance shall not exceed, in the aggregate, seventy-five
(75%) percent of the aggregate amount of Revolving Loans then
available with respect to the Borrower's Eligible Accounts.
(d) Minimum Borrowing: (i) $9,000,000
(ii) $5,000,000
(e) Maximum days after Invoice
Date for Eligible Accounts: 90
(f) Accounts Sublimits: The maximum outstanding aggregate amount of
Revolving Loans made by Lender to Borrower hereunder against all
U.S. Government Accounts and Foreign Accounts shall not exceed,
at any one time outstanding, the aggregate amount of $1,000,000
PROVIDED THAT, within such sublimit (i) the maximum aggregate
amount of Revolving Loans against Foreign Subsidiary Accounts
shall not exceed, at any one time outstanding, the aggregate
amount of $500,000 and (ii) the maximum aggregate amount of
Revolving Loans against Open Foreign Accounts shall not exceed,
at any one time outstanding, the aggregate amount of $25,000
against any individual account debtor and the aggregate amount of
$500,000 against all Open Foreign Accounts.
10.2 Term Loan: $2,701,334
(a) Sublimits:
(i) St. Petersburg, Florida real estate $882,000
(ii) Deer Park, New York real estate $880,000
(iii) Equipment $939,334
6. Except as specifically set forth herein, no other changes or
modifications to the Loan Agreement, the Note or the other Financing Agreements
are intended or implied, and in all other respects the Loan Agreement, the Note
and the other
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<PAGE>
Financing Agreements are hereby specifically ratified and confirmed in
accordance with their respective terms as of the date hereof.
7. In the event any term or provision of the Loan Agreement, the
Note or the other Financing Agreements conflicts with any term or provision of
this letter agreement, the term or provision of this letter agreement shall
control.
Very truly yours,
VERNITRON CORPORATION
By: /S/ RAYMOND F. KUNZMANN
----------------------------------------------
Title: Vice President
-------------------------------------------
ACCEPTED:
THE CIT GROUP/CREDIT FINANCE, INC.
By: /S/ BENJAMIN SZTEINBERG
--------------------------
Title: Assistant Vice President
----------------------------
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<PAGE>
PURSUANT TO SECTION 201.08 OF FLORIDA STATUTES, FLORIDA DOCUMENTARY
STAMP TAXES REQUIRED TO BE PAID ON ACCOUNT OF THAT PORTION OF THE INDEBTEDNESS
EVIDENCED BY THIS PROMISSORY NOTE WHICH IS SECURED BY THE MORTGAGE AND SECURITY
AGREEMENT DATED JULY 20, 1994, AS MODIFIED BY THE MORTGAGE MODIFICATION
AGREEMENT DATED OF EVEN DATE HEREWITH GRANTED BY MAKER IN FAVOR OF PAYEE
(COLLECTIVELY, THE "FLORIDA MORTGAGE") HAVE BEEN PAID, AND THE DOCUMENTARY
STAMPS SO PURCHASED HAVE BEEN AFFIXED TO THE FLORIDA MORTGAGE RECORDED IN THE
PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, ON OR ABOUT JULY 21, 1994, AND
CANCELLED.
PROMISSORY NOTE
$2,701,334 New York, New York
March 17, 1995
FOR VALUE RECEIVED, the undersigned, a Delaware corporation ("Maker"),
hereby unconditionally promises to pay to the order of THE CIT GROUP/CREDIT
FINANCE, INC. (the "Payee"), at its offices located at 135 West 50th Street, New
York, New York 10020 or at such other place as the Payee or any holder hereof
may from time to time designate, the principal sum of TWO MILLION SEVEN HUNDRED
ONE THOUSAND THREE HUNDRED THIRTY-FOUR ($2,701,334) DOLLARS in lawful money of
the United States and in immediately available funds, in eighty-four (84)
consecutive monthly installments (or earlier, as hereinafter provided)
commencing April 1, 1995 and on the first day of each month thereafter, of which
the first eighty-three (83) installments shall each be in the amount of Thirty
Two Thousand One Hundred Fifty-Eight and 74/100 ($32,158.74) Dollars, and the
eighty-fourth (84th) installment shall be in the amount of the entire unpaid
balance hereof.
Maker hereby further promises to pay interest to the order of Payee in
like money at said office or place on the unpaid principal balance hereof
computed at the rate of interest as set forth in paragraphs 3.1 and 10.4(a) of
the Loan and Security Agreement dated July 20, 1994, executed and delivered by
Maker in favor of Payee, as amended by that certain Letter Re: Amendment to
Financing Agreements dated of even date herewith (the "Loan Agreement"; together
with all agreements, documents and instruments now or at any time hereafter
executed and/or delivered in connection therewith or otherwise related thereto,
as the same may now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, being collectively referred to herein
as the "Financing Agreements"). Such interest shall be payable commencing on
<PAGE>
the first day of the month next following the date hereof (i.e., April 1, 1995
and on the first day of each month thereafter. Interest shall be calculated on
the basis of a three hundred sixty (360) day year and actual days elapsed. In
no event shall the interest charged hereunder exceed the maximum permitted under
the laws of the State in which the office of Payee set forth above is located.
The term "Event of Default" shall mean an Event of Default under the
Financing Agreements.
This Note is issued as evidence of certain indebtedness arising
pursuant to the terms and provisions of the Loan Agreement. This Note is
entitled to the benefits of the Financing Agreements and is secured by, and
entitled to the benefits of, any and all collateral security pledged or granted
by Maker or related parties to Payee as set forth in the Financing Agreements or
otherwise.
This Note may be prepaid, in whole or in part, as provided in the
Financing Agreements. Any prepayment made by Maker which is not made in
connection with the termination of the Financing Agreements, under Section 9.2
of the Loan Agreement, shall not be subject to any penalty or premium. At the
time any payment is due hereunder, at its option, Payee may charge the amount
thereof to any account(s) of Maker, or any guarantors thereof, maintained by
Payee.
If any principal or interest payment is not made when due hereunder or
if any Event of Default shall occur for any reason under the Financing
Agreements, or if the Financing Agreements shall be terminable or be terminated
or not renewed for any reason, then and in any such event, in addition to all
rights and remedies of the Payee under the Financing Agreements, applicable law
and otherwise, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively and concurrently, Payee may, at its
option, declare any or all of Maker's obligations, liabilities and indebtedness
owing Payee under the Financing Agreements, including, without limitation, any
or all amounts owing under this Note (the "Obligations"), to be due and payable,
whereupon the then unpaid balance thereof together with all interest accrued
thereon shall forthwith become due and payable, together with interest accruing
thereafter at the highest rate provided for in this Note or the other Financing
Agreements until this Note and such other Obligations are fully paid, plus the
costs and expenses of collection thereof, including attorneys' fees and legal
expenses.
Maker hereby waives diligence, demand, presentment, protest and notice
of any kind and assents to extensions of the time of payment, release, surrender
or substitution of collateral security or forbearance or other indulgence,
without notice. Payee shall not be required to attempt to realize upon any
collateral security for payment,
-2-
<PAGE>
but may proceed against Maker and any guarantors in such order or manner as
Payee may choose.
The provisions of this Note may not be changed, modified or terminated
orally, but only by an agreement in writing signed by the party to be charged,
nor shall any waiver be applicable except in the specific instance for which it
is given. Payee agrees not to assign this Note except in accordance with
Section 9.6 of the Loan Agreement.
Maker hereby waives all rights to trial by jury in any action or
proceeding instituted by either Maker or Payee against the other arising on, out
of or by reason of this Note, any alleged tortious conduct by Maker or Payee or
in any way, directly or indirectly, arising out of or related to the
relationship between Maker and Payee. In no event will Payee be liable for lost
profits or other special or consequential damages.
Maker hereby waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any kind, nature or description in any action or
proceeding instituted by Maker with respect to this Note or any matter arising
herefrom or relating hereto, except compulsory counterclaims.
Maker hereby irrevocably submits and consents to the non-exclusive
jurisdiction of the State and Federal Courts located in the State of New York
with respect to any action or proceeding arising out of this Note or any matter
arising herefrom or relating hereto. Any such action or proceeding commenced by
Maker against Payee will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of Payee
set forth above is located and Maker waives any objection based on FORUM NON
CONVENIENS and any objection to venue in connection therewith.
Service of process or notice in connection with any proceedings may be
served (i) inside or outside the State in which the office of Payee indicated
above is located by registered or certified mail, return receipt requested,
addressed to the Maker at the address set forth below or of which Maker has
advised Payee in writing, as indicated in the records of Payee, and service or
notice so served shall be deemed complete five (5) days after the same shall
have been posted, or (ii) in such manner as may be permissible under the rules
of said Courts.
The execution and delivery of this Note has been authorized by the
Board of Directors of Maker. This Note and the other Financing Agreements,
shall be governed by and construed, and all rights and obligations hereunder
determined, in accordance with the laws of the State in which the office of
Payee indicated above is located and shall be
-3-
<PAGE>
binding upon the successors and assigns of the Maker and inure to the benefit of
the Payee, its successors, endorsees and assigns. If the undersigned are more
than one, this Note shall be binding jointly and severally upon the undersigned
and their respective successors and assigns and the term "Maker" shall mean,
individually and collectively, all the undersigned and any one or more of them
and their successors and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
This Note amends and restates in its entirety a Term Note in the
original principal amount of $2,451,000 dated July 20, 1994 heretofore executed
and delivered by Maker in favor of Payee (the "Existing Note"), and, further,
evidences additional loans made by Payee to Maker on or about the date hereof.
This Note is being delivered in substitution for and replacement of, and not in
satisfaction of, the Existing Note. This Note is not intended to extinguish,
release or otherwise discharge the Maker's obligations under the Existing Note
and is not intended to be a novation of the Maker's obligations thereunder.
Extinguishment, release or other discharge of this Note shall constitute
extinguishment, release or other discharge, as the case may be, of the Existing
Note to the extent of such extinguishment, release or discharge of this Note.
This Note is entitled to the benefits of the Financing Agreements and is secured
by, and entitled to the benefits of any and all collateral security pledged or
granted by Maker or related parties to Payee as set forth in the Financing
Agreements or otherwise.
VERNITRON CORPORATION
By:/S/ RAYMOND F. KUNZMANN
--------------------------------------
Title: Vice President
-----------------------------------
-4-
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 17th day of March, 1995, before me personally came Raymond F.
Kunzmann, to me known, who, being duly sworn, did depose and say, that he is the
Vice President of VERNITRON CORPORATION, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
/S/ SHARON KAY MILLER
---------------------------------------------
Notary Public
SHARON KAY MILLER
Notary Public, State of New York
No. 41-4922738
Qualified in Queens County
Commission Expires April 4, 1996
<PAGE>
MORTGAGE MODIFICATION AGREEMENT
between
VERNITRON CORPORATION
and
THE CIT GROUP/CREDIT FINANCE, INC.
dated the 17th day of March, 1995
----------------------------------------------------------------
----------------------------------------------------------------
PREMISES:
The Tyrone Planned Industrial District, Pinellas County, Florida
----------------------------------------------------------------
----------------------------------------------------------------
Prepared by,
Record & Return to:
OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Attention: Mitchell M. Brand, Esq.
FLORIDA DOCUMENTARY STAMP TAXES HAVE BEEN PAID IN FULL ON THAT CERTAIN MORTGAGE
AND SECURITY AGREEMENT RECORDED IN O.R. BOOK 8732, PAGE 1319, OF THE PUBLIC
RECORDS OF PINELLAS COUNTY, FLORIDA BASED UPON THE MAXIMUM PRINCIPAL AMOUNT
SECURED UNDER SUCH MORTGAGE, WHICH REMAINS UNCHANGED AND UNMODIFIED.
<PAGE>
MORTGAGE MODIFICATION AGREEMENT
THIS MORTGAGE MODIFICATION AGREEMENT made as of the 17th day of March,
1995 between VERNITRON CORPORATION, a Delaware corporation, having an office at
645 Madison Avenue, New York, New York 10022 (the "Mortgagor") and THE CIT
GROUP/CREDIT FINANCE, INC., a New York corporation, having an office at 135 West
50th Street, New York, New York 10020 ("Mortgagee").
W I T N E S S E T H:
WHEREAS, Mortgagor is the owner of certain real property situate,
lying and being in the Tyrone Planned Industrial District, Pinellas County,
Florida as such real property is more particularly described on Exhibit A
annexed hereto and made a part hereof ("Premises"); and
WHEREAS, Mortgagor has executed that certain Mortgage and Security
Agreement dated July 20, 1994 and recorded on July 21, 1994 in O.R. Book 8732,
Page 1319 in the public records of Pinellas County, Florida (the "Mortgage"),
pursuant to which Mortgagor has mortgaged, given, granted, bargained, sold,
confirmed and assigned the Premises, with mortgage covenants, unto the Mortgagee
and its successors and assigns; and
WHEREAS, the Mortgage secures the payment and performance by Mortgagor
of all of Mortgagor's obligations to Mortgagee arising under or in connection
with that certain Promissory Note dated July 20, 1994 executed by Mortgagor in
favor of Mortgagee in the original principal amount of $2,451,000 ("Existing
Note") issued pursuant to certain financing agreements, including, without
limitation, that certain Loan and Security Agreement dated July 20, 1994 (all of
the foregoing, as the same may now exist or may hereinafter be amended,
modified, supplemented, renewed or extended are hereinafter collectively
referred to as the "Financing Agreements"); and
<PAGE>
WHEREAS, notwithstanding any provision in the Mortgage to the
contrary, the maximum principal amount secured under the Mortgage at any one
time is limited to the amount of $1,200,000; and
WHEREAS, contemporaneously herewith, Mortgagor and Mortgagee are
amending and modifying the Financing Agreements, and in connection therewith
Mortgagor is executing a promissory note to replace and restate the Existing
Note.
NOW, THEREFORE, in order to induce Mortgagee to amend and modify the
Financing Agreements and to continue to make loans and advances to the Mortgagor
as provided for in the Financing Agreements, and for other good and valuable
consideration, including, without limitation, the benefits which will accrue to
Mortgagor from the foregoing, Mortgagor hereby agrees as follows:
1. All references in the Mortgage to the "Note" shall be deemed
amended to mean and include that certain Promissory Note dated of even date
herewith in the original principal amount of $2,701,334 executed and delivered
by Mortgagor in favor of Mortgagee ("Restated Note"), and the Mortgage is hereby
modified and amended to secure the Restated Note, which Restated Note (a) is
being delivered in substitution for and replacement of, and not in satisfaction
of, the Existing Note and (b) is not intended to extinguish, release or
otherwise discharge the Mortgagor's obligations under the Existing Note and is
not intended to be a novation of the Mortgagor's obligations thereunder.
Notwithstanding anything to the contrary contained herein, extinguishment,
release or other discharge of the Restated Note shall constitute extinguishment,
release or other discharge, as the case may be, of the Existing Note to the
extent of such extinguishment, release or discharge of the Restated Note.
2. All references in the Mortgage to the "Loan Agreement" shall be
deemed amended to mean and include the Loan Agreement as amended and modified by
that certain Letter Re: Amendment to Financing Agreements dated of even date
herewith (as amended, "Loan Agreement").
3. Notwithstanding the provisions of this Mortgage Modification
Agreement, the maximum principal amount secured by the Mortgage remains
unmodified and unchanged and at any one time shall not exceed the amount of One
Million Two Hundred Thousand and No/100 Dollars ($1,200,000).
4. Except as specifically set forth herein, no other changes or
modifications in the Mortgage are intended or implied and, in all other
respects, the Mortgage is hereby specifically ratified, restated and confirmed
by the parties hereto as of the date hereof.
-2-
<PAGE>
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage Modification
Agreement to be executed as of the date and year first above written.
SIGNED IN THE PRESENCE OF: VERNITRON CORPORATION, a Delaware
corporation
[CORPORATE SEAL]
/S/ EDDA RICHARDS
- -------------------------
(Signature) By: /S/ RAYMOND F. KUNZMANN
------------------------------------------
Edda Richards Name: Raymond F. Kunzmann
- ------------------------- ----------------------------------------
(Printed Name) Title: Vice President
---------------------------------------
/S/ EDDA RICHARDS
- -------------------------
(Signature) Post Office Address:
Edda Richards
- ------------------------- 645 Madison Avenue
(Printed Name) New York, New York 10022
SIGNED IN THE PRESENCE OF: THE CIT GROUP/CREDIT FINANCE, INC., a
New York corporation
[CORPORATE SEAL]
/S/ EDDA RICHARDS
- -------------------------
(Signature) By: /S/ BENJAMIN SZTEINBERG
------------------------------------------
Edda Richards Name: Benjamin Szteinberg
- ------------------------- ----------------------------------------
(Printed Name) Title: Assistant Vice President
---------------------------------------
/S/ EDDA RICHARDS
- -------------------------
(Signature) Post Office Address:
Edda Richards 135 West 50th Street
- ------------------------- New York, New York 10020
(Printed Name)
-3-
<PAGE>
STATE OF New York
COUNTY OF New York
The foregoing instrument was acknowledged before me this 17th day of March,
1995, by Raymond F. Kunzmann as Vice President of VERNITRON CORPORATION, a
Delaware corporation, on behalf of the corporation. He/She is personally known
to me or has produced New York (state) driver's license no. ID# 148058152 as
identification.
My Commission Expires: /S/ SHARON KAY MILLER
---------------------------------------------
Notary Public (Signature)
(AFFIX NOTARY SEAL) Sharon Kay Miller
---------------------------------------------
(Printed Name)
Legal Assistant/Secretary
---------------------------------------------
(Title or Rank)
---------------------------------------------
(Serial Number, if any)
SHARON KAY MILLER
Notary Public, State of New York
No. 41-4922738
Qualified in Queens County
Commission Expires April 4, 1996
-4-
<PAGE>
STATE OF New York
COUNTY OF New York
The foregoing instrument was acknowledged before me this 17th day of March,
1995, by Benjamin Szteinberg as Assist. Vice Pres. of THE CIT GROUP/CREDIT
FINANCE INC., a New York corporation, on behalf of the corporation. He/She is
personally known to me or has produced _________________ (state) driver's
license no. __________________ as identification.
My Commission Expires: /S/ SHARON KAY MILLER
---------------------------------------------
Notary Public (Signature)
(AFFIX NOTARY SEAL) Sharon Kay Miller
---------------------------------------------
(Printed Name)
Legal Assistant/Secretary
---------------------------------------------
(Title or Rank)
---------------------------------------------
(Serial Number, if any)
SHARON KAY MILLER
Notary Public, State of New York
No. 41-4922738
Qualified in Queens County
Commission Expires April 4, 1996
-5-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
TRACT B, TYRONE PLANNED INDUSTRIAL DISTRICT, 2ND REPLAT AND ADDITION, according
to the plat thereof recorded in Plat Book 57, pages 17 and 18, of the Public
Records of Pinellas County, Florida.
Lot 7, Block 2, TYRONE PLANNED INDUSTRIAL DISTRICT, according to the plat
thereof recorded in Plat Book 34, pages 56 and 57, of the Public Records of
Pinellas County, Florida
END OF LEGAL DESCRIPTION
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF VERNITRON CORPORATION AS OF DECEMBER 31, 1994 AND THE
RELATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 27
<SECURITIES> 0
<RECEIVABLES> 9,638
<ALLOWANCES> 345
<INVENTORY> 14,527
<CURRENT-ASSETS> 24,315
<PP&E> 11,652
<DEPRECIATION> 3,662
<TOTAL-ASSETS> 42,197
<CURRENT-LIABILITIES> 12,777
<BONDS> 11,921
<COMMON> 125
0
7
<OTHER-SE> 13,137
<TOTAL-LIABILITY-AND-EQUITY> 42,197
<SALES> 62,132
<TOTAL-REVENUES> 62,132
<CGS> 44,903
<TOTAL-COSTS> 44,903
<OTHER-EXPENSES> 14,867
<LOSS-PROVISION> 124
<INTEREST-EXPENSE> 2,264
<INCOME-PRETAX> 44
<INCOME-TAX> 17
<INCOME-CONTINUING> 27
<DISCONTINUED> (2,202)
<EXTRAORDINARY> 5,856
<CHANGES> 0
<NET-INCOME> 3,681
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
