<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
XX Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 for the fiscal year
ended December 31, 1995. [Fee Required]
or
Transition report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934 for transition period
from to . [No Fee Required]
Commission File No. 0-3936
ORBIT INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-1826363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Cabot Court, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 435-8300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $.10 par value per share
Indicate by check mark whether the Registrant has (1) 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) 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 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 Registrant's capital stock held by non-
affiliates (based on shares held and the closing price quoted by
NASDAQ Small Cap Market on March 25, 1996): $3,920,000.
Number of shares of common stock outstanding as of the close of
the period covered by this report: 5,886,093.
Documents incorporated by reference: the Registrant's definitive
proxy statement to be filed pursuant to regulation 14A promulgated
under the Securities Exchange Act of 1934 in connection with the
Registrant's 1996 Annual Meeting of Stockholders.<PAGE>
PART I
Item 1. BUSINESS
Orbit International Corp. (the "Company" or "Orbit") operates
through three business segments: Electronics, United States
Apparel and Canadian Apparel. Through its Orbit Instrument
Division and through a wholly-owned subsidiary, Orbit Instrument
of California, Inc. ("Orbit California"), the Company is engaged
in the design, manufacture and sale of customized electronic
components. The Company is engaged in the import and manufacture
of men's and women's garments in the United States through an
operating division known as the East/West Division ("East/West").
Through its three wholly-owned subsidiaries in Canada, Canada
Classique Inc. ("Classique"), Winnipeg Leather (1991) Inc.
("Winnipeg Leather") and Symax Garment Co. (1993) Ltd. ("Symax"),
the Company operates its Canadian Apparel Division.
The Company's Electronics segment is involved in the
manufacture of customized electronics components and subsystems
for military and non-military government application.
In February 1996, Cabot Court, Inc. ("Cabot Court"), a
Delaware corporation and wholly-owned subsidiary of the Company,
completed the acquisition of certain of the assets, subject to
certain liabilities, of Astrosystems, Inc. a Delaware corporation
("Astrosystems"), and Behlman Electronics, Inc. ("Behlman
Electronics"), a New York corporation. Each of Astrosystems and
Behlman Electronics manufacture and sell power supplies, AC power
sources, frequency converters, UPS and associated analytical
equipment and other electronic equipment. The acquisition of each
of Astrosystems and Behlman Electronics were partially financed
pursuant to a bridge loan from BNY Financial Corporation ("BNY"),
which loan was secured by a second mortgage on the Company's
corporate facility at 80 Cabot Court, Hauppauge, New York. It is
anticipated that such bridge loan will be replaced by a term loan
and revolving credit facility with BNY, which has not been
finalized. However, there is no assurance that such permanent
financing will be successfully negotiated. Concurrently with the
purchase of Astrosystems and Behlman Electronics, Cabot Court
changed its name to Behlman Electronics, Inc.
East/West designs, imports and sells women's active-wear and
outer-wear, principally under the East/West label. East/West is
based in New York City and commenced operations in July 1993
following its acquisition of the operating assets of The Panda
Group, Inc. ("Panda"). In December 1995, the operations of East
End Apparel Group, Ltd. ("East End") were merged into East/West.
East End manufacturers and sells women's outer-wear and sportswear
principally under the Campton Place label. East End is based in
New York City and commenced operations in June 1994.
Classique manufactures branded and private label men's,
women's and children's outer-wear. Classique is based in
Winnipeg, Manitoba, Canada, and commenced operations in December
1990 following its acquisition of the operating assets of Rice
Sportswear Ltd.
Winnipeg Leather manufactures and sells women's garments
under private labels including Daniel Marcus. Winnipeg Leather is
based in Winnipeg, Manitoba, Canada and commenced operations in
May 1991 following its acquisition of the operating assets of the
Winnipeg Leather division of the Sterling-Stall Group.
Symax manufactures and sells private label men's outer-wear.
Symax, based in Vancouver, British Columbia, Canada, commenced
operations in February 1993 following its acquisition of the
operating assets of Symax Garment Co. (1989) Ltd.
In January 1995, the Company discontinued the manufacture and
sale of women's sportswear previously conducted through its
wholly-owned subsidiary, Ax Elle Fashions, Inc.
In May 1994, USA Classic, Inc. ("USA Classic"), an
approximately 43% owned subsidiary of the Company, filed a
petition under Chapter 11 of the United States Bankruptcy Code.
The following sets forth certain selected historical
financial information relating to the Company's business segments:
<TABLE>
<CAPTION>
12 Months
Ended
12/31/95
12 Months
Ended
12/31/94
6 Months
Ended
12/31/93
12 Months
Ended
6/30/93
<S>
Net Sales:
Electronic
Apparel-U.S.
Apparel-
Canadian
<C>
$11,763,000
$35,152,000
$11,319,000
$58,234,000
<C>
$12,254,000
$28,543,000
$17,033,000
$57,830,000
<C>
$ 6,659,000
$19,821,000
16,339,000
$42,819,000
<C>
$14,191,000
35,973,000
23,381,000
$73,545,000
Operating
income:
Electronic
Apparel-U.S.
Apparel-
Canadian
$2,245,000
($20,780,000)
($1,192,000)
$(19,727,000)
$2,625,000
($3,217,000)
($1,628,000)
($2,220,000)
$2,349,000
1,587,000
(59,000)
$3,877,000
$2,875,000
3,797,000
(153,000)
$6,519,000
Assets:
Electronic
Apparel-U.S.
Apparel-
Canadian
Corporate
$8,028,000
$6,942,000
$4,927,000
$18,131,000
$38,028,000
$9,522,000
$27,422,000
$8,879,000
$17,688,000
$63,511,000
$11,615,000
19,526,000
10,626,000
31,338,000
$73,105,000
$13,046,000
15,385,000
43,404,000
$71,835,000
Capital
Expenditures:
Electronic
Apparel-U.S.
Apparel-
Canadian
$ 97,000
$313,000
$- 0 -
$410,000
$47,000
$373,000
$191,000
$611,000
$26,000
137,000
53,000
$216,000
$68,000
75,000
$143,000
</TABLE>
Additional financial information relating to the industry
segments in which Orbit conducts business is set forth in Footnote
M to the consolidated financial statements appearing elsewhere in
this report.
This Report contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933,
as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results could differ materially from those
projected in the forward-looking statements as a result of certain
risk factors set forth in this Report.
ELECTRONICS SEGMENT
ORBIT INSTRUMENT DIVISION
General
The Orbit Instrument Division designs, manufactures and sells
customized electronic components and subsystems for military, and
to a lesser extent, non-military, governmental applications.
Products include positional devices (ball trackers, force
transducers and joysticks), data entry and display systems
(computer controlled action entry panels, rear projection readout
panels and manual entry displays), customized keyboards, plasma
units and other specialized electronic systems. The Division also
sells, on a repeat order basis, previously designed equipment,
such as magnetic clutches, gearheads, indicators and differentials
for console applications.
The Division's products, which in most instances are designed
to customer specifications on a firm order basis, are utilized in
surveillance aircraft, missiles, torpedoes, nuclear subsystems,
naval vessels, guidance control and ground console radar
equipment. A substantial portion of the Division's net sales
during the Company's fiscal years ended December 31, 1995 and
December 31, 1994 were attributable to one customer in the
Company's capacity as a defense subcontractor for the United
States Government. See "Substantial Customers" below.
The Division purchases its raw materials and parts in the
open market primarily from a variety of local manufacturers,
dealers or suppliers.
Products
Positional Devices
The Division designs and manufactures ball trackers,
joysticks and force transducers which are incorporated into radar
and sonar display systems. These devices enable an operator to
move a cursor across a screen for tracking missiles, ships,
aircraft and other moving targets.
Data Entry, Keyboards and Display Systems
The Division manufactures a computer-controlled, action entry
panel ("CCAEP") which provides a console operator with multiple
displays of computer-generated data. The Segment's other data
entry and display systems, digital data and manual entry units and
panels are used in readout and switch panels located in fire
control, sonar control and command communication consoles.
The Division also manufactures a family of keyboards designed
to military specifications and has added to this product group,
keyboards which include backlit and multi-function panels. These
new keyboards have been sold for use in ships and aircraft.
The Division has designed, and is selling, a low-power,
light-weight, minimum-depth display unit providing output similar
to cathode ray tube displays by utilizing AC plasma technology, a
flat panel display technology. This technology eliminates bulk
and space requirement of cathode ray tube displays, and offers
improved visual resolution and lower power requirements at
environmental extremes. The Division is currently under contract
to incorporate the plasma display panels in display consoles for
Aegis class ships.
Positional Readout Devices
Nuclear rod position indicators manufactured by the Division
control and measure the depth of rods going into the core of a
nuclear reactor energy source. The Division's rear projection
readout devices provide operators with multiple sources of film
stored display information capable of storing up to 48 messages
per unit.
Graphic Display Terminals
The Division's family of graphic display terminals enables
the operator to monitor and control a ship's radar and sonar
systems and subsystems through the ship's central computer. The
terminals are used throughout a ship as adjuncts to larger display
consoles. The modular design of these terminals facilitates
applications on all size surface ships, submarines and aircraft.
Operator Control Trays
The variety of operator control trays engineered and
manufactured by the Division help organize and present an influx
of data created by interactive communications systems, making such
data more manageable for operator consumption. The tray can be
used for patrol and surveillance aircraft, standard shipboard
display consoles, shore or mobile-based defense equipment and
subsurface sonar displays. The Division's control trays are
currently used in both naval service and operator simulators.
Plasma Flat Panel Technology
The Division has designed an intermediate sized display using
AC gas discharge plasma technology. This touch sensitive unit
allows interactive capability for communication between the
operator and the host computer. Applications for this unit
include weapons control, ships status, target recognition, air
traffic control plus information exchange panels used in
conjunction with image processing.
Proposed Products
Substantially all of the Division's efforts in the
development of new products consist of design and engineering
services associated with, and necessary for, the manufacture of
new products. The Division generally begins development efforts
after its customers have indicated that the proposed new products
or improvements are desirable. The following is presently being
developed by the Division; however, there can be no assurance that
the Division's development efforts will result in any marketable
products. The Division does not yet have any firm orders for
products described below and there can be no assurance that any
sales will be made.
The Division is expanding its design and development of AC
plasma display panels to include bit mapping and graphics
technologies. These next generation panels are intended to be
used in aircraft and naval applications. The graphics version of
the AC plasma display panel was completed in mid 1995 and the
Division received contracts for these units on two separate
programs. The Division has also been contracted to deliver a more
advanced version of its panel with embedded intercommunication
capability.
The Division has designed and developed a flat panel
technology based communication panel. The Company has received
prototype orders for these units for the LHA ship class.
A flat panel development has been commenced for interactive
color liquid crystal and Electroluminescent displays.
Competition
The Division's competitive position in the electronics
industry is, in Management's view, predicated upon the Company's
manufacturing techniques, its ability to design and manufacture
products which will meet the specific needs of its customers and
its long-standing successful relationship with its major customer.
There are numerous concerns (many of which are substantially
larger than the Company) capable of producing substantially all of
the Company's products. However, to the Company's knowledge, none
of such competitors produce all of the products that the Division
produces.
Sales to one customer, General Motors Hughes Electronics
Corporation, accounted for approximately 54% and 66% of the sales
of the Division for the fiscal years ended December 31, 1995 and
December 31, 1994, respectively. The loss of such customer would
have a materially adverse effect on the Division's sales and
earnings.
BEHLMAN ELECTRONICS, INC.
In February 1996, the Company, through its wholly-owned
subsidiary, Cabot Court, completed the acquisition of certain of
the assets, subject to certain liabilities, of Astrosystems and
Behlman Electronics. Concurrently with the purchase, Cabot Court
changed its name to Behlman Electronics, Inc. ("Behlman").
General
The military division of Behlman designs and manufactures
power conversion devices and electronic products for measurement
and display. The commercial products division produces high
quality, distortion free commercial power units and low noise
uninterruptable power supplies (UPS).
Sales and Marketing
Products of the military division are marketed by Behlman's
program managers and other management personnel. Commercial
products are sold by Behlman's regional sales managers,
manufacturer's representatives and non-exclusive distributors.
Competition
Competition in these fields depends on such factors as price,
product reliability and performance, engineering and production.
In particular, due primarily to budgetary restraints and program
cutbacks, competition in the Company's government markets has been
increasingly severe and price has become the major overriding
factor in contract and subcontract awards. To the best of the
Company's knowledge, some of its regular competitors are much
larger companies with substantially greater capital resources and
far larger engineering, administrative, sales and production
staffs.
US APPAREL SEGMENT
EAST/WEST
General
In July 1993 Orbit acquired substantially all of the assets
of Panda, a designer, importer and seller of women's active-wear
and outer-wear. Orbit operates Panda as a separate division
called the East/West Division. In December 1995, the Company
merged the operations of East End into the East/West Division.
Products
East/West designs, imports and sells women's jogging suits
and outer-wear under the private label East-West as well as
women's sportswear and outer-wear under the Campton Place label.
The product collections of East/West are designed and marketed to
focus on quality and value to the consumer. A majority of the
Division's products are sold at moderate price points. After the
Fall 1995 season, East/West discontinued marketing men's outer-
wear.
Sales and Marketing
East/West markets its various active-wear and outer-wear
lines to major department stores and specialty stores throughout
the United States and Canada through its direct sales force.
Sales of East/West accounted for approximately 73% of the total
net sales of the United States Apparel Segment during the fiscal
year ended December 31, 1995.
Under the Campton Place label, East/West sells and
distributes its products to retailers throughout the United States
and Canada. These collections retail between $59 and $99.
East/West also aggressively promotes private label product
development with major chains using its branded line fashion
concepts to enhance and enrich store interest for their gross
margin advantages. Sales of East End accounted for approximately
26% of the total net sales of the United States Apparel Segment
during the fiscal year ended December 31, 1995.
Importing
East/West imports all of its garments from a large number of
independent contract manufacturers located in several countries in
the Far East. The Division utilizes four agents in the Far East
to place orders with independent contractors and to monitor
production. The Division also has placed some production and
imported from the Caribbean basin.
Competition
The apparel industry is highly competitive. The competitors
of East/West include many apparel manufacturers which have greater
financial and manufacturing resources than the Division.
East/West believes it can compete successfully in the market place
by delivering a product of good quality at an affordable price to
the consumer.
CANADIAN APPAREL SEGMENT
CLASSIQUE
General
In December 1990, Classique acquired the operating assets,
subject to certain liabilities, of Rice Sportswear Ltd. ("Rice"),
a manufacturer of branded and private label men's and women's
outer-wear located in Winnipeg, Manitoba, Canada. Classique is
continuing the operations of Rice under the Rice Sportswear name.
Products
Rice's products and collections, sold under both proprietary
and private labels, are generally designed and marketed for sale
at moderate and higher price points through retailers throughout
Canada.
Through its various domestic and import facilities, it
markets and distributes outer-wear collections under the following
proprietary labels: Mountaineer, men's and women's winter outer-
wear; Hemingway, cloth and leather outer-wear; and Micro Tex,
activewear fabric. These lines are an essential part of the
Canadian retailing business, bringing value and fashion into an
affordable collection with names that are associated with quality
and style in over 750 customer accounts in Canada. Rice utilizes
various fabrications, colors and insulations to produce
specialized products that are identifiable to both retailers and
consumers in specific markets.
Rice is seeking to broaden its customer base and enhance its
market share by diversifying its product offerings. In
particular, Rice is expanding its offerings of more casual
products, and less constructed garments, based on its recognition
of changing consumer preferences towards such products. Rice also
sells boys' and girls' outer-wear.
During 1993, Rice formed a division called Apparel Image
Marketing ("AIM") which manufactures and sells men's and women's
outer-wear utilizing the corporate logo of its customers. During
the fiscal year ended December 31, 1995, sales for the AIM
division accounted for approximately 31% of the total net sales of
the Canadian Apparel Segment.
Sales and Marketing
Rice markets its various mens' and ladies' cloth and leather
outer-wear to major department store chains and specialty apparel
retail stores throughout Canada through its direct sales force of
8 sales people and through 24 independent sales representatives.
Sales of Rice accounted for approximately 68% of the total net
sales of the Canadian Apparel Segment during the fiscal year ended
December 31, 1995.
Manufacturing
Rice has one domestic manufacturing facility producing in
excess of 170,000 units of product annually. These facilities are
fully vertical in the manufacturing and assembly process. The
facilities cut, sew and completely finish various products.
Rice also imports products from many independent contract
manufacturers located in the Far East and Europe. It furnishes
its foreign contractors with design and manufacturing
specifications for the products it imports. Rice's use of foreign
sources varies from season to season based upon cost, quality and
other factors determined by Rice's product requirements. Rice
believes that having a domestic as well as a foreign basis for its
manufacturing allows it to effectively combine price, performance
and quality.
Competition
The apparel industry, in general, and the active-wear
segment, in particular, are intensively competitive. The market
is composed of both large manufacturers and small independent
Companies. Many of the large manufacturers have substantially
greater resources than the Company. The Company believes that
competition is based upon design, price and customer support.
WINNIPEG LEATHER
General
In May 1991, the Company, through a wholly-owned subsidiary,
acquired the operating assets of the Winnipeg Leather division of
the Sterling-Stall Group.
Products
Winnipeg Leather manufactures, sells and markets women's
leather, suede and cloth garments under private labels, including
Daniel Marcus. Winnipeg Leather's products are sold to major
department store chains and specialty apparel retail stores
throughout Canada and to several major department stores in the
United States.
Sales and Marketing
Sales of Winnipeg Leather accounted for approximately 25% of
the total net sales of the Canadian Apparel Segment during the
fiscal year ended December 31, 1995. Winnipeg Leather will be
broadening its importance as a major resource for outer-wear by
taking on the design, manufacturing and marketing aspects of
Rice's ladies cloth business.
Winnipeg Leather has over 200 Customer accounts. A large
portion of the business is done by private label developmental
programs with regular as well as specialty size chain stores.
Approximately one-third of Winnipeg Leather's sales are
through sportswear items. It manufactures a complete line of
sportswear that coordinates with the outer-wear portion of the
business.
SYMAX
General
In February 1993, the Company, through a wholly-owned
subsidiary, acquired the operating assets of Symax Garment Co.
(1989) Ltd.
Products
Symax manufactures, sells and markets men's outer-wear under
private labels. It is a leading manufacturer in British Columbia
of uniform jackets, serving some 40 public bodies as well as
private clubs, associations and numerous retailers.
Sales
Approximately 32% of Symax's sales are for uniform jackets
delivered to government agencies while the remainder of its sales
are made to retailers. Sales for Symax accounted for
approximately 7% of the total net sales of the Canadian Apparel
Segment during the fiscal year ended December 31, 1995.
USA CLASSIC
In July 1988 Orbit, through a wholly-owned subsidiary USA
Classic, acquired all of the outstanding stock of U.S. Apparel,
Inc. In November 1992, USA Classic completed an initial public
offering (the "Offering") of 3,105,000 shares of its common stock,
thereby reducing Orbit's ownership to approximately 43%. USA
Classic designed, manufactured and marketed men's, women's and
children's active-wear, sportswear and outer-wear until it, and
its subsidiaries, filed petitions under Chapter 11 of the United
States Bankruptcy Code in 1994. The Company recorded a non cash
charge related to such bankruptcy of $13,987,000, which includes
its 43% equity interest in USA Classic, subordinated debt owing by
USA Classic to the Company of approximately $2,400,000 and
approximately $2,500,000 of related costs.
CERTAIN INFORMATION RELATING TO THE COMPANY
Substantial Customers
General Motors Hughes Electronics Corporation ("GMHEC"),
Fullerton, California accounted for approximately 11% of the
Company's consolidated net sales during its fiscal year ended
December 31, 1995. GMHEC, Northrup Grumman and various agencies
of the United States government accounted for approximately 54%,
16% and 13% respectively, of net sales of the Electronics Segment
for the fiscal year ended December 31, 1995. The loss of GMHEC as
a customer would have a materially adverse effect on the
Electronic Segment's sales and earnings. In the fiscal year ended
December 31, 1995, Sears Canada and Polaris Industries (U.S. and
Canada) accounted for approximately 18% and 16% of net sales of
the Canadian Apparel Segment. The loss of Sears Canada and
Polaris Industries would have a materially adverse effect on the
Canadian Apparel Segment.
Since substantially all of the products which the Electronics
Segment manufactures are used in military applications, any
substantial reduction in overall military spending by the United
States Government could have a materially adverse effect on the
Company's sales and earnings.
Backlog
As of December 31, 1995 and December 31, 1994 the Company's
consolidated backlog was as follows:
December 31, 1995 December 31, 1994
Electronic* $13,000,000 $18,000,000
Apparel-U.S. Operations 2,000,000 3,000,000
Apparel-Canadian
Operations 1,000,000 1,000,000
Total $16,000,000 $22,000,000
* Does not include backlog of Behlman acquired in February 1996.
A majority of the business of the United States and Canadian
Apparel Segments is associated with the sale of outer-wear. The
first and second quarters are historically weak periods since its
customers do not generally request shipment of merchandise at that
time. Consequently, the backlog of these Segments at December 31,
1995 reflect the impending weak selling periods for 1996.
The United States Apparel Segment reflects the backlog of
East/West and East End at December 31, 1995 and at December 31,
1994.
Of the Electronics Segment backlog during the fiscal year
ended December 31, 1995, approximately $5,000,000 represents
backlog under contracts which will not be shipped during the 1996
fiscal year.
Additionally, substantially all of the Electronics Segment's
contracts are subject to termination at the convenience of the
United States Government.
Special Features of Government Contracts
Orders under government prime contracts or subcontracts are
customarily subject to termination at the convenience of the
government, in which event the contractor is normally entitled to
reimbursement for allowable costs and for a reasonable allowance
for profits, unless the termination of a contract was due to a
default on the part of the contractor. No material terminations
for the convenience of the government occurred during the fiscal
year ended December 31, 1995.
In certain instances, the Electronics Segment ships products
to its major customers prior to the issuance of final purchase
orders. Therefore, certain of the prices may be subject to
adjustment when the customer completes its review of all elements
of the letter subcontract which is issued to the Company prior to
the issuance of the purchase order. While these contracts are
material to the Company's business, the Company does not believe
that any material price adjustments will be made in these
contracts. See Footnote J to the consolidated financial
statements appearing elsewhere in this report.
Substantially all of the Electronics Segment's revenues are
subject to audit under the Vinson-Trammel Act of 1934 and other
federal statutes. The Company believes that adjustments to such
revenues, if any, will not have a material effect on the Company's
financial position.
Research and Development
The Electronics Segment incurred approximately $420,000 of
research and development expenses during the fiscal year ended
December 31, 1995, as compared with $381,000 of such expenses
during the comparable period of the prior year. The Company did
not incur any material research and development costs as defined
in FASB Statement No. 2 (October 1974) during these two fiscal
years.
Patents
The Company does not own any patents which it believes are of
material significance to its operations.
Employees
As of March 15, 1996, the Company employed 395 persons. Of
these, the Apparel Segments employed 276 people, 11 in design
functions, 15 in sales, 34 in administration and the balance in
production. The Electronics Segment employed 119 people
consisting of 23 in engineering and drafting, 8 in sales and
marketing, 20 in direct and corporate administration and the
balance in production.
Item 2. PROPERTIES
The Company's plant and executive offices, located at 80
Cabot Court, Hauppauge, New York, consist of 60,000 square feet
(of which approximately 50,000 square feet are utilized for
manufacturing operations) in a two-story, sprinklered, brick
building which was completed in October 1982 and expanded in 1985.
Behlman is renegotiating a new lease for its premises in
Ventura, California consisting of 1700 square feet. The new lease
is expected to be for a term of one year at an annual rental of
approximately $13,000.
East/West leases approximately 15,000 square feet of showroom
and office space at 500 7th Avenue in New York City at an annual
rental of $233,605 under a lease which expires in January 2000.
East/West also leases 80,000 square feet of warehouse space at
2400 83rd Street in North Bergen, New Jersey, at an annual rent of
$258,000 under a lease which expires January 2000.
East End leases approximately 5,000 square feet of showroom
and office space at 500 7th Avenue in New York City at an annual
rental of $77,625 under a lease which expires in January 2000.
The Company is currently seeking a third party to sublet this
showroom and office space.
Classique leases 82,000 square feet of space at 1270 Notre
Dame Avenue in Winnipeg, Manitoba, Canada at an annual rent of
C$182,000. This lease, which commenced November 30, 1990, expires
in November 2000. This space is used for distribution and
warehousing, design, production and executive offices. Classique
also leases 48,000 square feet at 181 Bannatyne Avenue in Winnipeg
for warehousing and distribution.
Classique has assigned the leases for 20,000 square feet of
production space in Steinbach, Manitoba and 20,000 square feet of
production space in St. Malo, Manitoba. The Company remains as a
secondary guarantor on such leases, which expire in November 2000.
Winnipeg Leather leases 22,000 square feet at 1270 Notre Dame
Avenue in Winnipeg at an annual rental of C$66,000 under a lease
which expires in November 2000. The space is used for
distribution and warehousing, design, production and executive
offices.
Symax leases 3,500 square feet of office and showroom space
at 1654 Franklin Street in Vancouver, British Columbia, Canada at
an annual rent of C$65,000 under a lease which expires in January
1997 with no renewal options.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the
Company, other than routine litigation incidental to the Company's
business, except as described below.
In re USA Classic Securities Litigation: In September 1993,
a class action (the "Class Action") was commenced by an alleged
shareholder of USA Classic, against USA Classic and certain of its
directors in the United States District Court for the Southern
District of New York. The action was commenced on behalf of
shareholders, other than the defendants, who acquired their shares
from November 20, 1992, the date of the initial Offering, through
September 22, 1993, and alleges violations of the Securities Act
of 1933 in connection with the Offering as well as violations of
Section 1Ob of the Securities Exchange Act of 1934. The
plaintiffs are seeking compensatory damages as well as fees and
expenses.
In February 1994, a First Amended and Consolidated Complaint
was filed in the Class Action. The First Amended and Consolidated
Complaint added the Company as a defendant and alleged that the
Company is a "controlling person" of USA Classic and an "aider and
abetter" of the alleged violations of the securities laws. The
Company answered the First Amended and Consolidated Complaint in
March 1994. The Class Action has been stayed as against USA
Classic as a result of USA Classic's filing of a petition for
reorganization under Chapter 11 of the United States Bankruptcy
Code.
In October 1994, a Second Amended and Consolidated Complaint
was filed in the Class Action. The Second Amended and
Consolidated Complaint restated the allegations against the
Company and added Paine Webber Incorporated and Ladenburg Thalmann
& Co. Inc., the lead underwriters in the Offering, as additional
defendants. On November 15, 1994, the Company and such
underwriters moved to dismiss certain of the allegations in the
Second Amended and Consolidated Complaint. While the dismissal
motion, if granted, will not dispose of all the claims asserted in
the Second Amended and Consolidated Complaint, the Company intends
to vigorously defend against any remaining claims. In or about
June 1995, the court denied the dismissal motion in its entirety.
In March 1995, the plaintiffs' representatives filed a motion
for class certification. Since that date, the parties have been
conducting depositions and reviewing documents relevant to the
class certification issue. The defendants' response to the class
certification motion has been adjourned without date pending
completion of discovery into that issue. In February 1996, the
underwriter defendants moved the court to stay all substantive
discovery until the court rules upon the class certification
motion. The Company joined in this motion. On March 7, 1996, the
court denied the motion to stay substantive discovery. The next
deposition is scheduled for April 17, 1996. It is estimated that
discovery in this matter will continue throughout 1996. The
Company plans to continue to vigorously defend this action.
Sandra Lakritz v. Orbit International Corp.: In July 1995,
Sandra Lakritz, a former employee of East/West commenced an action
in Supreme Court, New York County, claiming employment
discrimination based upon age and disability. In December 1995,
the Company answered the complaint and denied the allegations set
forth therein. Simultaneously with its answer, the Company served
upon plaintiff's counsel numerous discovery requests. To date,
plaintiff has only partially responded to the discovery requests.
In February 1996, plaintiffs' counsel filed a request for a
preliminary conference. The court has yet to schedule such a
conference. The Company intends to vigorously defend this action.
Venture Garments, Ltd. v. East End Apparel Group, Ltd. and
Orbit International Corp.: In December 1995, Venture Garments,
Ltd., a supplier of East End commenced an action in Supreme Court,
New York County for goods had and received and related equitable
relief against both East End and the Company. In February 1996,
the Company answered the complaint, asserted counterclaims against
Venture and impleaded East End's former president, Gary Jacobs.
While the Company contests the allegations set forth in the
complaint, in an effort to avoid litigation costs, the Company is
engaging in negotiations to resolve the dispute with the
plaintiff. Presently, the Company has agreed to adjourn Venture's
time to reply to the counterclaim, to provide discovery and
Jacobs' time to answer the third-party complaint sine die. Should
the settlement negotiations prove to be unsuccessful, the Company
intends to vigorously defend this action and prosecute its
counterclaims and third-party claims.
Gary Jacobs v. East End Apparel Group, Ltd. and Orbit
International Corp.: In December 1995, Gary Jacobs, former
president of East End, commenced an action against the Company in
connection with his termination. Jacobs' complaint alleges that
he was wrongfully terminated in violation of his employment
agreement with the Company. The complaint seeks damages in the
amount of $2,000,000. In February 1996, the Company answered the
complaint and asserted a counterclaim against Jacobs and his
personal counsel, for breach of the contract, breach of fiduciary
duty, tortious interference of the contract and other related
relief seeking damages in the aggregate amount of $30,400,000.
In February 1996, Jacob's counsel moved to dismiss the claims
asserted against it and against one of its partners. That motion
and Jacobs' time to reply to the counterclaims and provide
discovery has been adjourned to April 4, 1996. It is possible
that the settlement negotiations concerning the Venture v. East
End litigation (see above) may resolve this action as well.
Should such negotiations prove unsuccessful, the Company intends
to vigorously defend Jacobs' claims and to vigorously prosecute
the counterclaims set forth in this action.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
An Annual Meeting of Stockholders of the Company was held on
December 18, 1995. The holders of 5,886,093 shares of Common
Stock of the Company were entitled to vote at the meeting, the
holders of 5,524,550 shares of Common Stock, or approximately
93.9% of shares entitled to vote at the meeting, were represented
by proxy and the holders of 1,000 shares of Common Stock were
present in person. The following actions took place:
1. The stockholders voted for the election of each of the
following persons nominated to serve as a director of the Company
until the next annual meeting and until his successor is elected
and qualified: Dennis Sunshine by 4,640,270 votes for and 885,280
against, Bruce Reissman by 4,638,730 votes for and 886,820
against, Mitchell Binder by 4,632,730 votes for and 892,820
against, Nathan A. Greenberg by 4,632,330 votes for and 893,220
against, John Molloy by 4,638,530 votes for and 887,020 against
and Stanley Morris by 4,638,517 votes for and 887,033 against.
2. The stockholders approved a proposal to adopt the
Company's 1995 Employee Stock Option Plan. The holders of
2,395,267 shares voted for the proposal, the holders of 1,340,129
voted against the proposal and the holders of 19,954 shares
abstained from voting.
3. The stockholders also approved a proposal to adopt the
Company's 1995 Stock Option Plan for Non-Employee Directors. The
holders of 2,701,153 shares voted for the proposal, the holders of
1,121,007 voted against the proposal and the holders of 41,758
shares abstained from voting.
4. The stockholders also ratified the appointment of
Richard A. Eisner & Company, LLP as the independent accounts for
the Company for the year ending December 31, 1995. The holders of
5,316,114 shares voted for the proposal, the holders of 141,407
voted against the proposal and the holders of 68,029 shares
abstained from voting.
5. The stockholders rejected a proposal to amend the
Company's Certificate of Incorporation to create a class of
1,000,000 shares of preferred stock which may be issued in one or
more series and to authorize the Company's Board of Directors to
determine the voting powers, designations, preferences and rights
and the qualifications, limitations or restrictions thereof, of
each such series. The holders of 2,175,078 shares voted for the
proposal, the holders of 1,197,028 shares voted against the
proposal and the holders of 35,471 shares abstained from voting.
6. Finally, the stockholders rejected a stockholder
proposal to require that the majority of Company's Board of
Directors be non-family members and individuals who do not
currently work or consult with the Company, have been employed by
the Company or have consulted with the Company in the past. The
holders of 1,223,516 shares voted for the proposal, the holders of
2,134,658 shares voted against the proposal and the holders of
49,340 shares abstained from voting.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S CAPITAL STOCK AND RELATED
SECURITY HOLDER MATTERS
As of March 25, 1996 the Company had 754 shareholders of
record. The Company's stock is traded in the over-the-counter
market (Nasdaq symbol ORBT) and is quoted in the Nasdaq Small Cap
Market.
The quarterly closing prices for the period January 1, 1994
through December 31, 1995, as reported by Nasdaq, were as follows:
CLOSE
High Low
1994:
First Quarter 5 3 7/8
Second Quarter 4 1/8 3 1/2
Third Quarter 3 3/8 2 7/8
Fourth Quarter 3 3/8 1 1/2
1995:
First Quarter 2 1/2 1 5/8
Second Quarter 2 1/8 1 3/8
Third Quarter 1 5/8 1 3/16
Fourth Quarter 1 9/16 3/4
The Company has not declared any dividends during the aforesaid
period.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Twelve Month period ended December 31
1995
1994
1993
(unaudited)
<S>
Net sales
<C>
$58,234,000
<C>
$57,830,000
<C>
$53,860,000
Net earnings
(loss)
from continuing
operations
($22,480,000)
(16,995,000)
($6,093,000)
Earnings per share
from continuing
operations Primary
and fully diluted
($3.81)
($2.75)
($.93)
Total assets at
year-end
$38,028,000
$63,511,000
$73,105,000***
Long-term
obligations
$785,000
$8,909,000
$10,419,000***
Total
stockholders'
equity
$9,123,000
$31,263,000
$49,626,000***
/TABLE
<PAGE>
Six Month Period Ended
December 31
1993
1992
(unaudited)
Net sales
$42,819,000
$62,504,000
Net earnings
(loss)
from continuing
operations
$ (3,745,000)
$10,793,000
Earnings per share
from continuing
operations Primary
and fully diluted
($.57)
$1.61
Total assets at
year-end
$73,105,000
$66,557,000
Long-term
obligations
$10,419,000
$ 2,633,000
Total
stockholders'
equity
$49,626,000
$53,729,000
<TABLE>
<CAPTION>
Twelve Month Period Ended June 30
1993
1992
1991*
<S>
Net sales
<C>
$73,545,000
<C>
$95,906,000
<C>
$47,746,000
Net earnings (loss)
from continuing
operations
$10,592,000
$2,902,000
($1,543,000)
Earnings per share
from continuing
operations Primary and
fully diluted
$1.69**
$.46
($.20)
Total assets at year-
end
$71,835,000
$71,730,000
$85,764,000
Long-term obligations
$ 2,451,000
$ 6,757,000
$ 4,735,000
Total stockholders'
equity
$53,729,000
$43,110,000
$36,796,000
______________
Pro-forma earnings from continuing
operations assuming the new method of
accounting was applied retroactively
(see Note O to Consolidated Financial
Statements):
$3,250,000
$(1,179,000)
Earnings (loss)
$.52
$(.15)
Earnings (loss) per share
* Restated to reflect discontinued
operation.
** Earnings before cumulative effect of a change in
accounting principle $1.59
Cumulative effect of a change in accounting principle .10
Net earnings per share 1.69
*** While the Company's income statement for the twelve month
period ended December 31, 1993 is unaudited, its balance
sheet is audited.
See "Item 7. Management's discussion and Analysis of financial
Condition and Results of Operations."
/TABLE
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity, Capital Resources and Inflation
Working capital decreased by $14,208,000 to a deficit of
$120,000 during the year ended December 31, 1995 principally due
to (i) to a net loss of $12,473,000 (before write-off of excess of
cost over the fair value of assets acquired and other intangible
assets net of the purchase price adjustment of the East/West
acquisition) incurred by the Company for the year ended December
31, 1995 and (ii) approximately $3,000,000 of marketable
securities which was pledged to secure standby letters of credit
issued to the Company's factor to its Canadian Apparel Segment as
security for borrowings of the Segment under a new banking
arrangement. The Company's working capital ratio at December 31,
1995 was 1.0 to 1 compared to 1.6 to 1 at December 31, 1994.
In July 1993, East/West entered into a Restated and Amended
Factoring Agreement with its primary lender. Advances by the
factor prior to the maturity date of receivables sold bear
interest at a rate of prime plus 1.50%. As security for its
obligations under such amended facility, the Company has pledged
approximately $6,150,000 of its marketable securities.
In September 1994, East End entered into a Factoring
Agreement with BNY under the same terms and conditions as
East/West. The facility is guaranteed by the Company and as
security for its obligations under such facility, the Company
pledged approximately $2,500,000 of its marketable securities. In
January and February 1996, the Company used approximately
$1,700,000 of its marketable securities to reduce the amount owed
under the facility.
In August 1995, the Company's Canadian Apparel Segment
entered into a new factoring arrangement with a subsidiary of BNY.
The new arrangement provides the Segment with a C$7,000,000 line
of credit and bears interest at prime plus .75%. As security for
its obligations under this facility, the Company has provided the
lender with a C$3,000,000 standby letter of credit.
In February 1996, the Company, through a wholly owned
subsidiary, purchased from Astrosystems substantially all of the
assets of its wholly owned subsidiary, Behlman Electronics and
substantially all of the assets of its Military Electronics
Division. The purchase price of $3,706,700 was substantially
funded by the Company's cash and a bridge loan from BNY. The
Company is currently negotiating a $4,000,000 Term Loan and
Revolving Credit Facility with BNY, which it expects to complete
during the second quarter of 1996. The proceeds will be used to
replace the bridge loan and to provide working capital for the
Company's Electronics Segment.
Between November 1993 and January 1995, the Company
repurchased 750,700 shares of Common Stock in the open market at
an average price of $3.57 per share. In October 1994, the Company
announced that it planned to purchase up to an additional 300,000
shares of Common Stock in the open market or in privately
negotiated or block transactions. The Company has purchased
166,200 shares under this program.
In March 1996, the Company entered into an agreement with the
sellers of East/West whereby the purchase price for the assets
under the asset purchase agreement dated July 1993 (the "Asset
Purchase Agreement") was reduced from $15,000,000 to $8,850,000
plus other consolidation. Accordingly, the $8,000,000 promissory
note to the sellers was reduced to $1,850,000. The amended note
is payable as follows: (i) $500,000 upon the execution of the
agreement, (ii) two $250,000 installments due July 1, 1996 and
January 1, 1997, respectively and (iii) $850,000 payable in
quarterly installments over a five year period commencing March
31, 2002.
Assuming the completion of the $4,000,000 Term Loan and
Revolving Credit Agreement with BNY, the Company's existing
capital resources (including its bank credit facilities) and its
cash flow from operations are expected to be adequate to cover the
Company's cash requirements for the foreseeable future.
Inflation has not materially impacted the operations of the
Company.
Results of Operations:
Twelve Months Ended December 31, 1995 v. Twelve Months Ended
December 31, 1994
Consolidated net sales for the twelve months ended December
31, 1995 slightly increased to $58,234,000 from $57,830,000 from
the prior comparable period principally due to increased sales
from the United States Apparel Segment and despite decreased sales
from the Electronics and Canadian Apparel Segments.
Consolidated net loss for the twelve months ended December
31, 1995 increased to $22,253,000 from $16,995,000 from the
comparable period due principally to non cash charges in the
current period of $9,780,000 reflecting the Company's write off of
goodwill and other intangible costs related to the East/West
Division net of the purchase price adjustment of the East/West
acquisition, and to an operating loss of $12,192,000 from the
Apparel Segments. Management, in its continuing review of
operations, wrote off all of the goodwill upon determining that
cash flows from future operations of the East/West Division would
not be sufficient to support any carrying value of goodwill. In
March 1996, the Company entered into an agreement with the sellers
of East/West whereby the purchase price for the assets under the
Asset Purchase Agreement was reduced from $15,000,000 to
$8,850,000 plus other consideration. Two consecutive years of
disappointing results during its primary selling season along with
financial weakness and excess inventories throughout the apparel
and retail sector leave management with great uncertainty as to
when business conditions will improve. The loss in the prior
period reflects the Company's write-off of its 43% equity interest
in USA Classic, Inc., subordinated receivable approximating
$2,400,000 and approximately $2,500,000 of related costs.
Revenues for the United States Apparel Segment for the twelve
months ended December 31, 1995 increased to $35,152,000 from
$28,543,000 from the comparable period due to revenues recorded by
East End. The operating loss for the year ended December 31, 1995
increased to $11,000,000 from $3,217,000 due to a significantly
lower gross profit on sales resulting from significant inventory
writedowns taken at year end reflecting a very weak retail
environment. The segment recorded a negative gross profit of 5.8%
compared to a gross profit of 11.3% in the prior year.
Revenues for the Canadian Apparel Segment decreased to
$11,319,000 from $17,033,000 due to a higher number of units
shipped in the prior period at a lower gross profit. The gross
profit increased to 17.4% in the current year from 11.9% in the
prior comparable period. The operating loss for the year
decreased to $1,203,000 from $1,628,000 from the prior year due to
improved gross margin on sales and a reduction in selling, general
and administrative costs. The results for the current period
include $759,000 of one-time restructuring costs consisting of
product line and personnel termination charges relating to the
Segment.
Revenues for the Electronics Segment decreased to $11,763,000
from $12,254,000 from the prior year due to a decreased in the
number of units shipped. Operating income for the year decreased
to $2,287,000 from $2,625,000 in the prior period due to a
decrease in revenue and a provision taken in the current year of
approximately $875,000 in anticipation of costs to be incurred to
repair and/or refurbish certain units that have already been
shipped to one of the Segment's customers. Management will
continue to monitor these costs in subsequent periods.
Consolidated gross profit as a percentage of sales for the
current year decreased to 8.9% from 18.0% in the prior year due
principally to a lower gross profit realized by the United States
Apparel Segment.
Selling, general and administrative expenses as a percentage
of sales for the year ended December 31, 1995 increased to 34%
from 27.5% in the prior year. Selling, general and administrative
expenses increased to $19,807,000 for the current year compared to
$15,911,000 in the prior year. These increases were due
principally to selling, general and administrative costs incurred
by East End and was partially offset by reduced selling, general
and administrative costs at the Canadian Apparel Segment.
Interest expense significantly increased to $3,008,000 in the
current year from $1,468,000 in the prior year principally due to
interest charges associated with the financing of the United
States Apparel Segment's higher inventory levels during the
current year.
Investment and other income increased in the current year to
$4,999,000 from $2,015,000 in the prior year due principally to
(i) insurance proceeds received by the Company resulting from the
death of the Company's former chief executive officer net of
accrued costs due to the officer's estate, (ii) the partial
realization of $1,000,000 of royalty income received from Orbit
Semiconductor, Inc. pursuant to a Stock Purchase Agreement signed
in November 1991, (iii) the reduction in the unrealized loss on
marketable securities due to a decrease in interest rates and (iv)
increased commission income earned by the United States Apparel
Segment.
The Company did not record any tax benefit on the current
pre-tax loss because of the uncertainty of future realization.
Twelve Months Ended December 31, 1994 v. Twelve Months Ended
December 31, 1993
Consolidated net sales for the twelve months ended
December 31, 1994 increased to $57,830,000 from $53,860,000 from
the prior comparable period principally due to increased sales
from the United States Apparel Segment resulting from (i) a full
year of sales recorded by the Company's East/West Division
compared to only six months of sales recorded in the prior period
and (ii) sales recorded by East End, which commenced operations in
May 1994. These increases were partially offset by decreased
revenues from the Company's Electronics Segment and Canadian
Apparel Segment.
Net earnings for the twelve months ended December 31,
1994 decreased significantly to a loss of $16,995,000 compared to
a loss of $6,093,000 for the prior period due primarily to a
charge of $13,687,000 (exclusive of tax benefit) reflecting the
Company's write off of its 43% equity interest in USA Classic and
subordinated debt of approximately $2,400,000 owing from USA
Classic to the Company, and approximately $2,500,000 of related
costs. Such write offs resulted from the filing, on May 13, 1994
and May 16, 1994, by USA Classic and its wholly owned
subsidiaries, of petitions under Chapter 11 of the United States
Bankruptcy Code.
The decrease in earnings is also due to (i) the
inclusion of the entire year of East/West compared to the prior
year which only included earnings from July 1, 1993, a part of its
primary selling season, (ii) start up costs associated with the
Company's new East End subsidiary which commenced operations in
May 1994, (iii) inventory write downs taken by East/West and East
End reflecting lower than anticipated sales which management
believes was a direct result of unusually warm weather during the
Fall selling season and (iv) a larger loss incurred by the
Canadian Apparel Segment and reduced earnings from the Electronics
Segment.
The Company's United States Apparel Segment consists of
the Company's new East/West Division which was acquired in July
1993 and East End which was merged into the operation of East/West
in December 1995. Revenues for such segment for the year ended
December 31, 1994 increased to $28,543,000 from $19,821,000 in the
prior fiscal year due to the inclusion of the East/West Division
for the entire year compared to the prior year which only included
earnings from July 1, 1993 and to revenues recorded by the
Company's East End subsidiary. Gross profit on sales decreased to
11.3% during the current year compared to 18.5% during the prior
year due to inventory write downs taken by East/West and East End
reflecting lower than anticipated sales which management believes
was a direct result of unusually warm weather during the Fall
selling season. Operating income for the year decreased
significantly to a loss of $3,217,00 compared to operating income
of $1,606,000 from the prior year due to the lower gross profit on
sales and due to start up costs associated with East End.
Revenues for the Canadian Apparel Segment decreased to
$17,033,000 for the year ended December 31, 1994 from $20,851,000
in the prior year due principally to a decrease in the number of
units shipped during the period and to a decline in the exchange
rate used to convert such segment's sales into United States
dollars. Gross profit on sales decreased to 11.9% during the year
ended December 31, 1994 compared to 15.0% in the prior year due
principally to a reduction in prices given to major retailers in
an effort to maintain sales despite the lower demand that resulted
from the unusually warm weather during its primary Fall selling
season. The operating loss for the year ended December 31, 1994
increased to $1,628,000 from $940,000 from the prior year due
principally to decreased revenues and gross profit which were
offset by reduced overhead costs.
Revenues for the Electronics Segment for the year ended
December 31, 1994 decreased to $12,254,000 from $13,188,000 from
the prior year due to a decrease in the number of units shipped
resulting from a reduction in the general level of funding for the
defense sector. Operating income for the year ended December 31,
1994 decreased to $2,625,000 from $3,959,000 in the prior year due
to the approval, in the prior period, of certain billing of
significant research and development costs which had been expensed
in previous periods, and to reduced sales in the current period.
Gross profit was lower in the year ended December 31, 1994 for the
same reasons.
Consolidated gross profit as a percentage of sales for
the year ended December 31, 1994 decreased to 18.0% from 23.3% in
the prior year due to lower gross profits realized by each of its
business segments.
Selling, general and administrative expenses, as a
percentage of sales, for the year ended December 31, 1994
increased to 27.5% from 20.7% in the prior year. Selling, general
and administrative expenses increased to $15,911,000 for the year
ended December 31, 1994 compared to $11,164,000 in the prior year.
These increases were due principally to costs incurred by the
Company's East/West Division for the entire year compared to the
prior year which only included costs incurred from July 1, 1993,
a period of higher revenues from its primary selling season. The
increase was also due to start-up costs associated with East End.
Interest expense increased to $1,468,000 for the year
ended December 31, 1994 from $1,174,000 in the prior year due
principally to interest on the Acquisition Term Loan used to
finance the cash portion of the down payment for the purchase of
East/West as well as a rise in interest rates.
Investment and other income decreased in the year ended
December 31, 1994 to $2,015,000 from $2,480,000 in the prior year
due principally to a decrease in cash balances available for
investment and an increase in the unrealized loss on marketable
securities due to a rise in interest rates.
The effective tax benefit rate of 10.2% for the year
ended December 31, 1994 is due to partial utilization in the
current period of prior years, loss carryforwards and deferred tax
benefits resulting from the write-down of the Company's investment
in USA Classic and the current year's operating losses.
Six Months Ended December 31, 1993 v. Six Months Ended December
31, 1992
Consolidated net sales for the six months ended December
31, 1993 decreased to $42,819,000 from $62,504,000 from the
comparable six month period principally due to the elimination of
all revenues attributable to USA Classic and to decreases in sales
from the Canadian Apparel Segment and the Electronics Segment.
These decreases were partially offset by sales from the Company's
East/West Division which was acquired in July 1993.
Net earnings for the six months ended December 31, 1993
decreased significantly to a loss of $3,745,000 from earnings of
$11,198,000 in the prior six month period. The loss was
principally due to non-cash charges of $3,721,000 representing the
Company's 43% equity interest in the loss of USA Classic at
November 30, 1993 and $4,665,000 representing a mark down of the
Company's investment in USA Classic reflecting a decline in the
market value of USA Classic's stock. Net earnings from the prior
six month period were principally due to a non-cash gain of
approximately $7,500,000 resulting from the Offering and
significant earnings recorded by USA Classic during this period.
The decrease in earnings was also attributable to decreased
earnings from the Canadian Apparel Segment, all of which were
partially offset from earnings from the East/West Division and
improved earnings from the Electronics Segment.
Revenues for the United States Apparel Segment (which
included USA Classic during these periods) decreased to
$19,821,000 in the six month period ended December 31, 1993
compared to $35,973,000 from the prior comparable six month period
due to the loss of all revenues attributable to USA Classic which
amounted to $35,973,000 during the prior six month period.
Revenues for the six month period ended December 31, 1993 were all
attributable to the Company's new East/West Division. Gross profit
on sales decreased to 18.5% during the six month period ended
December 31, 1993 compared to 29.5% during the prior comparable
six month period. Operating income for the six month period ended
December 31, 1993 decreased to $1,587,000 from $3,778,000 from the
prior comparable six month period. Pre-tax income for the six
month period ended December 31, 1993 includes $499,000 of charges
associated with the acquisition of the East/West Division as a
result of "push-down" accounting.
Revenues for the Canadian Apparel Segment decreased to
$16,339,000 for the six month period ended December 31, 1993 from
$18,869,000 from the prior comparable six month period due
principally to a decrease in the number of units shipped during
the period of both its cloth and leather lines and to a decline in
the exchange rate used to convert the Segment's sales into United
States dollars. Gross profit for the six months ended December
31, 1993 was 16.0% compared to 17.9% from the prior comparable six
month period. This decrease was due principally to credits and
discounts given by newly formed Ax Elle in order to establish
programs to gain market share for its products and to the write
off of certain costs associated with the development of future
seasons' products related to the Company's merchandising efforts.
Aside from these two factors, gross profit for the period would
have increased to approximately 19.0% for the six month period
ended December 31, 1993. Operating income for the six months ended
December 31, 1993 decreased to a loss of $59,000 from earnings of
$1,012,000 from the prior comparable six month period due
principally to (i) decreased revenues (ii) an increase in bad debt
reserves reflecting a weak economy in Canada and (iii) start up
costs related to the initial shipping season for Ax Elle.
Revenues for the Electronics Segment for the six month
period ended December 31, 1993 decreased to $6,659,000 from
$7,662,000 from the prior comparable six month period due to a
decrease in the number of units shipped resulting from a reduction
in the general level of funding for the defense sector. Despite
the decrease in sales, operating income significantly increased to
$2,349,000 from $1,265,000 due to an increased gross profit in the
current six month period compared to the prior comparable period.
The improved gross margin was principally due to the current
authorization for payment of significant research and development
costs which had been expensed in prior periods.
Consolidated gross profit, as a percentage of sales for
the six month period ended December 31, 1993 decreased to 21.8%
from 25.8% from the prior comparable six month period principally
to lower gross margins in the Company's Apparel Segments and
despite improved gross margins in the Company's Electronic
Segment.
Selling, general and administrative expenses, as a
percentage of sales for the six month period ended December 31,
1993 decreased to 17.3% from 21.0% from the prior comparable six
month period principally due to lower selling, general and
administrative costs as a percentage of sales incurred by the
Company's East/West Division compared to that which was incurred
by USA Classic in the prior period. Selling, general and
administrative costs for the six month period ended December 31,
1993 decreased to $7,391,000 from $13,141,000 from the prior
comparable six month period for the same reason.
Interest expense increased for the six month period
ended December 31, 1993 to $976,000 from $866,000 from the prior
comparable period due to interest on the Acquisition Term Loan
used to finance the cash portion of the down payment for the
purchase of East/West as well as the stated interest on the note
to the sellers in such transaction. This amount is offset by the
reduced borrowing cost of the East/West Division as compared to
that of USA Classic in the prior six month period.
Investment and other income significantly increased to
$1,482,000 for the six months ended December 31, 1993 compared to
$314,000 from the prior comparable period due principally to a
significant increase in cash balances available for investment
during the current fiscal period (despite lower interest rates)
and to $894,000 commission income recorded by the Company's
East/West Division.
The effective tax rate of 36.7% for the six month period
ended December 31, 1993 reflects the utilization of prior year's
loss carry forwards and deferred tax benefits resulting from the
mark down of the Company's investment in USA Classic and the
Company's proportionate share of USA Classic's loss for the period
ended November 30, 1993. The effective tax rate of 35.4% for the
six month period ended December 31, 1992 is principally due to the
full tax effect taken in the prior period on the gain resulting
from the Offering. As at December 31, 1993, there were
approximately $5,200,000 of unused loss carryforwards which expire
in 2001 which can be used to offset future taxable income of the
parent company only.
<PAGE>
Fiscal Year Ended June 30, 1993 v. Fiscal Year Ended June 30, 1992
Consolidated net sales decreased to $73,545,000 in the
fiscal year ended June 30, 1993 from $95,906,000 in the prior year
principally due to revenues of USA Classic which were only
included in consolidated sales until the public offering in
November 1992 and to a decrease in sales from the Canadian Apparel
Segment.
Net earnings for the fiscal year ended June 30, 1993
increased significantly to $ 11,235,000 from $ 2,902,000 in the
prior year principally due to a noncash after tax gain of
approximately $7,500,000, as a result of the USA Classic
Offering. Increases in earnings were also attributable to
increased earnings from USA Classic compared to its prior fiscal
year earnings, increased earnings from the Company's Electronic
Segment, all of which were partially offset by decreased earnings
from the Canadian Apparel Segment. Earnings for fiscal 1993 were
also affected by an after tax $643,000 gain, resulting from the
cumulative affect of an accounting change for design costs at USA
Classic.
Revenues for the United States Apparel Segment decreased
to $35,973,000 in the fiscal year ended June 30, 1993 from
$54,977,000 in the prior year since the operations of USA Classic
were not included for the period after November 1992. The amount
of such revenues recorded by USA Classic in the prior comparable
period amounted to approximately $32,470,000. Gross profit on
sales slightly decreased to 29.5% in fiscal 1993 from 30.3% in
fiscal 1992. Operating income increased to $3,797,000 in the
fiscal year ended June 30, 1993 from $3,391,000 in the prior year
principally due to significantly increased revenues during the
portion of the fiscal year ended June 30, 1993 in which operations
of USA Classic offset by the gain in corporate compensation costs.
Revenues for the Canadian Apparel Segment decreased to
$23,381,000 in fiscal year ended June 30, 1993 from $26,433,000 in
the prior year principally due to a decrease in the number of
units shipped during the period of both its cloth and leather
lines and to the exchange rate used to convert the Segment's sales
into United States dollars. Operating income decreased to a loss
of $153,000 in the fiscal year ended June 30, 1993 from $1,726,000
in the prior year due principally to (i) decreased revenues, (ii)
a reduced gross profit margin of 17.2% in fiscal 1993 as compared
to 22.2% in the prior year (primarily due to reduced selling
prices on certain product lines in order to either maintain or
gain market share for these products) and (iii) an increase in bad
debt reserves reflecting a weak economy in Canada.
Revenues for the Electronics Segment slightly decreased
to $14,191,000 in the fiscal year ended June 30, 1993 from
$14,496,000 in the prior year due to a decrease in the number of
units shipped resulting from a reduction in the general level of
funding for the defense sector. Despite the slight decrease in
sales, operating income increased to $2,875,000 in the fiscal year
ended June 30, 1993 from $1,721,000 in the prior year due to an
increased gross profit of 33.1% in the fiscal year ended June 30,
1993 compared to 24.5% in the prior year resulting from reduced
overhead costs and the award and billing of certain research and
development costs which has been expensed in prior periods.
Consolidated gross profit, as a percentage of sales
decreased to 26.3% in the fiscal year ended 1993 from 27.2% in the
prior year due principally to lower gross margins in the Company's
Apparel Segments and despite improved gross margins in the
Company's Electronic Segment.
Selling, general and administrative expenses, as a
percentage of sales, increased to 23.0% in the fiscal year ended
June 30, 1993 from 22.0% in the prior year due principally to
fixed costs of the Canadian Apparel Segment which did not decrease
in proportion to the decrease in the Segment's sales and to an
increase in certain corporate compensation costs related
principally to the gain arising from the Offering. Selling,
general and administrative expenses decreased in the fiscal year
ended June 30, 1993 to $16,908,000 from $21,054,000 in the prior
year due principally to the inclusion in the entire prior period
of the selling, general and administrative costs attributable to
USA Classic offset by the gain in corporate compensation costs.
Interest expense significantly decreased to $1,064,000
in the prior year from $2,276,000 in the prior year due
principally to interest expense of USA Classic which was only
included in the consolidated statement of operations through
November 1992 and to lower borrowing rates.
Investment and other income increased to $1,312,000 in
the fiscal year ended June 30, 1993 from $940,000 in the prior
year due principally to a significant increase in cash balances
available for investment during the current fiscal year as a
result of the Offering and despite lower interest rates.
The effective tax rate of 35.8% in the fiscal year ended
June 30, 1993 was due principally to the full tax effect taken on
the gain resulting from the Offering and reduced somewhat by the
operating income in the current fiscal year being offset by the
utilization of prior years loss carry forwards. As at June 30,
1993, there were approximately $8,200,000 of unused loss
carryforwards which expire in 2001 which can be used to offset
future taxable income of the parent company only.
The effective tax rate of 21.3% in fiscal 1992 was due
principally to losses associated with the sale of the Company's
semiconductor segment during the prior fiscal year which were not
available for utilization until the current fiscal year, and the
utilization of the carry forward of certain losses incurred by
that segment in prior fiscal years.
Certain Material Trends
Despite continued profitability in 1995, the Company's
Electronic Segment continues to face a difficult business by
increasing pressure on the Company's prices for its sole source
sales and a general reduction in the level of funding for the
defense sector.
The Company's Electronic Segment is continuing to seek
new contracts which require up-front design, engineering,
prototype and preproduction costs. While the segment attempts to
negotiate contract awards for reimbursement of product
development, there is no assurance that sufficient monies will be
set aside by the government for such effort. In addition, even if
the government agrees to reimburse development costs, there is
still a significant risk of cost overrun which may not be
reimbursable. Furthermore, once the Company has completed the
design and preproduction stage, there is no assurance that funding
will be provided for future production.
The Electronics Segment is heavily dependent upon
military spending as a source of revenues and income. World
events have led the government of the United States to reevaluate
the level of military spending necessary for national security.
Any significant reductions in the level of military spending by
the Federal Government could have a negative impact on the
Electronics Segment's future revenues and earnings.
In July 1993, the Company acquired the assets of Panda,
an importer and distributor of women's activewear and outer-wear
and in May 1994, started up the East End subsidiary, an importer
of women's outer-wear and sportswear which operation was merged
into the East/West Division in December 1995 and constitutes the
Company's United States Apparel Segment. A majority of the
business of both the United States and the Canadian Apparel
Segment is associated with the sale of outer-wear. The third and
fourth quarters are generally the primary selling seasons for
outer-wear sales. Furthermore, where sale of outer-wear
constitutes a significant percentage of such segment's business,
the first and second quarters are historically weak periods since
its customers do not generally request shipment of merchandise
during this time.
Despite the continued market acceptance of its
established lines, a weakened economy in the United States and
Canada could have an adverse impact on the Apparel Segments'
revenues and earnings. The Apparel Segments' large customers
include many of the major department stores which may be
vulnerable in a weakened economy. In addition, the financial
problems experienced by many retailers has impacted revenues due
to credit concerns of the financial community. These factors have
contributed to a very weak and uncertain apparel and retail
sector. These present conditions, if they continue, could have a
negative impact on the operations of the Apparel Segment in future
quarters.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements, which is a part of
the financial statements, and the financial statements and
schedules included elsewhere in this Annual Report on Form 10-K.
The following sets forth certain selected, unaudited quarterly
financial data:
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Consolidated)
Twelve Months Ended
December 31, 1995 First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net Sales $10,888,000 $8,588,000 $21,355,000 $17,403,000
Gross Profit 2,877,000 1,586,000 2,512,000 (1,796,000)
Earnings (loss) (313,000) (2,133,000) (15,288,000) (4,519,000)
Earnings per share ($.05) ($.36) ($2.60) ($.77)
Twelve Months Ended
December 31, 1994
Net Sales $10,557,000 $5,691,000 $21,017,000 $20,565,000
Gross Profit 3,055,000 1,689,000 4,542,000 1,143,000
Earnings (loss) (11,184,000) (1,212,000) 636,000 (5,235,000)
Earnings per share $(1.77) $(.19) $.11 $(.90)
</TABLE>
Item 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not had any disagreements
with its accountants on accounting
or financial disclosure.
<PAGE>
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's definitive proxy
statement to be filed pursuant to regulation 14A
promulgated under the Securities Exchange Act
of 1934 in connection with the Company's 1996 Annual
Meeting of Stockholders.
Item 11.
EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to
regulation 14A promulgated under the Securities
Exchange Act of 1934 in connection with the
Company's 1996 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Incorporated by reference
to the Company's definitive proxy statement to be
filed pursuant to regulation 14A promulgated under
the Securities Exchange Act of 1934 in connection
with the Company's 1996 Annual Meeting of Stockholders.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive proxy
statement to be filed pursuant to regulation 14A
promulgated under the Securities Exchange Act
of 1934 in connection with the Company's 1996
Annual Meeting of Stockholders.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are
filed as part of this Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
1. Financial Statements and
Schedules:
The index to the financial
statements and schedules is incorporated by reference to the
index to financial statements attached as an exhibit to this
Annual Report on Form 10-K.
2. Exhibits:
Exhibit No.
Description of Exhibit
3 (a) Certification of Incorporation, as
amended. Incorporated by reference to
Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1991.
3 (b) By-Laws, as amended. Incorporated by reference
to Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30,
1988.
4(a) Orbit International Corp. 1995 Employee
Stock Option Plan. Incorporated by
reference to Annex B to the Company's
definitive proxy statement dated
November 17, 1995.
4(b) Orbit International Corp. 1995 Stock
Option Plan for Non-Employee Directors.
Incorporated by reference to Annex C to
the Company's definitive proxy
statement dated November 17, 1995.
10(a) Employment Agreement, dated July 1, 1992 between
the Company and Mitchell Binder. Incorporated
by reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1992.
10(b) Employment Agreement dated July 1, 1992 between
the Company and Bruce Reissman. Incorporated by
reference to Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1992.
10(c) Employment Agreement dated July 1, 1992 between
the Company and Dennis Sunshine. Incorporated by
reference to Exhibit 10(d) to the Company's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1992.
10(d) Form of Indemnification Agreement between the
Company and each of its Directors. Incorporated
by reference to Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the fiscal year
ended June 30, 1988.
10(e) Asset Purchase Agreement, dated July 12, 1993,
among the Panda Group, Inc., Kenneth Freedman,
Frederick Meyers and Registrant. Incorporated
by reference to Exhibit 1 to the Company's
Current Report on Form 8-K dated July 12, 1993.
10(f) Asset Purchase Agreement, dated as of January
11, 1996, by and among Astrosystems, Inc., and
Behlman electronics, Inc., Orbit International
Corp. and Cabot Court, Inc.. Incorporated by
reference to the Company's Current Report on
Form 8-K dated February 6, 1996.
10(g) Form of Agreement among Kenneth Freedman,
Frederick Meyers, The Panda Group, Inc. and
Orbit International Corp. dated March 28, 1996;
Form of Amended Promissory Note dated March 28,
1996; and Form of Warrant to Purchase 125,000
shares of Orbit International Corp. Common
Stock.
10(h) Form of Factoring Security and Loan Agreement,
dated August 4, 1995 between BNY Financial
Corporation - Canada, Canada Classique, Inc.,
Winnipeg Leather (1991), Inc. and Symax Garment
Co. (1993) Ltd.
21 Subsidiaries of Registrant.
(b) Reports on Form 8-K:
No reports on Form 8-K
have been filed during the last quarter
of the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirement 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, thereunder duly
authorized.
ORBIT INTERNATIONAL CORP.
Dated: March 29, 1996
By: /s/ Dennis Sunshine
Dennis Sunshine, President
and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ Dennis Sunshine
Dennis Sunshine
President, Chief
Executive Officer and
Director
March 29, 1996
/s/ Mitchell Binder
Mitchell Binder
Vice President-
Finance, Chief
Financial Officer and
Director
March 29, 1996
/s/ Bruce Reissman
Bruce Reissman
Executive Vice
President, Chief
Operating Officer and
Director
March 29, 1996
/s/ Harlan Sylvan
Harlan Sylvan
Treasurer,
Secretary and
Controller
March 29, 1996
/s/ Nathan A. Greenberg
Nathan A. Greenberg
Director
March 29, 1996
/s/ John Molloy
John Molloy
Director
March 29, 1996
/s/ Stanley Morris
Stanley Morris
Director
March 29, 1996
<PAGE>
EXHIBT INDEX
Exhibit No. Description of Exhibit
3 (a) Certification of Incorporation, as amended.
Incorporated by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991.
3 (b) By-Laws, as amended. Incorporated by reference to
Exhibit 3(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1988.
4(a) Orbit International Corp. 1995 Employee Stock
Option Plan. Incorporated by reference to Annex B
to the Company's definitive proxy statement dated
November 17, 1995.
4(b) Orbit International Corp. 1995 Stock Option Plan
for Non-Employee Directors. Incorporated by
reference to Annex C to the Company's definitive
proxy statement dated November 17, 1995.
10(a) Employment Agreement, dated July 1, 1992 between the
Company and Mitchell Binder. Incorporated by reference
to Exhibit 10(b) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1992.
10(b) Employment Agreement dated July 1, 1992 between the
Company and Bruce Reissman. Incorporated by reference to
Exhibit 10(c) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1992.
10(c) Employment Agreement dated July 1, 1992 between the
Company and Dennis Sunshine. Incorporated by reference
to Exhibit 10(d) to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1992.
10(d) Form of Indemnification Agreement between the Company
and each of its Directors. Incorporated by reference to
Exhibit 10(e) to the Company's Annual Report on Form 10-
K for the fiscal year ended June 30, 1988.
10(e) Asset Purchase Agreement, dated July 12, 1993, among the
Panda Group, Inc., Kenneth Freedman, Frederick Meyers
and Registrant. Incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated July
12, 1993.
10(f) Asset Purchase Agreement, dated as of January 11, 1996,
by and among Astrosystems, Inc., and Behlman
electronics, Inc., Orbit International Corp. and Cabot
Court, Inc.. Incorporated by reference to the Company's
Current Report on Form 8-K dated February 6, 1996.
10(g) Form of Agreement among Kenneth Freedman, Frederick
Meyers, The Panda Group, Inc. and Orbit International
Corp. dated March 28, 1996; Form of Amended Promissory
Note dated March 28, 1996; and Form of Warrant to
Purchase 125,000 shares of Orbit International Corp.
Common Stock.
10(h) Form of Factoring Security and Loan Agreement, dated
August 4, 1995 between BNY Financial Corporation -
Canada, Canada Classique, Inc., Winnipeg Leather (1991),
Inc. and Symax Garment Co. (1993) Ltd.
21 Subsidiaries of Registrant.
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FILED WITH THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
PART II:
REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
1995 AND DECEMBER 31, 1994
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993 AND FOR
THE YEAR ENDED JUNE 30, 1993
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994, FOR THE SIX MONTHS ENDED
DECEMBER 31, 1993 AND FOR THE YEAR ENDED JUNE 30,
1993
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994,
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993 AND FOR
THE YEAR ENDED JUNE 30, 1993
NOTES TO FINANCIAL STATEMENTS
PART IV:
SCHEDULE:
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
Other Part IV schedules are omitted because the information is
included elsewhere in the financial statements or the notes
thereto, or the conditions requiring the filing of such schedules
are not applicable.<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of
Orbit International Corp. and subsidiaries as at December 31, 1995
and December 31, 1994 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the
years ended December 31, 1995 and December 31, 1994, for the six
months ended December 31, 1993 and for the year ended June 30,
1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above
present fairly, in all material respects, the consolidated
financial position of Orbit International Corp. and subsidiaries at
December 31, 1995 and December 31, 1994 and the consolidated
results of their operations and their consolidated cash flows for
the years ended December 31, 1995 and December 31, 1994, for the
six-month period ended December 31, 1993 and for the year ended
June 30, 1993 in conformity with generally accepted accounting
principles.
New York, New York
March 21, 1996
With respect to Note B
paragraph
(4)
March 28, 1996<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
A
S S
E T S
1995
1994
(Note G)
<S>
<C>
<C>
Current assets:
Cash and cash equivalents
(Note A[2]) . . . . . . . . .
$ 2,274,000
$ 815,000
Investments in marketable
securities
(Notes
A[6],
G[4] and
R).
.
7,495,000
9,138,000
Accounts receivable (less
estimated doubtful
accounts of $1,576,000 at
December 31,
1995 and $769,000 at
December 31, 1994) . . . . . . .
854,000
5,277,000
Inventories (Notes A[3] and
D). . . . . . . . . . . . .
13,124,000
21,006,000
Other current assets. . . . .
1,669,000
1,191,000
Total current assets .
25,416,000
37,427,000
Property, plant and equipment -
at cost, less
accumulated depreciation and
amortization
(Notes A[4] and E). . . . . .
3,069,000
3,279,000
Excess of cost over the fair
value of assets
acquired
(less
accumulated
amortization of
$252,000 at December 31, 1995
and $1,093,000
at December 31,
1994)
(Note
A[5])
. . . . . . . . . .
834,000
12,129,000
Restricted cash investments
(Notes A[6], G[4] and R) . . .
7,567,000
7,805,000
Other assets (Notes A[7] and B).
347,000
2,871,000
Investments in marketable
securities
(Notes A[6], G[4] and R). . .
795,000
T O T A L. . . . . . .
$38,028,000
$63,511,000
L I A B I L I T I E S
Current liabilities:
Notes payable (Note G[2]) . .
$ 2,602,000
Current portion of long-term
obligations
(Notes B and G[1]).
. . . .
$ 2,292,000
3,096,000
Accounts payable. . . . . . .
3,860,000
3,734,000
Accrued
expenses (Note B)
. .
4,090,000
2,367,000
Due to factor . . . . . . . .
15,294,000
11,540,000
Total current
liabilities. . . . . . . . . . .
25,536,000
23,339,000
Long-term obligations (less
current portion)
(Notes
B and G[1]).
. . . . .
1,097,000
8,909,000
Other
liabilities (Note B)
. . .
2,077,000
Total liabilities. . .
28,710,000
32,248,000
Commitments and contingencies
(Notes B, F and J)
STOCKHOLDERS' EQUITY
(Notes G[3] and H)
Common stock - $.10 par value. .
877,000
877,000
Additional paid-in capital . . .
23,285,000
23,170,000
Retained earnings (deficit). . .
(4,026,000)
18,227,000
Less treasury stock, at cost . .
(9,588,000)
(9,520,000)
Less unearned portion of
compensatory stock. . . . . . .
(148,000)
Foreign currency translation
adjustment. . . . . . . . . . .
(1,230,000)
(1,343,000)
Total stockholders'
equity . . . . . . . . . . . . .
9,318,000
31,263,000
T O T A L. . . . . . .
$38,028,000
$63,511,000
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended
Ended
Year Ended
December 31,
December 31,
June 30,
1995
1994
1993
1993
<S>
<C>
<C>
<C>
<C>
Net sales (Notes A[7] and C).
. . . . . . . . . . . . .
$ 58,234,000
$ 57,830,000
$42,819,000
$ 73,545,000
Cost of sales . . . . . . . .
. . . . . . . . . . . . .
53,055,000
47,401,000
33,467,000
54,210,000
Gross profit. . . . . . . . .
. . . . . . . . . . . . .
5,179,000
10,429,000
9,352,000
19,335,000
Other (income), costs and
expenses:
Selling, general and
administrative. . . . . . . .
.
19,807,000
15,911,000
7,391,000
16,908,000
Interest . . . . . . . . .
3,008,000
1,468,000
976,000
1,064,000
Investment and other
income. . . . . . . . . . . .
(4,999,000)
(2,015,000)
(1,482,000)
(1,312,000)
Write-off of excess of
cost over fair value of
assets acquired and
other intangible assets
(net of purchase price
adjustment of $3,436,000)
(Note B) . . . . . . . .
9,780,000
Gain arising from sale of
stock by subsidiary
(Note N) . . . . . . . .
(13,738,000)
Equity in (earnings) loss
of and write-down/write-
off of investment in
affiliate (Notes A[1] and N).
13,987,000
8,386,000
(73,000)
27,596,000
29,351,000
15,271,000
2,849,000
Earnings (loss) before taxes
and cumulative effect of
a change in accounting
principle . . . . . . . . . .
(22,417,000)
(18,922,000)
(5,919,000)
16,486,000
Taxes (benefit) on income
(Notes A[8] and K). . . . . .
(164,000)
(1,927,000)
(2,174,000)
5,894,000
Earnings (loss) before
cumulative effect of a change
in accounting principle. .
. . . . . . . . . . . . .
(22,253,000)
(16,995,000)
(3,745,000)
10,592,000
Cumulative effect of a change
in accounting principle
(Note O) . . . . . . . . .
. . . . . . . . . . . . .
643,000
NET EARNINGS (LOSS) . . . . .
. . . . . . . . . . . . .
$(22,253,000)
$(16,995,000)
$(3,745,000)
$ 11,235,000
Earnings (loss) per share
(Note L):
Earnings (loss). . . . . .
. . . . . . . . . . . . .
$(3.78)
$(2.75)
$(.57)
$1.59
Cumulative effect of a
change in accounting
principle (Note O) . . .
. . . . . . . . . . . . .
.10
NET EARNINGS (LOSS) . . . . .
. . . . . . . . . . . . .
$(3.78)
$(2.75)
$(.57)
$1.69
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Stock
25,000,000 Shares
Authorized
Number of
Additional
Retained
Shares
Paid-in
Earnings
Issued
Amount
Capital
(Deficit)
<S>
<C>
<C>
<C>
<C>
Balance - June 30,
1992. . . . . . .
11,714,000
$1,171,000
$32,323,000
$ 27,732,000
Exercise of stock
options. . . . . .
9,000
1,000
41,000
Compensatory stock
earned. . . . . .
Compensation
attributable to stock
options . . . . .
231,000
Foreign currency
translation
adjustment. . . .
Net earnings for the
year. . . . . .
11,235,000
Balance - June 30,
1993. . . . . . .
11,723,000
1,172,000
32,595,000
38,967,000
Purchases of treasury
stock. . . . .
Compensatory stock
earned. . . . . .
Compensation
attributable to stock
options . . . . .
115,000
Foreign currency
translation
adjustment. . . .
Net (loss) for the
six months
ended December 31,
1993 . . . . .
(3,745,000)
Balance - December
31, 1993. . . . .
11,723,000
1,172,000
32,710,000
35,222,000
Purchases of treasury
stock. . . . .
Compensatory stock
earned. . . . . .
Compensation
attributable to stock
options . . . . .
231,000
Foreign currency
translation
adjustment. . . .
Retirement of
treasury shares. . .
(2,952,000)
(295,000)
(9,771,000)
Net (loss) for the
year ended
December 31, 1994
(16,995,000)
Balance - December
31, 1994. . . . .
8,771,000
877,000
23,170,000
18,227,000
Purchases of treasury
stock. . . . .
Compensatory stock
earned. . . . . .
Compensation
attributable to stock
options . . . . .
115,000
Foreign currency
translation
adjustment. . . .
Net (loss) for the
year ended
December 31, 1995
(22,253,000)
BALANCE - DECEMBER
31, 1995
8,771,000
$ 877,000
$23,285,000
$ (4,026,000)
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned Portion of
Treasury Stock
Compensatory Stock
Foreign
Number
Number
Currency
of
of
Translation
Shares
Amount
Shares
Amount
Adjustment
<S>
<C>
<C>
<C>
<C>
<C>
Balance - June 30,
1992. . . . . . .
5,087,000
$ 16,977,000
138,000
$ 884,000
$ (255,000)
Exercise of stock
options. . . . . .
Compensatory stock
earned. . . . . .
(46,000)
(294000)
Compensation
attributable to stock
options . . . . . .
Foreign currency
translation
adjustment. . . . .
(429,000)
Net earnings for the
year. . . . . .
Balance - June 30,
1993. . . . . . .
5,087,000
16,977,000
92,000
590,000
(684,000)
Purchases of treasury
stock. . . . .
229,000
1,129,000
Compensatory stock
earned. . . . . .
(23,000)
(148,000)
Compensation
attributable to stock
options . . . . . .
Foreign currency
translation
adjustment. . . . .
(246,000)
Net (loss) for the six
months
ended December 31,
1993 . . . . .
Balance - December 31,
1993. . . . .
5,316,000
18,106,000
69,000
442,000
(930,000)
Purchases of treasury
stock. . . . .
480,000
1,480,000
Compensatory stock
earned. . . . . .
(46,000)
(294,000)
Compensation
attributable to stock
options . . . . . .
Foreign currency
translation
adjustment. . . . .
(413,000)
Retirement of treasury
shares. . . .
(2,952,000)
(10,066,000)
Net (loss) for the
year ended
December 31, 1994 .
Balance - December 31,
1994. . . . .
2,844,000
9,520,000
23,000
148,000
(1,343,000)
Purchases of treasury
stock. . . . .
41,000
68,000
Compensatory stock
earned. . . . . .
(23,000)
(148,000)
Compensation
attributable to stock
options . . . . . .
Foreign currency
translation
adjustment. . . . .
113,000
Net (loss) for the
year ended
December 31, 1995 .
BALANCE - DECEMBER 31,
1995
2,885,000
$ 9,588,000
- 0 -
$ - 0 -
$(1,230,000)
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial statements.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended
Ended
Year Ended
December 31,
December 31,
June 30,
<S>
1995
<C>
1994
<C>
1993
<C>
1993
<C>
Cash flows from operating
activities:
Net earnings (loss) . . .
$(22,253,000)
$(16,995,000)
$ (3,745,000)
$ 11,235,000
Adjustments to reconcile
net earnings (loss) to net
cash provided by (used in)
operating
activities:
Inventory reserves. .
4,500,000
Deferred compensation
801,000
Provision for
doubtful accounts . . . . .
798,000
(85,000)
66,000
126,000
Depreciation and
amortization . . . . . . . .
398,000
521,000
262,000
457,000
Write-off intangible
assets . . . . . . . . . . .
9,780,000
Cumulative effect of
a change in accounting
principle . . . . . . . . .
(643,000)
Gain arising from
sale of stock by subsidiary
(13,738,000)
Earnings of
subsidiary prior to
divestiture of controlling
interest . . . . . . . . . .
(1,622,000)
Equity in earnings
(loss) of and
writedown
of
investment in affiliate . .
13,987,000
8,386,000
(73,000)
Charges to affiliate.
(1,704,000)
Amortization and
write-off of goodwill. . . .
58,000
671,000
337,000
56,000
Deferred tax
(benefit). . . . . . . . . .
(2,115,000)
(2,796,000)
5,179,000
Compensatory issuance
of stock and options. . . .
262,000
525,000
262,000
525,000
Gain on Sale of
marketable securities. . . .
(173,000)
Change in value of
marketable securities. . . .
(222,000)
(222,000)
25,000
Imputed interest on
acquisition note. . . . . .
213,000
274,000
Purchases of
marketable securities. . . .
(24,229,000)
(24,594,000)
Proceeds of sales of
marketable securities. . . .
25,710,000
22,122,000
Gain on sale of fixed
assets. . . . . . . . . . .
(79,000)
Write-off of fixed
assets . . . . . . . . . . .
144,000
Changes in operating
assets and liabilities, net
of effects from acquisitions
of
businesses in 1993:
(Increase)
decrease in accounts
receivable. . . . . . . . .
3,729,000
(192,000)
(2,258,000)
412,000
Decrease
(increase) in inventories. .
3,465,000
(6,036,000)
7,475,000
2,497,000
(Increase)
decrease in prepaid and
refundable taxes . . . . . .
168,000
(168,000)
(432,000)
(Increase) in
other assets. . . .
(4,000)
641,000
207,000
282,000
Increase
(decrease) in accounts
payable . . . . . . . . . .
165,000
(784,000)
482,000
(416,000)
(Decrease)
increase in accrued expenses
1,881,000
(1,597,000)
(344,000)
88,000
(Decrease)
increase in income taxes
payable . . . . . . . . . .
(245,000)
188,000
180,000
Net cash
provided by (used in)
operating activities . . . .
4,699,000
(13,523,000)
8,371,000
2,229,000
Cash flows from investing
activities:
Purchases of marketable
securities. . . . . . . . .
(17,930,000)
(36,310,000)
Proceeds of sales of
marketable securities. . . .
15,901,000
26,030,000
Acquisitions of fixed
assets. . . . . . . . . . .
(455,000)
(611,000)
(96,000)
(139,000)
Purchase of net assets of
acquired companies. . . . .
(9,122,000)
(615,000)
Decrease in other assets.
0
0
0
0
Proceeds on sale of fixed
assets. . . . . . . . . . .
216,000
479,000
Acquisition costs related
to purchase of businesses .
(27,000)
(37,000)
(198,000)
Collections of affiliate
advances . . . . . . . . . .
167,000
18,380,000
Proceeds from sales of
affiliates stock . . . . . .
523,000
Net cash
provided by (used in)
investing activities . . . .
(239,000)
(159,000)
(11,117,000)
7,671,000
Cash flows from financing
activities:
Repayments of debt. . . .
(7,079,000)
(5,746,000)
(5,218,000)
(1,817,000)
Proceeds of debt. . . . .
395,000
5,214,000
5,000,000
Increase (decrease) in
due to factor. . . . . . . .
3,754,000
11,086,000
(1,555,000)
Proceeds from exercise of
stock options . . . . . . .
42,000
Purchase of treasury
stock. . . . . . . . . . . .
(68,000)
(1,480,000)
(1,129,000)
Net cash (used
in) financing activities . .
(2,998,000)
9,074,000
(2,902,000)
(1,775,000)
Effect of exchange rate
changes on cash. . . . . . .
(3,000)
(24,000)
6,000
48,000
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS .
1,459,000
(4,632,000)
(5,642,000)
8,173,000
Cash and cash equivalents -
beginning of period. . . . .
815,000
5,447,000
11,089,000
2,916,000
CASH AND CASH EQUIVALENTS -
END OF PERIOD. . . . . . . .
$ 2,274,000
$ 815,000
$ 5,447,000
$ 11,089,000
(continued)
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Six Months
Year Ended
Ended
Year Ended
December 31,
December 31,
June 30,
1995
1994
1993
1993
Supplemental disclosures of
cash flow information:
Cash paid for:
Interest. . . . . . .
$2,994,000
$ 1,392,000
$ 708,000
$ 652,000
Income taxes (net of
refunds of $115,000,
$444,000, $24,000 and
$594,000 received for the
year ended
December 31, 1995,
December 31, 1994 and
June 30, 1993,
respectively). . . . . .
(85,000)
(268,000)
436,000
538,000
Supplemental schedule of
noncash investing and
financing activities:
[1] In February 1993, the Company, through a wholly owned subsidiary, Symax
Garment Co. (1993) Ltd., acquired the operating assets of
Symax
Garment Co. (1989) Ltd. The fair value of the net assets as of the date
of acquisition is presented below:
Inventories. . .
$ 158,000
Accounts
receivable. . . . . . . . .
99,000
Property, plant
and equipment. . . . . . .
84,000
Excess of cost
over the fair value of
assets acquired. . . . . .
277,000
Other - net. . .
(3,000)
Net
assets acquired. . . . . .
$ 615,000
[2] In July 1993, the Company acquired substantially all of the assets and the
business of The Panda Group, Inc. The fair value of their assets
and liabilities as of the date of acquisition are presented below:
Inventories. . .
$ 5,234,000
Accounts
receivable. . . . . . . . .
247,000
Prepaid and other
current assets . . . . . .
15,000
Property, plant
and equipment. . . . . . .
136,000
Excess of cost
over the fair value of
assets acquired. . . . . .
12,292,000
Noncompetition
agreements. . . . . . . . .
2,000,000
Other long-term
assets . . . . . . . . . .
64,000
Accounts payable
(2,306,000)
Due to factor. .
(2,009,000)
Accrued expenses
and other current
liabilities . . . . . . . .
(143,000)
Note payable to
sellers at acquisition . .
(6,408,000)
Net
assets acquired. . . . . .
$ 9,122,000
</TABLE>
Attention is directed to the foregoing accountants' report and
to the accompanying notes to financial
statements.
<PAGE>
(NOTE A) - The Company and Summary of Significant Accounting
Policies:
[1] The consolidated financial statements include the accounts
of Orbit International Corp. (the Parent ) and its subsidiaries
(collectively, the
"Company"). All significant intercompany
transactions have been eliminated in consolidation. Consolidated
operations include the operations of USA Classic, Inc. ("Classic" or
"affiliate") through November 1992, at which date Classic sold stock
to the public, reducing the Company's equity interest in Classic to
less than 50%. Thereafter the Company's investment in Classic is
accounted for under the equity method (Note N). The Company's fiscal
year end for financial reporting purposes is December 31.
The Company is engaged in the import and manufacture of
men's and women's garments. It is also engaged in the design,
manufacture and sale of customized electronic components (see Note
M).
[2] For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
[3] Inventories are valued at the lower of cost (first-in,
first-out) or market price.
Cost of inventory represents the aggregate cost of direct
materials, direct labor and manufacturing overhead. The manufacturing
overhead included in the inventories is based on the ratio of
manufacturing expenses to direct labor for each period.
[4] Property, plant and equipment are stated at cost.
Depreciation and amortization of the respective assets are computed
using the straight-line method over their estimated useful lives.
Leasehold improvements are amortized using the straight-line method
over the remaining life of the lease.
[5] Excess of cost over the fair value of net assets of
businesses acquired is being amortized on a straight-line basis over
twenty years.
[6] In January 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). This
standard requires the Company to classify its investments as held-to-
maturity, available for sale, or trading. The Company classified all
<PAGE>
(NOTE A) - The Company and Summary of Significant
Accounting Policies: (continued)
[6] (continued)
of its securities as trading securities and were carried at fair value
through December 30, 1995. At December 30, 1995, the Company
transferred all of its securities from trading securities to
available-for-sale securities. Available-for-sale securities are
carried at fair value, with the unrealized gains and losses, net of
income taxes, reported as a separate component of stockholders
equity. The cost of securities sold is based on the specific
identification method. The change in how the Company classifies its
securities had no significant impact on the Company's financial
statements.
[7] The Company records sales upon delivery for manufacturing
contracts and upon completion of work for engineering contracts;
however, in certain instances, the Company ships products to its major
customer prior to the issuance of final purchase orders. Therefore,
certain of the prices may be subject to adjustment when the customer
has completed its review of all elements of the letter subcontract
which is issued to the Company prior to the issuance of the purchase
order. The Company provides for such adjustments, where appropriate.
[8] During the six-month period ended December 31, 1993, the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ( SFAS 109 ). Under SFAS 109, deferred
income taxes are accounted for based on temporary differences between
amounts of assets and liabilities for financial accounting and
income
tax
reporting. Adoption of this statement had no material effect on
the Company's results of operations or financial position.
[9] The Company accounts for its foreign operations in
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Assets and liabilities are translated
at period-end exchange rates. Income and expense items are translated
using average exchange rates during the period. Foreign currency
translation adjustments are not included in determining net income but
are reported as a separate component of stockholders' equity.
<PAGE>
(NOTE A) - The Company and Summary of Significant
Accounting Policies: (continued)
[10] The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
[11] In 1995, the Corporation adopted Statement of Financial
Accounting Standards ( SFAS ) 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to
be
Disposed
of
( SFAS
121"). This standard specifies when assets should be reviewed for
impairment, how to determine if an asset is impaired, how to measure
an impairment loss, and what disclosures are necessary in the
financial statements. The effect of adopting SFAS 121 is not
considered significant.
[12] In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ( SFAS No. 123"). SFAS No. 123 is
effective for financial statements for fiscal years beginning after
December 15,
1995,
and encourages all entities to adopt a fair value
based method of accounting for stock-based compensation plans in which
compensation cost is measured at the date the award is granted based
on the value of the award and is recognized over the employee service
period. However, SFAS No. 123 allows an entity to continue to use the
intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ( APB No.
25"). The Company has not yet determined what the effects of adopting
SFAS No. 123 would be on its financial statements
and,
therefore,
has
not decided whether to adopt SFAS 123 or to continue to account for
stock-based
compensation in accordance with APB No. 25.
[13] Except for the estimated fair value amounts presented in
Note R, the Company considers the carrying amounts presented for
financial instruments on the consolidated balance sheet to be the
lower of cost or reasonable approximations of fair value.
Considerable judgement is necessarily required in interpreting market
date to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the
Company could realize in a current market transaction.
<PAGE>
(NOTE B) - Acquisitions:
On July 12, 1993 the Company completed the acquisition of
substantially all of the assets and the business of The Panda Group,
Inc. ("Panda" or "East/West") which is engaged in the design,
importation and sale of women's activewear and outerwear, principally
under the label "East/West." East/West is operated as a division of
the Company (the "Division"). This acquisition was accounted for as a
purchase.
Pursuant to an asset purchase agreement (the "Purchase
Agreement"), dated July 12, 1993, among the Company, Panda and the
selling shareholders, the Company acquired substantially all of the
assets of Panda for (i) $7,000,000 in cash, (ii) a secured promissory
note to the sellers in the face amount of $8,000,000 (Note G[1]), and
(iii) the assumption of certain liabilities of Panda by the Company.
The selling shareholders also entered into a noncompetition
agreement for consideration of an aggregate of $2,000,000 in cash and
the Company's offer of employment under the employment agreements.
During the quarter ended September 30, 1995, the Company
reevaluated this acquisition and wrote-off $13,216,000 representing
the excess of the purchase price of Panda over the fair value of the
assets acquired.
On March 28, 1996, the Company entered into an agreement with the
sellers of Panda whereby the purchase price for the assets under the
original purchase
agreement dated July 12, 1993 was reduced by
$3,436,000.
In connection with this agreement, a promissory note
payable to the sellers in the amount of $7,088,000 was cancelled and
replaced with a new promissory note with a net present value
of
$1,535,000
and certain other consideration amounting to $2,117,000.
As a result, the prior write-off of $13,216,000 of excess of cost over
the fair value of assets acquired and other intangible assets was
reduced by $3,436,000. These financial statements give retroactive
effect to this transaction.
The purchase price adjustment and the cancellation of the
noncompete agreement were the culmination of negotiations entered into
during the year ended December 31, 1995.
Therefore,
the effects of
the purchase price adjustment were recorded in the December 31, 1995
financial statements.
On February 23, 1993, the Company acquired through a wholly owned
subsidiary, Symax Garment Co. (1993) Ltd. ("Symax"), the operating
assets of Symax Garment Co. (1989) Ltd., a manufacturer of private
label men's outerwear located in Vancouver, British Columbia, Canada.
The purchase price for the assets consisted of a cash payment of
approximately $615,000. The acquisition has been accounted for as a
purchase.<PAGE>
(NOTE B) - Acquisitions: (continued)
Had the acquisitions of Symax and Panda been made on July 1, 1992
(unaudited) pro forma sales, earnings and earnings per share from
continuing operations would have been $113,105,000, $11,583,000 and
$1.74 per share, respectively, for the year ended June 30, 1993.
(NOTE
C) - Major Customer:
One major customer, which, in turn, sells its products to the
United States government, accounted for approximately $6,353,000
(11%), $8,141,000 (14%), $4,504,000 (11%) and $7,846,000 (11%) of the
net consolidated sales for the years ended December 31, 1995 and
December 31, 1994, for the six months ended December 31, 1993 and for
the year ended June 30, 1993, respectively. Another customer
accounted for $4,245,000 (10%) of the net consolidated sales for the
six months ended December 31,
1993.
(NOTE
D) - Inventories:
Inventories comprise the following:
December 31,
1995 1994
Raw materials. . . . . . $ 1,594,000 $ 1,902,000
Work in process. . . . . 4,756,000 5,697,000
Finished goods . . . . . 6,774,000 13,407,000
T o t a l. . . $13,124,000 $21,006,000
(NOTE E) - Property, Plant and Equipment:
Property, plant and equipment are summarized as follows:
December 31,
1995 1994
<TABLE>
<S> <C> <C>
Land and building . . . . . . . . . $2,688,000 $2,888,000
Building and leasehold improvements 599,000 494,000
Machinery and equipment . . . . . . 1,418,000 1,940,000
Furniture and fixtures. . . . . . . 937,000 477,000
T o t a l . . . . . . . . 5,642,000 5,799,000
Accumulated depreciation
and amortization . . . . . . . . 2,573,000 2,520,000
B a l a n c e . . . . . . $3,069,000 $3,279,000
/TABLE
<PAGE>
(NOTE F) - Leasing Arrangements:
Operating leases are for office, showroom, warehouse and
manufacturing facilities and are subject to annual increases based on
changes in the Consumer Price Index and increases in real estate taxes
and certain operating expenses.
Future minimum lease payments as at December 31, 1995 under
operating lease agreements that have initial or remaining
noncancellable lease terms in excess of one year are as follows:
Year Ending
December 31,
1996. . . . . . . . . . . . . . .
$1,002,000
1997. . . . . . . . . . . . . . .
953,000
1998. . . . . . . . . . . . . . .
894,000
1999. . . . . . . . . . . . . . .
622,000
Thereafter. . . . . . . . . . . .
213,000
Total minimum lease
payments . . . . . .
$3,684,000
Operating lease rent expense for the years ended December 31,
1995 and December 31, 1994, for the six months ended December 31, 1993
and for the year ended June 30, 1993 was $1,170,000, $1,100,000,
$452,000 and $813,000, respectively.<PAGE>
(NOTE G) - Debt:
[1] Long-term obligations consist of the following:
<TABLE>
December 31,
1995 1994
<S> <C> <C>
Term loan collateralized by $1,120,000
of treasury bills (1995), inventories,
accounts receivable and general tangibles
of the electronic subsystems division,
bearing interest at LIBOR (5.875% at
December 31, 1995) plus .75%, balance
paid in January 1996. $1,000,000 $ 3,000,000
Promissory note to the sellers of Panda
collateralized by the operating assets
of the Company s East/West division
(face amount $8,000,000) - effective
interest at 4.15% at December 31, 1994
and deemed cancelled on December 31, 1995
pursuant to the
purchase price adjustment
(Note B paragraph 4) . . . . . . . . . . 6,875,000
Promissory note payable to the sellers of
Panda in connection with purchase price
adjustment (Note B paragraph 4) (face
amount
$1,850,000)
- noninterest bearing,
imputed interest at 6% payable in one
installment of $500,000 on March 28, 1996,
two installments of $250,000 on July 1, 1996
and January 1, 1997 and twenty quarterly
installments of $42,500 commencing
March 31, 2002 . . . . . . . . . . . . . . 1,535,000
Term loan collateralized by certain real
estate of the electronic subsystems
division, bearing interest at LIBOR
(5.875% at December 31, 1995) plus .75%
(floating), payable in $250,000 quarterly
installments through April 1, 1996 . . . . 250,000 1,250,000
Amount due to the estate of the principal
officer payable in monthly installments
through February 1998. . . . . . . . . . . 604,000
Term loan collateralized by certain
treasury bills held by the Company
bearing interest at LIBOR (6.13% at
December 31 1994) plus .75%, payable
in $232,500 quarterly installments through
November 1, 1995 . . . . . . . . . . . . . 650,000
Subordinated debt (face amount $239,000
and $716,000) - imputed interest at 15%. . 230,000
T o t a l . . . . . . . . . . . . 3,389,000 12,005,000
Less current portion. . . . . . . . . . . . 2,292,000 3,096,000
Noncurrent portion. . . . . . . . . . . . . $1,097,000 $ 8,909,000
/TABLE
<PAGE>
(NOTE G) - Debt: (continued)
[1] (continued)
Payments due on the Company s long-term debt (Note B
paragraph 4) at December 31, 1995 are as follows:
Year Ending
December 31,
1996 . . . . . . . . . . . $2,292,000
1997 . . . . . . . . . . . 517,000
1998 . . . . . . . . . . . 45,000
1999 . . . . . . . . . . . - 0 -
2000 . . . . . . . . . . . - 0 -
Thereafter . . . . . . . . 535,000
T o t a l. . . . $3,389,000
[2] Short-term notes payable aggregated $2,602,000 at
December 31, 1994.
In August 1995 Canada Classique, Inc. ( CCI ), Winnipeg
Leather ( Winnipeg ) and Symax, wholly owned subsidiaries, entered
into a new factoring arrangement with a bank. The new arrangement
provides for borrowings of up to C$7,000,000 (US$5,130,000) based on
eligible accounts receivable. All receivables factored under this
arrangement are sold with recourse. Advances received are payable
with interest at the bank s prime rate (8.4% at December 31, 1995)
plus .75%.
During the year ended December 31, 1995 gross proceeds
received from the sale of factored accounts receivable amounted to
C$7,359,000. In addition, C$3,640,000 of accounts receivable sold
with recourse remains uncollected. This facility is collateralized by
the inventory and accounts receivable of the subsidiaries. As
security for its obligations under this facility, the Company has
provided the lender with a $3,000,000 standby letter of credit.
CCI had a C$6,000,000 (US$4,276,000) revolving credit
facility with a bank in Canada which provided for increases of up to
C$12,000,000 (US$8,552,000) during peak periods of production during
the year (as defined). The interest rate on the primary facility was
at the bank's prime lending rate (8% at December 31, 1994) plus .25%
and during peak production, the prime rate plus .50% on the first
C$5,000,000 of borrowings and prime rate plus .75% on any amounts
borrowed above C$5,000,000. Borrowings under this facility amounted
to C$3,146,000 (US$2,242,000) at December 31, 1994. The facility was
collateralized by substantially all the assets of CCI.
<PAGE>
(NOTE G) - Debt: (continued)
[2] (continued)
At December 31, 1994, Winnipeg Leather had a C$1,600,000
(US$1,140,000) revolving credit facility with a bank in Canada bearing
interest at the bank's prime rate (8% at December 31, 1994) plus .75%
collateralized by substantially all the assets of Winnipeg Leather.
Borrowings under this facility amounted to C$506,000 (US$360,000) at
December 31, 1994.
Both of the lending facilities of CCI and Winnipeg Leather
expired on December 31, 1993. The bank continued to lend to the
companies under the same terms as the expired facilities through 1995.
These facilities were repaid with funds received from the new
factoring arrangement entered into August 1995.
[3] Under the various debt agreements, the Company must comply
with certain covenants which require them to maintain minimum balances
of cash and cash equivalents and minimum levels of working capital,
and tangible net worth at all times. The Company is also precluded
from declaring and paying dividends without the consent of such
lenders. The Company was in violation of certain covenants at
December 31, 1995. However, subsequent to December 31, 1995, the
Company repaid all existing debt subject to these financial covenants.
[4] In July 1993 East/West entered into a restated and amended
factoring agreement with the Company's primary lender. Advances by
the factor prior to the maturity date of receivables sold bear
interest at prime plus 1.50%. As security for its obligations under
such amended facility, the Company has pledged approximately
$6,150,000 of its marketable securities.
In September 1994, East End (a wholly owned subsidiary)
entered into a factoring agreement with the Company s primary lender
under the same terms and conditions as East/West. The facility is
guaranteed by the Company and as security for its obligations under
such facility, the Company pledged approximately $2,500,000 of its
marketable securities. In January and February 1996, the Company used
approximately $1,700,000 of its marketable securities to reduce the
amount owed under the facility.<PAGE>
(NOTE H) - Capital Stock, Options and Warrants:
Under the Company's stock option plans, options for the purchase
of the Company's common stock may be issued to officers, directors and
key employees at prices and terms determined by the Board of
Directors. The exercise price of certain options held by officers and
employees may be paid in full or in part by shares of stock of the
Company. Certain options may be exercised with a ten-year unsecured
note and others may be exercised in part with one-year notes.
A summary of activity related to the Company's stock option plans
is as follows:
<TABLE>
<CAPTION>
Number
Number of Options Price of Shares
Shares Per Share Exercisable
<S> <C> <C> <C>
Outstanding at June 30,
1992 . . . . . . . . 896,000 $4.50 - $5.50 896,000
Exercised . . . . . . . (9,000) $4.50 - $5.50
Cancelled
. . . . . . . (6,000) $4.50
Outstanding at June 30,
1993 . . . . . . . . 881,000 $4.50 - $5.50 881,000
Granted . . . . . . . . 50,000 $5.125
Cancelled
. . . . . . . (31,000) $4.50 - $4.875
Outstanding at
December 31, 1993. . 900,000 $4.75 - $5.50 850,000
Granted . . . . . . . . 965,000 $3.125
Cancelled
. . . . . . . (900,000) $4.75 - $5.50
Outstanding at
December 31, 1994. . 965,000 $3.125 - 0 -
Granted . . . . . . . . 1,002,000 $1.25
Cancelled
. . . . . . . (1,018,000) $1.25 - $3.125
Outstanding at
December 31, 1995. . 949,000 $1.25 - 0 -
</TABLE>
At December 31, 1995 options for the purchase of 551,000 shares
were available for future grant.
(NOTE I) - Employee Benefit Plans:
A profit-sharing and incentive-savings plan provides benefits to
certain employees who meet specified minimum service and age
requirements. The plan provides for contributions by the Company
equal to one-half of employee contributions (but not more than 2% of
eligible compensation), and the Company may make additional
contributions out of current or accumulated net earnings at the sole
discretion of the Company's Board of Directors.
<PAGE>
(NOTE I) - Employee Benefit Plans: (continued)
The Company contributed $185,000, $312,000, $96,000 and $184,000,
to the plans for the years ended December 31, 1995 and December 31,
1994, for the six months ended December 31, 1993 and for the year
ended June 30, 1993,
respectively.
(NOTE
J) - Commitments and Contingencies:
[1] Employment contracts, certain of which may be terminated by
the Company on not less than three years prior notice and others
expiring in 1996 with certain officers of the Company and its
subsidiaries,
provide for minimum annual compensation of $1,593,000.
Key officers are entitled to bonuses aggregating 5% of consolidated
earnings before taxes, as defined, up to $5,000,000 and 7.5%
thereafter. In the event of a change in control of the Company,
certain officers have the right to elect a lump sum payment
representing future compensation due them over the remaining years of
their contracts.
[2] A substantial portion of the revenues of the electronic
subsystems division is subject to audit by U.S. government agencies.
In the opinion of management, adjustments to such revenues, if any,
will not have a material effect on the Company's financial position.
[3] At December 31, 1995, the Company had letters of credit
outstanding
totalling
approximately $1,169,000.
[4] The Company sells the majority of its apparel products to
department stores, mass merchandisers and specialty stores. A major
customer of its electronic subsystems division sells the Company's
products to the United States government (see Note C). The Company
maintains its cash and money market accounts principally at two banks.
The majority of the Company's investments are in United States
Treasury bills, and various municipal and corporate bonds.
[5] On September 23, 1993, a class action was commenced by an
alleged shareholder of USA Classic (formerly a subsidiary of the
Company), against USA Classic and certain of its directors in the
United States District Court for the Southern District of New York.
The action was commenced on behalf of shareholders, other than the
defendants, who acquired their shares from November 20, 1992, the date
of the initial offering, through September 22, 1993, and alleges
violations of the Securities Act of 1933 in connection with the
offering as well as violations of Section
10b
of the Securities
Exchange Act of 1934. The plaintiffs are seeking compensatory damages
as well as fees and expenses.
<PAGE>
(NOTE J) - Commitments and Contingencies: (continued)
[5] (continued)
On February 1, 1994, a Consolidated Amended Complaint was
filed in the class action. The amended Complaint adds the Company as
a defendant and alleges that the Company is a "controlling person" of
USA Classic and an "aider and abetter" of the alleged violations of
the securities laws. The Amended Complaint was answered on March 21,
1994. The class action has been stayed against USA Classic as a
result of its filing for protection for relief under Chapter 11 of the
Bankruptcy Code.
On October 4, 1994, a Second Amended and Consolidated
Complaint was filed in the class action. The Second Amended and
Consolidated Complaint restated the allegations against the Company
and added Paine Webber Incorporated and Ladenburg Thalmann & Co. Inc.,
the lead underwriters in the Offering, as additional defendants. On
November 15, 1994, the Company and such underwriters moved to dismiss
certain of the allegations in the Second Amended and Consolidated
Complaint. On June 16, 1995, the motion for dismissal was denied in
its entirety. On March 8, 1995, the plaintiff s representatives filed
a motion for class certification. Since that date, the parties have
been conducting depositions and reviewing documents relevant to issues
of class certification. It is estimated that discovery in this matter
will continue throughout 1996. The Company plans to continue to
vigorously defend against this action.
[6] In December 1995, a former officer of a subsidiary of the
Company commenced an action against the Company in connection with his
termination. The complaint alleges that he was wrongfully terminated
in violation of his employment agreement with the Company. In
February 1996, the Company answered the complaint and issued a
counterclaim
against the officer and his counsel. The Company intends
to vigorously defend all claims and to prosecute the counterclaims.
[7] In December 1995, a supplier of the Company s subsidiary
commenced an action for goods received and related equitable relief
against both the subsidiary and the Company. In March 1996, the
Company answered the complaint asserting counterclaims against the
supplier. While the Company contests the allegations set forth in the
complaint, in an effort to avoid litigation costs, the Company is
engaging in negotiations to resolve the dispute with the supplier.
Should negotiations prove to be unsuccessful, the Company intends to
vigorously defend this action and prosecute its counterclaims.
<PAGE>
(NOTE J) - Commitments and Contingencies: (continued)
[8] The Company is partially self insured for its employee
medical insurance for a maximum out-of-pocket cost of $67,000 per
employee in each plan year. Actual claims paid by the Company
amounted to approximately $300,000 and $400,000 in 1995 and 1994,
respectively. Accrued expenses includes a reserve for health
insurance claims of approximately $200,000 at December 31, 1995 and
December 31, 1994.
(NOTE K) - Income Taxes:
[1] The provision (benefit) for income taxes is comprised of the
following:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . $ - 0 - $ - 0 - $ 155,000 $ 573,000
Foreign and state . . (164,000) 188,000 467,000 142,000
Deferred:
Federal . . . . . . . - 0 - (1,823,000) (2,956,000) 5,058,000
Foreign and state . . - 0 - (292,000) 160,000 121,000
T o t a l. . . . $(164,000) $(1,927,000) $(2,174,000) $5,894,000
</TABLE>
[2] Expected tax expense (benefit) based on the statutory rate
is reconciled with actual tax expense for continuing operations as
follows:
<TABLE>
<CAPTION>
Percent of Pre-Tax Earnings (Loss)
From Continuing Operations
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
"Expected" tax expense
(benefit). . . . . . . (34.0)% (34.0)% (34.0)% 34.0 %
Increase (reduction)
in taxes resulting from:
Foreign and state income
tax, net of federal
income tax benefit . . 3.2 (.3) 8.7 1.4
Nondeductible items . . 1.3 1.3 1.8 .7
Tax exempt interest and
dividend income . . . (.7)
(.1)
Nontaxable
life insurance
proceeds.
. . . . . . . (6.7)
Utilization
of net
operating
losses. .
. .
(14.4)
Nonutilization
of net
operating and
capital
loss carryforwards and
carrybacks (Note K[4]). 35.0 22.1 1.5
Utilization
of tax
credits .
. . . .
. .
. (.2) (3.3)
Utilization
of capital
loss
carryforward . . .
(.4) (.2)
Other. .
. . . . . . . .
.5 .7 2.5 1.8
(.7)% (10.2)% (36.7)% 35.8 %
/TABLE
<PAGE>
(NOTE K) - Income Taxes: (continued)
[3] Deferred tax (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
State
deferred tax
expense net of
federal deferred
tax. . . . . . .
$
(720,000) $ (192,000) $ 160,000 $ 52,000
Utilization of
the percentage
of completion
method of revenue
recognition for
tax purposes. . . 66,000
Provision for
doubtful accounts
and certain
expenses
attributable to
inventory under
the Tax Reform
Act of 1986 . . .
(270,000)
88,000 57,000
(153,000)
Utilization of
accelerated
methods of
depreciation for
tax purposes. . . (275,000)
(236,000) 224,000 (340,000)
Compensation
attributable to
stock options . .
(39,000) (79,000) (39,000)
(79,000)
Warranty and
marketable
security reserves
(256,000)
Utilization
of net
operating loss
carryforward . . (164,000)
Deferred royalty
income . . . . . 340,000
Write-down of
intangible asset (2,482,000)
Interest
not
currently
deductible for
tax . . . . . .
(107,000)
(92,000) (269,000)
(Utilization of
and increase
in) tax credits (502,000) (76,000)
Restoration of
deferred tax
liability
eliminated by
utilization of
prior year tax
credit. . . . . 158,000
(Increase)
decrease in
availability of
net operating
loss and
capital losses
carryforwards. . (2,720,000)
(2,708,000) 1,132,000
Inventory (
write
-downs
)
recovery . . . .
(1,187,000)
(535,000) 68,000 (136,000)
Rate differential
due to surtax
exemptions. . . 61,000
(Decrease) in
gain arising
from sale of
stock by
subsidiary . . . (1,832,000) (2,975,000) 4,807,000
Increase in
valuation
reserve on
deferred tax
asset. . . . . .
7,840,000
3,955,000
Other . . . . . .
(124,000)
18,000 (77,000) (94,000)
$ - 0 -
$(2,115,000)
$(2,796,000)
$5,179,000
/TABLE
<PAGE>
(NOTE K) - Income Taxes: (continued)
[4] The deferred tax asset (liability) is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Deferred tax liability:
Other - various temporary differences. . $ (314,000)
Deferred tax asset:
Alternative minimum tax credit
carryforward . . . . . . . . . . . . .
$
561,000 561,000
Net operating loss and capital loss
carryforwards (including pre-
acquisition net operating loss
carryforwards. . . . . . . . . . . . . 7,100,000 4,287,000
Other - various temporary differences. . 6,559,000 1,846,000
14,220,000 6,694,000
Valuation allowance on deferred asset . . . (14,220,000) (6,380,000)
Net deferred tax liability. . . . . . . . . $ - 0 - $ - 0 -
</TABLE>
A valuation allowance against deferred tax assets has been
established since there is no assurance that the tax benefits will be
realized in the future.
[5] A subsidiary whose operations were disposed of in 1991 has
various income tax benefits which are available to offset future
taxable income of the parent only. These benefits consist of a net
operating loss carryforward of approximately $5,700,000 ($5,042,000
for alternative minimum tax) and certain tax credits which amount to
approximately $603,000 all of which are available through 2001. All
such carryforwards arose prior to acquisition,
and have
remained with
the Company subsequent to disposal of the operations.
At December
31,
1995, the Company has an alternative minimum tax credit of $561,000
with no limitation on the carryforward period, net operating loss
carryforward of $13,300,000 which expire in 2009 and
a capital
loss
carryforward
of $2,079,000 which expires in 1999.
<PAGE>
(NOTE L) - Earnings (Loss) Per Share:
Earnings (loss) per share are based on the weighted average
number of common and common equivalent shares outstanding during each
period, utilizing the treasury stock method or modified treasury stock
method where applicable. The average number of shares and equivalent
shares outstanding for the year ended June 30, 1993 was 6,667,000.
The average number of shares for the years ended December 31, 1995 and
December 31, 1994 and for the six months ended December 31, 1993 were
5,668,000, 6,169,000 and 6,520,000, respectively; common share
equivalents were not considered since their effect would be
antidilutive.
(NOTE M) - Business Segments:
The Company's business segments are electronic subsystems,
apparel - U.S. operations and apparel - Canadian operations.
Corporate assets are principally cash, cash equivalents and marketable
securities and in 1993 investment in and advances to affiliate. The
following is business segment data for the Company as at and for the
years ended December 31, 1995 and December 31, 1994, the six months
ended December 31, 1993 and the year ended June 30, 1993:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended
December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
Net sales:
Electronic
subsystems. . $11,763,000 $12,254,000 $ 6,659,000 $14,191,000
Apparel - U.S.
operations. . 35,152,000 28,543,000 19,821,000 35,973,000
Apparel -
Canadian
operations. . 11,319,000 17,033,000 16,339,000 23,381,000
T o t a l . $58,234,000 $57,830,000 $42,819,000 $73,545,000
/TABLE
<PAGE>
(NOTE M) - Business Segments: (continued)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Year Ended December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
Operating income
(loss):
Electronic
subsystems. $
2,287,000
$ 2,625,000 $ 2,349,000 $ 2,875,000
Apparel -
U.S.
operations. (20,780,000) (3,217,000) 1,587,000 3,797,000
Apparel -
Canadian
operations.
(1,203,000)
(1,628,000) (59,000) (153,000)
Operating
income
(loss). . .
(19,696,000)
(2,220,000) 3,877,000 6,519,000
General
corporate
(expense). . . (2,327,000) (1,981,000) (1,007,000) (4,092,000)
Interest
(expense). . . (3,008,000) (1,468,000) (976,000) (1,064,000)
Gain arising
from sale of
stock by
subsidiary. . . 13,738,000
Equity in
earnings (loss)
of and write-
down/write-off
of investment
in affiliate. . (13,987,000) (8,386,000) 73,000
Investment
and other income 2,614,000 734,000 573,000 1,312,000
Earnings (loss)
before taxes on
income and
cumulative
effect of a
change in
accounting
principle. . .
$(22,417,000)
$(18,922,000) $(5,919,000) $16,486,000
Assets:
Electronic
subsystems . $ 8,028,000 $ 9,522,000 $11,615,000 $13,046,000
Apparel - U.S.
operations. .
6,942,000
27,422,000 19,526,000
Apparel -
Canadian
operations. . 4,927,000 8,879,000 10,626,000 15,385,000
Corporate
assets. . . . 18,131,000 17,688,000 31,338,000 43,404,000
T o t a l $
38,028,000
$ 63,511,000 $73,105,000 $71,835,000
Capital
expenditures:
Electronic
subsystems. .$ 97,000 $ 47,000 $ 26,000 $ 68,000
Apparel - U.S.
operations.
358,000
373,000 137,000
Apparel -
Canadian
operations 191,000 53,000 75,000
T o t a l $
455,000
$ 611,000 $ 216,000 $ 143,000
Depreciation and
amortization:
Electronic
subsystems.$
116,000
$ 343,000 $ 190,000 $ 391,000
Apparel -
U.S.
operations. 163,000 55,000 24,000
Apparel -
Canadian
operations. 119,000 111,000 48,000 66,000
T o t a l $
398,000
$ 509,000 $ 262,000 $ 457,000
/TABLE
<PAGE>
(NOTE N) - Investment in and Advances to Affiliate:
Classic was a wholly owned subsidiary of the Company until it
consummated a public offering of its common stock in November 1992,
reducing the Company's equity interest to 43%. As a result of the
offering, the Company recognized a gain of $13,738,000 in that year,
representing the Company's proportionate share of the increase in the
underlying equity of Classic. Approximately $18,200,000 of the net
proceeds to Classic was used to repay subordinated indebtedness owed
to the Company. The Company accounted for its 43% ownership of the
common stock of Classic using the equity method.
During the six months ended December 31, 1993 the Company wrote-
down its investment in Classic by $8,386,000. For the three-month
period ended February 28, 1994, Classic recorded a net loss of
$3,453,000 and on May 13, 1994 and May 16, 1994, Classic and its
wholly owned subsidiaries filed petitions under Chapter 11 of the
United States Bankruptcy Code. Consequently, the Company recorded a
charge of $13,987,000 which includes its 43% equity interest in
Classic and subordinated debt approximating $2,400,000 and a cash
charge of approximately $2,500,000 of related costs. See Note
J[5
]
with respect to related litigation.
The following represents condensed financial information of
Classic as of and for the five-month period ended November 30, 1993
and as of and for the year ended June 30, 1993:
<TABLE>
<CAPTION>
November 30, June 30,
1993 1993
(In Thousands)
<S> <C> <C>
Current assets . . . . . . . . . . . $35,185 $41,001
Noncurrent
assets. . . . . . . . . . 14,777 14,604
Total assets . . . . . . . $49,962 $55,605
Current liabilities. . . . . . . . . $11,551 $ 7,784
Noncurrent
liabilities . . . . . . . 5,599 6,527
Total liabilities. . . . . 17,150 14,311
Stockholders' equity . . . . . . . . 32,812 41,294
Total liabilities and
stockholders' equity . . $49,962 $55,605
Net sales. . . . . . . . . . . . . . $32,634 $79,115
Gross profit . . . . . . . . . . . . 596 20,447
Income before cumulative effect of a
change in accounting principle. . 1,808
Net income (loss). . . . . . . . . . (8,654) 2,451
/TABLE
<PAGE>
(NOTE O) - Change of Accounting Principle and Fourth Quarter
Adjustments:
[1] In December 1995 and December 31, 1994, the Company and
certain subsidiaries recorded inventory write-downs of approximately
$4,500,000 and $2,400,000, respectively.
[2] The Company recorded tax expense of approximately $1,200,000
for the fourth quarter resulting from the lack of assurance of
realizing an anticipated tax benefit from future earnings.
[3] In June 1993, the Company's 43% owned affiliate, Classic,
adopted the accounting policy of deferring design costs that relate to
goods to be sold in future selling seasons retroactive to the
beginning of the fiscal year. In prior years, it was Classic's policy
to include design costs in overhead in the year incurred. Such change
resulted in a cumulative effect of a change in accounting principle of
$643,000 (net of taxes of $386,000) being recorded by the Company in
the fourth quarter of the fiscal year ended June 30, 1993 with a
reduction to the amount of gain recognized from the sale of stock by
Classic.
Earnings before cumulative effect of the change in
accounting principle for the year ended June 30, 1993 was increased by
approximately $180,000 as a result of the change.
(NOTE P) - Subsequent Events:
On February 6, 1996, the Company, through a wholly-owned
subsidiary acquired certain assets subject to certain liabilities of
Astrosystems, Inc. and
Behlman
Electronics, Inc. The assets
are
primarily used in the business of manufacturing and selling various
power supply and power source products. The purchase price for the
assets, which includes inventory, equipment and other physical
property, was approximately $3,700,000, subject to a final valuation
of said assets as of the closing date. The transaction was partially
financed pursuant to a bridge loan in the amount of $500,000 from the
Company's primary lender in anticipation of a term loan and revolving
credit facility which will replace the bridge loan. The bridge loan
is secured with a second mortgage on the Company's corporate facility.
(NOTE Q) - Death of Principal Officer:
On February 24, 1995, the Company's principal officer died.
Pursuant to his employment contract, the Company will pay
approximately $800,000 to the principal officer's estate in monthly
installments over the next three years. The Company received
insurance proceeds aggregating $1,500,000 on keyman policies on the
life of the principal officer. Such amounts reflected above have been
recorded in the accompanying financial statements.
<PAGE>
(NOTE R) - Available-For-Sale Securities:
The following is a summary of available-for-sale securities as of
December 31, 1995:
<TABLE>
<CAPTION>
Current Noncurrent
<S> <C> <C>
U.S. Treasury bills . . . . . . . . $10,400,000
Equity securities . . . . . . . . . 12,000
Debt securities issued by other
government agencies. . . . . . . 2,919,000
Corporate debt securities . . . . . 1,731,000 $795,000
15,062,000 795,000
Restricted value of portfolio
used
to collateralize credit
facilities . . . . . . . . . . . 7,567,000
Balance of securities portfolio
(including
$3,540,000
of
marketable
securities used
to
satisfy outstanding debt
classified
as a current
obligation).
. . . . . . . . . . $ 7,495,000 $795,000
</TABLE>
On December 31, 1995 the Company transferred its marketable
securities to the available for sale category of investments
(Note A[6]). On the date of the transfer all debt securities were
being carried at their amortized cost which approximated fair market
value. Under the terms of certain credit facilities the Company s
investment
portfolio and certain cash balances must be maintained at a
minimum collateral value. On December 31, 1995, this collateral
requirement amounted to approximately $11,647,000 of which $540,000
represents
the balance in cash accounts, $3,540,000 represents
available-for-sale securities classified as current assets and the
remainder was shown as restricted investments.<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge
, New York
The audits referred to in our report dated March
21,
1996,
included Schedule II as at December 31, 1995 and December 31,
1994,
and for
the years ended December 31, 1995 and December 31,
1994,
for
the six months ended December 31,
1993 and for the year
ended June 30, 1993.
In our opinion, such schedules present fairly the
information set forth therein in compliance with the applicable
accounting regulation of the Securities and Exchange Commission.
Richard A.
Eisner
& Company,
LLP
New York, New York
March
21,
1996<PAGE>
SCHEDULE II
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A
Column B
Column C
Column D
Column E
Additions
(1)
(2)
Balance at
Charged to
Charged
to
Balance at
beginning
cost and
other
accounts
- -
Deductions
- -
end of
of period
expenses
describe
describe
period
<S>
Year ended
December 31,
1995:
<C>
<C>
<C>
<C>
<C>
Reserve for
estimated
doubtful
accounts
and allowance.
$ 769,000
$ 887,000
$ 80,000 **
$ 1,576,000
Valuation
allowance on
deferred
$14,220,000
tax asset.
$6,380,000
$7,840,000
Year ended
December 31,
1994:
Reserve for
estimated
doubtful
accounts
and allowance.
$ 882,000
$ 226,000
$339,000 **
$ 769,000
Valuation
allowance on
deferred
tax asset. . .
$2,425,000
$3,955,000
$ 6,380,000
Six-month year
ended December
31, 1993:
Reserve for
estimated
doubtful
accounts
and allowance.
$ 676,000
$ 171,000
$263,000 *
$228,000 **
$ 882,000
Valuation
allowance on
deferred
tax asset.
$ - 0 -
$2,425,000
$ 2,425,000
Year ended
June 30, 1993:
Reserve for
estimated
doubtful
accounts.
$ 655,000
$ 563,000
$467,000 **
75,000 ***
T O T A L .
$ 655,000
$ 563,000
$542,000
$ 676,000
</TABLE>
* Reserve of acquired division at
date of acquisition.
** Amount represents
write-offs.
*** Reduction from
deconsolidated
operations.
The accompanying notes to financial statements
are an integral part hereof.
<PAGE>
EXHIBIT 22
ORBIT INTERNATIONAL CORP.
SUBSIDIARIES OF REGISTRANT
State of
Name
Incorporation
Canada
Classique
Inc.
New Jersey
Orbit International of California, Inc.
California
Symax
Garment Co. (1993) Ltd.
Delaware
Winnipeg Leather (1991) Inc.
Delaware
Ax
Elle
Fashions, Inc.
Delaware
The East End Apparel Group, Ltd.
Delaware
Rice Apparel International, Inc.
Delaware
<PAGE>
EXHIBIT 10(G)
AGREEMENT
AGREEMENT made this 28th day of March, 1996, among Kenneth
Freedman, ("Freedman"), residing at 4 Delafield Way, Riverdale, New
York 10471, Frederick Meyers ("Meyers"), residing at 21 Park Drive,
Lido Beach, New York 11561, The Panda Group, Inc. ("Seller"), a New
York corporation, with offices at 500 Seventh Avenue, 18th Floor,
New York, New York 10018, and Orbit International Corp. ("Orbit"),
a Delaware corporation with its principal office at 80 Cabot Court,
Hauppauge, New York 11788.
W I T N E S S E T H:
WHEREAS, Freedman, Meyers, Seller and Orbit are parties to an
Asset Purchase Agreement (the "Asset Purchase Agreement") dated
July 12, 1993, pursuant to which, among other things, Orbit
purchased substantially all of the assets (the "Assets") of Seller;
and
WHEREAS, the parties to the Asset Purchase Agreement desire by
the within Agreement to (a) reduce the purchase price for the
Assets and, in connection with such reduction, to amend the Secured
Promissory Note dated July 12, 1993 executed by Orbit in favor of
Seller (the "Note") so as to reduce the $8,000,000 principal amount
thereof, and to reflect certain other changes in the Note desired
by the parties, (b) amend certain other arrangements pursuant to
the Asset Purchase Agreement and documents executed in connection
therewith, and (c) set forth certain other understandings.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements set forth herein, the parties hereto hereby agree
as follows:
i. Reduction of Purchase Price, etc.
(i) The purchase price for the
Assets under the Asset Purchase
Agreement shall be reduced from
$15,000,000 to $8,850,000. The
parties hereby acknowledge that at
the closing pursuant to the Asset
Purchase Agreement, $7,000,000 of
the purchase price was paid to
Seller so that $1,850,000 of the
reduced purchase price remains to be
paid. Orbit hereby agrees to pay
the $1,850,000 outstanding balance
of the reduced purchase price as
follows: (i) $500,000 shall be
payable by certified check upon the
execution of this Agreement, and
(ii) $1,350,000 shall be payable
pursuant to the Note as amended
pursuant to this Agreement by the
payment of $250,000 on July 1, 1996,
the payment of $250,000 on January
1, 1997 and the payment in
consecutive equal quarterly
installments of $42,500 on March 31,
2002 and on the last day of each
June, September, December and March
thereafter up to and including
December 31, 2006. In order to
reflect the fact that the portion of
the purchase price remaining to be
paid by Orbit pursuant to the Note
will be reduced to $1,350,000 and
the manner in which such $1,350,000
will be paid by Orbit and to reflect
the new maturity date of the Note
and other changes to the Note
desired by the parties, the Note is
concurrently herewith being amended
by Orbit and shall be known as the
Amended Promissory Note (the
"Amended Note"), a copy of which is
attached hereto as Exhibit A. Any
amendment in the Amended Note which
is applicable to the Asset Purchase
Agreement shall also be deemed to be
an amendment to the Asset Purchase
Agreement.
(ii) The parties also acknowledge
that, at the closing pursuant to the
Asset Purchase Agreement, $2,000,000
was paid to Freedman and Meyers
under a Non-Competition Agreement
dated July 12, 1993 among Seller,
Freedman, Meyers and Orbit (the
"Non-Competition Agreement"), which
amount is in addition to the
purchase price for the Assets under
the Asset Purchase Agreement. The
Non-Competition Agreement is hereby
cancelled.
ii. Cancellation of Security Agreement. In order
to secure the obligations of Orbit pursuant to the
Note, Freedman, Meyers, Seller and Orbit entered
into a Security Agreement (the "Security
Agreement") dated July 12, 1993. The parties agree
(a) to cancel the Security Agreement and (b) to the
termination of the security interests of Seller,
Freedman and Meyers granted thereunder in the
Assets of Orbit relating to the East/West division
by the filing of UCC-3 termination statements in
all jurisdictions in which UCC-1 financing
statements were filed pursuant to the Security
Agreement.
iii. Medical Insurance. For a period of three (3)
years following the expiration of their respective
Employment Agreements with Orbit dated June 1, 1993
(as extended pursuant to the terms of Paragraph
6(a) below), Orbit shall, at no cost to Freedman
and Meyers, provide to each of Freedman and Meyers
and their immediate families medical insurance
coverage comparable to the insurance coverage
provided by Orbit to them and their immediate
families under the existing insurance policy
currently offered to all employees of the East/West
division of Orbit, or, at the option of Orbit,
Orbit shall reimburse Freedman and Meyers for their
cost of obtaining such medical insurance for such
three-year period.
iv. Automobile. For a period of three (3) years
following the expiration of their respective
Employment Agreements with Orbit dated June 1, 1993
(as extended pursuant to the terms of Paragraph
6(a) below), Orbit shall provide to each of
Freedman and Meyers substantially the same benefits
as to a car and car insurance as is currently being
provided by Orbit to each of Freedman and Meyers
pursuant to their employment arrangements with
Orbit (which benefits include payment by Orbit of
the lease payments for such cars and the cost of
car insurance). Freedman and Meyers each
acknowledge that Orbit has entered, or will enter,
into new three-year leases (the "New Leases") for
such cars. When the New Leases expire, Freedman
and Meyers may enter into new leases for such cars
(or comparable cars) in their own names, and Orbit
will reimburse each of them for the lease payments
and the cost of insurance until the expiration of
the three-year period referred to in the first
sentence of this Paragraph 4. The parties further
agree that, during the three-year period referred
to in the first sentence of this Paragraph 4, Orbit
shall pay the premiums for insurance on such cars,
except that if the car insurance premiums on such
cars are increased after the first year of such
three-year period because of a bad driving record
of either Freedman or Meyers or because of any
accidents in which the leased cars are involved,
then any such increase in insurance premiums over
and above the first year resulting from such bad
driving records or accidents shall be paid by
Freedman or Meyers, as the case may be.
v. Warrants; Stock Options. Upon the execution
hereof, the options to purchase 50,000 shares of
Common Stock of Orbit previously granted to each of
Freedman and Meyers under Orbit's 1995 Stock Option
Plan shall be terminated by action of the Stock
Option Committee of Orbit's Board of Directors, and
Orbit shall issue to each of Freedman and Meyers a
10-year warrant (each, a "Warrant" and
collectively, the "Warrants") to purchase 125,000
shares of Common Stock of Orbit. The Warrants
shall not be exercisable until the second
anniversary of the date of issuance. The exercise
price (the "Exercise Price") of the Warrants shall
be $0.875. The Warrants shall contain cashless
exercise provisions and antidilution provisions.
The Warrants shall also provide that during the
period between the fifth anniversary and the tenth
anniversary of the date of issuance of the
Warrants, the holder of the Warrant may require
Orbit, upon notice, to redeem the Warrant at a
price of $1.50 per Warrant Share (as defined in the
Warrants) if the Current Market Price (as defined
in the Warrants) of the Common Stock of Orbit at
the time of the notice is equal to or less than the
Exercise Price, and if the Current Market Price
upon exercise of the Warrant is more than the
Exercise Price but less than $2.375, Orbit shall
pay to the holder of the Warrant, upon exercise,
that amount which equals the difference between
(A) the number of Warrant Shares issuable upon
exercise times $2.375, and (B) the number of
Warrant Shares issuable upon exercise times the
Current Market Price on the date of exercise. The
form of Warrant is attached hereto as Exhibit B.
vi. Winding-Down Period. For such time as is
necessary to wind-down the East/West division of
Orbit, which is currently operating that portion of
the business of Orbit with respect to the Assets,
following the execution of this Agreement (the
"Winding-Down Period") but in any event no later
than December 31, 1996, Orbit desires that Freedman
and Meyers assist in such winding-down by
continuing to operate the East/West division in
accordance with the terms of their respective
Employment Agreements with Orbit. In order to
accomplish such objective, the parties agree that
the respective Employment Agreements between Orbit
and Freedman and Meyers, each dated July 12, 1993,
which otherwise would expire on June 30, 1996,
shall be extended until December 31, 1996. Upon
expiration of such Employment Agreements on
December 31, 1996, all the provisions of the
Employment Agreements (including, without
limitation, the provisions of Section 7 thereof
entitled "Non-Competition; Confidentiality") shall
be cancelled.
(i) Following execution of the
within Agreement, Orbit shall
transfer the assets and liabilities
of the East/West division into a
separate subsidiary owned by Orbit.
During the remainder of the terms of
their respective Employment
Agreements (as extended by Paragraph
6(a) above), Freedman and Meyers
shall use their respective best
efforts to continue to operate the
East/West division in their current
capacities pursuant to the
Employment Agreements, and to use
their best efforts to sell the
existing East/West inventory at the
highest prices which, in the
reasonable judgment of Freedman,
Meyers and Orbit, can be obtained
for such inventory, it being
understood that it may be difficult
to sell such inventory at attractive
prices. With regard to the
operation of the East/West division
during the Winding-Down Period,
Freedman and Meyers agree that
(x) they will only purchase
additional inventory for the purpose
of filling pre-existing orders, and
(y) they will fully cooperate with
Orbit and any third party which has
been engaged by Orbit during the
Winding-Down Period for the purpose
of advising Orbit as to the winding-
down of the East/West division and
the sale of the inventory.
(ii) The proceeds from the sale of
such inventory shall be used to pay
down the outstanding balances
currently owed by Orbit to its
factor, BNY Financial Corporation
("BNY") pursuant to the Restated and
Amended Factoring Agreement
effective July 1, 1991 between BNY
and Orbit, as successor-in-interest
to Seller, as amended by the
amendments dated July 12, 1993 and
September 26, 1995, and, in
connection with such paying down
of those outstanding balances with
such proceeds, Orbit shall use its
best efforts to negotiate with BNY
to provide for the release by BNY of
the collateral which secures the
factoring arrangement. Orbit shall
keep Freedman and Meyers fully
advised as to those negotiations
with BNY. As such outstanding
balances currently owing by Orbit to
BNY are paid and such collateral
releases are made by BNY, all such
collateral shall be released by BNY
to an independent escrow agent (the
"Escrow Agent"), which shall be a
bank or other financial institution
in New York, New York chosen by
Orbit. Pursuant to an agreement to
be entered into by Orbit with the
Escrow Agent (which must be in form
and content satisfactory to counsel
for Seller, Freedman and Meyers),
the Escrow Agent shall disburse such
collateral, promptly upon receipt of
such collateral, in the following
manner: the first $1,000,000 of
such collateral shall be disbursed
to Seller or its designee(s), the
next $2,000,000 of such collateral
shall be disbursed 75% to Orbit and
25% to Seller or its designee(s),
and any collateral in excess of
$3,000,000 shall be disbursed 50% to
Orbit and 50% to Seller or its
designee(s). In the event that BNY
refuses to release the collateral or
any part thereof or delays the
release of such collateral or any
part thereof, the amount of
collateral to which Seller or its
designee(s) would have been entitled
pursuant to the preceding sentence
if BNY had released such collateral
on the basis of the release of $1.00
of collateral for each $1.00 paid by
Orbit to BNY from the proceeds of
the sale of such inventory shall be
added to the outstanding principal
amount of the Amended Note (the
"Additional Principal") and shall be
payable in consecutive equal
quarterly installments over the then
remaining term of the Amended Note
on the last day of each March, June,
September and December; provided,
however, that upon any subsequent
release or releases of any such
collateral by BNY, the portion of
each such release or releases of
collateral to which Seller or its
designee(s) is entitled pursuant to
this subparagraph (c) shall be used
to prepay the Additional Principal
of the Amended Note in inverse order
of maturity in an amount equal to
such released portion of the
collateral to which Seller or its
designee(s) is entitled.
(iii) During the Winding-Down
Period, the parties shall use
their best efforts to mutually
agree on a severance package
for the current employees
(other than Freedman and
Meyers) of the East/West
division of Orbit in exchange
for the receipt by Orbit of
releases from liability
executed by such employees.
Repayment Waiver and Audit.
Orbit hereby irrevocably waives
repayment of any and all
amounts which may be currently
due from Seller, Freedman
and/or Meyers to the East/West
division and Orbit agrees to
bear and pay any sales taxes
which may become due in
connection with the current
sales tax audit of the
East/West division of Orbit;
provided, however, that Seller,
Freedman and Meyers agree to be
jointly and severally liable to
Orbit for any personal expenses
related to the East/West
division following the date of
execution of this Agreement.
vii. East/West Name. Following the execution of
this Agreement, Orbit shall, subject to the
provisions of Paragraph 9 below, retain the use of
the name "East/West". However, Orbit may not sell
such name to a third party or parties without the
prior written consent of Freedman and Meyers, and
in the event of a sale of the name to a third
party, the proceeds of any such sale shall be
shared equally by each of Seller and Orbit.
viii. Return to Business. In the event that
following the later of the expiration of the
Winding-Down Period or the expiration of their
respective Employment Agreements (as extended
by Paragraph 6(a) above), Freedman and Meyers
elect to return to a business which is the
same as the business of East/West, Freedman
and Meyers shall send written notice to Orbit
setting forth their intention to start such
business (the "Starting Notice"). Subject to
the provisions of the next two sentences,
within ten (10) business days following the
receipt of the Starting Notice by Orbit, Orbit
shall sell to Freedman and Meyers or their
designee(s) the name "East/West" for the sum
of $1.00. However, in the event Orbit desires
to participate in such business, Orbit shall
so notify Freedman and Meyers within ten (10)
days following the receipt of the Starting
Notice, and Freedman and Meyers on the one
hand and Orbit on the other hand shall
negotiate in good faith to attempt to reach an
agreement as to the capitalization and
ownership structure of such business prior to
the sale by Orbit of the name "East/West" (it
being understood, however, that there is no
obligation on the part of the parties to reach
any such agreement). If by the thirtieth
(30th) day following the receipt by Orbit of
the Starting Notice, Orbit decides not to
participate in such business or if the parties
are unable to reach an agreement as to the
capitalization and ownership structure of such
business, then the sale of such name by Orbit
to Freedman and Meyers for $1.00 shall take
place on or about the thirtieth (30th) day
following the receipt by Orbit of the Starting
Notice, and in such event for a period of five
(5) years after the date of the sale of the
name East/West to Freedman and Meyers (or if
Freedman and Meyers discontinue the use of the
name East/West in such business within such
five (5) year period, then until the date of
discontinuance) Orbit shall be entitled to
receive from such business for the use of the
name East/West an annual royalty payment equal
to ten percent (10%) of the income before
taxes on income of such business as determined
by the independent certified public accountant
of such business in accordance with generally
accepted accounting principles consistently
applied.
ix. Acknowledgement of No Default, Etc. Orbit
hereby acknowledges and agrees that Seller,
Freedman and Meyers (a) are now and have at all
times been in full compliance with the Asset
Purchase Agreement, the Non-Competition Agreement
and the Note (collectively, the "Purchase
Documents"), (b) have at no time breached,
violated, defaulted under or failed to fulfill
any covenant or agreement in any of the Purchase
Documents, and (c) have not made any inaccurate
or incorrect representation or warranty in any of
the Purchase Documents. Accordingly, Orbit hereby
acknowledges and agrees that it has no claims of
any kind against Seller, Freedman and/or Meyers
under or in connection with any of the Purchase
Documents.
x. Indemnification.
(i) By Orbit. Orbit shall
indemnify each of Freedman and
Meyers and hold each of them
harmless at all times from and after
the date hereof against and in
respect of any and all actions,
suits, proceedings, claims, demands,
judgments, costs, damages, losses
and liabilities, including
reasonable attorneys' fees and
expenses (collectively "Losses")
incurred by either Freedman or
Meyers resulting from the operation
of the East/West division prior to
or after the date hereof pursuant to
their respective Employment
Agreements with Orbit dated June 1,
1993 (as extended pursuant to the
terms of Paragraph 6(a) above),
other than any Losses which result
from the respective gross negligence
or fraud (including, without
limitation, tax fraud) of either
Freedman or Meyers in connection
with the operation of the East/West
division prior to or after the date
hereof pursuant to their respective
Employment Agreements with Orbit
dated June 1, 1993 (as extended
pursuant to the terms of Paragraph
6(a) above) or relate to claims by
employees or agents of the East/West
division or third parties of sexual
harassment or discrimination of any
sort against either Freedman or
Meyers. If any such action, suit or
proceeding is commenced against
Freedman and/or Meyers, then Orbit
will, at Orbit's own cost and
expense, assume the defense of such
action, suit or proceeding, but if
it is ultimately determined by the
final judgment of any court of
competent jurisdiction as to which
all appeals have been taken and
decided or as to which the time for
appeals has expired that any Losses
which are the subject of such
action, suit or proceeding resulted
from the respective gross negligence
or fraud (including, without
limitation, tax fraud) of either
Freedman or Meyers in connection
with the operation of the East/West
division prior to or after the date
hereof pursuant to their respective
Employment Agreements with Orbit
dated June 1, 1993 (as extended
pursuant to the terms of Paragraph
6(a) above) or because of sexual
harassment or discrimination of any
sort by either Freedman or Meyers,
then Freedman and/or Meyers, as the
case may be, shall reimburse Orbit
for any such Losses.
(ii) By Freedman or Meyers. Each of
Freedman and Meyers, severally and
not jointly, shall indemnify Orbit
and hold it harmless at all times
from and after the date hereof
against and in respect of any and
all Losses incurred by Orbit
resulting from their respective
gross negligence or fraud (including
tax fraud) in connection with the
operation of the East/West division
prior to or after the date hereof
pursuant to their respective
Employment Agreements with Orbit
dated June 1, 1993 (as extended
pursuant to the terms of Paragraph
6(a) above)or claims by employees or
agents of the East/West division or
third parties of sexual harassment
or discrimination of any sort
against either Freedman or Meyers;
xi. Agreement, Amended Note and Warrants Duly
Approved. Orbit represents, warrants and agrees
that it has full power and authority to execute,
deliver and perform this Agreement, the Amended
Note and the Warrants, the execution, delivery and
performance of this Agreement, the Amended Note and
the Warrants by Orbit have been duly and validly
authorized by all necessary corporate action on the
part of Orbit, this Agreement, the Amended Note
and the Warrants constitute valid and binding
obligations of Orbit enforceable in accordance with
their terms.
(i) Concurrently with the execution
of this Agreement, Orbit is
delivering to Seller, Freedman and
Meyers certified corporate
resolutions of Orbit's Board of
Directors approving the execution,
delivery and performance of this
Agreement, the Amended Note and the
Warrants by Orbit, and a legal
opinion of its counsel as to the
matters set forth in Paragraph 12(a)
above.
xii. Cooperation. Each of Seller, Freedman and
Meyers shall use their respective best efforts to
cooperate with, and provide all necessary
information to, Orbit in order to enable Orbit to
defend any lawsuits related to the East/West
division and/or the East End Apparel Group Ltd., a
subsidiary of Orbit, which are initiated prior to,
during, or following the Winding-Down Period.
Orbit shall reimburse Seller, Freedman or Meyers,
as the case may be, for any reasonable travel and
other out-of-pocket expenses incurred by them in
connection with the foregoing. Following the
execution of this Agreement, each of the parties to
this Agreement agrees to execute and deliver such
further documents and instruments and to do such
other acts and things as may reasonably be
requested in order to effectuate the transactions
contemplated by this Agreement.
xiii. Press Releases. Each of Seller,
Freedman, Meyers and Orbit agree that none of
them will issue any press release or make any
public statement regarding this Agreement or
the transactions contemplated hereby without
the prior approval of the other parties,
except to the extent any such disclosure is
required by law, and then only after
consultation with the other parties.
xiv. Expenses; Other. Orbit shall bear its own
expenses and the expenses incurred by Seller,
Freedman and Meyers in connection herewith.
(i) This Agreement shall be binding
upon and inure to the benefit of the
parties hereto, and their respective
legal representatives, successors
and assigns. The termination of
this Agreement as to a party shall
not serve to terminate any
obligations of such party, or any
remedies of any person or entity
against such party, for any act or
failure to act of such party
occurring prior to such termination.
xv. Notices. Any notice to be given by any
party hereunder to any other party shall be in
writing, delivered personally against written
receipt therefor, or mailed by prepaid,
documented air courier, certified or
registered mail, return receipt requested,
addressed to the other parties at the
addresses hereinabove stated or to such other
address as may have been furnished by any
party to the other parties pursuant to this
Paragraph 16, with copies to Squadron,
Ellenoff, Plesent and Sheinfeld, LLP, 551
Fifth Avenue, New York, New York 10176,
attention: Michael R. Kleinerman, Esq. and
Frankenthaler Kohn Schneider & Katz, 26
Broadway, Suite 700, New York, New York 10004,
attention: Herbert A. Schneider, Esq. All
such notices shall be deemed to be given and
received on the date of delivery or mailing
thereof.
xvi. Amendments. No modification, amendment or
waiver of any of the provisions of the Agreement
shall be effective unless in writing and signed by
all the parties hereto.
xvii. No Waivers. The failure to enforce at
any time any of the provisions of this
Agreement, or to require at any time
performance by any other party of any of the
provisions hereof, shall in no way be
construed to be a waiver of such provision,
nor in any way to effect the validity of this
Agreement or any part hereof, or the right of
any party thereafter to enforce each and every
such provision in accordance herewith.
xviii. Severability. In the event that any
provision of this Agreement shall be deemed
to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or
unenforceability shall not affect any other
provision hereof, and this Agreement shall be
construed as if such invalid, illegal or
unenforceable provision had never been
contained herein.
xix. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
xx. Entire Agreement. This Agreement supersedes
any and all prior oral or written agreements
between Seller, Freedman and/or Meyers on the one
hand and Orbit on the other hand, with respect to
the subject hereof and sets forth the final and
entire agreement of the parties hereto with respect
to the subject matter hereof; except that (a) the
Employment Agreements between Freedman and Meyers
and Orbit dated June 1, 1993 shall, as set forth in
Paragraph 6(a) of this Agreement, remain in force
and effect until December 31, 1996, (b) the Amended
Note shall remain in force and effect, and (c) the
Asset Purchase Agreement as amended by the within
Agreement shall remain in force and effect.
xxi. Headings. The headings in this Agreement are
for convenience only, and shall not affect the
meaning of the terms hereof.
xxii. Counterparts. This Agreement may be
executed in counterparts, each of which shall
be deemed an original, and each party may
become a party hereto by executing a
counterpart hereof. This Agreement and any
counterpart so executed shall be deemed to be
one and the same instrument.
[Remainder of this page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
ORBIT INTERNATIONAL CORP.
By:
THE PANDA GROUP, INC.
By:
KENNETH FREEDMAN
FREDERICK MEYERS
<PAGE>
AMENDED PROMISSORY NOTE
$1,350,000 New York, New York
March 28, 1996
FOR VALUE RECEIVED, Orbit International Corp., a Delaware
corporation ("Payor"), promises to pay to The Panda Group, Inc., a
New York corporation ("Payee"), the sum of One Million Three
Hundred Fifty Thousand Dollars ($1,350,000). No interest shall be
payable on or with respect to this Note; provided, however,
that to the extent required by any applicable original discount
provisions of the Internal Revenue Code of 1986, as amended (the
("Code"), the face amount of this Note shall be deemed to include
interest at the rate of six percent (6%) per annum compounded
annually and which interest shall, to the extent required by the
Code, be reportable in accordance with the original issue discount
provisions of the Code, and provided further that during the
continuance of an Event of Default (as hereinafter defined), the
principal balance hereof shall bear actual interest at the rate of
three percent (3%) over the prime rate as announced from time to
time by The Bank of New York.
This Note is issued pursuant to and subject to the terms and
conditions of an agreement (the "Asset Purchase Agreement"), dated
July 12, 1993, among Payor, Payee, Kenneth Freedman ("Freedman")
and Frederick Meyers ("Meyers") relating to the purchase by Payor
from Payee of the business and substantially all of the assets of
Payee, as such Asset Purchase Agreement was amended by the
Agreement dated March 28, 1996 among Freedman, Meyers, Payee and
Payor (the "1996 Agreement"). This Note constitutes an amendment
of the Secured Promissory Note dated July 12, 1993 issued by Payor
to Payee.
This Note shall be payable (to the extent not prepaid as
provided herein) on December 31, 2006.
Payment of this Note shall be made in the following manner
in lawful money of the United States at such place in New York, New
York as Payee shall designate in writing to Payor pursuant to the
notice provisions of the Asset Purchase Agreement:
(1) Two Hundred Fifty Thousand Dollars ($250,000) shall be
paid on July 1, 1996.
(2) Two Hundred Fifty Thousand Dollars ($250,000) shall be
paid on January 1, 1997.
(3) The remaining balance of Eight Hundred Fifty Thousand
Dollars ($850,000) shall be paid in equal quarterly installments of
Forty Two Thousand Five Hundred Dollars ($42,500) on March 31, 2002
and on the last day of each June, September, December and March
thereafter up to and including December 31, 2006.
(4) Pursuant to Section 6(c) of the 1996 Agreement, in the
event that BNY Financial Corporation ("BNY") refuses to release the
collateral or any part thereof referred to in said Section 6(c) or
delays the release of such collateral or any part thereof, then the
amount of collateral to which Payee or its designee(s) would have
been entitled pursuant to Section 6(c) if BNY had released such
collateral on the basis of the release of $1.00 of collateral for
each $1.00 paid by Payor to BNY from the proceeds of the sale of
the inventory referred to in said Section 6(c) shall be added to
the outstanding principal amount of this Note (the "Additional
Principal") and shall be payable in consecutive equal quarterly
installments over the then remaining term of this Note on the last
day of each March, June, September and December; provided, however,
that upon any subsequent release or releases of any such collateral
by BNY, the portion of each such release or releases of collateral
to which Payee or its designee(s) is entitled pursuant to said
Section 6(c) shall be used to prepay the Additional Principal of
this Note in inverse order of maturity in an amount equal to such
released portion of the collateral to which Payee or its
designee(s) is entitled.
In addition to the prepayments provided for in this Note, this
Note may be prepaid in whole or in part without premium or penalty.
This Note shall immediately become due and payable upon the
occurrence of any of the following events (each, an "Event of
Default"):
(a) Payor's failure to pay any amount due under this Note
when due and such default shall have continued unremedied for a
period of five (5) business days after written notice thereof to
Payor;
(b) Payor's failure to perform or observe, in any material
respect, any covenant or agreement of Payor under the Asset
Purchase Agreement or the 1996 Agreement, and the same is not
remedied within ten (10) business days after written notice thereof
to Payor;
(c) Payor (i) commences any proceeding under any bankruptcy,
insolvency or similar law or seeks other judicial relief in respect
to its debts, or (ii) is the debtor named in any bankruptcy,
insolvency or similar debtor and creditor proceeding which remains
undismissed, undischarged or undefended for a period of sixty (60)
days after it is commenced.
Payor hereby waives demand, presentment for payment, protest,
notice of protest, notice of intention to accelerate the maturity
of this Note, the bringing of any suit against any party, and any
notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or
substitutions of any security, or any delay, indulgence or other
act of any trustee or any holder hereof, whether before or after
maturity.
If this Note is placed in the hands of an attorney for
collection, by suit or otherwise, or to enforce its collection, or
to protect any security for its payment, Payor immediately and
without demand will pay all costs of collection and litigation
together with a reasonable fee of such attorneys.
Payee shall not by any act be deemed to have waived any of its
rights or remedies hereunder unless such waiver is in writing and
signed by Payee, and then only to the extent set forth therein. A
waiver as to any one event shall in no way be construed as
continuing or as preventing waiver of such rights or remedies on a
subsequent event.
Upon receipt of any prepayment, Payee shall make a notation on
this Note of such payment received, and shall provide Payor with
evidence acceptable to Payor that the payment has been received by
Payee and so noted.
The timely tender of any payment on this Note shall be deemed
to have been made if such payment is mailed by certified mail on or
before the day such payment is due. Any payment date occurring on
a weekend, federal or New York state holiday or any other day on
which banking institutions in the state of New York are closed
shall be deemed to be the next succeeding business day.
If any provision hereof shall be deemed or held to be invalid,
illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision
hereof, and this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
<PAGE>
This Note shall be construed, governed and enforced in
accordance with the laws of the State of New York.
ORBIT INTERNATIONAL CORP.
By:
<PAGE>
Warrant No. 1
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED,OR TRANSFERRED
IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
VOID BEFORE MARCH 28, 1998 AND AFTER 5:00 P.M. NEW YORK TIME, ON
MARCH 28, 2006
ORBIT INTERNATIONAL CORP.
Warrant to Purchase Shares of Common Stock
125,000 Shares
THIS CERTIFIES that, for good and valuable consideration
received, KENNETH FREEDMAN (the "Holder"), is entitled to subscribe
for and purchase from Orbit International Corp., a Delaware
corporation (the "Company"), upon the terms and conditions set
forth herein, at any time or from time to time after March 28, 1998
and before 5:00 P.M. New York City time on March 28, 2006 (the
"Exercise Period"), all or any portion of 125,000 shares of common
stock of the Company, par value $0.10 per share ("Common Stock"),
subject to adjustment as provided herein (the "Warrant Shares"), at
a price of $0.875 per share, subject to adjustment as provided
herein (the "Exercise Price").
1. Method of Exercise. (a) This Warrant may be exercised at any
time during the Exercise Period, as to the whole or any lesser
number of Warrant Shares, by the surrender of this Warrant (with
the election at the end hereof duly executed) to the Company at its
office at 80 Cabot Court, Hauppauge, New York 11788 or at such
other place as may be designated in writing by the Company,
together with a certified or bank cashier's check payable to the
order of the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares for which this Warrant
is being exercised.
(b) In lieu of the payment of the Exercise Price, the
Holder shall have the right (but not the obligation), during the
Exercise Period, to require the Company to convert this Warrant, in
whole or in part, into the Warrant Shares as provided for in this
Section (the "Conversion Right") by delivering to the Company the
Conversion Notice attached hereto. Upon exercise of the Conversion
Right, the Company shall deliver to the Holder (without payment by
the Holder of the Exercise Price) that number of shares of Common
Stock equal to (i) the number of Warrant Shares issuable upon
exercise of the Warrant or the portion of the Warrant being
converted, multiplied by (ii) the quotient obtained by dividing (x)
the value of the Warrant (on a per Warrant Share basis) at the time
the Conversion Right is exercised (determined by subtracting the
Exercise Price from the Current Market Price (as determined
pursuant to Section 5(e) below), for the shares of Common Stock
issuable upon exercise of the Warrant immediately prior to the
exercise of the Conversion Right) by (y) the Current Market Price
of one share of Common Stock immediately prior to the exercise of
the Conversion Right. The Conversion Rights provided under this
Section may be exercised in whole or in part and at any time and
from time to time while any Warrants remain outstanding. In order
to exercise the Conversion Right, the Holder shall surrender to the
Company, at its offices, this Warrant accompanied by a form of
Subscription Agreement duly filled in and signed and a duly
completed Conversion Notice in the form attached hereto. The
presentation and surrender shall be deemed a waiver of the Holder's
obligation to pay all or any portion of the aggregate purchase
price payable for the Warrant Shares being issued upon such
exercise of this Warrant. This Warrant (or so much thereof as
shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the
day of surrender of this Warrant for conversion in accordance with
the foregoing provisions. As promptly as practicable on or after
the conversion date, the Company shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the
largest number of whole Warrant Shares which the Holder shall be
entitled as a result of the conversion, and (ii) if such Warrant is
being converted in part only, a new Warrant exercisable for the
number of Warrant Shares equal to the unconverted portion of the
Warrant.
(c) Upon any exercise (which term, as used herein, shall
include any exercise of the Conversion Right) of this Warrant, in
lieu of any fractional Warrant Shares to which the Holder shall be
entitled, the Company shall pay to the Holder cash in accordance
with the provisions of Section 5(d) hereof.
2. Issuance of Certificates. Upon each exercise of the
Holder's rights to purchase Warrant Shares, the Holder shall be
deemed to be the holder of record of the Warrant Shares issuable
upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such
Warrant Shares shall not then have been actually delivered to the
Holder. As soon as practicable after each such exercise of this
Warrant, the Company shall issue and deliver to the Holder a
certificate or certificates for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, upon
surrender of this Warrant for cancellation, the Company shall
execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Warrant Shares (or portions
thereof) subject to purchase hereunder.
3. Recording of Transfer. Any warrants issued upon the
transfer or exercise in part of this Warrant shall be numbered and
shall be registered in a Warrant Register as they are issued. The
Company shall be entitled to treat the registered holder of any
Warrant on the Warrant Register as the owner in fact thereof for
all purposes and shall not be bound to recognize any equitable or
other claim to or interest in such Warrant on the part of any other
person, and shall not be liable for any registration or transfer of
Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the
knowledge of such facts that its participation therein amounts to
bad faith. This Warrant shall be transferable only on the books of
the Company upon delivery thereof duly endorsed by the Holder or by
his or its duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative,
duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall
deliver a new warrant or warrants to the person entitled thereto.
This Warrant may be exchanged, at the option of the Holder hereof,
for another warrant, or other warrants of different denominations,
of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof),
upon surrender to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation
to cause this Warrant to be transferred on its books to any person
if, in the written opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations thereunder.
4. Reservation of Shares of Common Stock. The Company shall
at all times reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of
providing for the exercise of the Warrants, such number of shares
of Common Stock as shall, from time to time, be sufficient
therefor. The Company covenants that all shares of Common Stock
issuable upon exercise of this Warrant, upon receipt by the Company
of the full payment therefor, shall be validly issued, fully paid,
nonassessable and free of preemptive rights.
5. Exercise Price Adjustments. Subject to the provisions of
this Section 5, the Exercise Price in effect from time to time
shall be subject to adjustment, as follows:
(a) In case the Company shall at any time after the date
hereof (i) declare a dividend or make a distribution on the
outstanding shares of Common Stock payable in shares of its capital
stock, (ii) subdivide the outstanding shares of Common Stock, (iii)
combine the outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue any shares of
Common Stock by reclassification of shares of Common Stock, other
than a change in par value, or from par value to no par value, or
from no par value to par value, but including any such
reclassification in connection with the consolidation or merger of
the Company with or into another corporation (including any such
reclassification in connection with a consolidation or merger in
which the Company is the continuing corporation), then, in each
case, the Exercise Price in effect at the time of the record date
of such dividend or distribution or of the effective date of such
subdivision, combination, or reclassification shall be adjusted so
that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to
such action and the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such
action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) In case the Company shall distribute to all
holders of shares of Common Stock (including any such distribution
made to the stockholders of the Company in connection with a
consolidation or merger in which the Company is the surviving or
continuing corporation) evidences of its indebtedness, cash, or
assets (other than distributions and dividends payable in shares of
Common Stock), or rights, options, or warrants to subscribe for or
purchase shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock, then, in each case, the
Exercise Price shall be adjusted by multiplying the Exercise Price
in effect immediately prior to the record date for the
determination of stockholders entitled to receive such distribution
by a fraction, the numerator of which shall be the Current Market
Price (as determined pursuant to Section 5(e) hereof) per share of
Common Stock on such record date, less the fair market value (as
determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error) of
the portion of the evidences of indebtedness or assets so to be
distributed, or of such rights, options, or warrants or convertible
or exchangeable securities, or the amount of such cash, applicable
to one share of Common Stock, and the denominator of which shall be
such Current Market Price per share of Common Stock. Such
adjustment shall become effective at the close of business on such
record date.
(c) Whenever there shall be an adjustment as
provided in this Section 5, the Company shall, within 15 days
thereafter, cause written notice thereof to be sent by registered
mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied
by an officer's certificate setting forth the number of Warrant
Shares issuable hereunder and the Exercise Price thereof after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment and the computation thereof, which
officer's certificate shall be conclusive evidence of the
correctness of any such adjustment absent manifest error.
(d) The Company shall not be required to issue
fractions of shares of Common Stock or other shares of the Company
upon the exercise of this Warrant. If any fraction of a share of
Common Stock would be issuable upon the exercise of this Warrant
(or specified portions thereof), the Company may issue a whole
share in lieu of such fraction or the Company may purchase such
fraction for an amount in cash equal to the same fraction of the
Current Market Price of such shares of Common Stock on the date of
exercise of this Warrant.
(e) For the purposes of the various provisions of
this Warrant, the Current Market Price per share of Common Stock on
any date shall be deemed to be the average of the daily closing
prices for the thirty (30) consecutive trading days immediately
preceding the date in question. The closing price for each day
shall be the last reported sales price regular way or, in case no
such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for
the Common Stock as furnished by the National Association of
Securities Dealers, Inc. through NASDAQ or a similar organization
if NASDAQ is no longer reporting such information. If on any such
date the Common Stock is not listed or admitted to trading on any
national securities exchange and is not quoted by NASDAQ or any
similar organization, the fair value of a share of Common Stock on
such date, as determined in good faith by the Board of Directors of
the Company, whose determination shall be conclusive absent
manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be
required if such adjustment is less than $0.05; provided, however,
that any adjustments which by reason of this Section 5 are not
required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section
5 shall be made to the nearest cent or to the nearest thousandth of
a share, as the case may be.
(g) Upon each adjustment of the Exercise Price as
a result of the calculations made in this Section 5, the Warrants
shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of shares of Common Stock (calculated
to the nearest hundredth) obtained by dividing (i) the product
obtained by multiplying the number of shares of Common Stock
purchasable upon exercise of the Warrants prior to adjustment of
the number of shares of Common Stock by the Exercise Price in
effect prior to adjustment of the Exercise Price by (ii) the
Exercise Price in effect after such adjustment of the Exercise
Price.
(h) Whenever the Exercise Price is adjusted as
provided in this Section 5, the Company will promptly obtain a
certificate of a firm of independent public accountants of
recognized standing selected by the board of directors of the
Company (which may be the regular auditors of the Company) setting
forth the Exercise Price as so adjusted and a brief statement of
the facts accounting for such adjustment, and will make available
a brief summary thereof to the holder of this Warrant, at its
address listed on the register maintained for that purpose (which
summary may be included in any notice of adjustment required by
Section 5(c) hereof).
6. Consolidations and Mergers. (a) In case of any
consolidation with or merger of the Company with or into another
corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation and which does
not result in any reclassification of the outstanding shares
of Common Stock or the conversion of such outstanding shares of
Common Stock into shares of other stock or other securities or
property), or in case of any sale, lease or conveyance to another
corporation of the property and assets of any nature of the Company
as an entirety or substantially as an entirety (such actions being
hereinafter collectively referred to as "Reorganizations"), there
shall thereafter be deliverable upon exercise of this Warrant (in
lieu of the number of shares of Common Stock theretofore
deliverable) the kind and amount of shares of stock or other
securities, cash or other property which would otherwise have been
deliverable to a holder of the number of shares of Common Stock
upon the exercise of this Warrant upon such Reorganization if this
Warrant had been exercised in full immediately prior to such
Reorganization. In case of any Reorganization, appropriate
adjustment, as determined in good faith by the Board of Directors
of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of the
Holder so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of this
Warrant. Any such adjustment shall be made by and set forth in a
supplemental agreement between the Company, or any successor
thereto, and the Holder and shall for all purposes hereof
conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization unless upon or
prior to the consummation thereof the successor corporation, or if
the Company shall be the surviving corporation in any such
Reorganization and is not the issuer of the shares of stock or
other securities or property to be delivered to holders of shares
of Common Stock outstanding at the effective time thereof, then
such issuer, shall assume by written instrument the obligation to
deliver to the Holder such shares of stock, securities, cash or
other property as the Holder shall be entitled to purchase in
accordance with the foregoing provisions.
(b) In case of any reclassification or change of
the shares of Common Stock issuable upon exercise of this Warrant
(other than a change in par value or from no par value to a
specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the
Company is the continuing corporation and in which there is a
reclassification or change (including a change to the right to
receive cash or other property) of the shares of Common Stock
(other than a change in par value, or from no par value to a
specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or
more classes or series of shares), the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely
the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
reclassification, change, consolidation or merger by a holder of
the number of shares of Common Stock for which this Warrant
might have been exercised immediately prior to such
reclassification, change, consolidation or merger. Thereafter,
appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section
5.
(c) The above provisions of this Section 6 shall
similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive consolidations, mergers,
sales, leases, or conveyances.
7. Notice of Certain Events. In case at any time any
of the following occur:
(a) The Company shall take a record of the holders
of its shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in cash,
or a cash dividend or distribution payable otherwise than out of
current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders
of its shares of Common Stock any additional shares of capital
stock of the Company or securities convertible into or exchangeable
for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor; or
(c) The Company shall take any action to effect any
reclassification or change of outstanding shares of Common Stock or
any consolidation, merger, sale, lease or conveyance of property,
described in Section 6; or
(d) The Company shall take any action to effect any
liquidation, dissolution or winding-up of the Company or a sale of
all or substantially all of its property, assets and business;
then, and in any one or more of such cases, the Company shall
give written notice thereof, by registered mail, postage prepaid,
to the Holder at the Holder's address as it shall appear in the
Warrant Register, mailed at least fifteen (15) days prior to (i)
the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution,
rights, warrants or other securities are to be determined, (ii) the
date on which any such offer to holders of shares of Common Stock
is made, or (iii) the date on which any such reclassification,
change of outstanding shares of Common Stock, consolidation,
merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up is expected to become effective and the
date as of which it is expected that holders of record of shares of
Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation,
merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up.
8. Provisions Concerning Redemption. (a) At any time
after March 28, 2001 and before March 28, 2006 (the "Redemption
Period"), on not less than thirty (30) days notice (the
"Redemption Notice") given to the Company, the Holder, without
being required to pay any amount to the Company, may cause the
Company to redeem all or a part of this Warrant at a redemption
price of $1.50 per Warrant Share (the "Redemption Price") for the
number of Warrant Shares underlying all or a portion of this
Warrant being redeemed, provided that the Current Market Price of
the Common Stock at the time of such notice shall be less than or
equal to the Exercise Price.
(b) The Company shall, upon presentation and
surrender to the Company by or on behalf of the Holder thereof of
one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written
order of such Holder a sum by certified check equal to the
Redemption Price times the number of Warrant Shares underlying the
Warrant or Warrants being redeemed. Upon such redemption, such
Warrants shall expire and become void and all rights hereunder and
under the Warrant Certificates, except the right to receive payment
of the redemption price, shall cease.
9. Guaranteed Proceeds. During the Redemption Period,
upon exercise by the Holder of all or a portion of this Warrant on
a date on which the Current Market Price is more than the Exercise
Price but less than $2.375 per Warrant Share, the Company shall pay
to the Holder that amount (the "Difference") which equals the
difference between (a) the number of Warrant Shares issuable upon
exercise times $2.375 and (b) the number of Warrant Shares issuable
upon exercise times the Current Market Price on the date of
exercise. The Difference shall be paid by certified check to the
Holder within 10 business days following the date of exercise.
Even if the Holder shall avail himself of the provisions of
paragraph 1(b) of this Warrant, in making the calculation pursuant
to clauses (a) and (b) of this paragraph 9 of the number of Warrant
Shares issuable upon exercise of this Warrant, such number shall be
calculated as if the Holder had not availed himself of the
provisions of paragraph 1(b) of this Warrant.
10. Legend. The certificate or certificates evidencing
the Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN NOT REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE
HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH
SECURITIES MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR TRANSFERRED IN
THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
11. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant (and upon surrender of any Warrant if
mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the
Holder thereof a new Warrant of like date, tenor and denomination.
12. No Rights as Stockholder. The Holder of any Warrant
shall not have, solely on account of such status, any rights of a
stockholder of the Company, either at law or in equity, or to any
notice of meetings of stockholders or of any other proceedings of
the Company, except as provided in this Warrant.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been duly made when delivered, or mailed by registered or
certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to
the address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on
the first page of this Warrant or to such other address as the
Company may designate by notice to the Holder.
14. Successors. All the covenants, agreements,
representations and warranties contained in this Warrant shall bind
the parties hereto and their respective heirs, executors,
administrators, distributees, successors and assigns.
15. Headings. The Article and Section headings in this
Warrant are inserted for purposes of convenience only and shall
have no substantive effect.
16. Governing Law. This Warrant shall be construed in
accordance with the laws of the State of New York applicable to
contracts made and performed within such State, without regard to
principles of conflicts of law.
17. Modification of Agreement. This Warrant shall not
otherwise be modified, supplemented or amended in any respect
unless such modification, supplement or amendment is in writing and
signed by the Company and the Holder of this Warrant and Holders of
any portion of the Warrant subsequently assigned or transferred in
accordance with the terms of this Warrant.
18. Consent to Jurisdiction. The Company and the Holder
irrevocably consent to the jurisdiction of the courts of the State
of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating
to this Warrant, any document or instrument delivered pursuant to,
in connection with or simultaneously with this Warrant, or a breach
of this Warrant or any such document or instrument.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of the date set forth below.
Dated: March 28, 1996
ORBIT INTERNATIONAL CORP.
By:
Name: ________________
Title: _______________
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the attached Warrant.)
FOR VALUE RECEIVED, _______________________ hereby sells,
assigns, and transfers unto _________________, having an address at
______________________________ _______________________, the
attached Warrant to the extent of the right to purchase
____________ shares of Common Stock of $0.10 par value per share,
of Orbit International Corp. (the "Company"), together with all
right, title, and interest therein, and does hereby irrevocably
constitute and appoint _________________ as attorney to transfer
such Warrant on the books of the Company, with full power of
substitution.
Dated: _______________, 199_
_____________________________
Print name of holder of Warrant
By:
Name:
Title:
NOTICE
The signature on the foregoing Assignment must correspond
to the name as written upon the face of this Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
To:
The undersigned hereby exercises its rights to purchase
_________ Warrant Shares covered by the within Warrant and tenders
payment herewith in the amount of $_____________ in accordance with
the terms thereof, and requests that certificates for such
securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the
Warrant Shares covered by the within Warrant, that a new Warrant
for the balance of the Warrant Shares covered by the within
Warrant be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated:__________________ Name:
(Print)
(Signature)
(Signature must conform
to the name of the
Warrant Holder specified
on the face of the
Warrant)
Address:
CONVERSION NOTICE
(To be executed upon exercise of Warrant pursuant to Section 1)
The undersigned hereby irrevocably elects to surrender
its Warrant for such shares of Common Stock pursuant to the
cashless exercise provisions of the within Warrant, as provided for
in Section 1 of such Warrant.
Please issue a certificate or certificates for such Stock
in the name of, ____________________.
Name___________________
(Please Print Name,
Address and Social
Security No.)
Address________________
_______________________
Social_________________
Security No.
Signature______________
NOTE: The above signature should correspond exactly with the
name on the first page of this Warrant or with the name
of the assignee appearing in the assignment form below
If said number of shares shall not be all the shares
exchangeable or purchasable under the within Warrant, a new Warrant
is to be issued in the name of the undersigned for the balance
remaining of the shares purchasable thereunder.
<PAGE>
FACTORING SECURITY AND LOAN AGREEMENT
TO: CANADA CLASSIQUE, INC.
WINNIPEG LEATHER (1991), INC.
SYMAX GARMENT CO. (1993) LTD.
Dear Sirs:
The following confirms the terms and conditions of and constitutes
a Factoring, Security and Loan Agreement between us:
1.00 DEFINITIONS
In this agreement:
(a) "ACCOUNTS RECEIVABLE" means all of your accounts
receivable, present and future, resulting from SALES;
(b) "ADVANCES" means payments made by us to you in advance of
the SETTLEMENT DATE for the purchase of ACCOUNTS
RECEIVABLE as set forth in Section 4.01;
(c) "CONTRACT DATA SHEET" means the schedule bearing that
title, which refers to this agreement and contains
special provisions relating hereto. The CONTRACT DATA
SHEET forms an integral part hereof;
(d) "CREDIT FACILITY LIMIT" means the credit facility limit
set forth in the CONTRACT DATA SHEET;
(e) "DISPUTE" means any cause asserted for non-payment of an
ACCOUNT RECEIVABLE including, without limitation, any
dispute, claim, complaint, off-set, defense,
contra-account or counter-claim, (real or merely
asserted), lawful or unlawful, whether arising from or
relating to a SALE or any other transaction or
occurrence;
(f) "EFFECTIVE DATE" means the effective date set forth in
the CONTRACT DATA SHEET;
(g) "ELIGIBLE ACCOUNTS RECEIVABLE" means those of your
ACCOUNTS RECEIVABLE which we, in our sole discretion,
determine to be acceptable for purposes of advances and,
without in any way limiting our discretion, excludes (i)
any ACCOUNTS RECEIVABLE in respect of which the customer
has not accepted delivery of the goods or performance of
the services without DISPUTE or which arises from a SALE
to a RELATED PERSON; (ii) any ACCOUNT RECEIVABLE which is
more than 60 days past due; and (iii) all ACCOUNTS
RECEIVABLE owing by a customer if at any time more than
25% of the gross amount of outstanding ACCOUNTS
RECEIVABLE of such customer are more than 60 days past
due;
(h) "ELIGIBLE INVENTORY" means landed, duty paid, finished
goods and raw material inventory located in Canada and in
your possession, which is unencumbered (except for
encumbrances in our favour), is in good condition and
readily saleable at prices not less than cost and which
we, in our sole discretion, determine to be acceptable
for purposes of advances;
(i) "ELIGIBLE LETTER OF CREDIT INVENTORY" means finished
goods which are to be imported under outstanding LETTERS
OF CREDIT and which are unencumbered (except for
encumbrances in our favour), in good condition and
readily saleable at prices not less than cost and which
we, in our sole discretion, determine to be acceptable
for purposes of advances;
(j) An "EVENT OF DEFAULT" occurs by the mere lapse of time
for performance if:
(i) You fail to make payment of any of the OBLIGATIONS
or any part thereof when due;
(ii) You fail to observe any covenant or otherwise
default under the terms of this agreement;
(iii) Anyone gives notice to
your customers generally to make payment to anyone
other than us;
(iv) A default occurs under any other contract or
agreement between us or under any instrument
creating security in our favour or for our benefit;
(v) Any representation or warranty made by you in
connection with this agreement is materially false
or misleading;
(vi) You sell, transfer or dispose of or purport to
sell, transfer or dispose of all or a significant
portion of your assets;
(vii) You make an assignment for
the benefit of your creditors, become insolvent,
commit an act of bankruptcy, cease or threaten to
cease to do business as a going concern or seek any
arrangement or composition with your creditors or
invoke, threaten to invoke or indicate your
intention to invoke the benefit of any legislation
governing insolvent debtors;
(viii) If any proceeding in
bankruptcy, receivership, liquidation or insolvency
is commenced in respect of you or in respect of any
of your property or if any receiver or receiver
manager takes possession of your undertaking or any
substantial portion of your property or if any
creditor enforces or gives notice of its intention
to enforce or gives prior notice with respect to
the exercise of any of its rights under any
security granted to it by you;
(ix) Any guarantee for any of the OBLIGATIONS terminates
or any guarantor withdraws or purports to withdraw,
without our consent, any guarantee or any security
given in connection therewith or should a guarantor
default under the terms of any such security or
guarantee;
(x) You make a payment to any creditor in respect of
any indebtedness which has been subordinated to
payment of the OBLIGATIONS or any of them; or
(xi) After the EFFECTIVE DATE, ownership or control of
twenty percent (20%) or more of your aggregate
outstanding shares, share equivalents or any other
equity changes or there occurs any other
significant change in the identity of those in
control of you (whether or not qualifying under the
preceding "20%" provision) or any significant
change occurs in your management;
(k) "INVENTORY LOAN LIMIT" means the inventory loan limit set
forth in the CONTRACT DATA SHEET;
(l) "LETTERS OF CREDIT" means any and all letters of credit
and/or letters of guarantee or portions thereof which we
either issue at your request or guarantee for you at your
request;
(m) "LETTER OF CREDIT LIMIT" means the letter of credit limit
set forth in the CONTRACT DATA SHEET;
(n) "NET FACE AMOUNT" means the gross amount of any ACCOUNT
RECEIVABLE less all discounts (which shall be determined
by us where optional terms are given), returns,
allowances, credits and/or reductions at any time
applicable, taken or allowed and shall in no
circumstances exceed the amount actually owing by the
customer thereunder;
(o) "OBLIGATIONS" means all your indebtedness and obligations
to us or any parent, subsidiary or affiliate of ours of
any nature whatsoever, present or future, direct or
indirect, absolute or contingent, matured or not,
including, without limiting the generality of the
foregoing, all ADVANCES and loans made by us pursuant to
this agreement, all interest and charges pursuant to this
agreement and all indebtedness arising from agreements or
dealings with any third party by which
<PAGE>
we may be or become in any manner whatsoever a creditor of yours
and all ACCOUNTS RECEIVABLE charged or chargeable to your account
hereunder;
(p) "OTHER INDEBTEDNESS" means any indebtedness or
liabilities of yours to third parties where such third
parties are financed or factored by us or where we have
assumed the risk of credit loss in favour of such third
parties or where we are or may become otherwise liable,
including contingently, to such third parties for your
indebtedness;
(q) "PERMITTED ENCUMBRANCES" means the following:
Security granted by Canada Classique, Inc. in favour of
National Equipment Leasing Ltd., registered in Manitoba
on March 22, 1995 under number 950322-104535 limited to
one (1) modular co-line card, one (1) modular station
module EX16, 6M7208 sets, six (6) sets-run, installation;
General Security by Canada Classique, Inc. in favour of
Orbit International Corp., registered in Manitoba on
April 27, 1995 under the number 950427-109575;
General Security by Winnipeg Leather (1991), Inc. in
favour of Canada Classique, Inc., registered in Manitoba
on June 9, 1995 under the number 950609-101103;
General security by Symax Garment Co. (1993) Ltd. in
favour of orbit International Corp., registered in
British Columbia on May 3, 1995 under the number 5762300;
General security by Winnipeg Leather (1991), Inc. in
favour of Orbit International Corp., registered in
Manitoba on April 27 1995 under the number 950427-109567;
(r) "PRIME RATE" means the interest rate per annum from time
to time publicized by The Toronto-Dominion Bank as its
prime rate;
(s) "RELATED PERSON" means any person who is a "related
person" to you, your shareholders, officers and/or
directors as set forth and defined in Section 4 of the
Bankruptcy and Insolvency Act (R.S.C., Chapter B-3) (or
any successor legislation) and, without limiting the
generality of the foregoing, any entity in which you or
any of your shareholders, directors and/or officers have
any direct or indirect equity interest [other than by way
of a passive investment in shares traded on a recognized
stock exchange representing less than a ONE PERCENT (1%)
equity interest] shall also be a RELATED PERSON;
(t) "RESERVES" means, at any time, the aggregate amount of
OBLIGATIONS which are then chargeable to your account and
any OBLIGATIONS which, in our sole judgment, may become
chargeable to your account thereafter;
(u) "SALES" means your sales of merchandise and/or services
to customers;
(v) "SECURITY" means all deeds, documents, instruments and
agreements (and all amendments, modifications,
replacements and substitutions) entered in our favour by
you or any guarantor of the OBLIGATIONS including,
without limiting the generality of the foregoing, the
SECURITY referred to in Section 8.00;
(w) "SETTLEMENT DATE" means the number of business days
indicated in the CONTRACT DATA SHEET after the day on
which an ACCOUNT RECEIVABLE is actually collected by us.
2.00 PURCHASE OF ACCOUNTS RECEIVABLE
2.01 You hereby sell and assign to us, as absolute owner, and
we hereby purchase from you, all ACCOUNTS RECEIVABLE created on or
after the EFFECTIVE DATE.
2.02 The purchase price of each ACCOUNT RECEIVABLE shall be
the NET FACE AMOUNT thereof less our commission described in
Section 5.00. The purchase price will be credited to your account
and remitted to you on the SETTLEMENT DATE, subject to our right to
deduct RESERVES from the amount payable to you on any SETTLEMENT
DATE.
2.03 We shall not assume the credit risk on any of the
ACCOUNTS RECEIVABLE and, accordingly, all ACCOUNTS RECEIVABLE shall
be purchased by us with full recourse to you in the event of non-
payment thereof for any reason whatsoever.
2.04 The originals and all copies of invoices will, in form
acceptable to us, state plainly that the ACCOUNTS RECEIVABLE
represented thereby are owned by us and are payable to us only.
Concurrently with the delivery of merchandise or performance of
services, you will deliver to us:
(a) A duplicate original of the invoice relating to the SALE,
accompanied by a confirmatory assignment of the ACCOUNT
RECEIVABLE. Your failure to furnish such a specific
assignment shall not diminish our rights with respect to
the ACCOUNT RECEIVABLE;
(b) Evidence satisfactory to us of each shipment and delivery
of merchandise or performance of services.
2.05 We shall have the right, irrevocable during the currency
of this agreement, and thereafter for so long as any of the
OBLIGATIONS remain outstanding, to communicate with and instruct
the account debtors of the ACCOUNTS RECEIVABLE to make payments in
respect thereof directly to us and to endorse your name on payment
instruments and to institute proceedings in your name or ours as we
may deem necessary to enforce payment from customers.
2.06 If you receive any cash payments, cheques or other
instruments of payment for or on account of any ACCOUNTS
RECEIVABLE, you will forthwith remit them to us on the same day as
received and in identical form as received.
2.07 You shall promptly provide us with a duplicate original
of any credit issued by you in respect of any ACCOUNT RECEIVABLE.
We may, at any time, in our discretion, withdraw your authority to
issue credits without our prior written consent.
2.08 We shall not be liable for any selling expenses, orders,
purchases, contracts or taxes of any kind resulting from your SALES
and you will indemnify us and hold us harmless with respect
thereto, which indemnity shall survive termination of this
agreement.
3.00 DISPUTES, RETURNS, CHARGEBACKS
3.01 You will notify us immediately if a customer rejects,
returns or desires to return merchandise or alleges a DISPUTE. You
will, with all due diligence, attempt to resolve every DISPUTE and
will, subject to our consent, issue any appropriate credit note.
3.02 We may accept payments on account from customers, deposit
remittances as received (irrespective of any deductions or
notations shown) and we may settle or litigate, at your expense,
any DISPUTE directly with the customer or other complainant as we
deem advisable.
3.03 Any returned or recovered merchandise in your possession
or under your control will be held in trust for our account and
will be subject to the SECURITY and will be dealt with in
accordance with our instructions.
3.04 We may charge to your account at any time the gross face
amount of any ACCOUNT RECEIVABLE purchased hereunder which is not
paid on its due date, together with interest thereon from the due
date to the date of chargeback. Any chargeback of an ACCOUNT
RECEIVABLE shall not be deemed a reassignment thereof and will not
impair our rights thereto or our security thereon, which will
continue to be effective until the OBLIGATIONS have been fully
satisfied.
4.00 CREDIT FACILITY
4.01 Subject to the terms and conditions of this agreement, we
may, at our sole discretion, make payments to you of the purchase
price of the ACCOUNTS RECEIVABLE in advance of the SETTLEMENT DATE
("ADVANCES"), subject to our right to withhold RESERVES, and make
additional loans to you and, issue or arrange for the issuance of
LETTERS OF CREDIT in amounts which will not in the aggregate at any
time exceed the lesser of:
(a) The CREDIT FACILITY LIMIT; or
(b) The aggregate of:
(i) Up to the percentage referred to on the CONTRACT
DATA SHEET of your ELIGIBLE ACCOUNTS RECEIVABLE;
and
(ii) Up to the lesser of (a) the percentage referred to
on the CONTRACT DATA SHEET of the cost of your
ELIGIBLE INVENTORY; or (b) the INVENTORY LOAN
LIMIT; or (c) the projected inventory loan set
forth in the business plan submitted to us and not
disapproved by us; and
(iii) Up to the percentage
referred to on the CONTRACT DATA SHEET of the first
cost of your ELIGIBLE LETTER OF CREDIT INVENTORY;
minus the aggregate of:
(iv) The face amount of LETTERS OF CREDIT outstanding
(which shall not at any time exceed the LETTER OF
CREDIT LIMIT); and
(v) Such reserves as we may, in our discretion, deem
proper or necessary from time to time including,
without limiting the generality of the foregoing
and without limiting our discretion, all
ineligible ACCOUNTS RECEIVABLE, disputed items,
deductions, allowances, credits, "bill and hold"
and consignment sales, steamship guarantees, airway
releases and any other offsets or compensations
asserted or granted.
Any amounts advanced to you in excess of the purchase
price of the ACCOUNTS RECEIVABLE will constitute loans to you.
4.02 Without limiting our discretion referred to above, your
right to utilize the credit facilities herein provided for is
subject to and conditional upon the satisfaction of each of the
following terms and conditions on the date of such utilization:
(a) The representations and warranties set forth in this
agreement and in any SECURITY will be complete and
accurate;
(b) You will be in compliance with all of the terms and
conditions of this agreement, the SECURITY and all
agreements and documents contemplated hereby and there
will not have occurred an EVENT OF DEFAULT or any event
which, with the giving of notice, lapse of time and/or
other condition might constitute an EVENT OF DEFAULT;
(c) The SECURITY will have been duly executed, delivered and
registered in all places where, in the opinion of our
counsel, such registration is required and we will have
received such legal opinions as we may require with
respect to the execution, validity and enforceability of
the present agreement, the SECURITY and any document
executed in connection herewith or therewith;
(d) You will be in compliance with any condition precedent to
closing set forth in the CONTRACT DATA SHEET;
(e) We will have received such other documents and
information relating to you, your assets, your business
and financial affairs or relating to any guarantor of the
OBLIGATIONS as we may reasonably require.
4.03 In addition, we may, at our sole discretion:
(a) Make loans to you in excess of the amount to which you
are entitled under Section 4.01;
(b) Pay the whole or any portion of the OTHER INDEBTEDNESS;
and
(c) Make and charge to your account any disbursement for any
other purpose which we, in our discretion, deem advisable
to protect our rights hereunder or under any SECURITY.
4.04 All ADVANCES and loans and other amounts which we remit,
lend or advance or which we undertake to remit, lend or advance to
you or for your account or benefit, all sums paid or disbursed or
which we undertake to pay or disburse to third parties in
connection with any LETTERS OF CREDIT or otherwise and all other
amounts properly chargeable by us to you, whether or not hereunder,
will form part of the OBLIGATIONS and may be charged to your
account.
5.00 CHARGES
5.01 You will pay us, without the necessity of demand, and we
may charge to your account, the following:
(a) INTEREST: On the last day of each month, interest payable
in arrears, on the average daily balance of all loans and
ADVANCES owing by you to us and all other amounts charged
to your account, at the rates set forth on the CONTRACT
DATA SHEET, with interest on overdue interest at the same
rate provided, however, that if an EVENT OF DEFAULT
occurs such rates shall be automatically increased by two
percentage points (2%) effective as of the occurrence of
the EVENT OF DEFAULT and continuing as long as the EVENT
OF DEFAULT is outstanding. Interest will be calculated at
such rates based upon the weighted average of the PRIME
RATE for the month in question and shall be
<PAGE>
payable at the same rate(s) and on the same basis both before and
after our demand for payment from you of the OBLIGATIONS.
The interest rate referred to herein, which is computed
on the basis of a year of three hundred and sixty (360)
days, constitutes a rate of interest on a yearly basis
equivalent to a said rate divided by three hundred and
sixty (360) and multiplied by the number of days in any
given year (.01389 times greater than the said rate in
any ordinary year and .01667 times greater than the said
rate in any leap year).
(b) COMMISSION: on a monthly basis, a commission on the gross
amount of your SALES (including taxes and other charges
invoiced), as soon as they are made, at the rate set
forth on the CONTRACT DATA SHEET, subject to the minimum
hereinafter referred to.
The aggregate amount of SALES with respect to which you
are obligated to pay the commission ("VOLUME") shall not
be less than the minimum sales set forth in the CONTRACT
DATA SHEET ("MINIMUM") in each calendar year (the twelve
month period starting January 1st of each year) during
which this agreement is in effect, or the part of the
last calendar year during which this agreement is in
effect if it is terminated before the end of a calendar
year ("PARTIAL LAST YEAR"); provided, however, that the
VOLUME for the part of the first calendar year during
which this agreement is in effect if the EFFECTIVE DATE
is after January 1 of such calendar year ("PARTIAL FIRST
YEAR"), shall not be less than the amount equal to the
MINIMUM multiplied by a fraction, the numerator of which
is the number of months (a month shall mean any calendar
month or portion thereof) between the EFFECTIVE DATE and
December 31 of such calendar year and the denominator of
which is 12 ("REDUCED MINIMUM"). If the VOLUME in any
calendar year or PARTIAL LAST YEAR (if any) is less than
the MINIMUM, or in the PARTIAL FIRST YEAR (if any) is
less than the REDUCED MINIMUM, we shall charge to your
account the difference ("MINIMUM VOLUME CHARGE") between
the commission on the MINIMUM or REDUCED MINIMUM, as the
case may be, and the commission on the VOLUME for the
calendar year or PARTIAL LAST YEAR, or the PARTIAL FIRST
YEAR, respectively. We shall compute the MINIMUM VOLUME
CHARGE, if any, on a calendar quarterly basis and charge
your account therefor for each calendar quarter in the
month following the end of such calendar quarter, or in
the month following the effective date of termination of
this agreement in the case of a PARTIAL LAST YEAR.
However, if an EVENT OF DEFAULT occurs, and if we so
elect, and whether or not we then or thereafter exercise
any of our rights of termination hereunder, we may on or
at any time after the occurrence of such EVENT OF DEFAULT
compute and charge your account f or the MINIMUM VOLUME
CHARGE for the period starting on such occurrence and
ending on December 31 of the calendar year in which this
agreement may be terminated by you pursuant to the
Section titled "Duration of Agreement", and for the
purpose only of computing such MINIMUM VOLUME CHARGE, we
may assume that your VOLUME for the period will be zero,
subject to subsequent adjustment if such VOLUME in fact
is more than zero;
(c) LETTER OF CREDIT CHARGES: A fee at the rates set forth on
the CONTRACT DATA SHEET based on the face amount of
outstanding LETTERS OF CREDIT, calculated from issuance
until cancellation, expiry or payment, plus any bank
charges incurred in respect thereof; and
(d) OTHER CHARGES: All bank, exchange, wire and cable charges
and any other charges set forth on the CONTRACT DATA
SHEET.
5.02 In the event that, at any time, the aggregate of the
charges referred to above exceed the maximum amount permitted by
applicable law, you will only be required to pay the maximum amount
permitted by applicable law.
6.00 STATEMENTS OF ACCOUNT
6.01 We will provide you with periodic reports summarizing the
collection of ACCOUNTS RECEIVABLE. We shall not be liable to you by
reason of any delays in providing reports or inadvertent errors or
omissions. You acknowledge that we may use the services of any
other organizations in connection with the processing of your data,
and in such case we shall not be liable to you by reason of acts or
omissions of such organizations.
6.02 Each month, we shall send or deliver to you statements of
your accounts with us and you agree to verify the correctness of
our statements and to notify us in writing of any errors,
irregularities or omissions within thirty (30) days of the
statement date. Such statements will be finally and conclusively
binding upon you and will constitute proof of the status of the
accounts reflected therein.
7.00 OBLIGATIONS
7.01 The OBLIGATIONS and all components thereof from time to
time shall be deemed to constitute a single indebtedness, payable
upon demand by set-off (compensation) in our favour thereagainst
without necessity of demand and notwithstanding lack of demand. We
may charge to your account all OBLIGATIONS. We shall have the right
to impute or appropriate any and all amounts received by us from
any source in any manner and against any portion of your
OBLIGATIONS as we, in our discretion, may determine and we may,
from time to time, vary such imputation or appropriation.
7.02 All of your OBLIGATIONS shall be and become fully due,
exigible and payable by you to us without the necessity of
termination of this agreement by us and without any set-off or
compensation in your favour either:
(a) Upon our simple demand to you therefor; or
(b) Immediately, without necessity of demand therefor or
notice, upon the occurrence of an EVENT OF DEFAULT,
whereupon we shall be entitled to, immediately and without any
further notice or formality whatsoever (except as required by law),
enforce and realize upon the SECURITY.
8.00 SECURITY
8.01 As general and continuing security for the fulfilment and
payment of the OBLIGATIONS, you shall provide or cause to be
provided to us the SECURITY specified in the CONTRACT DATA SHEET in
form and substance satisfactory to us.
8.02 You authorize us, as your mandatory and attorney, to
execute in your name, to register and to file any documents
necessary or desirable in order to protect the SECURITY and our
rights and recourses thereunder. At our discretion, we shall have
the right to receive and open all mail addressed to you and to
notify any post office authorities to change the address for
delivery of mail addressed to you to any address designated by us.
9.00 REPRESENTATIONS, WARRANTIES AND COVENANTS
9.01 You represent, warrant and covenant to us that at the
present time and throughout the period during which the present
agreement is in effect, and so long thereafter as there exist any
OBLIGATIONS:
(a) You are not and will not be insolvent within the meaning
of the Bankruptcy and Insolvency Act (Canada), or any
successor legislation or any other legislation relating
to bankruptcy or insolvency to which you are subject;
(b) You will not, without our prior written consent,
hypothecate, assign or pledge any of your interest or
rights hereunder, nor any credits or sums of money which
from time to time may be due to you;
(c) Except for the PERMITTED ENCUMBRANCES, none of your
ACCOUNTS RECEIVABLE has been or will be sold,
hypothecated or assigned, except to us and we shall have
absolute and unencumbered title to your ACCOUNTS
RECEIVABLE; and no other party has or will have any
claims thereto as proceeds of goods or otherwise;
(d) Except for the PERMITTED ENCUMBRANCES and security in our
favour, you shall have absolute and unencumbered title to
all inventory located in your premises or imported by
you; and no other party has or will have any claims
thereto;
(e) Except for the PERMITTED ENCUMBRANCES, none of your
assets are or will be hypothecated, pledged or given as
security to any third party, other than a third party
holding them for our benefit;
(f) Each ACCOUNT RECEIVABLE will arise from a bona fide,
final and absolute sale and delivery of merchandise or
services, unencumbered title to which (in the case of
merchandise) was yours at the time of the SALE (except as
regards security existing in our favour or for our
benefit), made in the ordinary course of business; all
SALES will be SALES with respect to which you reasonably
believe that the customer will receive and accept the
merchandise and/or services as invoiced without DISPUTE;
and none of the SALES will be made subject to any special
arrangements such as consignment, "bill and hold" or
guaranteed resale arrangements;
(g) All excise, sales and other taxes, all deductions at
source and all other obligations which rank in priority
to our rights under the SECURITY will be fully paid or
remitted by you when due;
(h) There are no legal actions, proceedings or unexecuted
judgments presently pending against you or any guarantor
of the OBLIGATIONS of which you have not advised us in
writing and you will advise us of the institution of any
legal actions, proceedings or judgments against you or
any guarantor within ten (10) days thereof, and will
satisfy and will cause any guarantor to satisfy any
judgments which may be rendered before they become
executory;
(i) All statements and documents delivered to us relating to
your SALES, ACCOUNTS RECEIVABLE, inventory and financial
affairs or relating to any guarantor of the OBLIGATIONS
are and will be complete and accurate;
(j) You will deliver or cause to be delivered to us the
financial and other reports specified in the CONTRACT
DATA SHEET at the intervals specified therein, all of
which will be in form and substance satisfactory to us.
Any such report which is to be audited will be
accompanied by the unqualified opinion of your auditors
who shall be chartered accountants acceptable to us. We
may have access to and inspect, audit and make extracts
from your records, files and books of account during
normal business hours and we may charge your account with
the costs, fees and expenses incurred in connection
therewith;
(k) All foreign exchange transactions required by you in
connection with your business will be arranged through us
at rates competitive to those offered by similar
institutions for similar transactions;
<PAGE>
(l) You will observe the FINANCIAL COVENANTS referred to on
the CONTRACT DATA SHEET.
10.00 EXPENSES
10.01 You will pay or reimburse us and we may charge to
your account, the amount of legal fees (including fees, expenses
and costs payable to attorneys retained or employed by us) and
other costs, fees and expenses relating to any due diligence
examinations or audits by us (including, but not limited to, a per
them charge for our internal audit staff at our then standard rate
and amounts charged to us by other parties retained by us) and in
connection with negotiating or preparing this agreement and any
legal documentation required by us or requested by you in
connection with this agreement, as well as all amendments and
supplements thereof, or in enforcing our rights hereunder or in
evaluating, monitoring, preserving, insuring, safeguarding or
realizing upon the SECURITY or in connection with the litigation of
any controversy arising out of this agreement, or in protecting,
preserving or perfecting our interest under the SECURITY, including
without limitation all taxes assessed or payable with respect to
any property subject to the SECURITY and the costs of all public
record filings, appraisals and searches relating to any SECURITY.
You will also pay us and we may charge to your account our then
standard price for furnishing to you or your designees copies of
any statements, records, files or other data requested by you or
them other than those of the kind furnished to you and our other
clients on a regular, periodic basis in the ordinary course of our
business. All amounts referred to herein will form part of the
OBLIGATIONS.
11.00 DURATION OF AGREEMENT
11.01 This agreement shall remain in full force and effect
until terminated as follows:
(a) Either of us may terminate this agreement by written
notice of termination (by certified mail, return receipt
requested) no less than sixty (60) days prior to and
effective as of the anniversary of the EFFECTIVE DATE in
any year, provided however, that no notice of termination
given by either party pursuant to this paragraph will be
effective until expiry of the period indicated as the
minimum duration of this agreement in the CONTRACT DATA
SHEET; or
(b) We may terminate this agreement at any time upon six (6)
months prior written notice to you; or
(c) We may terminate this agreement at any time without
notice upon the occurrence of an EVENT OF DEFAULT.
<PAGE>
12.00 TERMINATION
12.01 Except as herein otherwise provided, rights and
obligations arising out of transactions having their inception
prior to the termination will not be affected by termination.
12.02 Upon termination:
(a) You will fulfil and pay all your OBLIGATIONS without the
necessity of demand, and will obtain and furnish us with
a written release and discharge from any and all
guarantees, undertakings and obligations of ours to third
parties contracted, undertaken or existing in favour of
third parties in respect of transactions between you and
such third parties, or otherwise relating to you, failing
which, we shall be entitled, without any notice or
formality whatsoever, to immediately enforce and realize
upon the SECURITY.
(b) Without prejudice to all our rights in respect of the
OBLIGATIONS and under the SECURITY, we shall have the
right at any time to cease to ledger and collect your
ACCOUNTS RECEIVABLE.
13.00 MULTIPLE PARTIES
13.01 In the event that this agreement is addressed to and
accepted by more than one (1) person, then, for all purposes
hereof:
(a) Such persons shall be considered as one (1) single person
for the purposes of calculating SALES, ACCOUNTS
RECEIVABLE, ELIGIBLE ACCOUNTS RECEIVABLE, ELIGIBLE
INVENTORY and loans or ADVANCES (and limits thereon) made
or to be made pursuant hereto;
(b) Such persons shall be and remain solidarily bound,
obliged and liable to us for the performance, fulfilment
and payment of all debts, obligations, representations,
warranties and duties (including, without limitation, the
OBLIGATIONS) hereunder and any and all references herein
to the words "you" or "yours" or similar references shall
be deemed to be references to such persons solidarily;
(c) All loans and LETTERS OF CREDIT will be deemed to be
loans to or LETTERS OF CREDIT for all such persons.
However, we may, in our discretion, from time to time,
keep separate accounts for each person and any loans made
or to be made, may be made by us, at our discretion, to
any one or more of such persons or to all such persons
and any LETTERS OF CREDIT issued or guaranteed by us may
be for any one or more or all such persons.
Notwithstanding any keeping of separate accounts or
making or issuing of separate loans or LETTERS OF CREDIT,
we may deal with such persons and with their accounts as
if such persons and the accounts were one, and without
limiting the generality of the foregoing, we are
authorized to apply debits and/or credits to the accounts
kept in the name of any one or more of such persons or
all of such persons collectively and to transfer debits
and/or credits as between such persons, the whole as we,
in our sole discretion, from time to time, see fit.
14.00 GENERAL
14.01 Currency and Payments
Any reference herein to monies hereunder or in any
document related hereto or dealings between you and us shall,
unless expressly stated otherwise, constitute Canadian Dollars and,
if in a currency other than Canadian dollars, shall be converted
from such foreign currency to Canadian dollars at the prevailing
selling rate at the time of such conversion. All OBLIGATIONS shall
be paid at our office in the City of Montreal, Province of Quebec.
14.02 Waivers, Remedies, Amendments
Our failure to insist upon strict performance of any
provision hereof or any obligation of yours will not be deemed to
be a waiver of our right to strict performance and any waiver by us
must be in writing and will then be for the particular instance
only. All rights conferred upon us hereunder or by law will be
cumulative and not alternative. This agreement may not be modified,
altered or amended except by an agreement in writing signed by the
parties hereto.
14.03 Successors and Assigns
You will not be permitted to assign any of your rights
under this agreement. Without prejudice to the foregoing, this
agreement will enure to and be binding upon the parties hereto,
their successors, assigns, trustees and legal representatives.
14.04 Previous Commitments
The present agreement supersedes and replaces any
previous commitments given or financing proposals made by us to you
and all inconsistent agreements and communications, written or
verbal, between your and our officers, employees, agents and other
representatives.
14.05 Headings
The headings herein contained are for the purpose of
convenience only, and will not be deemed to form part of this
agreement nor to affect the interpretation or construction hereof.
<PAGE>
14.06 Notices
Any notice to be given pursuant hereto will be in writing
and may be delivered or sent by prepaid registered or certified
mail or hand delivered to either party at the address where
mailings are customarily addressed to that party by the other.
14.07 Governing Law & Jurisdiction
The interpretation, validity and enforcement of the
present agreement shall be subject to and governed by the laws of
the Province of Manitoba. You expressly submit and consent to the
exclusive jurisdiction of the courts of Manitoba with respect to
any controversy arising out of or relating to this agreement or any
supplement hereto or to any transaction in connection therewith.
14.08 Severability
This agreement shall not be considered as an indivisible
whole and every provision of this agreement is and shall be
independent of the other. In the event that any part of this
agreement is declared invalid, illegal or unenforceable, then the
remaining terms, clauses and provisions of this agreement shall not
be affected by such declaration and all of the remaining clauses of
this agreement shall remain valid, binding and enforceable.
14.09 Counterparts
This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all of which together shall constitute one and the same agreement.
14.10 Further Assurances
You shall enter into all documents and perform all acts
requested by us in order to give full force and effect to the terms
and provisions of this agreement and the SECURITY and to facilitate
the collection of the ACCOUNTS RECEIVABLE.
14.11 Limitation of Liability
Our liability for any alleged failure on our part to
provide adequate record keeping or other services hereunder shall
be expressly limited to a refund to you of any commission paid by
you during the period of such alleged failure and we shall have no
liability for any consequential or other damages or penalties.
<PAGE>
14.12 Binding Effect
This agreement shall not be effective unless and until
signed by you and by us as indicated below.
14.13 Formal Date
This agreement may be referred to as bearing formal date
of July 15, 1995, notwithstanding the date of actual signature
hereof or the EFFECTIVE DATE hereof.
14.14 Language
The parties acknowledge that they have required that this
agreement and all related documents be drawn up in English.
Les parties reconnaissent avoir exige que la presente
convention et tous les documents connexes soient rediges en
anglais.
DATED THE ____ DAY OF AUGUST 1995.
BNY FINANCIAL CORPORATION - CANADA
PER: . . . . . . . . . . . . . . . .
PER: . . . . . . . . . . . . . . . .
We hereby agree to and accept the foregoing agreement and all of
the foregoing provisions, terms and conditions thereof.
DATED THE ____ DAY OF AUGUST 1995.
CANADA CLASSIQUE, INC. WINNIPEG LEATHER (1991), INC.
PER:___________________________ PER:. . . . . . . . . . . . .
SYMAX GARMENT CO. (1993) LTD.
PER:___________________________
GUARANTOR:
ORBIT INTERNATIONAL CORP.
PER:___________________________
<PAGE>
CONTRACT DATA SHEET
TO FACTORING, SECURITY AND LOAN AGREEMENT
NAME OF CLIENT(S):
canada classique, inc.
winnipeg leather (1991), inc.
symax garment co. (1993) ltd.
SETTLEMENT DATE: 3 business days.
CREDIT FACILITY:
credit facility limit: $7,000,000.00
eligible accounts receivable 50%
eligible inventory: 25%
inventory loan limit: $1,500,000.00
eligible letter of credit inventory: 25% . . .
letter of credit limit: $2,000,000.00
CHARGES:
1. INTEREST: PRIME RATE + 3/4% per annum
2. COMMISSION: 1% of SALES (Plus 1/4 of 1% for each additional
30 days (or portion thereof) of selling terms (including
those resulting from dating of invoices in excess of 60
days.
The minimum commission is $5.00 per invoice.
Minimum sales: $12,000,000.00 per calendar year or portion
thereof.
3. LETTER OF CREDIT CHARGES
.25 % per month on the average daily balance of LETTERS OF
CREDIT outstanding during such month.
<PAGE>
4. OTHER CHARGES: The following charges (in addition to those
provided in the other provisions of this CONTRACT DATA SHEET and
the agreement):
(a) A fee of $50,000.00 payable on closing of the financing;
(b) A fee of $50,000.00 payable on the earlier of (i) the
first anniversary of the EFFECTIVE DATE; or (ii) any sale
of assets or shares, dissolution or liquidation of any of
the Clients; or (iii) termination of the agreement.
SECURITY:
(a) A general security agreement creating a first charge on
all assets of the Clients, now owned and hereafter
acquired.
(b) Unlimited guarantee and postponement of indebtedness from
Orbit International Corp.
(c) A pledge of cash collateral or a letter of credit
satisfactory to BNY - CANADA in an amount of not less
than $4,000,000.00.
FINANCIAL REPORTS:
The following financial reports will be delivered by each of the
Clients and will be certified by the Chief Financial Officer of the
Clients:
(a) Monthly internally prepared financial statements, within
30 days following each month end;
(b) Quarterly internally prepared financial statements within
30 days following the end of each quarter;
(c) Semi-annual financial statements reviewed by auditors
acceptable to BNY - CANADA within 60 days following the
end of each half year;
(d) Audited year end financial statement certified by
auditors acceptable to BNY- CANADA, within 90 days
following the end of each fiscal year;
(e) A schedule of inventory within 10 days following each
month end;
(f) An aged listing of ACCOUNTS RECEIVABLE within 10 days
following each month end;
<PAGE>
(g) A month by month projected operating budget and cash flow
in form and substance and at intervals satisfactory to BNY -
CANADA;
(h) Financial statements of guarantors in form and substance
and at intervals satisfactory to BNY - CANADA.
FINANCIAL COVENANTS:
N/A
All accounting terms not specifically defined or described
herein shall be construed in accordance with generally
accepted accounting principles in Canada.
CONDITIONS PRECEDENT TO CLOSING:
(a) The indebtedness of the Clients to Orbit International
Corp. which is subordinated to the indebtedness of the
Clients to BNY - CANADA, on terms and conditions
satisfactory to BNY - CANADA, will be in an amount of at
least $9,000,000.00.
(b) The PERMITTED ENCUMBRANCES in favour of Canada Classique,
Inc. and Orbit International Corp. will have been
subordinated to the security of BNY - CANADA, on terms
and conditions satisfactory to BNY- CANADA.
MINIMUM DURATION OF AGREEMENT: 2 years
EFFECTIVE DATE: August 24, 1995
THIS IS THE CONTRACT DATA SHEET REFERRED TO IN THE FACTORING,
SECURITY AND LOAN AGREEMENT ENTERED INTO BY THE UNDERSIGNED DATED
THE ____ DAY OF AUGUST 1995 and forms part thereof.
BNY FINANCIAL CORPORATION - CANADA
PER: . . . . . . . . . . . . . . . .
PER: . . . . . . . . . . . . . . . .
CANADA CLASSIQUE, INC. WINNIPEG LEATHER (1991), INC.
PER:___________________________ PER:. . . . . . . . . . . . .
<PAGE>
SYMAX GARMENT CO. (1993) LTD.
PER:___________________________
GUARANTOR:
ORBIT INTERNATIONAL CORP.
PER:___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,274,000
<SECURITIES> 7,495,000
<RECEIVABLES> 2,342,000
<ALLOWANCES> 1,488,000
<INVENTORY> 13,124,000
<CURRENT-ASSETS> 1,669,000
<PP&E> 5,642,000
<DEPRECIATION> 2,573,000
<TOTAL-ASSETS> 38,028,000
<CURRENT-LIABILITIES> 25,731,000
<BONDS> 3,174,000
0
0
<COMMON> 877,000
<OTHER-SE> 8,246,000
<TOTAL-LIABILITY-AND-EQUITY> 38,028,000
<SALES> 58,234,000
<TOTAL-REVENUES> 58,234,000
<CGS> 53,055,000
<TOTAL-COSTS> 53,055,000
<OTHER-EXPENSES> 25,857,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,008,000
<INCOME-PRETAX> (22,417,000)
<INCOME-TAX> (164,000)
<INCOME-CONTINUING> (22,253,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,253,000)
<EPS-PRIMARY> (3.78)
<EPS-DILUTED> (3.78)
</TABLE>
