FORM 10-K - ITEM 14(a)(1) & (2)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
REPORTS OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED IN ITEM 14(d):
II - VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Orbit International Corp.
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. Our audit also included the financial
statement schedule listed in the Index at Item 14(a) for the year ended
December 31, 1996. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Orbit
International Corp. and subsidiaries at December 31, 1996 and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements as a whole, presents fairly in
all material respects the information set forth therein for the year ended
December 31, 1996.
We also audited the adjustments described in Note B that were applied to
restate the 1995 and 1994 consolidated financial statements. In our opinion,
such adjustments are appropriate and have been properly applied.
Ernst & Young LLP
New York, New York
March 12, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge, New York
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and subsidiaries as at December 31, 1995 and the related
consolidated statements of operations, changes in stockholders' equity, cash
flows and Schedule II, for the years ended December 31, 1995 and December 31,
1994 prior to their restatement for the adjustments described in Note B to the
1996 consolidated financial statements. 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 misstatements. 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 described above present fairly,
in all material respects, the consolidated financial position of Orbit
International Corp. and subsidiaries at December 31, 1995 and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 1995 and December 31, 1994 prior to their restatement for
the adjustments described in Note B to the 1996 consolidated financial
statements in conformity with generally accepted accounting principles.
Further, it is our opinion that the schedule referred to above presents fairly,
in all material respects 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
F-3
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents.............. $ 927,000 $ 2,274,000
Investments in marketable securities... 782,000 7,495,000
Accounts receivable (less allowance for
doubtful accounts of $150,000 (1996)
and $1,576,000 (1995))................ 3,114,000 854,000
Inventories............................ 6,657,000 13,124,000
Restricted investments, related to
discontinued operations............... 2,453,000
Assets held for sale, net.............. 712,000
Other current assets................... 246,000 1,669,000
Total current assets................. 14,891,000 25,416,000
Property, plant and equipment - at cost
less accumulated depreciation and
amortization........................... 2,347,000 3,069,000
Excess of cost over the fair value of
assets acquired (less accumulated
amortization of $85,000 (1996) and
$252,000 (1995)........................ 1,019,000 834,000
Restricted investments in marketable
securities............................. 7,567,000
Investments in marketable securities.... 1,150,000 795,000
Other assets............................ 524,000 347,000
TOTAL ASSETS............................ $19,931,000 $38,028,000
See accompanying notes.
F-4
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 1,656,000 $ 2,292,000
Accounts payable.......................... 940,000 3,860,000
Accrued expenses.......................... 2,545,000 4,090,000
Notes payable............................. 65,000
Accounts payable, accrued expenses and
reserves for discontinued operations..... 2,636,000
Due to factor............................. 852,000 15,294,000
Total current liabilities............... 8,694,000 25,536,000
Long-term obligations, less current
portion................................... 4,352,000 1,097,000
Accounts payable, accrued expenses and
reserves for discontinued operations,
less current portion...................... 1,424,000
Other liabilities.......................... 315,000 2,077,000
Total liabilities....................... 14,785,000 28,710,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 907,000 877,000
Additional paid-in capital................. 23,518,000 23,285,000
Accumulated deficit........................ (9,515,000) (4,026,000)
Less treasury stock, at cost............... (9,588,000) (9,588,000)
Less deferred compensation................. (174,000)
Less cumulative translation adjustment..... (1,230,000)
Less unrealized loss on marketable
securities................................ (2,000)
Total stockholders' equity............... 5,146,000 9,318,000
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. $19,931,000 $38,028,000
See accompanying notes.
F-5
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
Net sales.......................... $16,971,000 $11,763,000 $12,254,000
Cost of sales...................... 9,361,000 6,529,000 7,078,000
Gross profit....................... 7,610,000 5,234,000 5,176,000
Selling, general and
administrative expenses........... 5,501,000 5,274,000 4,489,000
Interest expense................... 118,000 236,000 323,000
Investment and other (income)...... (1,320,000) (2,614,000) ( 734,000)
Income from continuing operations
before income taxes............... 3,311,000 2,338,000 1,098,000
Tax (benefit)...................... (153,000) .
Income from continuing
operations......................... 3,311,000 2,491,000 1,098,000
Discontinued operations:
(Loss) from operations........... (4,200,000) (24,744,000) (18,093,000)
(Loss) from disposal............. (4,600,000) .
NET (LOSS)......................... $(5,489,000) $(22,253,000) $(16,995,000)
Income (loss) per share:
Income from continuing operations:
Primary......................... $ .53 $ .42 $ .18
Fully diluted................... .50 .42 .18
(Loss) from discontinued operations:
Primary......................... (1.42) (4.20) (2.93)
Fully diluted................... (1.32) (4.20) (2.93)
NET (LOSS):
Primary......................... ( .89) (3.78) (2.75)
Fully diluted................... ( .82) (3.78) (2.75)
See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
25,000,000 Shares
Authorized
Treasury Stock
Unrealized
Number of
Additional
Retained
Number
Cumulative
loss on
Shares
Paid-in
Earnings
of
Deferred
Translation
Marketable
Issued
Amount
Capital
(Deficit)
Shares
Amount
Compensation
Adjustment
Securities
Total
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Balance - December 31, 1993 . . . . . . . . .
11,723,000
$ 1,172,000
$32,710,000
$ 35,222,000
(5,316,000)
$ (18,106,000)
$ (442,000)
$ (930,000)
$ -
$ 49,626,000
Purchase of treasury stock . . . . . . . . . . . .
(480,000)
(1,480,000)
(1,480,000)
Deferred compensation earned. . . . . . . . . .
294,000
294,000
Compensation attributable to stock options
231,000
231,000
Foreign currency translation adjustment. .
(413,000)
(413,000)
Retirement of treasury shares . . . . . . . . .
(2,952,000)
(295,000)
(9,771,000)
2,952,000
10,066,000
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
(16,995,000)
.
.
.
.
.
(16,995,000)
Balance - December 31, 1994 . . . . . . . . .
8,771,000
877,000
23,170,000
18,227,000
(2,844,000)
(9,520,000)
(148,000)
(1,343,000)
- -
31,263,000
Purchase of treasury stock . . . . . . . . . . .
(41,000)
(68,000)
(68,000)
Deferred compensation earned. . . . . . . . . .
148,000
148,000
Compensation attributable to stock options
115,000
115,000
Foreign currency translation adjustment. .
113,000
113,000
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
(22,253,000)
.
.
.
.
.
(22,253,000)
Balance - December 31, 1995 . . . . . . . . .
8,771,000
877,000
23,285,000
(4,026,000)
(2,885,000)
(9,588,000)
- -
(1,230,000)
- -
9,318,000
Issuance of compensatory stock . . . . . . .
300,000
30,000
233,000
(233,000)
30,000
Deferred compensation earned. . . . . . . . . .
59,000
59,000
Write-off of foreign currency translation
adjustment, included in discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . .
1,230,000
1,230,000
Marketable securities valuation adjustment
(2,000)
(2,000)
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
(5,489,000)
.
.
.
.
.
(5,489,000)
Balance - December 31, 1996
9,071,000
$ 907,000
$23,518,000
$ (9,515,000)
(2,885,000)
$ (9,588,000)
$ (174,000)
$ - .
$ (2,000)
$ 5,146,000
See accompanying notes.
F - 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996
1995
1994
<S>
Cash flows from operating activities:
<C>
<C>
<C>
Net (loss)........................................................................................................
$ (5,489,000)
$ (22,253,000)
$ (16,995,000)
Adjustments to reconcile net (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)
Depreciation and amortization.......................................................................
122,000
398,000
521,000
Write-off of intangible assets........................................................................
9,780,000
Amortization and write-off of goodwill............................................................
919,000
58,000
671,000
Write-down of investment in affiliate.............................................................
13,987,000
Deferred tax (benefit)....................................................................................
(2,115,000)
Compensatory issuance of stock and options...............................................
59,000
262,000
525,000
Gain on sales of marketable securities.........................................................
(173,000)
Change in value of marketable securities......................................................
(222,000)
(222,000)
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
Write-off of foreign currency translation.......................................................
1,230,000
(Loss) on disposal of discontinued operations..............................................
4,600,000
Changes in operating assets and liabilities, excluding effect of acquisitions:
Accounts receivable.....................................................................................
(2,992,000)
3,729,000
(192,000)
Inventories...................................................................................................
914,000
3,465,000
(6,036,000)
Prepaid and refundable taxes......................................................................
168,000
Other current assets...................................................................................
985,000
(4,000)
641,000
Other assets...............................................................................................
(268,000)
Accounts payable........................................................................................
655,000
165,000
(784,000)
Accrued expenses......................................................................................
(395,000)
1,881,000
(1,597,000)
Income taxes payable..................................................................................
(245,000)
188,000
Assets held for sale....................................................................................
1,473,000
Other long term liabilities.............................................................................
3,000
.
.
Net cash provided by (used in) operating activities...................................
1,816,000
4,699,000
(13,523,000)
Cash flows from investing activities:
Purchases of marketable securities.................................................................
(17,765,000)
Proceeds of sales of marketable securities......................................................
29,237,000
Purchase of fixed assets..................................................................................
(170,000)
(455,000)
(611,000)
Purchase of net assets of acquired companies...............................................
(3,779,000)
Proceeds on sale of fixed assets.....................................................................
216,000
479,000
Acquisition costs related to purchase of businesses.......................................
.
.
(27,000)
Net cash provided by (used in) investing activities.....................................
7,523,000
(239,000)
(159,000)
(continued)
F - 8
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
1996
1995
1994
<S>
Cash flows from financing activities:
<C>
<C>
<C>
Repayments of debt.........................................................................................
(1,956,000)
(7,079,000)
(5,746,000)
Proceeds of debt..............................................................................................
2,482,000
395,000
5,214,000
Increase (decrease) in due to factor.................................................................
(11,242,000)
3,754,000
11,086,000
Purchase of treasury stock..............................................................................
(68,000)
(1,480,000)
Proceeds from issuance of performance shares.............................................
30,000
.
.
Net cash (used in) provided by financing activities....................................
(10,686,000)
(2,998,000)
9,074,000
Effect of exchange rate changes on cash.........................................................
- .
(3,000)
(24,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........
(1,347,000)
1,459,000
(4,632,000)
Cash and cash equivalents - beginning of year.................................................
2,274,000
815,000
5,447,000
CASH AND CASH EQUIVALENTS - END OF YEAR.....................................
$927,000
$2,274,000
$815,000
</TABLE>
Supplemental disclosures of cash flow information:
Year Ended December 31,
1996 1995 1994
Cash paid for:
Interest....................... $1,806,000 $ 2,994,000 $ 1,392,000
Income taxes (net of refunds
of $115,000 (1995) and
$444,000, (1994) respectively) $ - $ (85,000) $ (268,000)
See accompanying notes.
F-9
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies:
Organization and Business
The consolidated financial statements include the accounts of Orbit
International Corp. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation.
The Company is engaged in the design, manufacture and sale of customized
electronic components and subsystems, distortion free commercial power units,
power conversion devices and electronic devices for measurement and display.
The Company discontinued its operations (see Note B) in the apparel business in
1996.
Summary of Significant Accounting Policies
Cash Equivalents
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.
Inventories
Inventories are valued at the lower of cost (first-in, first-out basis) or
market price.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation and
amortization of the respective assets are computed using the straight-line
method over their estimated useful lives ranging from 8 years to 40 years.
Leasehold improvements are amortized using the straight-line method over the
remaining life of the lease or the life of the improvement, whichever is less.
Intangible Assets
Excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over fifteen years.
(continued)
F-10
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
Investments
The Company classifies its investments as held-to-maturity, available for
sale, or trading. The Company classified all of its securities as trading
securities until December 30, 1995 when it 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 tax, reported in a separate component of
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretions of discounts to maturity.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities are included in investment income.
Revenue Recognition
The Company records sales upon delivery for manufacturing contracts and
upon completion of performance under certain engineering contracts.
Income (Loss) Per Share
Income (loss) per share is 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
December 31, 1996 was 6,688,000 for continuing operations. The average number of
shares and equivalent shares outstanding for the year ended December 31, 1995
and December 31, 1994 were 5,886,000 and 6,169,000, respectively for continuing
operations.
Foreign Currency
Assets and liabilities of the Company's discontinued Canadian operations
are translated at the foreign currency exchange rate in effect at the balance
sheet date. Results of operations are translated using weighted average
exchange rates during the period. Stockholders' equity accounts are translated
at historical exchange rates. Prior to the discontinuance of the operations,
the accumulated gains and losses resulting from the translation of foreign
currency financial statements were included in a separate component of
stockholders' equity.
Foreign currency translation adjustments have been written-off as part of
the loss on disposal of discontinued operations during the year ended December
31, 1996.
(continued) F-11
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements and accompany notes. Actual
results could differ from those estimates.
Long-Lived Assets
The Company adopted the provisions of 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"). The statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less then the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. 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.
Stock Based Compensation:
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock options.
Fair Value of Financial Instruments
The book values of cash and cash equivalents, accounts receivable, accounts
payable, and accrued liabilities approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
the Company's long-term obligations is estimated based on the current rates
offered to the Company for debt of similar terms and maturities. Under this
method, the Company's fair value of long-term obligations was not significantly
different than the stated value at December 31, 1996 and 1995.
(continued)
F-12
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Discontinued Operations:
On August 6, 1996, the Board of Directors of the Company adopted a plan to
dispose of its U.S. and Canadian apparel operations. The Company estimated the
loss on the discontinuance to be approximately $8,800,000, including
approximately $4,200,000 of operating losses and approximately $4,600,000 of
estimated losses on the disposal of the operations. Such estimated losses
include a $1,456,000 write-off of cumulative translation adjustments, $1,333,000
pursuant to certain operating lease agreements and $1,300,000 resulting from the
write-down of assets to net realizable value.
The U.S. apparel operations consisted of the design, importation and
manufacture of women's active-wear and outerwear, principally under the
East/West label, through the Company's East/West division and East End Apparel
Group, Ltd. subsidiary. In the fourth quarter of 1996, the Company entered into
a three-year license agreement with a third party pursuant to which the Company
granted the right to manufacture and sell ladies apparel under the "East/West"
trademark in the U.S. and Canada. The Company has otherwise ceased operations
of the East/West division. During the fourth quarter of 1996, the Company
commenced discussions with the Company's factor to convert the amounts due to
the factor from the Company's discontinued U.S. apparel operations to a term
loan from the Company. The new term loan is expected to commence on May 1, 1997
at which time the factor expects to complete its collection of all outstanding
accounts receivable. Under the terms of the new lending arrangement,
amortization of the loan would be based on a 60 month repayment period with
payments due on a monthly basis for 35 months and a final payment of
approximately $1,493,000 due April 1, 2000. The loan would have an interest
rate of prime rate plus 1%. In accordance with FASB No. 6 and management's
intent to refinance this obligation on a long-term basis, a substantial portion
of the short term amounts due to the factor have been classified as non-current
(See Note G).
Pursuant to the Company's plans to dispose of its U.S. and Canadian apparel
operations, it recorded an impairment loss of $793,000 in 1996 and $13,216,000
in 1995.
The Canadian apparel operations have been operated through the Company's
three wholly-owned subsidiaries in Canada; Canada Classique ("Classique"),
Winnipeg Leather (1991) Inc. ("Winnipeg Leather") and Symax Garment Co. (1993)
Ltd. ("Symax"). On March 12, 1997, the Company commenced bankruptcy proceedings
against Classique, which manufactured and sold branded and private label men's,
women's and children's outerwear in Winnipeg, Canada and Winnipeg Leather, which
manufactured and sold women's garments under private labels in Winnipeg, Canada.
Classique and Winnipeg Leather are now in Bankruptcy and Orbit has appointed a
receiver and manager for the purpose of liquidating their assets; the Company is
currently seeking buyers. On March 7, 1997, substantially all of the assets of
Symax, which manufactured and sold private label men's outerwear in Vancouver,
British Columbia, Canada, were sold to a third-party.
(continued)
F-13
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Discontinued Operations: (continued)
In July 1988 the Company, through USA Classic ("Classic"), a wholly-owned
subsidiary, acquired all of the outstanding stock of U.S. Apparel, Inc. In
November 1992, Classic completed an initial public offering (the "Offering") of
3,105,000 shares of its common stock, thereby reducing the Company's ownership
to approximately 43%. Classic designed, manufactured and marketed men's,
women's and children's active-wear, sportswear and outerwear 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 Classic, subordinated
debt owing by Classic to the Company of approximately $2,400,000 and
approximately $2,500,000 of related costs (see Note M (2)).
Amounts previously reported for the apparel segments in 1995 and 1994 have
been restated to give effect to recording of the discontinued operations in the
accompanying consolidated statements of operations. The operating results of
the discontinued operations are summarized as follows:
For the Year Ended December 31, 1996 1995 1994
Sales $26,235,000 $46,471,000 $45,576,000
(Loss) before tax benefit (8,800,000) (24,755,000) (20,020,000)
Tax benefit 11,000 1,927,000
Net (loss) (8,800,000) (24,744,000) (18,093,000)
Net (loss) per share of common stock:
Primary $(1.42) $(4.20) $(2.93)
Fully diluted $(1.32) $(4.20) $(2.93)
At December 31, 1996, the assets of the discontinued operations consist
primarily of inventories and accounts receivable. Liabilities of the
discontinued operations consist of accounts payable, accrued expenses and other
reserves. The consolidated balance sheet at December 31, 1995 has not been
restated.
(continued)
F-14
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Acquisition:
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. (collectively, "Behlman"). The assets are primarily
used in the business of manufacturing and selling various power supply and power
source products. The purchase price is subject to adjustment based upon final
valuations. The transaction was partially financed pursuant to a bridge loan in
the amount of $500,000 from the Company's primary lender which was replaced by
a term loan and revolving credit facility (See Note G).
The operations of Behlman have been included in the consolidated financial
statements from February 6, 1996. Had the acquisition been made on January 1,
1995 (unaudited) proforma sales, income and earnings per share from continuing
operations would have been $20,635,000, $1,734,000 and $.29 per share
respectively, for the year ended December 31, 1995.
The fair value of the net assets as of the date of acquisition is presented
below:
Inventory $ 2,560,000
Property, plant and equipment 115,000
Excess of cost over the fair
value of assets acquired 1,104,000
$ 3,779,000
(NOTE D) - Inventories:
Inventories consist of the following:
December 31,
1996 1995
Raw materials. . . . . . $ 2,332,000 $ 1,594,000
Work in process. . . . . 4,325,000 4,756,000
Finished goods (apparel) - 6,774,000
$ 6,657,000 $13,124,000
(continued)
F-15
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Property, Plant and Equipment:
Property, plant and equipment are as follows:
December 31,
1996 1995
Land and building. . . . . . . . . . . $ 2,688,000 $ 2,688,000
Building and leasehold improvements. . 279,000 599,000
Machinery and equipment. . . . . . . . 1,053,000 1,418,000
Furniture and fixtures . . . . . . . . 413,000 937,000
4,433,000 5,642,000
Accumulated depreciation
and amortization . . . . . . . . . . 2,086,000 2,573,000
$ 2,347,000 $ 3,069,000
(NOTE F) - Available-For-Sale Securities:
On December 30, 1995 the Company transferred its marketable securities to
the available for sale category of investments. 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, 1996, this collateral
requirement amounted to approximately $2,453,000 and on December 31, 1995 it was
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.
The following is a summary of available-for-sale securities:
December 31, 1996
Estimated
Fair
Cost Value
U.S. Treasury bills............ $3,235,000 $3,235,000
Debt securities issued by
government agencies.......... 5,000 5,000
Corporate debt securities...... 1,147,000 1,145,000
4,387,000 4,385,000
Restricted value of portfolio
used to collateralize credit
facility (included in assets
held for sale).............. 2,453,000 2,453,000
Balance of securities
portfolio................... $1,934,000 $1,932,000
(continued)
F-16
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Available-For-Sale Securities: (continued)
December 31, 1995
Estimated
Fair
Cost Value
U.S. Treasury Bills $10,400,000 $10,400,000
Debt securities issued by
government agencies......... 2,919,000 2,919,000
Corporate debt securities..... 2,526,000 2,526,000
Total debt securities......... 15,845,000 15,845,000
Equity securities............. 12,000 12,000
15,857,000 15,857,000
Restricted value of portfolio
used to collateral credit
facility.................... 7,567,000 7,567,000
Balance of securities
portfolio (including
$3,450,000 of marketable
securities used to satisfy
outstanding debt classified
as a current obligation).... $8,290,000 $8,290,000
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1996 and December 31, 1995, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because the issuers of the securities may have the right to repay obligations
without prepayment penalties.
December 31, 1996
Estimated Fair
Cost Value
Due in one year or less............... $3,235,000 $3,235,000
Due after three years ................ 1,152,000 1,150,000
4,387,000 4,385,000
Restricted value of portfolio used to
collateralize credit facilities..... 2,453,000 2,453,000
$1,934,000 $1,932,000
(continued)
F-17
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Available-For-Sale Securities: (continued)
December 31, 1995
Estimated Fair
Cost Value
Due in one year or less............... $15,050,000 $15,050,000
Due after three years................. 795,000 795,000
15,845,000 15,845,000
Equity securities..................... 12,000 12,000
15,857,000 15,857,000
Restricted value of portfolio used to
collateralize credit facilities..... 7,567,000 7,567,000
$ 8,290,000 $ 8,290,000
(NOTE G) - Debt:
Long-term obligations consist of the following:
December 31,
1996 1995
Term loan collateralized by $1,120,000 of treasury
bills, inventories, accounts receivable and
general tangibles of the electronics division,
bearing interest at LIBOR (5.875% at December 31,
1995) plus .75%, paid in full on January 1, 1996. $1,000,000
Term loan collateralized by certain real estate of
the Company bearing interest at prime
(8.25% at December 31, 1996) plus 1.5%,
payable in monthly installments of $56,000
commencing July 1996 through June 1999........... $1,667,000
Promissory note payable to the sellers of the East/
West division (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 785,000 1,535,000
(continued)
F-18
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Debt: (continued)
December 31,
1996 1995
Term loan collateralized by certain real estate of
the electronics 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
Note due to the estate of the former principal
officer payable in monthly installments through
February 1998 (Note N)........................... 356,000 604,000
Short term debt expected to be refinanced,
collateralized by accounts receivable and
inventories of the Company, bearing
interest at prime (8.25% at December 31,
1996) plus 1%. The replacement debt is expected
to be payable in monthly payments of $53,000
commencing May 1997 with a final payment of
approximately $1,493,000 in April, 2000
(see Note B)..................................... 3,200,000 .
6,008,000 3,389,000
Less current portion.............................. 1,656,000 2,292,000
$4,352,000 $1,097,000
Payments due on the Company's long-term debt at December 31, 1996 are
as follows:
Year Ending
December 31,
1997................. $1,656,000
1998................. 1,351,000
1999................. 973,000
2000 (January through
April)......... 1,493,000
Thereafter........... 535,000
$6,008,000
(continued)
F-19
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Debt: (continued)
Short-term notes payable aggregated $65,000 at December 31, 1996. This is
in connection with the Company's revolving line of credit which bears interest
at prime (8.25% at December 31, 1996) plus 1%.
Under the various debt agreements, the Company must comply with certain
covenants which require it to maintain minimum levels of working capital,
minimum levels of debt to equity and tangible net worth at all times. The
Company is also precluded from declaring and paying dividends without the
consent of such lender.
(NOTE H) - Stock Based Compensation Plans:
The alternative fair value accounting provided for under Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of opinion valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has a stock option plan which provides for the granting of non-
qualified or incentive options to officers, directors and key employees. The
plan authorizes granting of up to 1,500,000 shares of the Company's common
stock at the market value on the date of such grants. All options are
exercisable at times as determined by the Board of Directors not to exceed ten
years from the date of grant.
Pro forma information regarding net loss and net loss per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for its stock options granted subsequent to December
31, 1994 under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the Black-Sholes option pricing
model with the following weighted average assumptions: risk-free interest rate
of 6%; no dividend yields; volatility factor of the expected market price of the
Company's common stock of 85.5%; and a weighted-average expected life of the
options of 3.0 years at December 31, 1996 and 1995.
The Black-Sholes option valuation model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
(continued)
F-20
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stock Based Compensation Plans:(continued)
the Company's employers stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vested period. The Company's
pro forma information follows:
1996 1995
Net earnings from
continuing operations: As Reported $ 3,311,000 $ 2,491,000
Pro Forma 2,830,000 2,325,000
Primary EPS: As Reported .53 .42
Pro Forma .46 .38
Fully Diluted EPS: As Reported .50 .42
Pro Forma .42 .35
1996 1995
Net (loss): As Reported $(5,489,000) $(22,253,000)
Pro Forma (5,970,000) (22,419,000)
Primary EPS: As Reported (.89) (3.78)
Pro Forma (.96) (3.81)
Fully Diluted EPS: As Reported (.82) (3.78)
Pro Forma (.89) (3.81)
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
As required by Statement 123, the fair values method of accounting has not
been applied to options granted prior to January 1, 1995. As a result, the pro
forma compensation cost may not be representative of that to be expected in
future years.
(continued)
F-21
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stock Based Compensation Plans:(continued)
Information as to options for share of common stock is as follows:
1996 .
1995 .
1994 .
Weighted Average
Weighted Average
Weighted Average
Options
Exercise Price
Options
Exercise Price
Options
Exercise Price
Outstanding at the
beginning of year.............
964,000
$1.25
965,000
$3.13
900,000
$4.93
Granted...........................
332,500
0.92
1,017,000
1.25
965,000
3.13
Canceled.........................
(15,000)
0.92
(1,018,000)
2.70
(900,000)
4.93
Outstanding at the
end of year.......................
1,281,500
0.92
964,000
1.25
965,000
3.13
Exercisable at end of year.
964,000
-
-
Weighted average fair
value of options granted..
0.54
0.54
The weighted average remaining contractual life of the options outstanding
is 3 years.
At December 31, 1996, 218,500 shares of common stock were reserved for
future issuance of stock options.
In consideration of an executive officer's entry into an employment
agreement during the year, the Company sold to the officer 300,000 shares of its
common stock at par value $.10 per share. The stock is subject to repurchase by
the Company, at the same price, in the event of resignation or discharge for
cause, of the officer. The difference between the fair value of the shares and
its issue price will be charged to operations over a three year period.
(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.
(continued)
F-22
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Employee Benefit Plans:
The Company contributed $117,000, $185,000 (including $24,000 applicable to
discontinued operations) and $312,000 (including $139,000 applicable to
discontinued operations) to the plans for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994, respectively.
(NOTE J) - Income Taxes:
The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
For the year ended December 31, 1996, the Company recorded no income tax
provision. The Company has an alternative minimum tax credit of $ 564,000 with
no limitation on the carryforward period, a net operating loss carryforward of
$18,400,000 which expire in 2010 and a capital loss carryforward of $ 1,968,000
which expires in 1999. In addition, 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 $ 5,900,000 and certain tax credits which
amount to approximately $ 594,000 which are available through 1999.
The provision (benefit) for income taxes for the years December 31, 1995
and 1994 are as follows:
December 31,
1995 1994
Current:
Foreign and state.... $(164,000) $ 188,000
Deferred:
Federal.............. - (1,823,000)
Foreign and state.... - (292,000)
.
$(164,000) $(1,927,000)
(continued)
F-23
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - INCOME TAXES: (continued)
A reconciliation of the Federal statutory tax rate with the effective tax
rate is as follows:
December 31,
1996 1995 1994
Federal statutory tax rate... (34.0%) (34.0%) (34.0%)
Increase (reduction) in taxes
resulting from:
Foreign and state income
tax, net of federal
income tax benefit...... 3.3 (.3)
Nondeductible items..... 1.3 1.3
Non taxable life insurance
proceeds................. (6.7)
Nonutilization of net
operating and capital
loss carryforwards and
carrybacks............... 34.0 35.0 22.1
Other .5 .7
0% (.7%) (10.2%)
(continued)
F-24
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - INCOME TAXES: (continued)
The deferred tax assets (liability) are as follows:
December 31,
1996 1995
Deferred tax asset:
Alternative minimum
tax credit carryforward.. $ 564,000 $ 561,000
Net operating loss and
capital loss
carryforwards (including
pre-acquisition net
operating loss
carryforwards)........... 8,931,000 7,100,000
Various temporary
differences.............. 912,000 6,559,000
Total deferred tax assets 10,407,000 14,220,000
Valuation allowances on....... (10,249,000) (14,220,000)
Net deferred tax assets....... 158,000 -
Deferred tax liability:
Various temporary
differences.............. (158,000) .
Net deferred tax assets....... $ - $ - .
As the Company has had cumulative losses and there is no assurance of
future taxable income, a valuation allowance has been established to offset
deferred tax assets.
(NOTE K) - Major Customer and Concentrations of Credit Risk:
Sales to significant customers accounted for approximately 72% (28%, 15%,
17% and 12%), 79% (54%, 12% and 13%) and 77% (66% and 11%) of the Company's net
sales from continuing operations for the years ended December 31, 1996, 1995 and
1994, respectively.
Certain major customers of the Company sell the Company's products to the
United States Government. Accordingly, a substantial portion of the net sales
is subject to audit by agencies of the United States government. In the opinion
of management, adjustments to such net sales, if any, will not have a material
effect on the Company's position.
(continued)
F-25
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Major Customer and Concentrations of Credit Risk: (continued)
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
The Company places its cash and cash equivalents with one financial institution.
At times, cash may be in excess of FDIC insurance limits.
(NOTE L) - Leasing Arrangements:
Operating leases are for a sales office and certain equipment and vehicles
for continuing operations and office, showroom, warehouse and manufacturing
facilities for discontinued operations, 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 of December 31, 1996 under operating lease
agreements that have initial or remaining noncancellable lease terms in excess
of one year are as follows:
Year Ending Continuing Discontinued
December 31, Operations Operations Total
1997 . . . . . . . . $ 78,000 $ 901,000 $ 979,000
1998 . . . . . . . . 34,000 876,000 910,000
1999 . . . . . . . . 646,000 646,000
2000 . . . . . . . . 239,000 239,000
Total minimum
lease payments $ 112,000 $ 2,662,000 $ 2,774,000
Operating lease rent expense for the years ended December 31, 1996, 1995
and 1994 was $1,083,000, $1,170,000 and $1,100,000, respectively. Continuing
operations account for approximately $41,000 of operating lease expense for the
year ended December 31, 1996. Leasing arrangements for discontinued operations
do not include amounts owed to the Company under certain sublease agreements.
(continued)
F-26
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Commitments and Contingencies:
[1] The Company has employment agreements with its three executive
officers which may be terminated by the Company on not less than three years
prior notice and with two other principal officers, for aggregate annual
compensation of $1,099,000. In the event of a change in control of the Company,
the executive officers have the right to elect a lump sum payment representing
future compensation due them over the remaining years of their contracts. In
addition, the five officers are entitled to bonuses based on a percentage of
earnings before taxes, as defined. Total bonus compensation paid to the
executive officers was approximately $281,000 in 1996. No bonuses were earned
or paid in 1995 or 1994.
[2] 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 Act of 1934. The
plaintiffs are seeking compensatory damages as well as fees and expenses.
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 1997.
The Company plans to continue to vigorously defend against this action.
(continued)
F-27
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Commitments and Contingencies: (continued)
[3] The Company, in the ordinary course of business, is the subject of or
a party to various lawsuits, the outcome of which, in the opinion of management,
will not have a material adverse effect on the consolidated financial
statements.
(NOTE N) - Death of Principal Officer:
On February 24, 1995, the Company's principal officer died. Pursuant to
his employment contract, the Company owed approximately $800,000 to the
principal officer's estate, payable in monthly installments over a three year
period. During 1995, the Company received insurance proceeds aggregating
$1,500,000 on keyman policies on the life of the principal officer (see Note G).
F-28
<PAGE>
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP.
VALUATION AND QUALIFYING ACCOUNTS
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>
<C>
<C>
<C>
<C>
<C>
Year ended December 31, 1996:
Reserve for estimated doubtful
accounts and allowance...............
$1,576,000
$359,000
$(338,000)**
$(1,447,000)***
$150,000
Valuation allowance on deferred
tax asset........................................
$14,220,000
$(3,971,000)**
$10,249,000
Year ended December 31, 1995:
Reserve for estimated doubtful
accounts and allowance...............
$769,000
$887,000
$ 80,000*
$1,576,000
Valuation allowance on deferred
tax asset........................................
$6,380,000
$7,840,000
$14,220,000
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
$3,995,000
$6,380,000
TOTAL
$3,307,000
$4,181,000
$339,000
$7,149,000
*Amount represents write-offs.
**Relief of allowances
***Transfer of allowances of
apparel companies to discontinued
operations.
</TABLE)
See Accompanying notes.
F-29
</TABLE>
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, 1996. [No 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 ______
<PAGE>
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 voting stock held by non-
affiliates (based on shares held and the closing price quoted on
the Nasdaq National Market on March 19, 1997): $15,465,000
Number of shares of common stock outstanding as of the close of
the period covered by this report: 6,186,093.
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, the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, the Registrant's Current Report on Form 8-K filed February
7, 1996 and the Registrant's Current Report on Form 8-K/A filed
July 8, 1996.
<PAGE>
PART I
Item 1. BUSINESS
General
Orbit International Corp. (the "Company" or "Orbit") conducts
its operations through its Orbit Instrument Division and its
subsidiary, Behlman Electronics, Inc. In August 1996, the Company
announced that it was discontinuing operations of its apparel
businesses. Through its Orbit Instrument Division, which includes
its wholly-owned subsidiary, Orbit Instrument of California, Inc.,
the Company is engaged in the design, manufacture and sale of
customized electronic components and subsystems. Behlman
Electronics, Inc., is engaged in the design and manufacture of
distortion free commercial power units, power conversion devices
and electronic devices for measurement and display.
In February 1996, the Company, through its wholly-owned
subsidiary, Cabot Court, Inc., completed the acquisition of
certain of the assets, subject to certain liabilities, of
Astrosystems, Inc. and its wholly-owned subsidiary Behlman
Electronics, Inc. Concurrent with the purchase, Cabot Court, Inc.
changed its name to Behlman Electronics, Inc. ("Behlman").
On August 6, 1996, the Board of Directors of the Company
adopted a plan to sell and/or liquidate its U.S. and Canadian
apparel operations. The U.S. operations consisted of the design,
importation and manufacture of women's active-wear and outer-wear,
principally under the East/West label, through the Company's
East/West Division and its subsidiary East End Apparel Group
Ltd.("East End"). In the fourth quarter of 1996, the Company
entered into a three-year license agreement with a third party
pursuant to which Orbit granted to the third party the right to
manufacture and sell ladies apparel under the "East/West"
trademark in the U.S. and Canada. The operations of the East/West
Division are limited to servicing such license.
The Canadian apparel operations have been operated through
the Company's three wholly-owned subsidiaries in Canada: Canada
Classique Inc. ("Classique"), Winnipeg Leather (1991) Inc.
("Winnipeg Leather") and Symax Garment Co. (1993) Ltd. ("Symax").
On March 12, 1997, Orbit commenced bankruptcy proceedings against
Classique, which manufactured branded private label men's, women's
and children's outer-wear in Winnipeg, Manitoba, Canada, and
<PAGE>
Winnipeg Leather, which manufactured women's garments under
private labels in Winnipeg, Manitoba, Canada. Classique and
Winnipeg Leather are now in bankruptcy and Orbit has appointed a
receiver and manager for the purpose of liquidating their assets.
The Company is currently seeking buyers for such assets. On March
7, 1997, substantially all of the assets of Symax, which
manufactured private label men's outer wear in Vancouver, British
Columbia, Canada were sold to a third party.
In July 1988 Orbit, through a wholly-owned subsidiary, USA
Classic, Inc. ("USA Classic"), acquired all of the outstanding
stock of U.S. Apparel, Inc. In November 1992, USA Classic
completed an initial public 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 May 1994.
Financial Information about Industry Segments
The Company currently operates in one industry segment which
involves the design and manufacture of various electronic
components. In prior years it also operated in two additional
segments in which it designed and manufactured items of apparel in
the United States and Canada. The Company discontinued its
apparel operations in August 1996.
Description of Business
General
The Orbit Instrument Division designs, manufactures and sells
customized panels, components, and subsystems for contract program
requirements to prime contractors, governmental procurement
agencies and research and development ("R&D") laboratories. The
Company primarily designs and manufactures in support of specific
military program requirements. More recently, the Company has
focused on providing commercial, non-military "ruggedized"
hardware for prime contractor programs at cost competitive prices.
Products include a variety of custom designed plasma based
telephonic intercommunication panels for secure voice airborne and
shipboard program requirements, full-mil keyboards, trackballs and
data entry display devices. The Instrument Division's products,
which in all cases are designed for customer requirements on a
<PAGE>
firm fixed price contract basis, have been successfully
incorporated on surveillance aircraft programs, including E-2C,
J/STARS, AWACS and P-3 requirements and shipboard programs,
including AEGIS, DDG'S, BFTT, LSD'S and LHA applications, as well
as a variety of land based guidance control programs.
On February 6, 1996, Cabot Court, Inc. ("Cabot Court"), a
wholly-owned subsidiary of Orbit, acquired for $3,706,700 (the
"Purchase Price") certain of the assets, subject to certain
liabilities, of Astrosystems, Inc. ("Astrosystems") and
Astrosystems wholly-owned subsidiary, BEI Electronics, Inc.
("BEI"). The acquired assets, which included inventory, fixtures
and equipment, had been used by Astrosystems and BEI in the
business of manufacturing and selling power supplies, AC power
sources, frequency converters, uninterruptable power supplies
("UPS") and associated analytical equipment and other electronic
equipment. The Purchase Price is subject to adjustment based upon
a final inventory valuation. Orbit and Astrosystems have not yet
agreed upon the final inventory valuation. Cabot Court changed
its name to Behlman Electronics, Inc. ("Behlman") on February 7,
1996.
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 UPS.
Products
Plasma Intercommunication Panels
The Company has recently completed its design and development
efforts for an AC plasma display panel that includes bit mapping
and graphics technologies. Prime contractors in support of combat
communication requirements, in addition to command systems and
display functions, have used these plasma display units. The
Company has completed a design effort to incorporate telephonic
and secure voice functions into several of the newly designed
plasma configurations. The Company has completed land-based and
shipboard integration and functional testing of the secure voice
and telco-based designs, and has recently been awarded a Basis
Ordering Agreement as a mechanism for the potential procurement of
these panels.
<PAGE>
Graphic Display Terminal
The Company's family of graphic terminals enables the
operator to monitor and control radar systems for shipboard and
airborne applications. These terminals are used throughout a ship
or surveillance plane as adjuncts to larger console displays. The
modular design of the terminals facilitates applications for
surface ship, submarine, aircraft and land based requirements.
Color Liquid Crystal Display Panels
The Company has recently completed its initial production
color liquid crystal display unit for testing and integration.
This unit has been designed as a high speed, windows-based display
that provides the operator with crisp, color resolution to be used
in a full military combat environment.
Operator Control Trays
The Company has designed and manufactures a variety of
operator control trays, that help organize and process data
created by interactive communications systems, making such data
more manageable for operator consumption. These trays are
presently used to support patrol and surveillance airborne
aircraft programs, standard shipboard display console requirements
and shore land based defense systems applications.
Data Entry, Keyboards, and Display Systems
The Company has designed and manufactures computer controlled
action entry panels (CCAEP'S), which provide a console operator
with multiple displays of computer generated data. The Company's
data entry and display panels have been designed and manufactured
to support fire control, sonar control and command communication
console requirements.
Power Sources
The Company's AC Power sources are used in the production of
various types of equipment such as ballasts for fluorescent
lighting, CRT terminals, hair dryers and hospital beds and are
used in test labs to meet European Community required testing,
aircraft testing and simulators. Other uses include powering
equipment for oil and gas exploration.
<PAGE>
The Company's frequency converters are used to convert local
power frequency (e.g., 60HZ in the U.S.) to local frequencies
elsewhere (e.g., 50 HZ in Europe).
The Company's products are used for backup power when local
power is lost. The Company only competes in the "ruggedized"
market as opposed to the commercial UPS market.
The Company's military division has certified value-
engineering personnel who are capable of reconfiguring obsolete or
hard-to-maintain government equipment. In most circumstances, the
Company will be contracted to build the equipment but in the event
the component is contracted to be built elsewhere based upon the
Company's engineering design, the Company will receive a
percentage of the government savings over the life of the program.
The Company also performs reverse engineering of analog
systems for the government or government contractors to enable
them to have a new contractor with high quality capabilities at a
competitive price.
The Company also operates as a qualified repair depot for
many Air Force and Navy programs.
Proposed Products
Product Development
The Company is currently expanding its design and development
resources to update hardware previously used for full military
program requirements. The Instrument Division believes its wide
variety of components, controls, subsystems and plasma secure
voice and intercommunication panels that have supported the
military for aircraft, shipboard, subsurface and land based
program requirements have alternative uses. It is the intent of
the Company to update the electrical and mechanical functionality
of these units and subsystems and provide "ruggedized" and
commercial equivalent hardware at cost competitive prices.
Construction of color flatpanel displays exhibiting
specialized software routines may also provide the Company with
future areas of growth. The Company continues to focus on
integration of small but extremely functional high resolution
<PAGE>
displays for use in embedded instrumentation products. Further,
the emergence of high speed digital modem interfaces such as ISDN
are allowing for increased bandwidth of digital communications
that can handle large files for both voice and data. The merging
of these two concepts have produced successful results that should
contribute to the Company's already extensive product line.
Demonstration of new products in this category are scheduled in
the third quarter of this year and are expected to transcend the
Company's historical customer base.
The Company has formed a sales organization to specifically
target the railroad industry. Railroad signaling is powered from
a unique voltage and frequency which the Company has the
capability to manufacture.
The Company is currently working with a manufacturer of
electro luminescent power supplies for the architectural market.
Finally, the Company is developing power supplies and control
systems for the cooling systems used for high speed computers, IC
manufacturing, cellular telephones and telecommunication
superconducting amplifiers.
The Company is utilizing modular power supplies to produce
power supply systems for the government and government contractors
at prices lower than its competition.
The Company is also looking at various way to reconfigure its
commercial hardware to meet military specifications so that its
hardware may be considered "Commercial Off the Shelf" for military
requirements.
The products described above are presently being developed by
the Company. However, there can be no assurance that such
development efforts will result in any marketable products.
Sales and Marketing
Products of the Orbit Instrument Division are marketed by the
Division's sales personnel and management. Products of the
military division are marketed by Behlman's program managers and
other management personnel. Behlman's commercial products are sold
by regional sales managers, manufacturer's representatives and
non-exclusive distributors.
<PAGE>
Competition
The Instrument Division's competitive position within 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 customers. There are numerous companies (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 currently produce
all of the products that the Instrument Division produces. (See -
"Substantial Customers").
Competition in the markets for Behlman's commercial and
military products 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 Behlman'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 Behlman's regular competitors include
larger companies with substantially greater capital resources and
far larger engineering, administrative, sales and production
staffs than Behlman. (See - "Substantial Customers").
Substantial Customers
General Motors Hughes Electronics Corporation ("GMHEC"),
Northrup Grumman, various agencies of the United States government
and Western Atlas accounted for approximately 28%, 15%, 17% and
12% respectively, of net sales of the Company for the year ended
December 31, 1996. The loss of any of these customers would have
a materially adverse effect on the sales and earnings of the
Company.
Since a significant amount of all of the products which the
Company 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.
<PAGE>
Backlog
As of December 31, 1996 and December 31, 1995 the Company's
consolidated backlog was $17,000,000 and $13,000,000 respectively.
Of the backlog for the year ended December 31, 1996,
approximately $4,000,000 represents backlog under contracts which
will not be shipped during 1997.
Additionally, a significant number of the Company'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 to 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
of Company contracts at the convenience of the government occurred
during the year ended December 31, 1996.
A significant portion of the Company's revenues are subject
to audit under the Vinson-Trammel Act of 1934 and other federal
statutes since they are derived from sales under government
contracts. 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 Company incurred approximately $710,000 of research and
development expenses during the year ended December 31, 1996, as
compared with $420,000 of such expenses during the comparable
period of the prior year.
Patents
The Company does not own any patents which are of material
significance to its operations.
<PAGE>
Employees
As of March 14, 1997, the Company employed 126 persons. Of
these, the Instrument Division employed 62 people consisting of 11
in engineering and drafting, 3 in sales and marketing, 11 in
direct and corporate administration and the balance in production.
Behlman employed 64 people, consisting of 11 in engineering and
drafting, 5 in sales, 4 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 leases 1700 square feet in Ventura, California which
is used for sales. The lease expires in December 1997.
As part of its discontinued apparel operations, the Company
has leases for showroom and office space in New York, New York,
warehouse space in New Jersey and showroom, office and
manufacturing space in Winnipeg, Manitoba, Canada.
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: On September 23,
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
public offering of common stock of USA Classic (the "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 10(b) of the Securities Exchange Act of
1934. The plaintiffs are seeking compensatory damages as well as
fees and expenses.
<PAGE>
On February 1, 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 on March 21, 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.
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 (the
"Underwriters"), as additional defendants. On November 15, 1994,
the Company and the Underwriters moved to dismiss certain of the
allegations in the Second Amended and Consolidated Complaint. On
or about June 16, 1995, the Honorable John S. Martin, Jr. denied
the dismissal motion in its entirety.
On March 8, 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 a future
date pending completion of discovery into that issue. On or about
February 6, 1996, the Underwriters moved the court to stay all
substantive discovery until the court rules upon the class
certification motion. The Company joined in said motion. On
March 7, 1996, the court denied the motion to stay substantive
discovery. Depositions and documentary discovery are continuing.
It is estimated that discovery in this matter will continue
throughout 1997. The Company plans to continue to vigorously
defend this action.
Sandra Lakritz v. Orbit International Corp.: On July 7,
1995, Sandra Lakritz, a former employee of the Company's East/West
division commenced an action in Supreme Court, New York County,
claiming employment discrimination based upon age and disability.
On December 4, 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
<PAGE>
responded to the discovery requests. Additionally, the plaintiff
has requested certain discovery from the Company. Although the
Company has offered to make that information available to the
plaintiff, the plaintiff has failed to follow up on these
requests. The Company intends to vigorously defend this action.
Bankruptcy and Liquidation of Canadian Subsidiaries: On
March 12, 1997, Orbit commenced bankruptcy proceedings against
Classique, which manufactured branded private label men's, women's
and children's outer-wear in Winnipeg, Manitoba, Canada and
Winnipeg Leather, which manufactured women's garments under
private labels in Winnipeg, Manitoba, Canada. Classique and
Winnipeg Leather are now in bankruptcy and Orbit has appointed a
receiver and manager for the purpose of liquidating their assets.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
An Annual Meeting of Stockholders of the Company was held on
June 28,1996. The holders of 6,186,093 shares of Common Stock of
the Company were entitled to vote at the meeting, the holders of
5,885,255 shares of Common Stock, or approximately 95% of shares
entitled to vote at the meeting, were represented by proxy and the
holders of 25,000 shares of Common Stock were present in person.
The following action 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 5,696,921 votes for and 213,334
against, Bruce Reissman by 5,696,421 votes for and 213,834
against, Mitchell Binder by 5,696,421 votes for and 213,834
against, Nathan A. Greenberg by 5,696,421 votes for and 213,834
against, John Molloy by 5,696,921 votes for and 213,834 against
and Stanley Morris by 5,696,408 votes for and 213,847 against.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S CAPITAL STOCK AND RELATED
SECURITY HOLDER MATTERS
As of March 20, 1997 the Company had 729 shareholders of
record. The Company's stock is traded on the Nasdaq National
Market (Nasdaq symbol ORBT).
The quarterly closing prices for the period January 1, 1995
through December 31, 1996, as reported by Nasdaq, were as follows:
CLOSE
High Low
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
1996:
First Quarter
1
47/64
Second Quarter
1 5/16 7/8
Third Quarter
1 3/4 3/4
Fourth Quarter
2 3/4
1 9/16
The Company has not declared any dividends during the aforesaid period.
<PAGE>
<TABLE>
<CAPTION>
Item 6. SELECTED FINANCIAL DATA*
Year ended December 31
Six Month Period
Ended December 31**
Year Ended June 30
1996
1995
1994
1993
(unaudited)
1993 1992
<S>
Net sales
<C>
$16,971,000
<C>
$11,763,000
<C>
$12,254,000
<C>
$6,659,000
<C> <C>
$14,191,000 $14,496,000
Net income (loss)
from continuing
operations
3,311,000
2,491,000
1,098,000
1,642,000
( 707,000) ( 131,000)
Net income (loss)
from discontinued
operations
( 8,800,000)
(22,744,000)
(18,093,000)
4,277,000
11,942,000 3,033,000
Income per share
from continuing
operations
primary
fully diluted
.53
.50
.42
.42
.18
.18
.25
.25
(.11) (.02)
(.11) (.02)
Income (loss) per
share from
discontinued
operations
primary
fully diluted
( 1.42)
( 1.32)
( 4.20)
( 4.20)
( 2.93)
( 2.93)
.64
.64
1.79 .48
1.79 .48
Total assets at
period-end
19,931,000
38,028,000
63,511,000
73,105,000
71,835,000 71,730,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
Six Month Period
Ended December 31**
Year Ended June 30
1996
1995
1994
1993
(unaudited)
1993 1992
<S>
Long-term
obligations
<C>
3,817,000
<C>
1,097,000
<C>
8,909,000
<C>
10,419,000
<C> <C>
2,451,000 6,757,000
Total
stockholders'
equity
5,146,000
9,318,000
31,263,000
49,626,000
54,483,000 43,110,000
_________________
* Restated to reflect discontinued operations
** In 1993, the Company opted to change its fiscal year end from June 30 to December 31.
See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
</TALBE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Year Ended December 31, 1996 v. Year Ended December 31, 1995
In August, 1996, the Company adopted a plan to sell its
apparel businesses. The Company estimates the loss on the
disposal to be approximately $4,600,000 and charged 1996
operations with such amount. Such loss includes a write-off of
foreign currency translation adjustments, monies owed pursuant to
operating lease agreements, the write-down of assets to net
realizable value offset by the reduction in liabilities due to
the bankruptcy of two of the companies and the balance for
professional fees and other contractual obligations. The
discontinuance of the Company's apparel operations leaves the
Company solely with its Electronic Segment which consists of its
Orbit Instrument Division and its Behlman subsidiary.
Consolidated net sales for the year ended December 31, 1996
increased to $16,971,000 from $11,763,000 for the prior year due
principally to $6,879,000 of revenues recorded by the Company's
new Behlman subsidiary which was acquired in February 1996,
offset by a decrease in the number of units shipped by the Orbit
Instrument Division.
The net loss for the year ended December 31, 1996 decreased
to $5,489,000 from $22,253,000 for the prior year. The loss for
the current year is principally due to operating losses from the
Company's discontinued apparel operations of $4,200,000 and the
estimated loss of $4,600,000 on the disposal of such operations.
The loss in the prior year was principally due to non-cash
charges of $9,780,000 reflecting the Company's write-off of
goodwill and other intangible costs related to its U.S. apparel
businesses as well as $12,192,000 of operating losses from all of
the Company's apparel businesses.
Net income from continuing operations for the year ended
December 31, 1996 increased to $3,311,000 from $2,491,000 for the
prior year due principally to earnings recorded during the period
by the Company's new Behlman subsidiary, increased earnings from
the Orbit Instrument Division offset by a decrease in investment
and other income.
<PAGE>
Gross profit, as a percentage of sales, for the year ended
December 31, 1996 increased to 44.8% from 44.5% for the prior
year.
Selling, general and administrative expenses for the year
ended December 31, 1996 increased to $5,501,000 from $5,274,000
for the prior year principally due to selling, general and
administrative expenses incurred by the Company's new Behlman
subsidiary and offset by lower corporate expenses and lower
selling, general and administrative expenses incurred by the
Orbit Instrument Division. Selling, general and administrative
expenses, as a percentage of sales decreased to 32.4% for the
year ended December 31, 1996 from 44.8% for the prior year due to
additional sales and greater efficiencies derived from the
Behlman acquisition and lower corporate expenses.
Interest expense for the year ended December 31, 1996
decreased to $118,000 from $236,000 for the prior year due to a
reduction in the average amounts owed during the current year.
Investment and other income for the year ended December 31,
1996 decreased to $1,320,000 from $2,614,000 for the prior year
due principally to interest earned on higher cash balances in the
prior year. Both the current and prior years included non-
recurring income resulting from, in the current year, the
realization of approximately $800,000 representing the final
payment of royalty income from Orbit Semiconductor, Inc.,
pursuant to a Stock Purchase Agreement signed in November, 1991
and, in the prior year, $869,000 of insurance proceeds realized
upon the death of the Company's former chief executive officer,
net of accrued costs to the officer's estate, and $1,000,000
resulting from the partial realization of royalty income
mentioned above.
The Company did not record any tax benefit on the current
years pre-tax loss because of the uncertainty of future
realization.
Year Ended December 31, 1995 v. Year Ended December 31, 1994
Consolidated net sales for the year ended December 31, 1995
decreased to $11,763,000 from $12,254,000 in the prior year due
to a decrease in 1995 in the number of units shipped.
<PAGE>
The net loss for the year ended December 31, 1995 increased
to $22,253,000 from $16,995,000 for the prior year. The loss for
the year ended December 31, 1995 was due to $12,192,000 of
operating losses from the Company's discontinued apparel
operations and to non-cash charges in the period of $9,780,000
reflecting the Company's write-off of goodwill and other
intangible costs related to its U.S. apparel businesses. The loss
in 1994 reflects the Company's write-off of its 43% equity
interest in USA Classique, Inc., a subordinated receivable and
other related costs.
Net income from continuing operations for the year ended
December 31, 1995 increased to $2,491,000 from $1,098,000 for the
prior year due principally to non-recurring investment and other
income. Gross profit, as a percentage of sales, for the year
ended December 31, 1995 increased to 44.5% from 42.2% for the
prior year.
Selling, general and administrative expenses for the year
ended December 31, 1995 increased to $5,274,000 from $4,489,000
for the prior year due principally to a provision taken in the
year ended December 31, 1995 of approximately $875,000 in
anticipation of costs to be incurred to repair and/or refurbish
certain units that had already been shipped to one of the
Instrument Division's customers. Selling, general and
administrative expenses, as a percentage of sales, increased to
44.8% in 1995 from 36.6% in 1994 due to the aforementioned
reasons.
Interest expense for the year ended December 31, 1995
decreased to $236,000 from $323,000 for the prior year due to a
reduction in the average amounts owed during the period.
Investment and other income increased during the year ended
December 31, 1995 to $2,614,000 from $734,000 for the prior year
due to (i) insurance proceeds received by the Company upon the
death of the Company's former chief executive officer net of
accrued costs due to the officer's estate, and (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.
The Company did not record any tax benefit on the current
pre-tax loss because of the uncertainty of future realization.
<PAGE>
Liquidity, Capital Resources and Inflation
Working capital increased by $6,317,000 to $6,197,000 during
the year ended December 31, 1996 from a working capital deficit
of $120,000 as of December 31, 1995 principally due to
approximately $7,567,000 of non-current restricted assets which
were used to either reduce amounts owed under certain lending
facilities and the reclassification of certain amounts due under
the Company's factoring arrangements to a three year term loan.
The Company's working capital ratio at December 31, 1996 was 1.7
to 1 compared to 1.0 to 1 at December 31, 1995.
All losses and obligations of the apparel businesses have
been provided for in the December 31, 1996 financial statements
and, accordingly, the Company does not anticipate using any
significant portion of its resources towards these apparel
businesses.
During the fourth quarter of 1996, the Company commenced
discussions with the Company's factor to convert the amounts due
to the factor from the Company's discontinued U.S. Apparel
operations to a term loan. The new term loan is expected to
commence on May 1, 1997 at which time the factor expects to
complete its collection efforts on all outstanding accounts
receivable. Under the proposed terms of the new lending
arrangement, the loan amortization is based on a 60 month period
with payments due on a monthly basis for 35 months and a final
balloon payment due April 1, 2000. The loan will have an interest
rate of prime rate plus 1%.
Under the Company's factoring arrangements related to the
discontinued apparel operations, the Company has provided standby
letters of credit as security for its guarantees under these
arrangements, collaterallized by marketable securities. As of
December 31, 1996, the Company has provided $2,200,000 in standby
letters of credit. Between January and December 1996, the Company
used approximately $8,918,000 of marketable securities to reduce
the amount owed under two of the facilities.
In February 1996, the Company, through a wholly-owned
subsidiary, purchased from Astrosystems, Inc. substantially all
of the assets of its wholly-owned subsidiary, Behlman
Electronics, Inc., and substantially all of the assets of
Astrosystems Military Electronics Division. The purchase price
of $3,706,000 was substantially funded by the Company's cash and
<PAGE>
a $500,000 bridge loan from BNY Financial Corporation ("BNY"). In
June 1996, the Company completed a $2,000,000 Term Loan and
$2,000,000 Revolving Credit facility with BNY. The proceeds were
used to pay off the bridge loan and to provide working capital
for the Company's electronics operations. The Term Loan is
payable in 36 monthly installments and bears interest at prime
plus 1.50%. The Revolving Credit facility bears interest at prime
plus 1.0%.
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.
Certain Material Trends
Despite continued profitability in 1996, the Company
continues to face a difficult business environment with
continuing pressure on the Company's prices for its sole source
sales and a general reduction in the level of funding for the
defense sector. Based on current delivery schedules and as a
result of the acquisition of Behlman, however, revenues for the
Company should be sustained at the levels recorded in 1996,
although there can be no assurance that such increased revenues
will actually be achieved.
The Company continues to seek new contracts which require
incurring up-front design, engineering, prototype and
preproduction costs. While the Company 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 Company 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
<PAGE>
significant reductions in the level of military spending by the
Federal government could have a negative impact on the Company's
future revenues and earnings. In addition, due to major
consolidations in the defense industry, it has become more
difficult to avoid dependence on certain customers for revenue
and income. Behlman's product line gives the Company some
diversity with its line of commercial products.
Forward Looking Statements
Statements in this Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
elsewhere in this document as well as statements made in press
releases and oral statements that may be made by the Company or
by officers, directors or employees of the Company acting on the
Company's behalf that are not statements of historical or current
fact constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause the actual
results of the Company to be materially different from the
historical results or from any future results expressed or
implied by such forward-looking statements. In addition to
statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled
with the terms "believes", "belief", "expects", "intends",
"anticipates" or "plans" to be uncertain and forward-looking. The
forward-looking statements contained herein are also subject
generally to other risks and uncertainties that are described
from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission.
<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>
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Consolidated)
Year Ended
December 31, 1996
<S>
First
Quarter
<C>
Second
Quarter
<C>
Third
Quarter
<C>
Fourth
Quarter
<C>
Net Sales
$2,881,000
$4,889,000
$4,798,000
$4,403,000
Gross Profit
1,102,000
2,292,000
2,150,000
2,066,000
Income from continuing
operations
771,000
1,068,000
741,000
731,000
(Loss) from discontinued
operations
(1,541,000)
(6,460,000)
0
(799,000)
Net income (loss)
(770,000)
(5,392,000)
741,000
(68,000)
Income per share from
continuing operations
0.14
0.18
0.12
0.11
(Loss) per share from
discontinued operations
(0.28)
(1.07)
(0.12)
Net income (loss) per
share (fully diluted)
(0.14)
(0.89)
0.12
(0.01)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
<S>
First
Quarter
<C>
Second
Quarter
<C>
Third
Quarter
<C>
Fourth
Quarter
<C>
Net Sales
$4,106,000
$4,069,000
$1,851,000
$1,737,000
Gross Profit
1,817,000
1,402,000
542,000
1,473,000
Income (loss) from
continuing operations
1,786,000
920,000
(401,000)
186,000
(Loss) from discontinued
operations
(2,099,000)
(3,053,000)
(14,887,000)
(4,705,000)
Net (loss)
(313,000)
(2,133,000)
(15,288,000)
(4,519,000)
Income (loss) per share
from continuing
operations
0.30
0.16
( 0.07)
0.03
(Loss) per share from
discontinued operations
0.36)
(0.52)
(2.53)
(0.80)
Net (loss) per share
(0.05)
(0.36)
(2.60)
(0.77)
</TABLE>
Item 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On July 8, 1996, the Board of Directors of the Company
approved the engagement of Ernst & Young LLP as its independent
auditors for the fiscal year ended December 31, 1996 to replace
the firm of Richard A. Eisner & Company, LLP who had been
dismissed by the Company. See the Company s Current Report on
Form 8-K/A dated July 8, 1996.
<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 1997 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 1997 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 1997 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 1997 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, 1996.
1.& 2. Financial Statements and Schedule:
The index to the financial statements and schedule
is incorporated by reference to the index to financial statements
attached as an exhibit to this Annual Report on Form 10-K.
3. Exhibits:
Exhibit No. Description of Exhibit
3 (a) Certification of Incorporation, as amended. Incorporated
by reference to Exhibit 3(a) to Registrant'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 Registrant'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 Exhibit 4(a) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
4 (b) Orbit International Corp. 1995 Stock Option Plan for
Non-Employee Directors. Incorporated by reference to
Exhibit 4(b) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
10 (a) Employment Agreement, dated July 1, 1996 between
Registrant and Mitchell Binder.
<PAGE>
10 (b) Employment Agreement dated July 1, 1996 between
Registrant and Bruce Reissman.
10 (c) Employment Agreement dated July 1, 1996 between
Registrant and Dennis Sunshine.
10 (d) Form of Indemnification Agreement between the Company
and each of its Directors. Incorporated by reference to
Exhibit 10(e) to Registrant'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 Registrant'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 BEI Electronics,
Inc., Orbit International Corp. and Cabot Court, Inc.
Incorporated by reference to the Registrant's Current
Report on Form 8-K dated February 7, 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 Amendment Promissory
Note dated March 28, 1996; and Form of Warrant to
purchase 125,000 shares of Orbit International Corp.
Common Stock. Incorporated by reference to Exhibit
10(g) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
16 Letter re change in certifying accountant. Incorporated
by reference to the Registrant's Current Report on Form
8-K/A dated July 8, 1996.
21 Subsidiaries of Registrant.
27 Financial Data Schedule
(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 31, 1997 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 31, 1997
/s/ Mitchell Binder
Mitchell Binder
Vice President-Finance,
Chief Financial Officer
and Director
March 31, 1997
/s/ Bruce Reissman
Bruce Reissman
Executive Vice President,
Chief Operating Officer
and Director
March 31, 1997
/s/ Harlan Sylvan
Harlan Sylvan
Treasurer,
Secretary and Controller
March 31, 1997
/s/ Nathan A. Greenberg
Nathan A. Greenberg
Director
March 31, 1997
/s/ John Molloy
John Molloy
Director
March 31, 1997
/s/ Stanley Morris
Stanley Morris
Director
March 31, 1997
J
J:\...\
J:\...\
J:\...
EMPLOYMENT AGREEMENT, dated as of the 1st day of April 1996, by and
between ORBIT INTERNATIONAL CORP., a Delaware corporation (the
"Company"), with an office at 80 Cabot Court, Hauppauge, New York, and
MITCHELL BINDER ("Employee"), with an address at 800 Barberry Lane,
Woodsburgh, New York 11598.
W I T N E S S E T H :
WHEREAS, Employee is presently employed by the Company in a
senior executive capacity pursuant to the terms of a certain
Employment Agreement dated as of July 1, 1992, between the Company and
Employee (the "1992 Employment Agreement"). The Company and Employee
desire to cancel the 1992 Employment Agreement effective April 1, 1996
and to enter into an employment agreement which will set forth the
terms and conditions upon which Employee shall continue in the employ
of the Company.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto have agreed, and
do hereby agree, as follows:
EMPLOYMENT TERM; CANCELLATION OF 1992 EMPLOYMENT AGREEMENT
0.1 The Company will continue to employ Employee in its
business and Employee will continue to work for the Company for a term
commencing as of April 1, 1996 and continuing for the duration of the
Employment Period (as hereinafter defined). During the Employment
Period, Employee will, if so requested, serve as an officer or director
of any subsidiary of the Company. Employment Period shall mean the
period commencing as of April 1, 1996 and terminating on the date on
which the Employment Period is terminated in accordance with the
provisions of Section 1.3 below.
0.2 Upon the execution of this Agreement by both the Company
and Employee, the 1992 Employment Agreement shall be deemed to have
been cancelled and terminated as of midnight March 31, 1996, and
thereafter to be of no further force and effect.
0.3 The Employment Period shall terminate on the earlier to
occur of
(i) Employee's death or at the election of the Company
at any time after Employee's Disability (as such term is hereinafter
defined);
(ii) At the election of the Company on not less than
three years' prior written notice to Employee;
(iii) At the election of Employee on not less than
six months' prior written notice to the Company, or upon a "change of
control" in accordance with the provisions of Section 7.1 below; or
(iv) At the election of the Company for "cause" (as such
term is hereinafter defined).
As used herein the term "cause" means (i) willful and
repeated failure by Employee to perform his duties hereunder which are
not remedied within thirty days after written notice from the Company,
(ii) conviction of Employee for a felony, (iii) Employee's dishonesty
or willfully engaging in conduct that is demonstrably and materially
injurious to the Company or (iv) willful violation by Employee of any
provisions of this Agreement which is not remedied within thirty days
after written notice from the Company.
1. DUTIES
1.1 During the Employment Period, Employee shall perform the
duties of Vice President - Finance and Chief Financial Officer or such
other or additional executive duties consistent with such office as
shall, from time to time, be reasonably delegated or assigned to him by
the Board of Directors of the Company consistent with Employee's
abilities.
1.2 During the term of this Agreement, Employee shall, if
elected, serve as a member of the Board of Directors of the Company and
such other committees of the Board to which Employee may be appointed.
2. DEVOTION OF TIME
During the Employment Period, Employee shall expend
substantially all of his working time for the Company; shall devote his
best efforts, energy and skill to the services of the Company and the
promotion of its interests; and shall not take part in activities which
are detrimental to the best interests of the Company or which are
directly competitive to the business of the Company.
3. COMPENSATION DURING EMPLOYMENT PERIOD
3.1 In respect of services to be performed by Employee
during the Employment Period, the Company agrees to pay Employee an
annual salary of Two Hundred Thirty Five Thousand One Hundred Twenty
Five ($235,125) Dollars ("Basic Compensation"), payable in accordance
with the Company's customary payroll practices for executive employees.
3.2 Employee's Basic Compensation shall be increased by an
amount established by reference to the "Consumer Price Index for Urban
Wage Earners and Clerical Workers, New York, New York, all items -
Series A-01 (1982 - 84=100)" published by the Bureau of Labor
Statistics of the United States Department of Labor (the "Consumer
Price Index"). The base period shall be the month ended March 31, 1996
(the "Base Period"). If the Consumer Price Index for the month of
March in any year, commencing in 1997, is greater than the Consumer
Price Index for the Base Period, Basic Compensation shall be increased
to the amount obtained by multiplying Basic Compensation by a fraction,
the numerator of which is the Consumer Price Index for the month of
March of the year in which such determination is being made and the
denominator of which is the Consumer Price Index for the Base Period.
3.3 In addition to his Basic Compensation, during the
Employment Period Employee shall also be entitled to receive for all
services rendered hereunder an annual cash bonus ("Incentive
Compensation") equal to 1.46% percent of the first $5,000,000 of the
Company's "Pre-Tax Earnings" and 2.20% of the Company's Pre-Tax
Earnings in excess of $5,000,000, as hereinafter defined, to be paid on
or before March 15 of each year based on the Company's Pre-Tax Earnings
for its fiscal year ended immediately prior thereto. In the event that
the Employment Period shall end on any day other than the last day of a
fiscal year the Incentive Compensation payable to Employee hereunder
shall be prorated based on the ratio that the number of days in that
fiscal year which are included in the Employment Period bears to the
total number of days in that fiscal year.
3.4 As used herein, the term Pre-Tax Earnings shall mean the
net income of the Company and its subsidiaries, as determined on a
consolidated basis as shown on the Company's statement of operations
which is included in its audited financial statements, in accordance
with generally accepted accounting principles applied consistently with
those employed in the preparation of the Company's audited financial
statements, as adjusted as follows:
(i) No deduction or provision shall be made for taxes
(which term shall not include any related interest or penalties) based
on income or profits of any nature whatsoever (including but not
limited to all federal, state, municipal and or other income,
franchise, excess profit, sales value added, gross receipts, surtaxes
or other taxes upon the Company or any of its subsidiaries or arising
from or related to the income of the Company or any of its subsidiaries
in any jurisdiction);
(ii) No deduction shall be made for any Incentive
Compensation payable to Employee hereunder or any incentive
compensation, bonus or similar payment made to any other executive
employee of the Company which is based upon or measured by the earnings
of the Company (however defined);
(iii) Pre-tax earnings (or losses) of consolidated
subsidiaries of the Company which are less than 100% owned by the
Company shall be included in the computation of "Pre-Tax Earnings" only
to the extent of the Company's percentage ownership interest in each
such subsidiary; and
(iv) Pre-Tax Earnings shall not include: (A)
extraordinary gains or extraordinary losses; or (B) any gain or loss
from discontinued business operations.
The amounts earned by Employee hereunder shall be initially
computed by the Company and any dispute between the Company and
Employee as to the computation thereof shall be determined by the
independent certified public accountants then regularly retained by the
Company based upon financial statements certified by said accountants
and such determination shall be final and binding upon the Company and
Employee.
3.5 Employee shall also be entitled to such additional
increments and bonuses as shall be determined from time to time by the
Board of Directors of the Company.
3.6 As used in this Agreement the term "Total Compensation"
shall mean, with respect to any period, the total amounts paid or
payable to Employee with respect to such period whether as Basic
Compensation, Incentive Compensation, or as additional payments made
pursuant to Paragraph 4.5.
4. BENEFITS; REIMBURSEMENT OF EXPENSES
4.1 Employee shall at all times have the use of a Company-
owned or leased automobile with full maintenance and insurance. All
costs of such automobile, including lease costs or purchase price,
gasoline and oil and garaging (except at Employee's home) shall be paid
by the Company.
4.2 The Company shall pay directly, or reimburse Employee,
for all other reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of
his duties during the Employment Period in accordance with the regular
practices of the Company regarding the reimbursement of such expenses.
4.3 Employee and any beneficiary of Employee shall be
accorded the right to participate in and receive benefits under and in
accordance with the provisions of any pension, insurance, medical and
dental insurance or reimbursement, or other similar plan or program of
the Company now in existence or hereafter adopted for the benefit of
its executive employees.
4.4 The Company shall maintain keyman life insurance on
Employee in the minimum amount of $1 million. Upon termination of
employment, Employee may continue to pay premiums due under such policy
and designate beneficiaries thereunder.
5. DISABILITY
5.1 If the Employment Period is terminated by reason of
Employee's Disability, as defined below, Employee shall be paid a sum
equal to 50% of the Total Compensation paid or payable to him with
respect to the immediately preceding full fiscal year, such payment to
be made to him in six substantially equal monthly installments
commencing promptly following any such termination of the Employment
Period.
5.2 "Disability" shall mean the inability of Employee, for a
continuous period of more than six (6) months, to perform substantially
all of his regular duties and carry out substantially all of his
responsibilities hereunder because of physical or mental incapacity.
The Company shall have the right to have Employee examined by a
competent doctor for purposes of determining his physical or mental
incapacity.
5.3 The obligations of the Company under Article 6.1 may be
satisfied, in whole or in part, by payments to Employee under
disability insurance provided by the Company, and under laws providing
disability benefits for employees.
6. CHANGE IN CONTROL
6.1 In the event at any time after March 31, 1996, a
majority of the Board of Directors is composed of persons who are not
"Continuing Directors," as hereinafter defined, (i) all stock options
and the Shares granted to Employee under any of the Company's stock
option plans, which stock options are currently outstanding and not
vested, shall immediately become fully vested and (ii) Employee shall
have the option, to be exercised by written notice to the Company, to
resign as an employee and terminate this Agreement, effective as of
such date as may be specified in his written notice of resignation.
6.2 In the event Employee exercises such option under (ii)
above, he shall be entitled to receive, as termination pay, a lump sum
equal to the maximum amount that can be paid to Employee, after giving
effect to all other benefits accruing to Employee upon the termination
of his employment, without any portion thereof constituting an "excess
parachute payment" as defined in 280G(b)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor section of the
Code. The computation of the termination payment to be made to
Employee under (ii) above shall be performed, at the sole cost and
expense of the Company, by the independent auditors then retained by
the Company, or if such auditors notify the Company that they are
unwilling to perform such computation, then by any nationally or
regionally recognized independent public accounting firm selected by
Employee. The computation provided by such auditors shall be final and
binding on the Company and Employee. The Company and Employee shall
provide such auditors with any documents and other information that the
auditors may reasonably request.
6.3 "Continuing Directors" shall mean (i) the directors of
the Company at the close of business on March 31, 1996, and (ii) any
person who was or is recommended to (A) succeed a Continuing Director
or (B) become a director as a result of an increase in the size of the
Board, in each case, by a majority of the Continuing Directors then on
the Board.
7. CONFIDENTIAL INFORMATION; INVENTIONS; RESTRICTIVE COVENANT
7.1 Employee agrees not to divulge, furnish or make
available to anyone (other than in the regular course of business of
the Company) any confidential knowledge or information with respect to
the Company, or with respect to any other confidential or secret aspect
of the Company's activities.
7.2 Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, which Employee may
conceive or make along the lines of the Company's business while in its
employ as an employee or consultant, shall be and remain the property
of the Company. Employee further agrees on request to execute patent
applications based on such methods, developments, inventions and/or
improvements, including any other instruments deemed necessary by the
Company for the prosecution of such patent application or the
acquisition of Letters Patent of this and any foreign country.
7.3 Employee agrees to communicate and make known to the
Company all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable, which concern in any way the business of
the Company, whether acquired by him before or during the term hereof,
provided, however, that nothing herein shall be construed as requiring
any such communication where the method, development, invention and/or
improvement is lawfully protected from disclosure as the trade secret
of a third party or by any other lawful bar to such communication.
8.4 The services of Employee are unique and extraordinary
and essential to the business of the Company, especially since Employee
shall have access to the Company's customer lists, trade secrets and
other privileged and confidential information essential to the
Company's business. Therefore, Employee agrees that if his employment
services hereunder shall at any time be terminated for any reason other
than a termination resulting from a breach by the Company of any
provision of this Agreement, Employee will not at any time within one
(1) year after such termination, without the prior written approval of
the Company, directly or indirectly, within one-hundred (100) miles of
the Company's corporate headquarters in Hauppauge, New York, or any
other area in which the Company shall then conduct substantial
operations, engage in any business activity which is similar to the
business of the Company; and further, Employee agrees that during such
one (1) year period he shall not solicit, directly or indirectly, any
employee or customer or account of the Company who at the time of such
termination was then actively being solicited by the Company.
8. VACATIONS
Employee shall be entitled to reasonable vacations consistent
with the Company's vacation policy, not less than three weeks per year,
during each twelve-month period until June 30, 1998 and not less than
four weeks per year, during each twelve-month period thereafter, the
time and duration thereof to be determined by mutual agreement between
Employee and the Company. In the event Employee does not use his
entire vacation in a twelve-month period, he shall be entitled to
receive a cash payment in lieu thereof based upon Basic Compensation.
9. INJUNCTIVE RELIEF
Employee acknowledges and agrees that, in the event he shall
violate any of the restrictions of Articles 3 and 8 hereof, the Company
will be without adequate remedy at law and will therefor be entitled to
enforce such restrictions by temporary or permanent injunctive or
mandatory relief obtained in an action or may have at law or in equity,
and Employee hereby consents to the jurisdiction of such Court for such
purpose, it being understood that such injunction shall be in addition
to any remedy which the Company may have at law or otherwise.
10. ASSIGNMENT, ETC.
This Agreement, as it relates to the employment of Employee,
is a personal contract and the rights and interests of Employee
hereunder may not be sold, transferred, assigned, pledged or
hypothecated.
11. RIGHT TO PAYMENTS, ETC.
Employee shall not under any circumstances have any option or
right to require payments hereunder otherwise than in accordance with
the terms hereof. To the extent allowed by law, Employee shall not
have any power of anticipation, alienation or assignment of payments
contemplated hereunder, or any rights and benefits of Employee, and no
other person shall acquire any right, title or interest hereunder by
reason of any sale, assignment, transfer, claim or judgment or
bankruptcy proceedings against Employee.
12. NOTICES, ETC.
Any notice required or permitted to be given to Employee
pursuant to this Agreement shall be sufficiently given if sent to
Employee by certified mail addressed to him at the following address:
80 Cabot Court, Hauppauge, New York, 11788, or at any such other
address as he shall designate by notice to the Company, and any notice
required or permitted to be given to the Company pursuant to this
Agreement shall be sufficiently given if sent to the Company by
certified mail addressed to it at 80 Cabot Court, Hauppauge, New York,
attention of Corporate Secretary, or such other address as the Company
shall designate by notice to Employee, with a copy to Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New
York, 10176, Attention: Kenneth R. Koch.
13. GOVERNING LAW
This Agreement shall be governed by, and construed in
accordance with the laws of the State of New York, applicable to
agreements made and to be performed solely within such state.
14. WAIVER OF BREACH; PARTIAL INVALIDITY
The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any
subsequent breach. If any provisions of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability
shall attach only to such provision and not in any way affect or render
invalid or unenforceable any other provisions of this Agreement, and
this Agreement shall be carried out as if such invalid or unenforceable
provision were not embodied therein.
15. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
parties hereto and there are no representations, warranties or
commitments except as set forth herein. This Agreement supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto relating to
the transactions contemplated by this Agreement. This Agreement may be
amended only in writing executed by the parties hereto affected by such
amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the day and year above-written.
ORBIT INTERNATIONAL CORP.
By: /s/ Dennis Sunshine
Dennis Sunshine, President
and Chief Executive Officer
By: /s/ Mitchell Binder
Mitchell Binder
Q:\SSDATA1\COGENER2\138647.1
Q:\SSDATA1\COGENER2\138647.1
EMPLOYMENT AGREEMENT, dated as of the 1st day of April 1996, by
and between ORBIT INTERNATIONAL CORP., a Delaware corporation
(the "Company"), with an office at 80 Cabot Court, Hauppauge, New
York, and BRUCE REISSMAN ("Employee"), with an address at 323
Doral Court, Jericho, New York 11753.
W I T N E S S E T H :
WHEREAS, Employee is presently employed by the Company in a
senior executive capacity pursuant to the terms of a certain
Employment Agreement dated as of July 1, 1992, between the
Company and Employee (the "1992 Employment Agreement"). The
Company and Employee desire to cancel the 1992 Employment
Agreement effective April 1, 1996 and to enter into an employment
agreement which will set forth the terms and conditions upon
which Employee shall continue in the employ of the Company.
NOW THEREFORE, in consideration of the premises and of the
mutual covenants hereinafter set forth, the parties hereto have
agreed, and do hereby agree, as follows:
EMPLOYMENT TERM; CANCELLATION OF 1992 EMPLOYMENT
AGREEMENT
0.1 The Company will continue to employ Employee in its
business and Employee will continue to work for the Company for a
term commencing as of April 1, 1996 and continuing for the
duration of the Employment Period (as hereinafter defined).
During the Employment Period, Employee will, if so requested,
<PAGE>
serve as an officer or director of any subsidiary of the Company.
Employment Period shall mean the period commencing as of April 1,
1996 and terminating on the date on which the Employment Period is
terminated in accordance with the provisions of Section 1.3 below.
0.2 Upon the execution of this Agreement by both the
Company and Employee, the 1992 Employment Agreement shall be
deemed to have been cancelled and terminated as of midnight March
31, 1996, and thereafter to be of no further force and effect.
0.3 The Employment Period shall terminate on the
earlier to occur of
(i) Employee's death or at the election of the
Company at any time after Employee's Disability (as such term is
hereinafter defined);
(ii) At the election of the Company on not less
than three years' prior written notice to Employee;
(iii) At the election of Employee on not less
than six months' prior written notice to the Company, or upon a
"change of control" in accordance with the provisions of Section
7.1 below; or
(iv) At the election of the Company for "cause" (as
such term is hereinafter defined).
As used herein the term "cause" means (i) willful and
repeated failure by Employee to perform his duties hereunder which
are not remedied within thirty days after written notice from the
Company, (ii) conviction of Employee for a felony, (iii)
Employee's dishonesty or willfully engaging in conduct that is
<PAGE>
demonstrably and materially injurious to the Company or (iv)
willful violation by Employee of any provisions of this Agreement
which is not remedied within thirty days after written notice from
the Company.
1. DUTIES
1.1 During the Employment Period, Employee shall
perform the duties of Executive Vice President and Chief Operating
Officer or such other or additional executive duties consistent
with such office as shall, from time to time, be reasonably
delegated or assigned to him by the Board of Directors of the
Company consistent with Employee's abilities.
1.2 During the term of this Agreement, Employee shall,
if elected, serve as a member of the Board of Directors of the
Company and such other committees of the Board to which Employee
may be appointed.
2. DEVOTION OF TIME
During the Employment Period, Employee shall expend
substantially all of his working time for the Company; shall
devote his best efforts, energy and skill to the services of the
Company and the promotion of its interests; and shall not take
part in activities which are detrimental to the best interests of
the Company or which are directly competitive to the business of
the Company.
<PAGE>
3. COMPENSATION DURING EMPLOYMENT PERIOD
3.1 In respect of services to be performed by Employee
during the Employment Period, the Company agrees to pay Employee
an annual salary of Three Hundred Thirteen Thousand Five Hundred
($313,500) Dollars ("Basic Compensation"), payable in accordance
with the Company's customary payroll practices for executive
employees.
3.2 Employee's Basic Compensation shall be increased by
an amount established by reference to the "Consumer Price Index
for Urban Wage Earners and Clerical Workers, New York, New York,
all items - Series A-01 (1982 - 84=100)" published by the Bureau
of Labor Statistics of the United States Department of Labor (the
"Consumer Price Index"). The base period shall be the month ended
March 31, 1996 (the "Base Period"). If the Consumer Price Index
for the month of March in any year, commencing in 1997, is greater
than the Consumer Price Index for the Base Period, Basic
Compensation shall be increased to the amount obtained by
multiplying Basic Compensation by a fraction, the numerator of
which is the Consumer Price Index for the month of March of the
year in which such determination is being made and the denominator
of which is the Consumer Price Index for the Base Period.
3.3 In addition to his Basic Compensation, during the
Employment Period Employee shall also be entitled to receive for
all services rendered hereunder an annual cash bonus ("Incentive
Compensation") equal to 1.77% percent of the first $5,000,000 of
the Company's "Pre-Tax Earnings" and 2.65% of the Company's Pre-
<PAGE>
Tax Earnings in excess of $5,000,000, as hereinafter defined, to
be paid on or before March 15 of each year based on the Company's
Pre-Tax Earnings for its fiscal year ended immediately prior
thereto. In the event that the Employment Period shall end on any
day other than the last day of a fiscal year the Incentive
Compensation payable to Employee hereunder shall be prorated based
on the ratio that the number of days in that fiscal year which are
included in the Employment Period bears to the total number of
days in that fiscal year.
3.4 As used herein, the term Pre-Tax Earnings shall
mean the net income of the Company and its subsidiaries, as
determined on a consolidated basis as shown on the Company's
statement of operations which is included in its audited financial
statements, in accordance with generally accepted accounting
principles applied consistently with those employed in the
preparation of the Company's audited financial statements, as
adjusted as follows:
(i) No deduction or provision shall be made for
taxes (which term shall not include any related interest or
penalties) based on income or profits of any nature whatsoever
(including but not limited to all federal, state, municipal and or
other income, franchise, excess profit, sales value added, gross
receipts, surtaxes or other taxes upon the Company or any of its
subsidiaries or arising from or related to the income of the
Company or any of its subsidiaries in any jurisdiction);
<PAGE>
(ii) No deduction shall be made for any Incentive
Compensation payable to Employee hereunder or any incentive
compensation, bonus or similar payment made to any other executive
employee of the Company which is based upon or measured by the
earnings of the Company (however defined);
(iii) Pre-tax earnings (or losses) of
consolidated subsidiaries of the Company which are less than 100%
owned by the Company shall be included in the computation of
"Pre-Tax Earnings" only to the extent of the Company's percentage
ownership interest in each such subsidiary; and
(iv) Pre-Tax Earnings shall not include: (A)
extraordinary gains or extraordinary losses; or (B) any gain or
loss from discontinued business operations.
The amounts earned by Employee hereunder shall be
initially computed by the Company and any dispute between the
Company and Employee as to the computation thereof shall be
determined by the independent certified public accountants then
regularly retained by the Company based upon financial statements
certified by said accountants and such determination shall be
final and binding upon the Company and Employee.
3.5 Employee shall also be entitled to such additional
increments and bonuses as shall be determined from time to time by
the Board of Directors of the Company.
3.6 As used in this Agreement the term "Total
Compensation" shall mean, with respect to any period, the total
amounts paid or payable to Employee with respect to such period
<PAGE>
whether as Basic Compensation, Incentive Compensation, or as
additional payments made pursuant to Paragraph 4.5.
4. BENEFITS; REIMBURSEMENT OF EXPENSES
4.1 Employee shall at all times have the use of a
Company-owned or leased automobile with full maintenance and
insurance. All costs of such automobile, including lease costs or
purchase price, gasoline and oil and garaging (except at
Employee's home) shall be paid by the Company.
4.2 The Company shall pay directly, or reimburse
Employee, for all other reasonable and necessary expenses and
disbursements incurred by him for and on behalf of the Company in
the performance of his duties during the Employment Period in
accordance with the regular practices of the Company regarding the
reimbursement of such expenses.
4.3 Employee and any beneficiary of Employee shall be
accorded the right to participate in and receive benefits under
and in accordance with the provisions of any pension, insurance,
medical and dental insurance or reimbursement, or other similar
plan or program of the Company now in existence or hereafter
adopted for the benefit of its executive employees.
4.4 The Company shall maintain keyman life insurance on
Employee in the minimum amount of $2 million. Upon termination of
employment, Employee may continue to pay premiums due under such
policy and designate beneficiaries thereunder.
<PAGE>
5. DISABILITY
5.1 If the Employment Period is terminated by reason of
Employee's Disability, as defined below, Employee shall be paid a
sum equal to 50% of the Total Compensation paid or payable to him
with respect to the immediately preceding full fiscal year, such
payment to be made to him in six substantially equal monthly
installments commencing promptly following any such termination of
the Employment Period.
5.2 "Disability" shall mean the inability of Employee,
for a continuous period of more than six (6) months, to perform
substantially all of his regular duties and carry out
substantially all of his responsibilities hereunder because of
physical or mental incapacity. The Company shall have the right
to have Employee examined by a competent doctor for purposes of
determining his physical or mental incapacity.
5.3 The obligations of the Company under Article 6.1
may be satisfied, in whole or in part, by payments to Employee
under disability insurance provided by the Company, and under laws
providing disability benefits for employees.
6. CHANGE IN CONTROL
6.1 In the event at any time after March 31, 1996, a
majority of the Board of Directors is composed of persons who are
not "Continuing Directors," as hereinafter defined, (i) all stock
options and the Shares granted to Employee under any of the
Company's stock option plans, which stock options are currently
<PAGE>
outstanding and not vested, shall immediately become fully vested
and (ii) Employee shall have the option, to be exercised by
written notice to the Company, to resign as an employee and
terminate this Agreement, effective as of such date as may be
specified in his written notice of resignation.
6.2 In the event Employee exercises such option under
(ii) above, he shall be entitled to receive, as termination pay, a
lump sum equal to the maximum amount that can be paid to Employee,
after giving effect to all other benefits accruing to Employee
upon the termination of his employment, without any portion
thereof constituting an "excess parachute payment" as defined in
280G(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor section of the Code. The computation of
the termination payment to be made to Employee under (ii) above
shall be performed, at the sole cost and expense of the Company,
by the independent auditors then retained by the Company, or if
such auditors notify the Company that they are unwilling to
perform such computation, then by any nationally or regionally
recognized independent public accounting firm selected by
Employee. The computation provided by such auditors shall be
final and binding on the Company and Employee. The Company and
Employee shall provide such auditors with any documents and other
information that the auditors may reasonably request.
6.3 "Continuing Directors" shall mean (i) the directors
of the Company at the close of business on March 31, 1996, and
(ii) any person who was or is recommended to (A) succeed a
<PAGE>
Continuing Director or (B) become a director as a result of an
increase in the size of the Board, in each case, by a majority of
the Continuing Directors then on the Board.
7. CONFIDENTIAL INFORMATION; INVENTIONS; RESTRICTIVE
COVENANT
7.1 Employee agrees not to divulge, furnish or make
available to anyone (other than in the regular course of business
of the Company) any confidential knowledge or information with
respect to the Company, or with respect to any other confidential
or secret aspect of the Company's activities.
7.2 Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, which Employee
may conceive or make along the lines of the Company's business
while in its employ as an employee or consultant, shall be and
remain the property of the Company. Employee further agrees on
request to execute patent applications based on such methods,
developments, inventions and/or improvements, including any other
instruments deemed necessary by the Company for the prosecution of
such patent application or the acquisition of Letters Patent of
this and any foreign country.
7.3 Employee agrees to communicate and make known to
the Company all knowledge possessed by him relating to any
methods, developments, inventions and/or improvements, whether
patented, patentable or unpatentable, which concern in any way the
business of the Company, whether acquired by him before or during
<PAGE>
the term hereof, provided, however, that nothing herein shall be
construed as requiring any such communication where the method,
development, invention and/or improvement is lawfully protected
from disclosure as the trade secret of a third party or by any
other lawful bar to such communication.
8.4 The services of Employee are unique and
extraordinary and essential to the business of the Company,
especially since Employee shall have access to the Company's
customer lists, trade secrets and other privileged and
confidential information essential to the Company's business.
Therefore, Employee agrees that if his employment services
hereunder shall at any time be terminated for any reason other
than a termination resulting from a breach by the Company of any
provision of this Agreement, Employee will not at any time within
one (1) year after such termination, without the prior written
approval of the Company, directly or indirectly, within one-
hundred (100) miles of the Company's corporate headquarters in
Hauppauge, New York, or any other area in which the Company shall
then conduct substantial operations, engage in any business
activity which is similar to the business of the Company; and
further, Employee agrees that during such one (1) year period he
shall not solicit, directly or indirectly, any employee or
customer or account of the Company who at the time of such
termination was then actively being solicited by the Company.
<PAGE>
8. VACATIONS
Employee shall be entitled to reasonable vacations
consistent with the Company's vacation policy, not less than four
weeks per year, during each twelve-month period of the term
hereof, the time and duration thereof to be determined by mutual
agreement between Employee and the Company. In the event Employee
does not use his entire vacation in a twelve-month period, he
shall be entitled to receive a cash payment in lieu thereof based
upon Basic Compensation.
9. INJUNCTIVE RELIEF
Employee acknowledges and agrees that, in the event he
shall violate any of the restrictions of Articles 3 and 8 hereof,
the Company will be without adequate remedy at law and will
therefor be entitled to enforce such restrictions by temporary or
permanent injunctive or mandatory relief obtained in an action or
may have at law or in equity, and Employee hereby consents to the
jurisdiction of such Court for such purpose, it being understood
that such injunction shall be in addition to any remedy which the
Company may have at law or otherwise.
10. ASSIGNMENT, ETC.
This Agreement, as it relates to the employment of
Employee, is a personal contract and the rights and interests of
Employee hereunder may not be sold, transferred, assigned, pledged
or hypothecated.
<PAGE>
11. RIGHT TO PAYMENTS, ETC.
Employee shall not under any circumstances have any
option or right to require payments hereunder otherwise than in
accordance with the terms hereof. To the extent allowed by law,
Employee shall not have any power of anticipation, alienation or
assignment of payments contemplated hereunder, or any rights and
benefits of Employee, and no other person shall acquire any right,
title or interest hereunder by reason of any sale, assignment,
transfer, claim or judgment or bankruptcy proceedings against
Employee.
12. NOTICES, ETC.
Any notice required or permitted to be given to Employee
pursuant to this Agreement shall be sufficiently given if sent to
Employee by certified mail addressed to him at the following
address: 80 Cabot Court, Hauppauge, New York, 11788, or at any
such other address as he shall designate by notice to the Company,
and any notice required or permitted to be given to the Company
pursuant to this Agreement shall be sufficiently given if sent to
the Company by certified mail addressed to it at 80 Cabot Court,
Hauppauge, New York, attention of Corporate Secretary, or such
other address as the Company shall designate by notice to
Employee, with a copy to Squadron, Ellenoff, Plesent & Sheinfeld,
LLP, 551 Fifth Avenue, New York, New York, 10176, Attention:
Kenneth R. Koch.
<PAGE>
13. GOVERNING LAW
This Agreement shall be governed by, and construed in
accordance with the laws of the State of New York, applicable to
agreements made and to be performed solely within such state.
14. WAIVER OF BREACH; PARTIAL INVALIDITY
The waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of
any subsequent breach. If any provisions of this Agreement shall
be held to be invalid or unenforceable, such invalidity or
unenforceability shall attach only to such provision and not in
any way affect or render invalid or unenforceable any other
provisions of this Agreement, and this Agreement shall be carried
out as if such invalid or unenforceable provision were not
embodied therein.
15. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between
the parties hereto and there are no representations, warranties or
commitments except as set forth herein. This Agreement supersedes
all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral, of the
parties hereto relating to the transactions contemplated by this
Agreement. This Agreement may be amended only in writing executed
by the parties hereto affected by such amendment.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year above-written.
ORBIT INTERNATIONAL CORP.
By: /s/ Dennis Sunshine, President
Dennis Sunshine, President
and Chief Executive Officer
By: /s/ Bruce Reissman
Bruce Reissman
Q:\SSDATA1\COGENER2\138646.1
Q:\SSDATA1\COGENER2\138646.1
14
13
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 1st day of April 1996, by and between
ORBIT INTERNATIONAL CORP., a Delaware corporation (the "Company") with an
office at 80 Cabot Court, Hauppauge, New York and DENNIS SUNSHINE
("Employee"), with an address at 32 Ryder Avenue, Dix Hills, New York
11746.
W I T N E S S E T H:
WHEREAS, Employee is presently employed by the Company in a senior
executive capacity pursuant to the terms of a certain Employment Agreement
dated as of July 1, 1992, between the Company and Employee (the "1992
Employment Agreement"). The Company and Employee desire to cancel the 1992
Employment Agreement effective April 1, 1996 and to enter into an
employment agreement which will set forth the terms and conditions upon
which Employee shall continue in the employ of the Company.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth, the parties hereto have agreed, and do
hereby agree, as follows:
1. EMPLOYMENT TERM: CANCELLATION OF 1992 EMPLOYMENT AGREEMENT
1.1 The Company will continue to employ Employee in its business
and Employee will continue to work for the Company for a term commencing as
of April 1, 1996 and continuing for the duration of the Employment Period
(as hereinafter defined). During the Employment Period, Employee will, if
so requested, serve as an officer or director of any subsidiary of the
Company. Employment Period shall mean the period commencing as of April 1,
1996 and terminating on the date on which the Employment Period is
terminated in accordance with the provisions of Section 1.3 below.
<PAGE>
1.2 Upon the execution of this Agreement by both the Company and
Employee, the 1992 Employment Agreement shall be deemed to have been
cancelled and terminated as of midnight March 31, 1996, and thereafter to
be of no further force and effect.
1.3 The Employment Period shall terminate on the earlier to
occur of
(i) Employee's death or at the election of the Company at
any time after Employee's Disability (as such term is hereinafter defined);
(ii) At the election of the Company on not less than three
years' prior written notice to Employee;
(iii) At the election of Employee [AT ANY TIME?] on not less
than six months' prior written notice to the Company, or upon a "change of
control" in accordance with the provisions of Section 8.1 below; or
(iv) At the election of the Company for "cause" (as such
term is hereinafter defined).
As used herein the term "cause" means (i) willful and repeated
failure by Employee to perform his duties hereunder which are not remedied
within thirty days after written notice from the Company, (ii) conviction
of Employee for a felony, (iii) Employee's dishonesty or willfully engaging
in conduct that is demonstrably and materially injurious to the Company or
(iv) willful violation by Employee of any provisions of this Agreement
which is not remedied within thirty days after written notice from the
Company.
<PAGE>
2. DUTIES
2.1 During the Employment Period, Employee shall perform the
duties of President and Chief Executive Officer, or such other or
additional executive duties consistent with such office as shall, from time
to time, be reasonably delegated or assigned to him by the Board of
Directors of the Company consistent with Employee's abilities.
2.2 During the term of this Agreement, Employee shall, if
elected, serve as a member of the Board of Directors of the Company and
such other committees of the Board to which Employee may be appointed.
3. DEVOTION OF TIME
During the Employment Period, Employee shall expend substantially
all of his working time for the Company; shall devote his best efforts,
energy and skill to the services of the Company and the promotion of its
interests; and shall not take part in activities which are detrimental to
the best interests of the Company or which are directly competitive to the
business of the Company.
4. COMPENSATION DURING EMPLOYMENT PERIOD
4.1 In respect of services to be performed by Employee during
the Employment Period, the Company agrees to pay Employee an annual salary
of Three-Hundred Thirteen Thousand Five Hundred ($313,500) Dollars ("Basic
Compensation"), payable in accordance with the Company's customary payroll
practices for executive employees.
4.2 Employee's Basic Compensation shall be increased by an
amount established by reference to the "Consumer Price Index for Urban Wage
Earners and Clerical Workers, New York, New York, all items -
<PAGE>
Series A-01 (1982 - 84=100)" published by the Bureau of Labor Statistics of
the United States Department of Labor (the "Consumer Price Index"). The
base period shall be the month ended March 31, 1996 (the "Base Period").
If the Consumer Price Index for the month of March in any year, commencing
in 1997, is greater than the Consumer Price Index for the Base Period,
Basic Compensation shall be increased to the amount obtained by multiplying
Basic Compensation by a fraction, the numerator of which is the Consumer
Price Index for the month of March of the year in which such determination
is being made and the denominator of which is the Consumer Price Index for
the Base Period.
4.3 In addition to his Basic Compensation, during the Employment
Period Employee shall also be entitled to receive for all services rendered
hereunder an annual cash bonus ("Incentive Compensation") equal to 4.0
percent of the Company's "Pre-Tax Earnings," as hereinafter defined, to be
paid on or before March 15 of each year based on the Company's Pre-Tax
Earnings for its fiscal year ended immediately prior thereto. In the event
that the Employment Period shall end on any day other than the last day of
a fiscal year the Incentive Compensation payable to Employee hereunder
shall be prorated based on the ratio that the number of days in that fiscal
year which are included in the Employment Period bears to the total number
of days in that fiscal year.
4.4 As used herein, the term Pre-Tax Earnings shall mean the net
income of the Company and its subsidiaries, as determined on a consolidated
basis as shown on the Company's statement of operations which is included
in its audited financial statements, in accordance with generally accepted
accounting principles applied consistently with those
<PAGE>
employed in the preparation of the Company's audited financial statements,
as adjusted as follows:
(i) No deduction or provision shall be made for taxes
(which term shall not include any related interest or penalties) based on
income or profits of any nature whatsoever (including but not limited to
all federal, state, municipal and or other income, franchise, excess
profit, sales value added, gross receipts, surtaxes or other taxes upon the
Company or any of its subsidiaries or arising from or related to the income
of the Company or any of its subsidiaries in any jurisdiction);
(ii) No deduction shall be made for any Incentive
Compensation payable to Employee hereunder or any incentive compensation,
bonus or similar payment made to any other executive employee of the
Company which is based upon or measured by the earnings of the Company
(however defined);
(iii) Pre-tax earnings (or losses) of consolidated
subsidiaries of the Company which are less than 100% owned by the Company
shall be included in the computation of "Pre-Tax Earnings" only to the
extent of the Company's percentage ownership interest in each such
subsidiary; and
(iv) Pre-Tax Earnings shall not include: (A) extraordinary
gains or extraordinary losses; or (B) any gain or loss from discontinued
business operations.
The amounts earned by Employee hereunder shall be initially
computed by the Company and any dispute between the Company and Employee as
to the computation thereof shall be determined by the independent certified
public accountants then regularly retained by the Company based
<PAGE>
upon financial statements certified by said accountants and such
determination shall be final and binding upon the Company and Employee.
4.5 Employee shall also be entitled to such additional
increments and bonuses as shall be determined from time to time by the
Board of Directors of the Company.
4.6 As used in this Agreement the term "Total Compensation"
shall mean, with respect to any period, the total amounts paid or payable
to Employee with respect to such period whether as Basic Compensation,
Incentive Compensation, or as additional payments made pursuant to
Paragraph 4.5.
5. PURCHASE OF SHARES
5.1 Concurrent with the execution hereof, Employee shall
purchase 300,000 shares of common stock, par value $.10 of the Company (the
"Shares") for an aggregate purchase price of $30,000. Such shares shall
vest according to the following schedule:
Shares Vesting Date
100,000 April 1, 1997
100,000 April 1, 1998
100,000 April 1, 1999
5.2 In the event Employee's employment is terminated at any time
prior to April 1, 1999, any shares remaining uninvested shall be forfeited
to the Company.
5.3 Until vested, Employee shall have no dispositive power with
regard to the Shares. However, Employee shall be entitled to voting power
with regard to the Shares. The Shares shall be registered on a
<PAGE>
Form S-8 (or such other form as shall be available at such time) with the
Securities and Exchange Commission concurrent with the registration of any
securities issued pursuant to any of the Company's employee benefit plans.
6. BENEFITS; REIMBURSEMENT OF EXPENSES
6.1 Employee shall at all times have the use of a Company-owned
or leased automobile with full maintenance and insurance. All costs of
such automobile, including lease costs or purchase price, gasoline and oil
and garaging (except at Employee's home) shall be paid by the Company.
6.2 The Company shall pay directly, or reimburse Employee, for
all other reasonable and necessary expenses and disbursements incurred by
him for and on behalf of the Company in the performance of his duties
during the Employment Period in accordance with the regular practices of
the Company regarding the reimbursement of such expenses.
6.3 Employee and any beneficiary of Employee shall be accorded
the right to participate in and receive benefits under and in accordance
with the provisions of any pension, insurance, medical and dental insurance
or reimbursement, or other similar plan or program of the Company now in
existence or hereafter adopted for the benefit of its executive employees.
6.4 The Company shall maintain keyman life insurance on Employee
in the minimum amount of $2 million. Upon termination of employment,
Employee may continue to pay premiums due under such policy and designate
beneficiaries thereunder.
<PAGE>
7. DISABILITY
7.1 If the Employment Period is terminated by reason of
Employee's Disability, as defined below, Employee shall be paid a sum equal
to 50% of the Total Compensation paid or payable to him with respect to the
immediately preceding full fiscal year, such payment to be made to him in
six substantially equal monthly installments commencing promptly following
any such termination of the Employment Period.
7.2 "Disability" shall mean the inability of Employee, for a
continuous period of more than six (6) months, to perform substantially all
of his regular duties and carry out substantially all of his
responsibilities hereunder because of physical or mental incapacity. The
Company shall have the right to have Employee examined by a competent
doctor for purposes of determining his physical or mental incapacity.
7.3 The obligations of the Company under Article 7.1 may be
satisfied, in whole or in part, by payments to Employee under disability
insurance provided by the Company, and under laws providing disability
benefits for employees.
8. CHANGE IN CONTROL
8.1 In the event at any time after March 31, 1996, a majority of
the Board of Directors is composed of persons who are not "Continuing
Directors," as hereinafter defined, (i) all stock options and the Shares
granted to Employee under any of the Company's stock option plans, which
stock options are currently outstanding and not vested, shall immediately
become fully vested and (ii) Employee shall have the option, to be
exercised by written notice to the Company, to resign as an employee
<PAGE>
and terminate this Agreement, effective as of such date as may be specified
in his written notice of resignation.
In the event Employee exercises such option under (ii) above, he shall
be entitled to receive, as termination pay, a lump sum equal to the maximum
amount that can be paid to Employee, after giving effect to all other
benefits accruing to Employee upon the termination of his employment,
without any portion thereof constituting an "excess parachute payment" as
defined in 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"), or any Successor section of the Code. The computation of the
termination payment to be made to Employee under (ii) above shall be
performed, at the sole cost and expense of the Company, by the independent
auditors then retained by the Company, or if such auditors notify the
Company that they are unwilling to perform such computation, then by any
nationally or regionally recognized independent public accounting firm
selected by Employee. The computation provided by such auditors shall be
final and binding on the Company and Employee. The Company and Employee
shall provide such auditors with any documents and other information that
the auditors may reasonably request.
8.2 "Continuing Directors" shall mean (i) the directors of the
Company at the close of business on March 31, 1996, and (ii) any person who
was or is recommended to (A) succeed a Continuing Director or (B) become a
director as a result of an increase in the size of the Board, in each case,
by a majority of the Continuing Directors then on the Board.
9. CONFIDENTIAL INFORMATION; INVENTION RESTRICTIVE COVENANT.
9.1 Employee agrees not to divulge, furnish or make available to
anyone (other than in the regular course of business of the Company)
<PAGE>
any confidential knowledge or information with respect to the Company, or
with respect to any other confidential or secret aspect of the Company's
activities.
9.2 Any methods, developments, inventions and/or improvements,
whether patentable or unpatentable, which Employee may conceive or make
along the lines of the Company's business while in its employ as an
employee or consultant, shall be and remain the property of the Company.
Employee further agrees on request to execute patent applications based on
such methods, developments, inventions and/or improvement, including any
other instruments deemed necessary by the Company for the prosecution of
such patent application or the acquisition of Letters Patent of this and
any foreign country.
9.3 Employee agrees to communicate and make known to the Company
all knowledge possessed by him relating to any methods, developments,
inventions and/or improvements, whether patented, patentable or
unpatentable, which concern in any way the business of the Company, whether
acquired by him before or during the term hereof, provided, however, that
nothing herein shall be construed as requiring any such communication where
the method, development, invention and/or improvement is lawfully protected
from disclosure as the trade secret of a third party or by any other lawful
bar to such communication.
9.4 The services of Employee are unique and extraordinary and
essential to the business of the Company, especially since Employee shall
have access to the Company's customer lists, trade secrets and other
privileged and confidential information essential to the Company's
business. Therefore, Employee agrees that if his employment services
<PAGE>
hereunder shall at any time be terminated [for any reason other than a
termination resulting from a breach by the Company of any provision of this
agreement], Employee will not at any time within one (1) year after such
termination, without the prior written approval of the Company, directly or
indirectly, within one-hundred (100) miles of the Company's corporate
headquarters in Hauppauge, New York, or any other area in which the Company
shall then conduct substantial operations, engage in a similar business
activity with the business of the Company; and further, Employee agrees
that during such two (2) year period he shall not solicit, directly or
indirectly, any employee or customer or account of the Company who at the
time of such termination was then actively being solicited by the Company.
10. VACATIONS.
Employee shall be entitled to reasonable vacations consistent
with the Company's vacation policy, not less than four weeks per year,
during each twelve-month period of the term hereof, the time and duration
thereof to be determined by mutual agreement between Employee and the
Company. In the event Employee does not use his entire vacation in a
twelve-month period, he shall be entitled to receive a cash payment in lieu
thereof based upon Basic Compensation.
11. INJUNCTIVE RELIEF.
Employee acknowledges and agrees that, in the event he shall
violate any of the restrictions of Articles 3 and 8 hereof, the Company
will be without adequate remedy at law and will therefor be entitled to
enforce such restrictions by temporary or permanent injunctive or mandatory
relief obtained in an action or may have at law or in equity, and Employee
hereby consents to the jurisdiction of such Court for such purpose, it
being understood that such injunction shall be in addition to any remedy
which the Company may have at law or otherwise.
<PAGE>
12. ASSIGNMENT. ETC.
This Agreement, as it relates to the employment of Employee, is a
personal contract and the rights and interests of Employee hereunder may
not be sold, transferred, assigned, pledged or hypothecated.
13. RIGHT TO PAYMENTS. ETC.
Employee shall not under any circumstances have any option or
right to require payments hereunder otherwise than in accordance with the
terms hereof. To the extent allowed by law, Employee shall not have any
power of anticipation, alienation or assignment of payments contemplated
hereunder or any rights and benefits of Employee, and no other person shall
acquire any right, title or interest hereunder by reason of any sale,
assignment, transfer, claim or judgment or bankruptcy proceedings against
Employee.
14. NOTICES, ETC.
Any notice required or permitted to be given to Employee pursuant
to this Agreement shall be sufficiently given if sent to Employee by
certified mail addressed to him at the following address: 80 Cabot Court,
Hauppauge, New York, 11788, or at any such other address as he shall
designate by notice to the Company, and any notice required or permitted to
be given to the Company pursuant to this Agreement shall be Sufficiently
given if sent to the Company by certified mail addressed to it at 80 Cabot
Court, Hauppauge, New York, attention of Corporate Secretary, or such other
address as the Company shall designate by notice to Employee, with a copy
to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 5th Avenue, New York,
NY 10176, Attention: Kenneth R. Koch.
15. GOVERNING LAW.
<PAGE>
This Agreement shall be governed by, and construed in accordance
with the laws of the State of New York, applicable to agreements made and
to be performed solely within such state.
16. WAIVER OF BREACH; PARTIAL INVALIDITY.
The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach. If any provisions of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall attach only to
such provision and not in any way affect or render invalid or unenforceable
any other provisions of this Agreement, and this Agreement shall be carried
out as if such invalid or unenforceable provision were not embodied
therein.
17. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and there are no representations, warranties or commitments
except as set forth herein. This Agreement supersedes all prior and
contemporaneous agreements, understandings, negotiations and discussions,
whether written or oral, of the parties hereto relating to the transactions
contemplated by this Agreement. This Agreement may be amended only in
writing executed by the parties hereto affected by such amendment.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year above-written.
ORBIT INTERNATIONAL CORP.
By: /s/ Bruce Reissman
Bruce Reissman, Executive Vice President
and Chief Operating Officer
By: /s/ Dennis Sunshine
Dennis Sunshine
Q:\SSDATA1\COGENER2\132305.1
Q:\SSDATA1\COGENER2\132305.1
14
13
Exhibit 21
Orbit International Corp.
Subsidiaries of Registrant
Name State of Incorporation
Behlman Electronics, Inc. Delaware
Canada Classique Inc. New Jersey
Orbit Instrument of
California, Inc. California
Symax Garment Co. (1993) Ltd. Delaware
Winnepeg Leather (1991) Inc. Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 927,000
<SECURITIES> 782,000
<RECEIVABLES> 3,264,000
<ALLOWANCES> 150,000
<INVENTORY> 6,657,000
<CURRENT-ASSETS> 14,891,000
<PP&E> 4,432,000
<DEPRECIATION> 2,085,000
<TOTAL-ASSETS> 19,931,000
<CURRENT-LIABILITIES> 14,785,000
<BONDS> 4,352,000
0
0
<COMMON> 907,000
<OTHER-SE> 4,239,000
<TOTAL-LIABILITY-AND-EQUITY> 19,931,000
<SALES> 16,971,000
<TOTAL-REVENUES> 16,971,000
<CGS> 9,361,000
<TOTAL-COSTS> 9,361,000
<OTHER-EXPENSES> 5,501,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,000
<INCOME-PRETAX> 3,311,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,311,000
<DISCONTINUED> (8,800,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,489,000)
<EPS-PRIMARY> (.89)
<EPS-DILUTED> (.82)
</TABLE>
