"THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED ON APRIL 1, 1999 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION."
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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) (Zip Code)
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 Name of Each Exchange on Which Registered
Common Stock, $.10 par value per share Nasdaq National Market
Indicate by check mark whether the Registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant=s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Aggregate market value of Registrant=s voting stock held by non-affiliates
(based on shares held and the closing price quoted on the Nasdaq National
Market on March 17, 1999): $7,413,404
Number of shares of common stock outstanding as of March 17, 1999: 6,082,793
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
1999 Annual Meeting of Stockholders.
PART I
Item 1. BUSINESS
General
Orbit International Corp. (the ACompany@ or AOrbit@) conducts its operations
through its Orbit Instrument Division and its subsidiary, Behlman Electronics,
Inc. 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 August 1996,
the Company announced that it was discontinuing operations of its apparel
business.
In February 1996, the Company, through its wholly-owned subsidiary, Cabot
Court, Inc., completed the acquisition of certain of the assets of
Astrosystems, Inc. and its wholly-owned subsidiary, Behlman Electronics,
Inc., each of which were unaffiliated third parties. Under the terms
of the purchase agreement, Orbit assumed certain liabilities relating to the
assets being acquired, including, without limitation, obligations under the
acquired contracts. Concurrently with the purchase, Cabot Court, Inc.
changed its name to Behlman Electronics, Inc. (ABehlman@).
Discontinued Apparel Operations
On August 6, 1996, the Board of Directors of the Company adopted a plan to
sell and/or liquidate its remaining United States and Canadian apparel
operations. The United States 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. In the fourth
quarter of 1996, the Company entered into a three-year license agreement (the
AAthco License Agreement@) with Athco, Inc. (AAthco@), an unaffiliated third
party, pursuant to which Orbit granted to Athco the right to manufacture and
sell ladies apparel under the AEast/West@ trademark in the United States and
Canada. The Athco License Agreement is renewable for two additional
three-year terms at the option of Athco. Under the terms of the Athco
License Agreement, Orbit is entitled to a royalty equal to 3% of the first
$5,000,000 of net sales of the articles licensed under such agreement during
each year of the term and 2% of net sales in excess of $5,000,000 during each
such year. Athco is also required to pay annual guaranteed minimum royalties
(which are nonrefundable advances applied against actual royalties earned by
Orbit) ranging from $100,000 during the first year of the term to $227,156
during the final year of the second renewal term. The operations of the
East/West division are limited to servicing such license.
The Canadian apparel operations had been operated through three wholly-owned
subsidiaries of the Company. In March 1997, Orbit commenced bankruptcy
proceedings against two of the three subsidiaries, which proceedings are
still pending, and sold substantially all of the assets of the third
subsidiary. In March 1997, Orbit also appointed a receiver and manager for the
purpose of liquidating the assets of the two subsidiaries in bankruptcy. All
such assets were subsequently sold and the proceeds from such sale were used to
pay down the outstanding obligations to the secured lender of the
subsidiaries.
In July 1988, Orbit, through a wholly-owned subsidiary, USA Classic, Inc.
(AUSA 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 filed petitions under Chapter 11 of the
United States Bankruptcy Code in May 1994. USA Classic ceased operations in
August 1994.
Financial Information About Industry Segments
The Company currently operates in two industry segments. Its Orbit Instrument
Division is engaged in the design and manufacture of electronic components
and subsystems (the AElectronics Segment@). Its Behlman subsidiary is
engaged in the design and manufacture of commercial power units (the APower
Units Segment@).
The following sets forth certain selected historical financial information
relating to the Company=s business segments:
December 31,
1998 1997 1996 (1)
Net sales:
Electronics
Power Units
Domestic
Foreign
Total Power Units
$10,250,000
5,166,000
935,000
6,101,000
$10,045,000
6,381,000
1,200,000
7,581,000
$10,092,000
5,904,000
975,000
6,879,000
Operating income (loss) (2):
Electronics
Power Units
2,412,000
(461,000)
2,457,000
634,000
2,581,000
659,000
Assets:
Electronics
Power Units
7,863,000
3,964,000
8,033,000
3,967,000
8,057,000
4,285,000
_______________
(1) Power Units Segment was acquired in February 1996.
(2) Exclusive of corporate overhead expenses, interest expense and investment
income which are not allocated to the business segments.
Additional financial information relating to the business segments in which
Orbit conducts its operations is set forth in Note 15 to the Consolidated
Financial Statements appearing elsewhere in this report.
Glossary of Technical Terms
AAC power sources@ -- equipment that produces power that is the same as what
would be received from a public utility.
ABL series@ -- Behlman=s standard switching power supply series.
ACCFT@ B Cold Cathode Flourescent Tubes.
ACRT terminals@ -- Cathode Ray Tube terminals.
ACommercial Off the Shelf@ -- non-customized products produced in anticipation
of customer orders.
Acomputer controlled action entry panels (CCAEPS)@-- computer input devices.
Adata entry display devices@ -- computer-based devices that increase the
efficiency between the human operator and the computer system.
Adistortion free commercial power units@ -- power that is free of
disturbances such as Abrown-outs@.
AElectro Luminescent (E.L.) power supplies@ -- power supplies which power
electro luminescent displays.
Afrequency converters@ -- equipment which converts local power to equivalent
foreign power.
Afull-mil keyboards@ -- keyboards designed for use in a military environment.
AIC manufacturing@ -- integrated circuit manufacturing.
Aliquid crystal display (LCD) panel/unit@-- a color flat panel-based display
used in information systems.
Aoperator control trays@ -- integrated panels used in conjunction with data
display consoles.
Aplasma based telephonic intercommunication panels@ -- programmable panels used
to promote communication throughout various military communication centers.
A(AC) plasma display panel/unit@ -- technology utilizing neon gas
illuminated between electrically charged fields.
Apower conversion devices@ -- equipment that produces power that is the same as
what would be received from a public utility.
AP series@ -- Behlman=s power passport series.
Aruggedized hardware@ -- hardware designed to meet severe environmental
conditions.
Aruggedized market@ -- the market for ruggedized hardware.
Astandard shipboard display console requirements@ -- the standard tactical
display used specifically by the United States Navy.
Asubsystems@ -- units produced to be integrated into larger computer systems.
AT&D@ -- utility transmission and distribution.
Atelco-based designs@ -- standard telephone interface designs.
Atelecommunication superconducting amplifiers@ -- amplifiers used in cable
television.
ATFT@ B thin film transistor.
Atrackballs@ -- cursor control devices used in conjunction with data display
systems.
AUPS market@ -- the market for uninterruptable power supplies.
Auninterruptable power supplies (UPS)@ -- devices which allow a computer to
operate while utility power is lost.
AVGA@-- video graphics array.
SURVEILLANCE AIRCRAFT PROGRAMS:
E-2C
J/STARS (Joint Surveillance Target Attack Radar Systems)
AWACS (Lookdown Surveillance Aircraft)
SHIPBOARD PROGRAMS:
AEGIS (Guided Missile Cruisers and Destroyers)
DDG=S (Guided Missile Destroyers)
BFTT (Battle Force Tactical Training)
LSD=S (Amphibious Warfare Ships)
LHA=S (Amphibious Warfare Ships)
Description of Business
General
Orbit=s Electronics Segment, which is operated through its Orbit Instrument
Division, designs, manufactures and sells customized panels, components, and
Asubsystems@ for contract program requirements to prime contractors,
governmental procurement agencies and research and development (AR&D@)
laboratories. The Company primarily designs and manufactures in support
of specific military programs. More recently, the Company has focused on
providing commercial, non-military Aruggedized hardware@ for prime contractor
programs at cost competitive prices. Products include a variety of custom
designed Aplasma based telephonic intercommunication panels@ for secure voice
airborne and shipboard program requirements, Afull-mil keyboards@,
Atrackballs@ and Adata entry display devices@. The Electronics Segment=s
products, which in all cases are designed for customer requirements on a 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=S applications, as well as a variety of land based guidance control
programs.
On February 6, 1996, Cabot Court, Inc. (ACabot Court@), a wholly-owned
subsidiary of Orbit, acquired for $3,706,700 certain of the assets of
Astrosystems, Inc. (AAstrosystems@) and Astrosystems= wholly-owned subsidiary,
Behlman Electronics, Inc. (which changed its name at the closing to BEI
Electronics, Inc. (ABEI@)), each of which were unaffiliated third parties.
Cabot Court changed its name to Behlman Electronics, Inc. (ABehlman@) on
February 7, 1996. Under the terms of the purchase agreement, Orbit assumed
certain liabilities relating to the assets being acquired including, without
limitation, the acquired contracts. 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,
Afrequency converters@, Auninterruptable power supplies (AUPS@)@, associated
analytical equipment and other electronic equipment. The purchase agreement
provided that the Purchase Price was subject to adjustment based upon a final
inventory valuation with no maximum or minimum adjustment. During January 1999,
Orbit and Astrosystems resolved an inventory valuation dispute resulting in an
amount owed by Orbit to Astrosystems of approximately $236,000, inclusive of
accrued interest.
Orbit=s Power Units Segment is operated through its Behlman subsidiary. The
military division of Behlman designs and manufactures Apower conversion devices@
and electronic products for measurement and display. The commercial products
division produces high quality, Adistortion free commercial power units@ and low
noise UPS.
Products
Electronics Segment
Intercommunication Panels
The Orbit Instrument Division completed design and development of a complement
of display panels for rugged mission critical applications. The display panels
provide customers with potential program solutions that include Electro
Luminescent (E.L.), AC Plasma and Liquid Crystal Display (LCD) technologies.
Prime contractors which require command, combat communications or display
systems have requested these panels to support a number of console applications.
The Orbit Instrument Division has also completed land-based and shipboard secure
voice Atelco-based designs@, and has been awarded a Basic Ordering Agreement
from Naval Surface Warfare Center in Crane, Indiana. The Basic Ordering
Agreement establishes firm fixed prices for six Orbit panel configurations. The
Agreement enables the United States Government to procure each of the panel
configurations in indefinite quantities, increasing by an agreed upon escalation
for each of the next 48 months.
Graphic Display Terminal
The Orbit Instrument Division=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.
Operator Control Trays
The Orbit Instrument Division designs and manufactures a variety of Aoperator
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, Astandard shipboard display console requirements@
and shore land based defense systems applications.
Data Entry, Keyboards, and Display Systems
The Orbit Instrument Division has designed and manufactures a variety of
Acomputer controlled action entry panels (CCAEPS)@, which provide a console
operator with multiple displays of computer generated data. The Orbit
Instrument Division has designed a number of custom keyboards to meet full
military specifications. These keyboards have been designed for shipboard,
airborne, sub-surface and land based program requirements.
Color Liquid Crystal Displays (LCD=s)
In 1998, the Orbit Instrument Division completed development of a family of
18.1" and 20.1" color LCD display panels for military and rugged commercial
opportunities. The display is manufactured using Super Fine TFT (thin film
transistor) active matrix technology. The display is backlit with Cold Cathode
Flourescent Tubes (CCFT), and is driven by an integral inverter. The
Company has adapted this technology for high brightness and full-color
imaging requirements. The Company is positioning this technology for surface
ship and trading floor opportunities.
Color Liquid Crystal Display Computers
The Orbit Instrument Division has completed a design configuration for a Thin
Film Transistor (TFT) color LCD with an integral touch screen for input from
the operator. The unit is powered by an ultra-compact high-performance 486
processor. The airborne and land-based display configurations also include
up to 32 mega-bits of RAM, with wide angle (640x480) technology. The VGA
single board computer includes a serial port (RS-232/422) and expansion
capabilities through a PC/104 carrier module.
Power Units Segment
Power Sources
Behlman=s AAC power sources@ are used in the production of various types of
equipment such as ballasts for fluorescent lighting, ACRT 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.
Behlman=s frequency converters are used to convert local power frequency
(e.g., 60HZ in the United States) to local frequencies elsewhere (e.g., 50 HZ in
Europe).
Behlman=s UPS products are used for backup power when local power is lost.
Behlman only competes in the Aruggedized market@ as opposed to the commercial
AUPS market@.
Behlman=s military division has value-engineering personnel who are capable of
reconfiguring obsolete or hard-to-maintain United States Government equipment.
After the value-engineering is completed, in most instances, Behlman will be
contracted to build the equipment, but in the event the component is
contracted to be built elsewhere but is based upon the Behlman=s engineering
design, Behlman will receive a percentage of the United States Government=s
savings over the life of the program.
Behlman also performs reverse engineering of analog systems for the United
States Government or United States Government contractors to enable them to have
a new contractor with high quality capabilities at a competitive price.
Behlman=s railroad signaling power supply has been sold to railway passenger
lines in northeastern United States. The railroad industry buys frequency
converters and inverters. Behlman has set up a representative organization
and strategic advertising campaign along with training programs for
representatives and has been meeting with different railroad organizations for
the purpose of promoting its products and gaining an understanding of the needs
of the industry.
Behlman=s Power Passport PS1350 is a low cost basic instrument for use in the
import/export and aerospace markets. The P series has fewer features but is
priced below Behlman's BL series. Another version, the P1351, will be
introduced in the second quarter of 1999 as an intermediary version between
the P1350 and the BL1350 in terms of cost and function.
Behlman also operates as a qualified repair depot for many United States Air
Force and Navy programs.
Proposed Products
Electronics Segment
The Orbit Instrument Division is currently expanding its design and development
resources to update hardware previously used for full military program
requirements. The Orbit 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.
The Orbit Instrument Division also has recently completed a prototype keyboard
for Amission critical@ cost sensitive trading floor and brokerage firm
applications.
The Orbit Instrument Division has recently completed a pre-production order for
a new Electroluminescent (EL) Display Terminal. The Data Entry Display combines
a high bright EL Display module with an ultra-compact single board computer.
The unit was specifically designed as a high speed AT compatible computer
which will mechanically fit into limited space applications.
The Orbit Instrument Division has finalized a design for a shipboard console to
be used primarily for foreign sales opportunities. The upgraded console
incorporates a 20.1" color LCD display together with a package of
man/machine-interface solutions. Initial prototype consoles have included
newly designed trackballs, keyboards and data display devices, qualified to meet
shipboard applications.
Power Units Segment
Behlman has developed a strategic relationship with a manufacturer of high
voltage power supply modules. It has received prototype orders for power
supplies utilizing these modules. Behlman is also looking at various ways to
reconfigure its commercial hardware to meet military specifications so that
its hardware may be considered ACommercial Off the Shelf@ for military
requirements. It is currently bidding on military programs for its units and
has received a prototype order on a United States Government missile program.
Behlman has entered the Utility Transmission and Distribution (AT&D@) industry.
The utility industry is facing competition, resulting in pressure to cut costs
in their substations through automation. In the event of a power outage, the
computers and other critical equipment must be powered with AC generated from
the substation batteries. Behlman has received orders for this equipment and
has been advertising in specific periodicals. An offshoot of the T&D market is
the telecommunications market where batteries are generally used to keep the
system running. This market is being investigated and Behlman plans to enter it
in much the same way as it entered the T&D market.
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 Electronics Segment are marketed by Orbit Instrument Division=s
sales personnel and management. Military products of the Power Units Segment
are marketed by Behlman=s program managers and other management personnel.
Commercial products of the Power Units Segment are sold by regional sales
managers, manufacturer=s representatives and non-exclusive distributors.
Competition
The Electronics Segment=s competitive position within the electronics
industry is, in management=s view, predicated upon the Orbit Instrument
Division=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 have greater resources 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 Electronics Segment produces. (See - AMajor Customers@).
Competition in the markets for the Power Units Segment=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 United States
Government markets has been increasingly severe and price has become the major
overriding factor in contract and subcontract awards. (See - AMajor Customers@).
To the Company=s knowledge, some of Behlman=s regular competitors include
companies with substantially greater capital resources and larger engineering,
administrative, sales and production staffs than Behlman.
Major Customers
Various agencies of the United States Government and Raytheon Company accounted
for approximately 27% and 21%, respectively, of net sales of the Company for the
year ended December 31, 1998. The loss of either of these customers would have
a material adverse effect on the net sales and earnings of the Company. The
Company does not have any significant long-term contracts with either of the
above-mentioned customers.
The major customers of the Electronics Segment are various agencies of the
United States Government, Raytheon Company and Northrop Grumman, accounting for
approximately 34%, 32% and 14%, respectively, of the net sales of the
Electronics Segment for the year ended December 31, 1998. The loss of any of
these customers would have a material adverse effect on the net sales and
earnings of the Electronics Segment.
The major customers of the Power Units Segment are the United States Government
and Baker Atlas, accounting for approximately 16% and 13%, respectively, of the
net sales of the Power Units Segment for the year ended December 31, 1998. The
loss of either of these customers would have a material adverse effect on the
net sales and earnings of the Power Units Segment.
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.
Backlog
As of December 31, 1998 and 1997 the Company=s backlog was as follows:
1998
1997
Electronics
$7,000,000
$14,000,000
Power Units
2,000,000
2,000,000
Total
$9,000,000
$16,000,000
Of the backlog at December 31, 1998, approximately $2,000,000 represents
backlog under contracts which will not be shipped during 1999. Approximately
$3,000,000 of the backlog at December 31, 1997 will be shipped during 1999.
A significant amount of the Company=s contracts are subject to termination at
the convenience of the United States Government. The backlog is not influenced
by seasonality.
Special Features of United States Government Contracts
Orders under United States Government prime contracts or subcontracts are
customarily subject to termination at the convenience of the United States
Government, in which event the contractor is normally entitled to reimbursement
for allowable costs and 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 contracts of either the Electronics Segment or the
Power Units Segment at the convenience of the United States Government occurred
during the year ended December 31, 1998.
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 United States 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 $793,000, $795,000 and $710,000 of research
and development expenses during the years ended December 31, 1998, 1997 and
1996, respectively.
Patents
The Company does not own any patents which it believes are of material
significance to its operations.
Employees
As of March 12, 1999, the Company employed 98 persons on a full-time basis. Of
these, the Electronics Segment employed 48 people, consisting of 11 in
engineering and drafting, 4 in sales and marketing, 8 in direct and corporate
administration and the balance in production. The Power Units Segment employed
50 people, consisting of 12 in engineering and drafting, 4 in sales, 3 in direct
and corporate administration and the balance in production.
Item 2. PROPERTIES
The Company owns its plant and executive offices, located at 80 Cabot Court,
Hauppauge, New York, which consists 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 1,700 square feet in Ventura, California which is used for sales.
The lease expires in December 1999.
As a residual of its discontinued apparel operations, the Company has leases for
showroom and office space in New York, warehouse space in New Jersey and
showroom, office and manufacturing space in Winnipeg, Manitoba, Canada. The
Company has subleased its showroom and office space in New York and its
warehouse space in New Jersey.
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 AClass 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 AOffering@), through September 22, 1993, and alleged violations
of the Securities Act of 1933, as amended (the ASecurities Act@) in connection
with the Offering as well as violations of Section 10(b) of the Securities
Exchange Act of 1934. Specifically, the complaint alleged that false and
misleading statements were made in the registration statement (including the
prospectus and the financial statements therein) filed in connection with the
Offering and in certain financial statements of USA Classic filed subsequent to
the Offering in violation of Sections 11 and 12 (2) of the Securities Act. The
complaint further alleged Acontrol person@ liability under Section 15 of the
Securities Act. The plaintiffs were seeking compensatory damages as well as fees
and expenses.
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 Acontrolling person@ of USA
Classic and an Aaider and abettor@ of the alleged violations of the securities
laws. The Company answered the First Amended and Consolidated Complaint on
March 21, 1994. The Class Action was 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 PaineWebber Incorporated and Ladenburg
Thalmann & Co. Inc., the lead underwriters in the Offering, as additional
defendants.
On July 2, 1998, an agreement to settle this dispute was reached among all of
the parties. A written settlement agreement was executed on August 21, 1998.
On January 15, 1999, the Honorable John S. Martin Jr. entered a final order and
judgment certifying the class, accepting the terms of the settlement as
reasonable, and dismissing the action. Pursuant to the terms of the settlement
agreement, and in complete satisfaction of its obligations thereunder, the
Company paid $1,000,000 to the plaintiffs.
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 the
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. In November, 1998, the parties
reached an agreement to settle this action. On December 1, 1998, the Company
paid the plaintiff $50,000 in full satisfaction of the terms and conditions of
the settlement agreement.
Bankruptcy and Liquidation of Canadian Subsidiaries: On March 12, 1997, Orbit
commenced bankruptcy proceedings against two of its subsidiaries, Canada
Classique, Inc. and Winnipeg Leather (1991) Inc., which operated its Canadian
apparel operation. Such bankruptcy proceedings are still pending. Orbit has
appointed a receiver and manager who has liquidated all of the assets of these
subsidiaries. The proceeds of such sales were used to pay down the outstanding
obligations to the secured lender of the two subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT=S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of March 18, 1999, the Company had 634 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, 1997 through December 31,
1998, as reported by Nasdaq, were as follows:
CLOSE
High
Low
1997:
First Quarter:
25/8
2
Second Quarter:
27/16
13/4
Third Quarter:
33/16
129/32
Fourth Quarter:
313/16
25/16
1998:
First Quarter:
42
33/16
Second Quarter:
4c
2f
Third Quarter:
33
113/16
Fourth Quarter:
2c
12
The Company has not declared any dividends during the aforesaid period.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
<S>
1998
<C>
1997
<C>
1996
<C>
1995
<C>
1994
<C>
Net sales
$16,351,000
$17,626,000
$16,971,000
$11,763,000
$12,254,000
Income
from continuing
operations
1,881,000
2,038,000
3,311,000
2,491,000
1,098,000
Income (loss)
from discontinued
operations
- --
- --
( 8,800,000)
(24,744,000)
(18,093,000)
Income per share
from continuing
operations:
Basic
Diluted
.30
.27
.34
.30
.56
.53
.42
.42
.18
.18
Income (loss) per share from discontinued operations:
Basic
Diluted
B-
- --
- --
- --
( 1.48)
( 1.42)
( 4.20)
( 4.17)
( 2.93)
( 2.92)
Total assets at year-end
19,145,000
17,899,000
19,931,000
38,028,000
63,511,000
Long-term obligations
3,881,000
3,667,000
3,817,000
1,097,000
8,909,000
Total stockholders= equity
9,059,000
7,287,000
5,146,000
9,318,000
31,263,000
</TABLE>
Item 7. MANAGEMENT=S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Year Ended December 31, 1998 v. Year Ended December 31, 1997
The Company currently operates in two industry segments. Its Orbit Instrument
Division is engaged in the design and manufacture of electronic components and
subsystems (the AElectronics Segment=). Its Behlman subsidiary is engaged in
the design and manufacture of commercial power units (the APower Units
Segment@).
Consolidated net sales for the year ended December 31, 1998 decreased to
$16,351,000 from $17,626,000 for the prior year, principally due to decreased
sales of $1,480,000 in the Company=s Power Units Segment which were partially
offset by increased sales of $205,000 in the Company=s Electronics Segment.
Gross profit, as a percentage of net sales, for the year ended December 31, 1998
decreased to 41.8% from 43.1% for the prior year due to lower gross profits
realized by the Company=s Power Unit Segment primarily due to a reduction in the
Segment=s sales.
Selling, general and administrative expenses for the year ended December 31,
1998 increased to $5,719,000 from $5,596,000 for the year ended December 31,
1997, principally due to a charge of $236,000 in 1998, resulting from the final
determination of an inventory dispute related to the 1996 Behlman acquisition.
Excluding this charge, selling general and administrative expenses for the year
Ended December 31, 1998 decreased to $5,483,000 from $5,596,000 for the
prior year. This decrease was principally due to a reduction in corporate
expenses which were partially offset by higher selling, general and
administrative costs incurred by the Electronics Segment resulting from
increased selling and marketing efforts. Selling, general and administrative
expenses, as a percentage of sales, for the year ended December 31, 1998
increased to 35.0% from 31.7% for the prior year due to higher selling, general
and administrative costs incurred by the Electronics Segment and certain fixed
costs of the Power Unit segment which did not decrease despite the reduction in
the Segment=s sales.
In July 1998, the Company reached a settlement with respect to the USA Classic
class action securities litigation pursuant to an executed AStipulation of
Settlement@ by each of the parties and the approval of such by the court. The
Company=s portion of the settlement was $1,000,000 of which $500,000 had been
previously accrued. Accordingly, the Company recorded an additional charge of
$500,000 during 1998.
Interest expense for the year ended December 31, 1998 increased to $328,000 from
$253,000 for the prior year, principally due to interest recorded in the current
period by the Company related to a debt obligation of the discontinued apparel
operations. Such interest expense was recorded as part of the discontinued
apparel operations for a portion of the prior period.
Investment and other income for the year ended December 31, 1998 increased to
$393,000 from $284,000 for the prior year, principally due to an increase in
funds available for investment during 1998.
In connection with the resolution of the USA Classic class action securities
litigation and its related uncertainties and consistent with Financial
Accounting Standards No. 109, AAccounting for Income Taxes@, the Company
recorded additional deferred tax assets and reduced its valuation allowance
against its existing deferred tax assets by $1,200,000 during the year ended
December 31, 1998.
Net income for the year ended December 31, 1998 decreased to $1,881,000 from
$2,038,000 for the prior year. Included in the current year=s net income was
the reduction of a valuation allowance against existing deferred tax assets of
$1,200,000 and charges of $500,000, recorded in connection with the settlement
of the class action securities litigation and $236,000 resulting from the final
determination of an inventory valuation dispute related to the 1996 Behlman
acquisition. Excluding the impact of the income tax benefit, the settlement of
the class action litigation and the resolution of the dispute, net income for
the year ended December 31, 1998 decreased to $1,417,000 from $2,038,000 from
the prior year. This decrease was principally due to lower profits recorded by
the Company=s Power Units Segment resulting from a decrease in the Segment=s
sales.
Year Ended December 31, 1997 v. Year Ended December 31, 1996
In August 1996, the Company adopted a plan to sell its apparel segments. The
plan of disposal of such segments left the Company with its Electronics and
Power Units Segments.
Consolidated net sales for the year ended December 31, 1997 increased to
$17,626,000 from $16,971,000 for the prior year due principally to additional
sales recorded by Orbit=s Power Units Segment which was acquired as a result of
the Behlman acquisition during the first quarter of 1996. Sales for the
Electronic Segment the Orbit Instrument Division did not materially change from
1996 to 1997.
Gross profit, as a percentage of sales, for the year ended December 31, 1997
decreased to 43.1% from 44.8% for the prior year due to lower margins realized
both from the Electronics Segment and the Power Units Segment due to slightly
higher production overhead costs and to the product mix of units sold.
Selling, general and administrative expenses for the year ended December 31,
1997 increased slightly to $5,596,000 from $5,501,000 for the prior year due
principally to a full year of selling, general and administrative costs incurred
by the Company=s Power Units Segment, which was acquired in February 1996 offset
by lower corporate costs. Selling, general and administrative expenses as a
percentage of sales for the year ended December 31, 1997 decreased slightly to
31.7% from 32.4% for the prior year due to lower corporate costs and increased
sales from Behlman which increased at a greater rate than costs for that
Segment.
Interest expense for the year ended December 31, 1997 increased to $253,000 from
$118,000 for the prior year due to interest recorded in the current year by the
Company related to a certain debt obligation of the discontinued apparel
operations.
Investment and other income for the year ended December 31, 1997 decreased to
$284,000 from $1,320,000 for the prior year. Such decrease is due principally
to $815,000 of royalty income recorded in 1996 which represented a portion of a
one-time royalty fee received from a former affiliate and a reduction in
available balances for investment in 1997.
Income from continuing operations for the year ended December 31, 1997 decreased
to $2,038,000 from $3,311,000 for the prior year due principally to the
recording, in the first quarter of 1996, of $815,000 which represented a portion
of a one-time royalty fee received from a former affiliate. Had this royalty
income not been recorded in 1996, income from continuing operations for the year
ended December 31, 1997 would have decreased to $2,038,000 from $2,496,000 for
the prior year. This decrease in income from continuing operations was
primarily attributable to an increase in interest expense and a decrease in
investment and other income during the current year.
Net income for the year ended December 31, 1997 increased to $2,038,000 from a
loss of $5,489,000 for the year ended December 31, 1996 due principally to an
operating loss in the prior period of $4,200,000 incurred from the Company=s
discontinued apparel operations and to the estimated loss of $4,600,000
resulting from the expected loss on the disposal of such apparel operations.
Liquidity, Capital Resources and Inflation
Working capital increased to $7,941,000 at December 31, 1998 compared to
$7,403,000 at December 31, 1997. The ratio of current assets to liabilities
slightly increased to 2.4 to 1 at December 31, 1998 from 2.2 to 1 at December
31, 1997.
Net cash flows provided by operations for the year ended December 31, 1998 was
$1,852,000, primarily attributable to the net income for the period, changes in
the Company=s working capital and the non-cash flow effect of a deferred tax
asset. Cash flows used in investing activities for the year ended December 31,
1998 was $991,000, primarily attributable to the net purchases of marketable
securities. Cash flows used in financing activities for the year ended
December 31, 1998 was $1,519,000, primarily attributable to repayments of
long-term debt plus the payoff of the Company=s asset based lending arrangement
and treasury share purchases partially offset by the proceeds of a new credit
facility.
All operations of the discontinued apparel companies have been terminated.
All losses, and obligations of these apparel operations have been provided for,
and accordingly, the Company does not anticipate using any significant portion
of its resources towards these discontinued apparel operations.
In August 1998, the Company closed on a new $4,000,000 credit facility with a
new lender secured by real property and other assets of the Company. The
Company used $3,500,000 of the proceeds to replace its existing asset based
lending arrangement and the remaining $500,000 (borrowed in 1999) was used to
partially fund the class action securities litigation settlement of $1,000,000
which was paid in 1999.
Under the Company=s factoring arrangement for its discontinued Canadian apparel
operations, the Company provided a standby letter of credit as security for its
guaranty under this lending facility, collateralized by marketable securities.
As of December 31, 1998, the Company had provided approximately $23,000 in a
standby letter or credit. Such letter of credit expired in February 1999 and
all obligations of the Company relating to the guaranty were paid.
In September 1998, the Company=s Board of Directors authorized a stock
repurchase program for the repurchase of up to 250,000 shares of its common
stock in the open market or in privately negotiated transactions. Through March
15, 1999, the Company repurchased approximately 157,000 shares at an average
price of $1.67 per share.
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
tc \l1 "Certain Material Trends
Despite continued profitability in 1998, the Company continues to face a very
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. The Company continues to pursue many business
opportunities, including programs in which it has long participated but, due
to industry-wide funding and pricing pressures, the Company has encountered
delays in the awards of these contracts. The delay in receiving these awards
will shift a portion of shipments anticipated for 1999 into the year 2000.
Consequently, the Company projects that the revenue of the Company=s Electronics
Segment in 1999 will not match the current year=s levels.
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 its customers,
including the United States Government, for such effort. In addition, even if
the United States 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 United States Government to reevaluate
the level of military spending necessary for national security. Any significant
reductions in the level of military spending by the United States 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 line of commercial products gives the Company some diversity and the
Orbit Instrument Division is beginning to introduce certain of its products into
commercial and foreign markets.
The Company has retained OEM Capital Corp. (AOEM@), an investment banking firm
specializing in the electronics, communications and computer industries, to
assist the Company in identifying viable acquisition opportunities. Although
the Company is committed to enhancing its sales and profitability through
strategic acquisitions as well as through internal growth, there is no guarantee
that OEM will present acquisition candidates that will ultimately result in
transactions for the Company.
Year 2000
tc \l1 "Year 2000
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements
contained in the following discussion concerning the change over to the Year
2000 are forward-looking in nature and are subject to many risks and
uncertainties. These forward-looking statements include such matters as the
Company=s projected state of readiness, the Company=s projected cost of
remediation, the expected date of completion of remediation and the expected
contingency plans associated with any worst case scenarios. Such statements also
constitute AYear 2000 Readiness Disclosure@ within the meaning of the Year 2000
Information and Readiness Disclosure Act.
The Year 2000 issue is the result of computer programs using two digits rather
than four to define the applicable year. Such software may recognize a date
using A00@ as the year 1900 rather than the Year 2000. This could result in
system failures or miscalculations leading to disruptions in the Company=s
activities and operations.
The Company has developed a plan to modify its information technology systems to
recognize the Year 2000, including the purchase of a new manufacturing software
package, and has begun converting its critical data processing systems. The
Company expects the project to cost between $100,000 and $150,000 which will be
funded by cash from operations. This estimate includes the price of new
software and internal costs but excludes the costs to upgrade and replace
systems in the normal course of business as well as implementation of a new
software package. The Company did not expend any significant amount of money on
this project for the year ended December 31, 1998 and, although there can be no
assurance, does not expect this project to have a material effect on its
operations in 1999. The Company also initiated discussions with its significant
suppliers, large customers and financial institutions to ensure that these
parties have appropriate plans to remediate Year 2000 issues where their systems
interface with Company systems or otherwise impact its operations. However the
Company is currently uncertain as to the impact on its operations, liquidity and
financial condition should these organizations fail to properly remediate their
computer systems.
While the Company intends to use diligent efforts and care to implement the plan
set forth above and to take any other necessary steps with regard to its
information technology systems to prepare for the Year 2000 , there is no
assurance that such steps will effectively accomplish such goal. Furthermore,
any failure on the part of the Company=s primary suppliers, service providers
and customers to adapt their respective information technology systems to
recognize the Year 2000 could adversely impact the Company. Furthermore, the
United States Government has been a significant customer of the Company for many
years. There have recently been several press reports concerning whether
certain departments of the United States Government will be Year 2000 compliant
on a timely basis. To the extent problems are identified, the Company will
implement corrective procedures where necessary to avoid any adverse effect on
the Company=s cash flow and financial condition.
The failure to correct a material Year 2000 problem could result in an
interruption or failure of certain important business operations. The failure of
the Company=s sales and billing systems could result in the Company=s inability
to timely post and record sales revenue and expenses. In addition, the aging of
the Company=s accounts payable would be inaccurate.
The Company has prepared contingency plans for certain critical applications and
is working on plans for others. These contingency plans involve, among other
actions, manual workarounds, increase of inventories, and protective cash
management procedures.
The financial impact of any or all of the above worst-case scenarios has not
been and cannot be estimated by the Company due to the numerous uncertainties
and variables associated with such scenarios. Management believes, however, that
its Year 2000 program will significantly reduce the Company=s risks associated
with the change over to the Year 2000.
Forward Looking Statements
tc \l1 "Forward Looking Statements
Statements in this Item 7 AManagement=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 Aforward-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 Abelieves@, Abelief@, Aexpects@, Aintends@, Aanticipates@ or
Aplans@ 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.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
The Company is exposed to market risk related to changes in interest rates.
Most of the Company=s debt is at a variable rate of interest and is not hedged
by any derivative instruments. That debt which is subject to a variable rate of
interest amounted to approximately $ 3,348,000 at December 31, 1998. If market
interest rates increase by five percent from levels at December 31, 1998, the
effect on the Company=s results of operations would be approximately $ 165,000.
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.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Consolidated)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
<S>
Net sales
<C>
$4,285,000
<C>
$4,235,000
<C>
$3,826,000
<C>
$4,005,000
Gross profit
1,776,000
1,863,000
1,490,000
1,706,000
Net income
471,000
1,110,000
293,000
7,000
Basic income per common share
$.08
$.18
$.05
$.00
Diluted income per common share
$.07
$.16
$.04
$.00
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
<S>
Net sales
<C>
$3,970,000
<C>
$4,426,000
<C>
$4,651,000
<C>
$4,579,000
Gross profit
1,595,000
1,900,000
1,926,000
2,182,000
Net income
409,000
485,000
672,000
472,000
Basic income per common share
$.07
$.08
$.11
$.08
Diluted income per common share
$.06
$.07
$.10
$.07
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the remaining members of the Board of Directors is
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 1999 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 1999 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 1999 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 1999 Annual Meeting of Stockholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT 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, 1998.
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)* Amended and Restated Employment Agreement, dated as of February 15,
1999, between Registrant and Mitchell Binder.
10 (b)* Amended and Restated Employment Agreement, dated as of February 15,
1999, between Registrant and Bruce Reissman.
10 (c)* Amended and Restated Employment Agreement, dated as of February 15,
1999 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.
10 (h)* Credit Agreement between the Company and The Chase Manhattan Bank
dated August 4, 1998 including exhibits thereto.
21 Subsidiaries of Registrant. Incorporated by reference to Exhibit 21 to
the Registrant=s Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
23* Consent of Ernst & Young LLP.
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.
__________
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
ORBIT INTERNATIONAL CORP.
Dated: March 31, 1999 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, 1999
/s/ Mitchell Binder
Mitchell Binder
Vice President-Finance, Chief
Financial Officer and Director
March 31, 1999
/s/ Bruce Reissman
Bruce Reissman
Executive Vice President,
Chief Operating Officer and
Director
March 31, 1999
/s/ Harlan Sylvan
Harlan Sylvan
Treasurer,
Secretary and Controller
March 31, 1999
/s/ Marc Pfefferle
Marc Pfefferle
Director
March 31, 1999
/s/ John Molloy
John Molloy
Director
March 31, 1999
/s/ Stanley Morris
Stanley Morris
Director
March 31, 1999
CREDIT AGREEMENT
Dated as of August 4, 1998
by and between
ORBIT INTERNATIONAL CORP.
and
THE CHASE MANHATTAN BANK
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS 1
SECTION 1.01. Definitions 1
SECTION 1.02. Accounting Terms 10
ARTICLE II
LOANS 10
SECTION 2.01. Term Loan 10
SECTION 2.02. Term Note 10
SECTION 2.03. Settlement Loan 11
SECTION 2.04. Settlement Note 11
ARTICLE III
INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS 12
SECTION 3.01. Interest Rate 12
SECTION 3.02. Use of Proceeds. 12
SECTION 3.03. Prepayments 13
SECTION 3.04. Fees. 13
SECTION 3.05. Capital Adequacy 13
SECTION 3.06. Funds; Manner of Payment 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES 14
SECTION 4.01. Organization, Corporate Powers, etc. 15
SECTION 4.02. Authorization of Borrowing, Enforceable Obligations 15
SECTION 4.03. Financial Condition 15
SECTION 4.04. Taxes 16
SECTION 4.05. Title to Properties 16
SECTION 4.06. Litigation 16
SECTION 4.07. Agreements 17
SECTION 4.08. Compliance with ERISA 17
SECTION 4.09. Federal Reserve Regulations; Use of Proceeds 18
SECTION 4.10. Approval 18
SECTION 4.11. Subsidiaries and Affiliates 18
SECTION 4.12. Hazardous Materials 18
SECTION 4.13. Investment Company Act 19
SECTION 4.14. Security Agreements 19
SECTION 4.15. No Default. 19
SECTION 4.16. Material Contracts. 19
SECTION 4.17. Permits and Licenses. 19
SECTION 4.18. Compliance with Law. 19
SECTION 4.19. Y2K. 19
SECTION 4.20. Disclosure 20
ARTICLE V
CONDITIONS OF LENDING 20
SECTION 5.01. Conditions To the Term Loan 20
SECTION 5.02. Conditions to Settlement Loan 24
SECTION 5.03. Conditions to all Loans 25
ARTICLE VI
AFFIRMATIVE COVENANTS 25
SECTION 6.01. Corporate Existence, Properties, etc. 25
SECTION 6.02. Payment of Indebtedness, Taxes, etc. 26
SECTION 6.03. Financial Statements, Reports, etc. 26
SECTION 6.04. Access to Premises and Records 28
SECTION 6.05. Notice of Adverse Change 28
SECTION 6.06. Notice of Default 29
SECTION 6.07. Notice of Litigation 29
SECTION 6.08. ERISA 29
SECTION 6.09. Compliance with Applicable Laws 30
SECTION 6.10. Subsidiaries and Affiliates 30
SECTION 6.11. Default in Other Agreements 30
SECTION 6.12. Environmental Laws. 31
SECTION 6.13. Further Assurance. 31
ARTICLE VII
NEGATIVE COVENANTS 31
SECTION 7.01. Liens 32
SECTION 7.02. Indebtedness 33
SECTION 7.03. Guaranties 33
SECTION 7.04. Sale of Assets 34
SECTION 7.05. Sales of Notes 34
SECTION 7.06. Loans and Investments 34
SECTION 7.07. Nature of Business 35
SECTION 7.08. Sale and Leaseback 35
SECTION 7.09. Leases 35
SECTION 7.10. Federal Reserve Regulations 35
SECTION 7.11. Accounting Policies and Procedures 35
SECTION 7.12. Limitations on Fundamental Changes 35
SECTION 7.13. Financial Condition Covenants. 36
SECTION 7.14. Subordinated Debt 36
SECTION 7.15. Dividends 36
SECTION 7.16. Transactions with Affiliates 37
SECTION 7.17. Impairment of Security Interest 37
SECTION 7.18. Joint Ventures. 37
SECTION 7.19. Annual Clean Up. 37
SECTION 7.20. Canadian Subsidiaries. 38
ARTICLE VIII
EVENTS OF DEFAULT 38
SECTION 8.01. Events of Default 38
ARTICLE IX
MISCELLANEOUS 41
SECTION 9.01. Notices 41
SECTION 9.02. Survival of Agreement 42
SECTION 9.03. Expenses of the Bank 42
SECTION 9.04. No Waiver of Rights by the Bank 42
SECTION 9.05. APPLICABLE LAW 43
SECTION 9.06. SUBMISSION TO JURISDICTION 43
SECTION 9.07. Extension of Maturity 43
SECTION 9.08. Modification of Agreement 43
SECTION 9.09. Severability 44
SECTION 9.10. Sale of Participations 44
SECTION 9.11. Reinstatement; Certain Payments 44
SECTION 9.12. Right of Setoff 44
SECTION 9.13. Counterparts 44
SECTION 9.14. Headings 45
SCHEDULES
Schedule I - Subsidiaries and Affiliates
Schedule II - Liens
Schedule III - Existing Indebtedness
Schedule IV - Existing Guaranties
Schedule V - Material Contracts
Schedule VI - Obligations and Liabilities
Schedule VII - Litigation
EXHIBITS
Exhibit A-1 - Form of Term Note
Exhibit A-2 - Form Settlement Note
Exhibit B-1 - Form of Company Security Agreement
Exhibit B-2 - Form of Corporate Guarantor Security
Agreement
Exhibit C - Form of Notice of Borrowing
Exhibit D - Form of Second Mortgage
Exhibit E - Form of Corporate Guaranty
Exhibit F - Form of Opinion of Counsel
CREDIT AGREEMENT dated as of August 4, 1998, by and between ORBIT
INTERNATIONAL CORP., a Delaware corporation (the "Company") and THE CHASE
MANHATTAN BANK, a New York banking corporation (the "Bank").
RECITALS
The Company has requested the Bank to extend credit and the Bank is willing to
extend such credit to the Company, subject to the terms and conditions
hereinafter set forth.
Accordingly, the Company and the Bank agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS tc \l1 "ARTICLE IDEFINITIONS AND
ACCOUNTING TERMS
SECTION 1.01. Definitions tc \l2 "SECTION 1.01. Definitions . As used herein,
the following words and terms shall have the following meanings:
"Affiliate" shall mean with respect to any Person, any corporation, partnership,
limited liability company, limited liability partnership, joint venture, trust
or unincorporated organization which, directly or indirectly, controls or is
controlled by or is under common control with such Person. For the purpose of
this definition, "control" of a Person shall mean the power, direct or indirect,
to direct or cause the direction of the management or policies of such Person
whether through the ownership of voting securities by contract or otherwise;
provided that, in any event, any person who owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interest of any Person (other than as a limited
partner of such other Person) will be deemed to control such corporation or
other Person.
"Agreement" shall mean this Credit Agreement dated as of August 4, 1998, as it
may hereafter be amended, restated, supplemented or otherwise modified from time
to time.
"Approved Settlement" shall mean a settlement of the USA
Classic Securities Litigation which satisfies each of the following criteria:
(i) such settlement is evidenced by a settlement agreement; (ii) the aggregate
amount payable by the Company in such settlement does not exceed $1,000,000;
provided, however, the waiver by the Company of any right to receive
reimbursement for legal fees and expenses by its insurance carriers to the
extent the amount of such reimbursement is paid to the plaintiffs as part of the
settlement shall be excluded from such amount; and (iii) Paine Webber
Incorporated has agreed to discontinue with prejudice its action against the
Company arising from the USA Classic Securities Litigation.
"Business Day" shall mean any day not a Saturday, Sunday or legal holiday, on
which banks in New York City are open for business.
"Borrowing Date" shall mean with respect to any Loan, the date on which such
Loan is disbursed to the Company.
"Canadian Subsidiaries" shall mean, collectively, Canada Classique Inc., a New
Jersey corporation, Winnipeg Leather (1991), Inc. a Delaware corporation, and
Symax Garment (1993), Ltd., a Delaware corporation.
"Capital Expenditures" shall mean additions to property and equipment of the
Company and its Consolidated Subsidiaries, which, in conformity with Generally
Accepted Accounting Principles, are included as "additions to property, plant or
equipment" or similar items which would be reflected in the consolidated
statement of cash flow of the Company and its Consolidated Subsidiaries
including without limitation, property and equipment which are the subject of
Capital Leases.
"Capital Lease" shall mean (a) any lease of property, real or personal, if the
then present value of the minimum rental commitment thereunder should, in
accordance with Generally Accepted Accounting Principles, be capitalized on the
balance sheet of the lessee, and (b) any other such lease the obligations of
which are required to be capitalized on the balance sheet of the lessee.
"Change of Control" shall mean (a) the acquisition by any Person, or two or more
Persons acting in concert (in each case, other than Bruce Reissman, Mitchell
Binder or Dennis Sunshine or their respective spouses and/or trusts of which
members of such individual's families are the sole beneficiaries and of which
such individuals have the sole right to vote all securities held in the trust),
of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of
the outstanding shares of voting stock of the Company, or (b) during any period
of 12 consecutive calendar months, commencing on the date of this Agreement, the
ceasing of those individuals (the "Continuing Directors") who (i) were directors
of the Company on the first day of each such period or (ii) subsequently became
directors of the Company and whose initial election or initial nomination for
election subsequent to that date was approved by a majority of the Continuing
Directors then on the board of directors of the Company, to constitute a
majority of the board of directors of the Company.
"Chief Financial Officer" shall mean the Chief Financial Officer of the Company.
"Closing Date" shall mean August 4, 1998.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Commitments" shall mean, collectively, the Term Loan Commitment and the
Settlement Loan Commitment.
"Consolidated" shall mean, as applied to any financial or accounting term, such
term determined on a consolidated basis in accordance with Generally Accepted
Accounting Principles for the Company and its Subsidiaries.
"Consolidated Debt Service Coverage Ratio" shall mean for any period, the ratio
of (a) Consolidated Net Income plus, to the extent deducted in determining
Consolidated Net Income the sum of (i) all taxes to any government or
governmental instrumentality (other than real estate taxes, sale taxes or use
taxes) expenses on the Company's or its Subsidiaries' books (whether paid or
accrued), (ii) all interest accrued or paid (if not previously accrued on any
Indebtedness, and (iii) all depreciation and amortization expenses or charges,
less (i) all cash dividends, distributions and withdrawals paid (including
amounts reserved for such purposes) with respect to any capital stock, (ii) all
redemptions, repurchases and retirements of capital stock (including amounts
reserved for such purposes to the extent permitted hereunder), (iii) unfunded
capital expenditures and (iv) extraordinary gains segregated according to
Generally Accepted Accounting Principles, to (b) the sum of (i) all interest
accrued or paid (if not previously accrued) on any Indebtedness, during the then
preceding four fiscal quarters, plus (ii) the scheduled installments of
principal on all Indebtedness with an with an original maturity of 365 days or
more. All the foregoing categories shall be calculated with respect to the
Company and its Subsidiaries and shall be calculated (without duplication) over
the four fiscal quarters next preceding the date of calculation thereof with the
exception of the scheduled installments of principal original maturity of 365
days or more, which shall each be calculated based upon the next succeeding four
fiscal quarters.
"Consolidated Net Income" shall mean, for any period, the net income (or net
loss) of the Company and its Consolidated Subsidiaries on a Consolidated basis
for such period determined in accordance with Generally Accepted Accounting
Principles applied on a consistent basis.
"Consolidated Tangible Net Worth" shall mean (a) total Consolidated assets of
the Company and its Consolidated Subsidiaries determined in accordance with
Generally Accepted Accounting Principles applied on a consistent basis, except
that there shall be excluded therefrom (i) all obligations due to the Company or
a Consolidated Subsidiary from an Affiliate which is not included in the
Consolidated balance sheet of the Company and its Consolidated Subsidiaries or
from any shareholder, officer or director of the Company or any Consolidated
Subsidiary (ii) all intangible assets, including, without limitation, customer
lists, organizational expenses, patents, trademarks,
copyrights goodwill, covenants not to compete, research and development costs,
training costs, and all unamortized debt discount, and deferred charges, and
(iii) an amount equal to the amount, if any, by which the value of each
marketable security reflected on the Consolidated balance sheet of the Company
and its Consolidated Subsidiaries exceeds the amount paid by the Company or its
Consolidated Subsidiaries for such marketable security, less (b) the total
Consolidated liabilities of the Company and its Consolidated Subsidiaries
determined in accordance with Generally Accepted Accounting Principles applied
on a consistent basis.
"Consolidated Total Unsubordinated Liabilities" shall mean all items which, in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis, would properly be included on the liability side of the balance sheet
(other than Subordinated Debt, capital stock, treasury stock, capital surplus
and retained earnings), as of the date on which the amount of Consolidated Total
Unsubordinated Liabilities is to be determined, of the Company and its
Consolidated Subsidiaries, computed and Consolidated in accordance with
Generally Accepted Accounting Principles applied on a consistent basis.
"Corporate Guarantors" shall mean Behlman Electronics, Inc., Orbit Instrument of
California, Inc. and each other Subsidiary existing on the Closing Date (other
than a Canadian Subsidiary) and each Person who, from time to time, is required
to execute a Corporate Guaranty in accordance with Section 6.10. For purposes
of Article IV (other than Section 4.19) and Section 5.03(a), the term
"Corporate Guarantors" shall be deemed to include each Canadian Subsidiary.
"Corporate Guaranty" means the Bank's form of Corporate Guaranty in the form
attached hereto as Exhibit E to be executed and delivered by the Corporate
Guarantors, as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time.
"Default" shall mean any event or condition which upon notice, lapse of time or
both, would constitute an Event of Default.
"Environmental Law" shall mean any federal, state, local or foreign
environmental law, ordinance, rule, regulation or policy relating to the
pollution or the protection of the environment or to the use, handling,
transportation, treatment, storage, disposal, release or discharge of Hazardous
Materials, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. ''9601,
et. seq.), the Hazardous Materials Transportation Act, as amended (49
U.S.C. ''1801, et. seq.), the Resource Conservation and Recovery Act, as amended
(42 U.S.C. ''6901, et. seq.) and the rules and regulations promulgated pursuant
thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA)
which together with the Company or any Corporate Guarantor would be deemed to
be a member of the same "controlled group" within the meaning of Sections
414(b) and (c), respectively, of the Code.
"Event of Default" shall have the meaning set forth in Article VIII.
"Executive Officer" shall mean either the President, Vice President, the Chief
Financial Officer or the Secretary of the Company or Corporate Guarantor, as
applicable, and their respective successors, if any, designated by the board of
directors.
"Existing Indebtedness" shall mean the aggregate Indebtedness of the Company and
its Subsidiaries to BNY Financial Corp. on the Closing Date other than the
Indebtedness to BNY Financial Corp.-Canada described on Schedule III.
"First Mortgage" shall mean the consolidated mortgages more fully described in
the Agreement of Consolidation, Modification and Extension of Mortgage dated the
date hereof by and between the Company and the Bank with respect to the
Premises, as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time.
"Hazardous Materials" shall mean any explosives, radioactive materials, or other
materials, wastes, chemicals or substances regulated as toxic, hazardous, or as
a pollutant, contaminant, or waste under any Environmental Law.
"Hedging Agreement" means any interest rate swap, collar, cap, floor or forward
rate agreement or other agreement regarding the hedging of interest rate risk
exposure executed in connection with hedging the interest rate exposure of the
Company or any Corporate Guarantor, and any confirming letter executed pursuant
to such agreement, all as amended, supplemented, restated or otherwise modified
from time to time.
"Indebtedness" shall mean, without duplication, as to any Person or Persons (a)
indebtedness for borrowed money; (b) indebtedness for the deferred purchase
price of property or services; (c) indebtedness evidenced by bonds, debentures,
notes or other similar instruments; (d) obligations and liabilities secured by
a Lien upon property owned by such Person, whether or not owing by such Person
and even though such Person has not assumed or become liable for the payment
thereof; (e) obligations and liabilities directly or indirectly guaranteed by
such Person; (f) obligations or liabilities created or arising under any
conditional sales contract or other title retention agreement with respect to
property used and/or acquired by such Person; (g) obligations of such Person as
lessee under Capital Leases; (h) net liabilities of such Person under Hedging
Agreements and foreign currency exchange agreements, as calculated on a basis
satisfactory to the Bank and in accordance with accepted practice; (i) all
obligations of such Person in respect of bankers' acceptance; (j) all
obligations, contingent or otherwise of such Person as an account party in
respect of letters of credit, and (k) all liabilities which would be reflected
on a balance sheet of such Person, prepared in accordance with Generally
Accepted Accounting Principles.
"Interest Payment Date" shall mean (a) the last Business Day of each calendar
month during the term hereof commencing with the calendar month immediately
following the Closing Date and (b) the date the Loan is required to be repaid in
full.
"Liens" shall mean any lien (statutory or otherwise) security interest,
mortgage, deed of trust, pledge, charge, conditional sale, title retention
agreement, Capital Lease or other encumbrance or
similar right of others, or any agreement to give any of the foregoing.
"Loans" shall mean, collectively, the Term Loan and the Settlement Loan.
"Loan Documents" shall mean, collectively, this Agreement, the Notes, the
Security Agreements, the Second Mortgage, the Guaranties, and each other
agreement executed in connection with the transactions contemplated hereby or
thereby.
"Material Adverse Change" shall mean a material adverse change in the business,
operations, assets or condition (financial or otherwise) of the Company or of
the Company and the Corporate Guarantors taken as a whole.
"Material Adverse Effect" shall mean a material adverse effect on the business,
operations, assets or condition (financial or otherwise) of the Company or of
the Company and the Corporate Guarantors taken as a whole or on the ability of
the Company or any Corporate Guarantor to perform its obligations under any Loan
Document to which it is a party.
"Material Contract" shall mean, with respect to any Person, each contract,
instrument or agreement to which such Person is a party (i) which is material to
the business, operations, assets, prospects or condition (financial or
otherwise) of such Person or (ii) which requires the payment during the term
thereof in excess of $100,000.
"Notes" shall mean, collectively, the Term Note and the Settlement Note.
Notice of Borrowing" shall mean the Notice of Borrowing substantially in the
form attached hereto as Exhibit C.
"Obligations" shall mean all obligations, liabilities and indebtedness of the
Company to the Bank, whether now existing or hereafter created, absolute or
contingent, direct or indirect, due or not, whether created directly or acquired
by assignment or otherwise, including, without limitation, all obligations,
liabilities and indebtedness of the Company with respect to, (i) the principal
of and interest on the Loans and the payment and performance of all other
obligations, liabilities, and indebtedness of the Company to the Bank
hereunder, under the Note or with respect to the Loans, including without
limitation all fees, costs, expenses and indemnity obligations hereunder, (ii)
any line of credit maintained with the Bank, and (iii) the First Mortgage.
"Payment Office" shall mean the Bank's office located at 395 North Service Road,
Melville, New York 11747, Attention: Account Officer - Orbit International
Corp.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant
to Section 4002 of ERISA, or any successor thereto.
"Person" shall mean any natural person, corporation, limited liability company,
limited liability partnership, business trust, joint venture, association,
company, partnership or government, or any agency or political subdivision
thereof.
"Plan" shall mean any multi-employer or single-employer plan defined in Section
4001 of ERISA, which is maintained, or at any time during the five calendar
years preceding the date of this Agreement was maintained for employees of the
Company, any Corporate Guarantor or an ERISA Affiliate.
"Premises" shall mean the real property and improvements located at 80 Cabot
Court, Hauppauge, New York 11788.
"Prime Rate" shall mean the rate per annum publicly announced by the Bank from
time to time as its prime rate in effect at its principal office, each change in
the Prime Rate shall be effective on the date such change is announced to
become effective.
"Reportable Event" shall mean an event described in Section 4043(c) of ERISA
with respect to a Plan as to which the 30 day notice requirement has not been
waived by the PBGC.
"Second Mortgage" shall mean the mortgage dated the date hereof executed by the
Company in favor of the Bank with respect to the Premises, as the same may
hereafter be amended, restated, supplemented or otherwise modified from time to
time.
"Security Agreement" shall mean, with respect to the Company, the Security
Agreement, in the form attached hereto as Exhibit B-1, and, with respect to each
Corporate Guarantor, the Guarantor Security Agreement in the form attached
hereto as Exhibit B-2 to be executed and delivered on the Closing Date by the
Company and each Corporate Guarantor, respectively, and, thereafter, by any
Person who may be required to execute the same pursuant to Section 6.10, as
each of the same may hereafter be amended, restated, supplemented or otherwise
modified from time to time.
"Security Documents" shall mean, collectively, the Security Agreements and the
Second Mortgage.
"Settlement Commitment" shall mean the Bank's obligation to make the Settlement
Loan to the Company pursuant to Section 2.03 in an amount equal to $500,000.
"Settlement Loan" shall have the meaning specified in Section 2.03.
"Settlement Loan Maturity Date" shall mean the first day of the calendar quarter
immediately preceding the third anniversary of the Settlement Funding Date.
"Settlement Funding Date" shall mean January 8, 1999, or such earlier date which
is a Business Day on which the conditions in Section 5.02 have been satisfied.
"Settlement Note" shall mean the promissory note in the form attached hereto as
Exhibit A-2 to be executed and delivered by the Company in favor of the Bank as
the same may hereafter be amended, restated, supplemented or otherwise modified
from time to time.
"Solvent" shall mean with respect to any Person as of the date of determination
thereof that (a) the amount of the "present fair saleable value" of the assets
of such Person will, as of such date, exceed the amount of all "liabilities
of such Person, contingent or otherwise," as of such date, as such quoted
terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required on its debts as such debts become
absolute and matured, (c) such Person will not have as of such date, an
unreasonably small amount of capital with which to conduct its business, and
(d) such Person will be able to pay its debts as they mature.
"Subordinated Debt or Subordinated Indebtedness" shall mean all debt which is
subordinated in right of payment to the prior indefeasible payment in full of
the Obligations of the Company and/or any Corporate Guarantor to the Bank on
terms satisfactory to and approved in writing by the Bank.
"Subsidiaries" shall mean with respect to any Person any corporation,
association or other business entity more than 50% of the voting stock or other
ownership interest of which is at the time owned or controlled, directly or
indirectly, by such Person or one or more of its Subsidiaries or a
combination thereof.
"Term Loan" shall have the meaning specified in Section 2.01.
"Term Loan Commitment" shall mean the Bank's obligation to make the Term Loan to
the Company pursuant to Section 2.01 in an amount equal to $950,000.
"Term Loan Maturity Date" shall mean June 1, 2003.
"Term Note" shall mean the promissory note in the form attached hereto as
Exhibit A-1 to be executed and delivered by the Company in favor of the Bank as
the same may hereafter be amended, restated, supplemented or otherwise modified
from time to time.
"Unfunded Current Liability" of any Plan shall mean the amount, if any, by which
the present value of the accrued benefits under the Plan as of the close of its
most recent plan year exceeds the fair market value of the assets allocable
thereto, determined in accordance with Section 412 of the Code.
"USA Classic Securities Litigation" shall mean the litigation arising from the
initial public offering of shares of capital stock of USA Classic, Inc. as more
fully described in Item 3 of Part I of the Company's annual report on Form 10-K
for the fiscal year ended December 31, 1997.
SECTION 1.02. Accounting Terms tc \l2 "SECTION 1.02. Accounting Terms .
Except as otherwise herein specifically provided, each accounting term used
herein shall have the meaning given to it under Generally Accepted Accounting
Principles. "Generally Accepted Accounting Principles" shall mean those
Generally Accepted Accounting Principles and practices which are recognized
as such by the American Institute of Certified Public Accountants acting
through the Financial Accounting Standards Board ("FASB") or through other
appropriate boards or committees thereof and which are consistently applied
for all periods so as to properly reflect the consolidated financial
condition, and the consolidated results of operations and cash flows of the
Company and the Corporate Guarantors except that any accounting principle or
practice required to be changed by the FASB (or other appropriate board or
committee of the FASB) in order to continue as a Generally Accepted
Accounting Principle or practice may be so changed. Any dispute or
disagreement between the Company and the Bank relating to the determination of
Generally Accepted Accounting Principles shall, in the absence of manifest
rror, be conclusively resolved for all purposes hereof by the written opinion
with respect thereto, delivered to the Bank, of the independent accountants
selected by the Company and approved by the Bank for the purpose of
auditing the periodic consolidated financial statements of the Company and the
Corporate Guarantors.
ARTICLE II
LOANS tc \l1 "ARTICLE IILOANS
SECTION 2.01. Term Loan tc \l2 "SECTION 2.01. Term Loan . Subject to the
terms and conditions and relying upon the representations and warranties set
forth herein, the Bank agrees to make a term loan (the "Term Loan") to the
Company available in a single drawdown on the Closing Date in a principal
amount equal to the Term Loan Commitment. The Company shall give the Bank a
duly completed and executed Notice of Borrowing not later than 11:00 a.m. (New
York City time) on the Closing Date. The Bank shall make the Term Loan
hereunder by crediting the Term Loan to the account of the Company at the
Payment Office. The Term Note Commitment shall terminate immediately upon
funding of the Term Loan on the Closing Date. The Term Loan by the Bank
shall be made against delivery to the Bank of the Term Note payable to the order
of the Bank, as referred to in Section 2.02 hereof.
SECTION 2.02. Term Note tc \l2 "SECTION 2.02. Term Note . (a) The Term Loan
of the Bank shall be evidenced by the Term Note appropriately completed, duly
executed and delivered on behalf of the Company, dated the Closing Date and in a
principal amount equal to the Term Loan Commitment. The Term Note shall be
payable as to principal in twenty consecutive quarterly installments of
$47,500 on the first Business Day of each September, December, March and June
commencing September 1, 1998, provided the final installment on the Term Loan
Maturity Date shall be in an amount equal to the remaining principal amount
outstanding on Term Loan Maturity Date.
(b) The date and amount of each payment or prepayment of principal of the Term
Loan shall be recorded on the grid schedule annexed to the Term Note, and the
Company authorizes the Bank to make such recordation; provided, however, that
the failure of the Bank to set forth such payments and other information on
such grid shall not in any manner affect the obligation of the Company to
repay the Term Loan made by the Bank in accordance with the terms of the Term
Note and this Agreement. The Term Note, the grid schedule and the books and
records of the Bank shall be conclusive evidence of the Term Loan made by the
Bank absent manifest error.
SECTION 2.03. Settlement Loan tc \l2 "SECTION 2.03. Settlement Loan . Subject
to the terms and conditions and relying upon the representations and warranties
set forth herein, the Bank agrees to make a term loan (the "Settlement Loan") to
the Company available in a single drawdown on the Settlement Funding Date in a
principal amount equal to the Settlement Loan Commitment. The Company shall
give the Bank a duly completed and executed Notice of Borrowing not later
than 11:00 a.m. (New York City time) on the Settlement Funding Date. The
Bank shall make the Settlement Loan hereunder by crediting the Settlement Loan
to the account of the Company at the Payment Office. The Settlement Loan
Commitment shall terminate immediately upon funding of the Settlement Loan on
the Closing Date. The Settlement Loan by the Bank shall be made against
delivery to the Bank of the Settlement Note payable to the order of the
Bank, as referred to in Section 2.04 hereof.
SECTION 2.04. Settlement Note tc \l2 "SECTION 2.04. Settlement Note . (a)
The Settlement Loan of the Bank shall be evidenced by the Settlement Note
appropriately completed, duly executed and delivered on behalf of the Company,
dated the Settlement Funding Date and in a principal amount equal to the
Settlement Loan Commitment. The Settlement Note shall be payable as to
principal in twelve consecutive quarterly installments of $41,667 on the first
Business Day of each September, December, March and June commencing the first
such date to occur following the Settlement Funding Date, provided the final
installment on the Settlement Loan Maturity Date shall be in an amount equal
to the remaining principal amount outstanding on Settlement Loan Maturity
Date.
(b) The date and amount of each payment or prepayment of principal of the
Settlement Loan shall be recorded on the grid schedule annexed to the Settlement
Note, and the Company authorizes the Bank to make such recordation; provided,
however, that the failure of the Bank to set forth such payments and other
information on such grid shall not in any manner affect the obligation
of the Company to repay the Settlement Loan made by the Bank in accordance with
the terms of the Settlement Note and this Agreement. The Settlement Note, the
grid schedule and the books and records of the Bank shall be conclusive evidence
of the Settlement Loan made by the Bank absent manifest error.
ARTICLE III
INTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS tc \l1 "ARTICLE
IIIINTEREST RATE; FEES AND PAYMENTS; USE OF PROCEEDS
SECTION 3.01. Interest Rate tc \l2 "SECTION 3.01. Interest Rate . (a) Each
Loan shall bear interest for the date thereof on the unpaid principal amount
thereof at a fluctuating rate per annum equal to the Prime Rate plus a
margin of .75% per annum.
(b) If the Company shall default in the payment of the principal of or interest
on any portion of any Loan or any other amount becoming due hereunder,
including, without limitation, fees, the Company shall on demand from time to
time pay interest on such defaulted amount accruing from the date of such
default (without reference to any period of grace) up to and including the
date of actual payment (after as well as before judgment) at a rate per annum
equal to the Prime Rate plus a margin of 2% per annum.
(c) Upon the occurrence and continuance of an Event of Default the outstanding
principal amount of the Loans (excluding any defaulted payment of principal
accruing interest in accordance with clause (b) above) at the sole discretion of
the Bank shall bear interest payable upon demand at a rate of interest 2%
per annum in excess of the rate otherwise in effect from time to time with
respect thereto.
(d) Anything in this Agreement or in the Notes to the contrary notwithstanding,
the obligation of the Company to make payments of interest shall be subject to
the limitation that payments of interest shall not be required to be paid to the
Bank to the extent that the charging or receipt thereof would not be
permissible under the law or laws applicable to the Bank limiting the rates
of interest that may be charged or collected by the Bank. If the provisions of
this Agreement or the Notes would at any time otherwise require payment by
the Company to the Bank of any amount of interest in excess of the maximum
amount permitted by applicable law the interest payments shall be reduced to
the extent necessary so that the Bank shall not receive interest in excess
of such maximum amount.
(e) Interest on the Loan shall be payable to the Bank in arrears on each
Interest Payment Date and shall be calculated on a year of 360 days for the
actual days elapsed.
SECTION 3.02. Use of Proceeds. tc \l2 "SECTION 3.02. Use of Proceeds. The
proceeds of the Term Loan shall be used by the Company to refinance a portion of
the Existing Indebtedness on the Closing Date and transaction fees incurred by
the Company in connection with this Agreement. The proceeds of the Settlement
Loan shall be used by the Company to fund a portion of the amounts owing by the
Company pursuant to an Approved Settlement.
SECTION 3.03. Prepayments tc \l2 "SECTION 3.03. Prepayments . (a) The
Company may from time to time repay the outstanding principal amount of any
Loan, in whole or in part, without premium or penalty on the same Business Day
by giving irrevocable written notice to the Bank specifying the date and amount
of repayment and to which Loan such prepayment should be applied. If such
notice is given, the Company shall make such repayment and the payment
amount specified in such notice shall be due and payable, on the date specified
therein, together with accrued interest to such date on the amount repaid to the
Bank. Partial prepayments pursuant to this Section 3.03 shall be in an
aggregate principal amount of $100,000 or whole multiples in excess thereof
and shall be applied to the remaining installments of principal of the Term Loan
or Settlement Loan, as applicable, in inverse order of maturity.
(b) In the event the Settlement Loan is paid pursuant to the terms of the
Approved Settlement into a settlement fund, escrow account or otherwise not
to the plaintiffs in the USA Classics Securities Litigation, and all or a
portion of such funds are not released to such plaintiffs in accordance with a
final settlement or all or a portion of such funds are disbursed to the
Company or its designee, the Company shall immediately apply an amount equal to
such funds not so released or such disbursed funds, as applicable, to prepayment
of the outstanding principal balance of the Settlement Loan or in the event such
Loan has been paid in full, to the Term Loan. Each prepayment made pursuant
to this Section 3.03 (b) shall be accompanied by accrued interest on the
principal amount being prepaid to the date of prepayment and shall be applied to
the remaining installments of principal of the applicable Loan in inverse
order maturity.
SECTION 3.04. Fees. tc \l2 "SECTION 3.04. Fees. (a) The Company agrees to
pay to the Bank a nonrefundable facility fee of $10,875, $8,250 of which was
previously paid to the Bank. The remaining $2,625 of the facility fee shall be
payable by the Company to the Bank on the Closing Date.
(b) The Company agrees to pay to the Bank a nonrefundable commitment fee on the
amount of the Settlement Loan Commitment from the date of this Agreement until
the date of termination of the Settlement Commitment on the Settlement Funding
Date at the rate of 1/4 of 1% per annum, based on a year of 360 days, payable on
the last day of each month, commencing August 4, 1998 and on the termination of
the Settlement Loan Commitment.
SECTION 3.05. Capital Adequacy tc \l2 "SECTION 3.05. Capital Adequacy . If
the Bank shall have determined that the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank (or any lending office of the
Bank) or the Bank's holding company, with any request or directive regarding
capital adequacy (whether or not having the force of the law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Bank's capital or on the capital of the
Bank's holding company as a consequence of its obligations hereunder to a
level below that which the Bank could have achieved but for such adoption,
change or compliance (taking into consideration the Bank's policies and the
policies of the Bank's holding company with respect to capital adequacy) by
an amount deemed by the Bank to be material, then from time to time, the
Company shall pay to the Bank, upon demand by the Bank, the additional amount
or amounts as the Bank shall have determined will compensate the Bank or the
Bank's holding company for such reduction. The Bank's determination of such
amounts shall be conclusive and binding on the Company absent manifest error.
This Section 3.05 shall survive termination of the Agreement and payment of
the Note for a period of one year.
SECTION 3.06. Funds; Manner of Payment tc \l2 "SECTION 3.06. Funds;
Manner of Payment . (a) Unless otherwise specified herein each payment and
prepayment of principal of and interest on each Loan shall be made by the
Company not later than 12:00 noon, New York City time, on the date on which
it is payable.
(b) All payments made by the Company hereunder or under the Notes will be made
without setoff, counterclaim, deductions or other defense. All such payments
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction or by
any political subdivision or taxing authority thereof or therein (but excluding
any tax imposed on or measured by the net income of the Bank) and all
interest, penalties or similar liabilities with respect thereto (such
non-excluded items being hereinafter collectively referred to as "Taxes"). If
any Taxes are so levied or imposed, the Company will pay the full amount of such
Taxes and such additional amounts as may be necessary so that every payment of
all amounts due hereunder or under any Note, after withholding or deduction for
or on account of any Taxes, will not be less than the amount provided for
herein or in the related Note. The Company will furnish to the Bank within
30 days after the date the payment of any Taxes is due pursuant to applicable
law certified copies of tax receipts evidencing such payment by the Company.
The Company will indemnify and hold harmless the Bank, and reimburse the Bank
upon its written request, for the amount of any Taxes so levied or imposed
and paid by the Bank, which indemnity shall survive termination of this
Agreement and payment of the Notes. All payments under this Agreement shall be
made in lawful money of the United States of America in immediately available
funds at the Payment Office of the Bank.
(c) The Bank shall directly charge all interest and principal payments due in
respect of the Loans and all fees payable hereunder to one or more of the
Company's accounts at the Payment Office or other office of the Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES tc \l1 "ARTICLE IVREPRESENTATIONS
AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make the Loans,
the Company represents and warrants to the Bank that:
SECTION 4.01. Organization, Corporate Powers, etc. tc \l2 "SECTION 4.01.
Organization, Corporate Powers, etc. The Company and each Corporate Guarantor
(a) is a corporation duly incorporated, validly existing and in good standing
under the laws of the state of its incorporation, (b) has the power and
authority to own its properties and to carry on its business as now being
conducted, (c) is duly qualified to do business in every jurisdiction wherein
the conduct of its business or the ownership of its properties are such as to
require such qualification except where failure to qualify could not
reasonably be expected to have a Material Adverse Effect, (d) has the
corporate power to execute and perform each of the Loan Documents to which it is
a party, (e) with respect to the Company, has the corporate power to borrow
hereunder and to execute and deliver the Notes, and (f) is in compliance in all
material respects with all applicable federal, state and local laws, rules
and regulations except where failure to qualify could not reasonably be expected
to have a Material Adverse Effect.
SECTION 4.02. Authorization of Borrowing, Enforceable Obligations tc \l2
"SECTION 4.02. Authorization of Borrowing, Enforceable Obligations . The
execution, delivery and performance by the Company of this Agreement, and the
other Loan Documents to which it is a party, the borrowings by the Company
hereunder, and the execution, delivery and performance of each Corporate
Guarantor of the Loan Documents to which such Corporate Guarantor is a party,
(a) have been duly authorized by all requisite corporate action, (b) will not
violate or require any consent under (i) any provision of law applicable to the
Company or any Corporate Guarantor, any governmental rule or regulation, or the
Certificate of Incorporation, By-laws or other organizational documents, as
applicable, of the Company or any Corporate Guarantor or (ii) any order of
any court or other agency of government binding on the Company or any
Corporate Guarantor or any indenture, agreement or other instrument to which the
Company or any Corporate Guarantor is a party, or by which the Company or any
Corporate Guarantor or any of its property is bound, and (c) will not be in
conflict with, result in a breach of or constitute (with due notice and/or lapse
of time) a default under, any such indenture, agreement or other instrument, or
result in the creation or imposition of any Lien, upon any of the property or
assets of the Company or any Corporate Guarantor other than as contemplated by
this Agreement or the other Loan Documents. This Agreement and each other
Loan Document to which the Company, and each Corporate Guarantor is a party,
constitutes a legal, valid and binding obligation of the Company and each
Corporate Guarantor as the case may be, enforceable against the Company and each
Corporate Guarantor, as the case may be, in accordance with its terms.
SECTION 4.03. Financial Condition tc \l2 "SECTION 4.03. Financial
Condition . (a) The Company has heretofore furnished to the Bank the
(a) audited Consolidated balance sheet of the Company and the Corporate
Guarantors and the related Consolidated statement of income, retained
earnings and cash flow of the Company and the Corporate Guarantors, audited
by Ernst & Young, LLP independent certified accountants for the fiscal year
ended December 31, 1997, and (b) the management prepared financial statements of
the Company for the fiscal quarter ended March 31, 1998. Such financial
statements were prepared in conformity with Generally Accepted Accounting
Principles and fairly present the financial position and results of operations
of the Company as of the date of such financial statements and for the periods
to which they relate and, since December 31, 1997, no Material Adverse Change
has occurred. The Company shall deliver to the Bank a certificate by the
Chief Financial Officer of the Company to that effect on the Closing Date.
Except as set forth on Schedule VI, there are no obligations or liabilities
contingent or otherwise, of the Company or any Corporate Guarantor which are not
reflected on such statements. Except as set forth in Schedule VI, neither the
Company nor any Corporate Guarantor has any obligations or liabilities,
contingent or otherwise, with respect to the insolvency or liquidation of any
Canadian Subsidiary.
(b) The Company and each Corporate Guarantor (other than Canada Classique
Inc. and Winnipeg Leather (1991), Inc.) is Solvent.
SECTION 4.04. Taxes tc \l2 "SECTION 4.04. Taxes . The Company and each
Corporate Guarantor has filed or caused to be filed all foreign, federal, state
and local tax returns which are required to be filed, and has paid or has caused
to be paid all taxes shown on said returns and all other taxes assessed
against it to the extent that such taxes have become due, except taxes which
are being contested in good faith and which are reserved against in
accordance with Generally Accepted Accounting Principles.
SECTION 4.05. Title to Properties tc \l2 "SECTION 4.05. Title to Properties .
The Company and each Corporate Guarantor has good and marketable title to their
respective real properties and good and valid title to their respective personal
properties and assets, in each case, as reflected on the financial statements
referred to in Section 4.03 hereof, except for such properties and assets as
have been disposed of since the date of such financial statements as no longer
used or useful in the conduct of their respective business or as have been
disposed of in the ordinary course of business, and all such properties and
assets are free and clear of all Liens, except as permitted by Section 7.01
and except, with respect to the Company's real property at 80 Cabot Court,
Hauppauge, New York, those exceptions set forth on Schedule B to the Title
Insurance Policy delivered on the Closing Date insuring the lien of the Second
Mortgage.
SECTION 4.06. Litigation tc \l2 "SECTION 4.06. Litigation . (a) Except as set
forth on Schedule VII, there are no actions, suits or proceedings (whether or
not purportedly on behalf of the Company or any Corporate Guarantor) pending or,
to the knowledge of the Company, threatened against or affecting the Company
or any Corporate Guarantor at law or in equity or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which involve any of the
transactions contemplated herein or which, if adversely determined against
the Company or such Corporate Guarantor, could reasonably be expected to result
in any materially adverse change in the business, operations, prospects,
properties or assets or in the condition, financial or otherwise, of the
Company, or such Corporate Guarantor; and (b) neither the Company nor any
Corporate Guarantor is in default with respect to any judgment, writ,
injunction, decree, rule or regulation of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which could have a materially adverse
effect on the business, operations, prospects, properties or assets or in the
condition, financial or otherwise, of the Company or any Corporate Guarantor.
SECTION 4.07. Agreements tc \l2 "SECTION 4.07. Agreements . Except
with respect to the bankruptcy and liquidation of Canada Classique, Inc. and
Winnipeg Leather (1991), Inc. as described in the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1997, neither the Company nor
any Corporate Guarantor is a party to any agreement or instrument or subject
to any charter or other corporate restriction or any judgment, order, writ,
injunction, decree or regulation which could materially and adversely affect
its business, operations, prospects, properties or assets, or condition,
financial or otherwise. Neither the Company nor any Corporate Guarantor is
in default in any manner which could reasonably be expected to have
Material Adverse Effect.
SECTION 4.08. Compliance with ERISA tc \l2 "SECTION 4.08. Compliance with
ERISA . Each Plan is in compliance with ERISA; no Plan is insolvent or in
reorganization, no Plan has an Unfunded Current Liability, and no Plan has an
accumulated or waived funding deficiency or permitted decreases in its
funding standard account within the meaning of Section 412 of the Code;
neither the Company nor any ERISA Affiliate nor any Corporate Guarantor has
incurred any material liability to or on account of a Plan pursuant to
Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to incur any
liability under any of the foregoing sections on account of the termination of
participation in or contributions to any such Plan, no proceedings have been
instituted to terminate any Plan, no condition exists which presents a risk
to the Company or any Corporate Guarantor or of incurring a liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no
lien imposed under the Code or ERISA on the assets of the Company or any
Corporate Guarantor securing obligations, indirectly or directly, in excess of
$25,000, individually or in the aggregate, exists or is likely to arise on
account of any Plan; and the Company, and each Corporate Guarantor may
terminate contributions to any other employee benefit plans maintained by
them without incurring any material liability to any person interested therein.
SECTION 4.09. Federal Reserve Regulations; Use of Proceeds tc \l2 "SECTION
4.09. Federal Reserve Regulations; Use of Proceeds . (a) Neither the Company
nor any Corporate Guarantor is engaged principally in, nor has as one of its
important activities, the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System of the United States, as
amended from time to time). If requested by the Bank, the Company will, and
will cause each Corporate Guarantor to, furnish to the Bank such a statement
on Federal Reserve Form U-1.
(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or to carry margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock, or to refund indebtedness
originally incurred for such purposes, or (ii) for any purpose which violates or
is inconsistent with the provisions of the Regulations T, U, or X of the Board
of Governors of The Federal Reserve System.
(c) The proceeds of each Loan shall be used solely for the purposes permitted
under Section 3.02.
SECTION 4.10. Approval tc \l2 "SECTION 4.10. Approval s. No registration
with or consent or approval of, or other action by, any federal, state or other
governmental authority or regulatory body or any other Person is required in
connection with the execution, delivery and performance of this Agreement by
the Company or any Corporate Guarantor, or with the execution and delivery of
other Loan Documents to which it is a party or, with respect to the Company,
the borrowings hereunder other than registrations, consents and approvals
received prior to the date hereof and disclosed to the Bank and which are in
full force and effect.
SECTION 4.11. Subsidiaries and Affiliates tc \l2 "SECTION 4.11.
Subsidiaries and Affiliates . Attached hereto as Schedule I is a correct and
complete list of all of the Company's and each Corporate Guarantor's
Subsidiaries and Affiliates showing as to each Subsidiary and Affiliate, its
name, the jurisdiction of its incorporation, its shareholders or other
owners of an interest in each Subsidiary and Affiliate and the number and
percentage of outstanding shares or other ownership interest owned by each
shareholder or other owner of an interest.
SECTION 4.12. Hazardous Materials tc \l2 "SECTION 4.12. Hazardous
Materials . The Company and each Corporate Guarantor are each in compliance
in all material respects with all applicable Environmental Laws and neither the
Company nor any Corporate Guarantor has used Hazardous Materials on, from, or
affecting any property now owned or occupied, and will not use Hazardous
Materials on, from or affecting any property hereafter owned or occupied
by the Company or any Corporate Guarantor in any manner which violates any
applicable Environmental Law. No prior owner of any such property or any
tenant, subtenant, prior tenant or prior subtenant have used Hazardous
Materials on, from, or affecting such property in any manner which violates
any applicable Environmental Law.
SECTION 4.13. Investment Company Act tc \l2 "SECTION 4.13.
Investment Company Act . Neither the Company nor any Corporate Guarantor is
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.14. Security Agreements tc \l2 "SECTION 4.14. Security
Agreements . Each Security Agreement executed by the Company and each Corporate
Guarantor shall constitute a valid and continuing lien on and security interest
in the collateral referred to in such Security Agreement in favor of the Bank
which shall be, upon the filing of the Uniform Commercial Code financing
statements delivered on the Closing Date on behalf of the Company and each
Corporate Guarantor at the offices in the jurisdictions, listed on Schedule C to
each Security Agreement, prior to all other Liens, claims and right of all other
Persons, and shall be enforceable as such against all other Persons.
SECTION 4.15. No Default. tc \l2 "SECTION 4.15. No Default. No event
has occurred and is continuing and no condition exists which constitutes a
Default or an Event of Default.
SECTION 4.16. Material Contracts. tc \l2 "SECTION 4.16. Material
Contracts. Set forth on Schedule V is a complete and accurate list of all
Material Contracts of the Company and each Corporate Guarantor, showing the
parties thereto and subject matter thereof and amendments and modifications
thereto. Each such Material Contract (a) is in full force and effect
and is binding upon and enforceable against the Company or each Corporate
Guarantor, as the case may be, and all other parties thereto in accordance
with its terms, and (b) there exists no default under any Material Contract
by the Company or any Corporate Guarantor or to the Company's knowledge by any
other party thereto which has not been fully cured or waived.
SECTION 4.17. Permits and Licenses. tc \l2 "SECTION 4.17. Permits and
Licenses. The Company and each Corporate Guarantor each has all material
permits, licenses, certifications, authorizations and approvals required for it
lawfully to own and operate their respective businesses.
SECTION 4.18. Compliance with Law. tc \l2 "SECTION 4.18. Compliance with
Law. The Company and each Corporate Guarantor are each in compliance in all
material respects with all laws, rules, regulations, orders and decrees which
are applicable to the Company or any Corporate Guarantor, or to any of their
respective properties.
SECTION 4.19. Y2K. tc \l2 "SECTION 4.19. Y2K. Any reprogramming
required to permit the proper functioning, in and following the year 2000, of
(a) the Company's, or any Corporate Guarantor's computer systems and
(b) equipment containing embedded microchips (including systems and equipment
supplied by others or with which the Company's or any Corporate Guarantor's
systems interface, in each case, which are used in the Company's or any
Corporate Guarantor's business) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by June 30, 1999. The cost to
the Company and each Corporate Guarantor of such reprogramming and testing
and of the reasonably foreseeable consequences of year 2000 to the Company
and each Corporate Guarantor (including, without limitation, reprogramming
errors and the failure of others' systems or equipment which are used in the
Company's or any Corporate Guarantor's business) will not result in an Event
of Default or event, which upon notice lapse or time or both would constitute an
Event of Default or have a material adverse effect on the business,
operations, prospects, properties or assets, or in the condition, financial or
otherwise, of the Company or any Corporate Guarantor. Except for such of the
reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Company and each Corporate
Guarantor are and, with ordinary course upgrading and maintenance, will
continue to be, sufficient to permit the Company and each Corporate Guarantor to
conduct their respective businesses without having a material adverse effect on
the business, operations, prospects, properties or assets, or in the
condition, financial or otherwise of the Company and any Corporate Guarantor.
SECTION 4.20. Disclosure tc \l2 "SECTION 4.20. Disclosure . None of the
reports, financial statements, certificates or other documents, certificates or
written statements furnished to the Bank by or on behalf of the Company or any
Corporate Guarantor hereunder or under any other Loan Document for use in
connection with the transactions contemplated by this Agreement or any other
Loan Document contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances in which they were made.
ARTICLE V
CONDITIONS OF LENDING tc \l1 "ARTICLE VCONDITIONS OF LENDING
SECTION 5.01. Conditions To the Term Loan tc \l2 "SECTION 5.01.
Conditions To the Term Loan . The obligation of the Bank to make the Term
Loan hereunder is subject to the following conditions precedent:
(a) Term Note. On or prior to the Closing Date, the Bank shall have received
the Term Note duly executed by the Company.
(b) Corporate Guaranties. On or prior to the Closing Date, the Bank shall have
received a Corporate Guaranty duly executed by each Corporate Guarantor.
(c) Security Agreements. On or prior to the Closing Date, the Bank shall have
received the Security Agreements duly executed by the Company and each
Corporate Guarantor.
(d) [Reserved].
(e) Second Mortgage. On or prior to the Closing Date, the Bank shall have
received (i) the Second Mortgage, duly executed by the Company, (ii) a title
policy and lender's title insurance binder issued by an insurance company
authorized to transact business in New York and acceptable to the Bank naming
the Bank as insured and ensuring that the Second Mortgage creates a
continuing, valid lien on the Premises prior to all other liens other than the
lien of the First Mortgage and securing an amount not less than $1,450,000,
and (iii) the current legal description and survey of the Premises certified
to the Bank and such insurance company.
(f) Opinion of Counsel. On the Closing Date, the Bank shall have received the
favorable written opinion of counsel for the Company and the Corporate
Guarantors dated the date thereof, substantially in the form of Exhibit F
attached hereto.
(g) Supporting Documents. The Bank shall have received on the Closing Date
(i) a certificate of good standing for the Company and each Corporate Guarantor
from the secretary of the states of their organizational jurisdiction dated
as of a recent date; (ii) certified copies of the Certificate of
Incorporation and By-laws of the Company and each Corporate Guarantor; (iii) a
certificate of the Secretary or an Assistant Secretary of the Company and each
Corporate Guarantor dated the Closing Date and certifying (x) that neither
the Certificates of Incorporation nor the By-laws of the Company or any
Corporate Guarantor has been amended since the date of their certification
(y) that attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of the Company and each Corporate Guarantor authorizing
the execution, delivery and performance of each Loan Document to which it is a
party and, with respect to the Company, the borrowings hereunder; and (z) the
incumbency and specimen signature of each officer of the Company and each
Corporate Guarantor executing each Loan Document to which the Company or a
Corporate Guarantor is a party and any certificates or instruments furnished
pursuant hereto or thereto, and a certification by another officer of the
Company and each Corporate Guarantor as to the incumbency and signature of
the Secretary or Assistant Secretary of the Company and each Corporate
Guarantor; and (iv) such other documents as the Bank may reasonably request.
(h) Audit. The Bank or its representatives or agents shall have conducted, at
the Company's expense, a field audit of the accounts receivable and of all
books, records and properties of the Company and the Corporate Guarantors and
the Bank shall have been satisfied with the results of such audit.
(i) Insurance. The Bank shall have received on or prior to the Closing Date a
certificate of insurance from an independent insurance broker confirming the
insurance required to be maintained pursuant to Section 6.01 hereof.
(j) Assets Free from Encumbrances; No Contingent Obligations. The Bank shall
have received on or prior to the Closing Date (i) Lien searches and any UCC-3
termination statements, required by the Bank to ensure that the assets of the
Company and each Corporate Guarantor are free and clear of all Liens, except
those Liens permitted pursuant to Section 7.01 and (ii) evidence, which may
include an opinion of counsel, satisfactory to the Bank that neither the
Company nor any Corporate Guarantor has any liabilities or obligations,
contingent or otherwise, with respect to Canada Classique Inc. and Winnipeg
Leather (1991) Inc.
(k) Payment of Existing Indebtedness. On the Closing Date, the Bank shall have
received (i) evidence satisfactory to it that the Existing Indebtedness shall be
paid in full upon the funding of the Loan, (ii) UCC-3 financing statements
executed by BNY Financial Corp. assigning or terminating their respective
security interests in all personal property of Company and each Corporate
Guarantor, (iii) except the facility to Canada Classique, Inc. identified on
Schedule III, satisfaction or termination of all of the Company's existing
credit facilities and all other lines of credits provided by BNY Financial
Corp., (iv) except with respect to the guaranty identified on Schedule IV,
releases by BNY Financial Corp. of all guarantees executed by the Company or any
of its Subsidiaries and (v) evidence of the release of all mortgages held by BNY
Financial Corp. with respect to the Premises.
(l) Landlord Waivers. The Bank shall have received on or prior to the Closing
Date, a landlord's waiver and agreement on the Bank's form thereof executed by
each lessor of real property leased by any Company or any Corporate Guarantor
where Collateral (as that term is defined in the Security Agreement) is located.
(m) Consummation of Mortgage Loan. On the Closing Date, the Company and the
Bank shall have executed the First Mortgage.
(n) Fees. The Company shall have paid the fees payable on the Closing Date
referred to in Section 3.04 and all costs and expenses incurred by the Bank
in connection with the negotiation, preparation and execution of the Loan
Documents and the creation and perfection of the Liens granted pursuant to
the Security Agreements (including, without limitation, the fees and expenses
of counsel and of the field audit identified in clause (h) above).
(o) Financial Statements of the Company and its Subsidiaries.
The Bank shall have received not less than thirty days prior to the Closing
Date (i) the audited consolidated financial statements of the Company and its
Subsidiaries for the fiscal year ended December 31, 1997 accompanied by an
unqualified opinion thereon of independent certified public accountants
acceptable to the Bank, (ii) the management prepared consolidating financial
statements of the Company and its Subsidiaries for the fiscal year ended
December 31, 1997 which support the financial statements referred to in
clause (i), which statement shall be certified by the Chief Financial
Officer, and (iii) a copy of the management letter, if any, prepared by the
auditors of the Company's financial statements for the fiscal years ended
December 31, 1997 and December 31, 1996.
(p) Certain Agreements. Receipt and satisfactory review by the Bank of (i) all
shareholder agreements, voting trust agreements, employment agreements,
consulting agreements, and management agreements to which the Company or any
Corporate Guarantor is a party and (ii) all agreements governing the terms of
Indebtedness for borrowed money of the Company and each Corporate Guarantor,
including, without limitation (x) the promissory note executed by the Company
in favor of Panda Group Inc. (as amended) delivered by the Company in
connection with the purchase of the assets of Panda Group Inc. and (y) the
Indebtedness payable to the estate of Max Reissman pursuant to an employment
agreement dated July 1, 1992 by and between the Company and Max Reissman.
(q) Litigation Update; Due Diligence. Bank and its counsel shall have been
satisfied with its investigation of the USA Classic Securities Litigation,
which investigation shall include discussions among the Bank, its counsel and
counsel representing the Company in that litigation; and the Bank shall have
completed all other due diligence with respect to the Company and each
Corporate Guarantor, including, without limitation, bank checkings, trade
checkings, customer checkings and litigation checkings and the Bank shall
have been satisfied with the results thereof.
(r) Pension Plans. Bank shall have received a copy of the most recent audit of
the Company's and each Corporate Guarantor's pension plans which are subject
to audit requirements under ERISA and confirmation satisfactory to it that
(i) such Plans are funded in accordance with at least the minimum statutory
requirements for funding, (ii) no Reportable Event has occurred with respect
to any Plan, and (iii) no termination of, or withdrawal from, any of such Plans
has occurred or was contemplated that would result in any liability on the part
of the Company or any Corporate Guarantor.
(s) Completion of Proceedings. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by the Loan Documents shall be satisfactory in form
and substance to the Bank and its counsel.
(t) Other Information, Documentation. The Bank shall receive such other and
further information and documentation as it may require, including, but not
limited, to any information or documentation relating to compliance by the
Company and each Corporate Guarantor with the requirements of all federal, state
and local laws, ordinances, rules, regulations or policies governing the use,
storage, treatment, transportation, refinement, handling, production or
disposal of Hazardous Materials.
(u) Notice of Borrowing. The Bank shall have received, in accordance with
Section 2.01, a Notice of Borrowing duly executed by an Executive Officer of
the Company with respect to the Term Loan.
SECTION 5.02. Conditions to Settlement Loan tc \l2 "SECTION 5.02.
Conditions to Settlement Loan . The obligation of the Bank to make the
Settlement Loan hereunder is subject to the satisfaction of the conditions
set forth in Section 5.01 (which conditions shall be deemed satisfied in the
event the Bank funds the Term Loan on the Closing Date) and the following
conditions precedent:
(a) Settlement Note. On or prior to the Settlement Funding Date, the Bank shall
have received the Settlement Note duly executed by the Company.
(b) Due Diligence. At least five Business Days prior to the Settlement Funding
Date, the Bank shall have received such information with respect to the
settlement of the USA Classic Securities Litigation as it shall deem
necessary or appropriate, including, without limitation, a copy of the
executed settlement agreement and the releases and other documents or
instruments to be delivered pursuant thereto.
(c) Approved Settlement. The settlement of the USA Classic Securities
Litigation shall constitute an "Approved Settlement".
(d) Notice of Borrowing. The Bank shall have received, in accordance with
Section 2.03, a Notice of Borrowing duly executed by an Executive Officer of
the Company with respect to the Settlement Loan.
(e) Settlement Date. The conditions identified in clauses (a) through (d)
shall have been satisfied on or prior to January 8, 1999.
SECTION 5.03. Conditions to all Loans tc \l2 "SECTION 5.03. Conditions to
all Loans . The obligation of the Bank to make each Loan hereunder is
subject to the conditions precedent set forth in Section 5.01, with respect to
the Term Loan and the conditions set forth in Section 5.02 with respect to
the Settlement Loan and the following conditions precedent:
(a) Representations and Warranties. The representations and warranties by the
Company and each Corporate Guarantor pursuant to this Agreement and the Loan
Documents to which each is a party shall be true and correct on and as of the
Borrowing Date with the same effect as though such representations and
warranties had been made on and as of the Borrowing Date, and the Company
shall have delivered a certificate to that effect dated the Borrowing Date and
executed by an Executive Officer.
(b) No Default. The Company and each Corporate Guarantor shall be in
compliance with all the terms and provisions set forth herein or in any other
Loan Document on their part to be observed or performed, and no Default or Event
of Default shall have occurred and be continuing on the Borrowing Date or
will result after giving effect to the Loan, and the Company shall have
delivered a certificate to that effect dated the Borrowing Date and executed by
an Executive Officer.
(c) No Material Adverse Changes. Since December 31, 1997, nothing shall
have occurred which in the Bank's sole opinion could individually or in the
aggregate have a material adverse effect (including, without limitation, a
material adverse effect resulting from any litigation identified on Schedule
VII) on (i) the rights and remedies of the Bank under any Loan Document,
(ii) the ability of the Company or any Corporate Guarantor to perform its
obligations under any Loan Document to which it is a party, or (iii) the
business, operations, performance, properties, prospects
or condition, financial or otherwise, of the Company or any Corporate Guarantor
after giving effect to the Loans.
ARTICLE VI
AFFIRMATIVE COVENANTS tc \l1 "ARTICLE VIAFFIRMATIVE COVENANTS
The Company covenants and agrees with the Bank that so long as the Commitments
shall remain in effect or any of the principal of or interest on the Note or any
other Obligations shall be unpaid it will, and will cause each Corporate
Guarantor and each Canadian Subsidiary to:
SECTION 6.01. Corporate Existence, Properties, etc. tc \l2 "SECTION 6.01.
Corporate Existence, Properties, etc. Do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and franchises (provided each Canadian Subsidiary may be dissolved in
accordance with applicable law provided it has satisfied all of its
liabilities and obligations to all third parties and governmental authorities
prior to such dissolution and neither the Company nor any Corporate Guarantor
shall have any liability or obligation with respect thereto); comply in all
material respects, with all laws applicable to it; at all times maintain,
preserve and protect all franchises and trade names and preserve all of its
property used or useful in the conduct of its business and keep the same in
good repair, working order and condition, and from time to time make, or cause
to be made, all needful and proper repairs, renewals, replacements,
betterments and improvements thereto so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; at all times keep its insurable properties adequately insured and
maintain (a) insurance to such extent and against such risks, including fire
and business interruption, as is customary with companies in the same or
similar businesses, (b) workmen's compensation insurance in the amount
required by applicable law, (c) public liability insurance, which shall
include product liability insurance, in the amount customary with companies
in the same or similar business against claims for personal injury or death or
properties owned, occupied or controlled by it, and (d) such other insurance
as may be required by law or as may be required in writing by the Bank. Each
such policy of insurance shall name the Bank as loss payee and additional
insured and shall provide for at least thirty (30) day's prior written notice
to the Bank of any modification or cancellation of such policies. The Company
shall provide to the Bank promptly upon receipt thereof evidence of the
annual renewal of each such policy.
SECTION 6.02. Payment of Indebtedness, Taxes, etc. tc \l2 "SECTION 6.02.
Payment of Indebtedness, Taxes, etc. (a) Pay all indebtedness and
obligations, now existing or hereafter arising, as and when due and payable and
(b) pay and discharge or cause to be paid and discharged promptly all taxes,
assessments and government charges or levies imposed upon it or upon its
income and profits, or upon any of its property, real, personal or mixed, or
upon any part thereof, before the same shall become in default, as well as
all lawful claims for labor, materials and supplies or otherwise which, if
unpaid, might become a lien or charge upon such properties or any part
thereof; provided, however, that neither the Company nor any Corporate Guarantor
shall be required to pay and discharge or cause to be paid and discharged any
such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and the Company or
such Corporate Guarantor, as the case may be, shall have set aside on its books
adequate reserves determined in accordance with Generally Accepted Accounting
Principles with respect to any such tax, assessment, charge, levy or claim so
contested and; further, provided that, subject to the foregoing proviso, the
Company and each Corporate Guarantor will pay or cause to be paid all such
taxes, assessments, charges, levies or claims upon the commencement of
proceedings to foreclose any lien which has attached as security therefor.
SECTION 6.03. Financial Statements, Reports, etc. tc \l2 "SECTION 6.03.
Financial Statements, Reports, etc. Furnish to the Bank:
(a) (i) as soon as available, but in any event within 105 days after the end
of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company and the Corporate Guarantors as of the end of
such year and the related audited consolidated statements of income, retained
earnings and cash flow for such year, setting forth in each case in
comparative form the respective figures for the previous fiscal year end, and
accompanied by a report thereon of a "Big Six" accounting firm or other
independent certified public accountants of recognized standing selected by the
Company and satisfactory to the Bank (the "Auditor"), which report shall be
unqualified; and (ii) as soon as available, but in any event within 105 days
after the end of each fiscal year of the Company and each Corporate
Guarantor, a copy of the management prepared consolidating statements of the
Company in the form previously delivered to the Bank pursuant to Section
5.01(0), which support the financial statements delivered pursuant to clause
(i), in each case of (i) and (ii) prepared in accordance with Generally
Accepted Accounting Principles, applied on a consistent basis and with
respect to the statements referred to in clause (ii) accompanied by a
certificate to that effect executed by the Chief Financial Officer;
(b) as soon as available, but in any event not later than 60 days after the
end of each quarterly period (other than the fourth fiscal quarter) of each
fiscal year of the Company, a copy of the unaudited interim Consolidated and
consolidating balance sheet of the Company and the Corporate Guarantors as of
the end of each such quarter and the related unaudited interim Consolidated
and consolidating statements in the form previously delivered to the Bank
pursuant to Section 5.01(0)of income, retained earnings and cash flow
for such quarter and the portion of the fiscal year through such date and, with
respect to the Consolidated Statements, setting forth in each case in
comparative form the respective figures, with respect to the balance sheet,
for the previous fiscal year end and, with respect to the statements of
income, retained earnings and cash flows for the corresponding period
in the previous fiscal year, in each case prepared by the Chief Financial
Officer in accordance with Generally Accepted Accounting Principles, applied
on a consistent basis and accompanied by a certificate to that effect
executed by the Chief Financial Officer;
(c) a certificate prepared and signed by the Auditor with each delivery required
by (a) and a certificate prepared and signed by the Chief Financial Officer
with each delivery required by clause (a) and clause (b), as to whether or
not, as of the close of such preceding period and at all times during such
preceding period, the Company or the Corporate Guarantor, as the case may be,
was in compliance with all the provisions in this Agreement, showing
computation of financial covenants and quantitative negative covenants, and
if the Auditor or Chief Financial Officer, as the case may be, shall have
obtained knowledge of any default in such compliance or notice of such
default, it shall disclose in such certificate such default or defaults or
notice thereof and the nature thereof, whether or not the same shall
constitute an Event of Default hereunder;
(d) at all times indicated in clause (a) above, a copy of the management
letter, if any, prepared by the Auditor;
(e) with each delivery required by clauses (a) and (b) above, a written report
with respect to the USA Classic Securities Litigation, which report shall update
the status of such litigation since the prior report and shall include
information with respect to settlement discussions between the respective
counsels to the Company and the plaintiff in such litigation. The portion of
such report which contains non-public information shall be kept confidential
by the Bank in accordance with the Confidentiality Agreement dated August
4, 1998 by and between the Company and the Bank.
(f) promptly, after filing thereof, copies of all regular and periodic
financial information, proxy materials and other information and reports which
the Company or any Corporate Guarantor shall file with the Securities and
Exchange Commission;
(g) promptly after submission to any government or regulatory agency, all
documents and information furnished to such government or regulatory agency
other than such documents and information prepared in the normal course of
business and which could not result in any adverse action to be taken by such
agency; and
(h) promptly, from time to time, such other information regarding the
operations, business affairs and condition, financial or otherwise, of the
Company or any Corporate Guarantor as the Bank may reasonably request.
SECTION 6.04. Access to Premises and Records tc \l2 "SECTION 6.04. Access
to Premises and Records . Maintain financial records in accordance with
Generally Accepted Accounting Principles and permit representatives of the
Bank to have access during normal business hours to the premises of the
Company and each Corporate Guarantor upon request (subject to not
less than five (5) day's prior notice), and to examine and make excerpts from
the minute books, books of accounts, reports and other records and to discuss
the affairs, finances and accounts of the Company and the Corporate
Guarantors with their respective principal officers or with their respective
independent accountants.
SECTION 6.05. Notice of Adverse Change tc \l2 "SECTION 6.05. Notice
of Adverse Change . Promptly notify the Bank in writing of (a) any change in
the business or the operations which may be materially adverse to the
business, operations, prospects, properties or assets or to the condition,
financial or otherwise, of the Company or any Corporate Guarantor disclosing
the nature thereof, and (b) any information which indicates that any
financial statements which are the subject of any representation contained in
this Agreement, or which are furnished to the Bank pursuant to this
Agreement, fail, in any material respect, to present fairly the financial
condition and results of operations purported to be presented therein,
disclosing the nature thereof.
SECTION 6.06. Notice of Default tc \l2 "SECTION 6.06. Notice of Default .
Promptly notify the Bank of any Default or Event of Default which notice shall
include a written statement as to such occurrence, specifying the nature thereof
and the action which is proposed to be taken with respect thereto.
SECTION 6.07. Notice of Litigation tc \l2 "SECTION 6.07. Notice of
Litigation . Give the Bank prompt written notice of (a) any judgment filed
against the Company or any Corporate Guarantor in connection with the USA
Classic Securities Litigation, (b) any settlement agreed to by the Company
and/or any other parties to the USA Classic Securities Litigation, with
respect to matters which are the subject of such litigation or any party,
(c) any trial date which may be set with respect to the USA Classic
Securities Litigation and cause counsel to the Company and the Corporate
Guarantors to make itself available to the Bank to discuss the status of
the USA Classic Securities Litigation as requested from the Bank from time to
time, and (d) any action, suit or proceeding at law or in equity or by or before
any governmental instrumentality or other agency which, if adversely determined
against the Company or any Corporate Guarantor, on the basis of the
allegations and information set forth in the complaint or other notice of such
action, suit or proceeding, or in the amendments thereof, if any, would
(i) materially impair the right of the Company or any Corporate Guarantor to
carry on its business substantially as now conducted or (ii) materially and
adversely affect the business, operations, assets or condition, financial or
otherwise, of the Company or any Corporate Guarantor.
SECTION 6.08. ERISA tc \l2 "SECTION 6.08. ERISA . Promptly deliver to
the Bank a certificate of the Chief Financial Officer of the Company setting
forth details as to such occurrence and such action, if any, which the
Company, such Corporate Guarantor or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given
to or filed with or by the Company, such Corporate Guarantor, ERISA
Affiliate, the PBGC, a Plan participant or the Plan Administrator, with respect
thereto: that a Reportable Event has occurred, that an accumulated funding
deficiency has been incurred or an application may be or has been made
to the Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code with
respect to a Plan, that a Plan has been or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA, that a Plan has an
Unfunded Current Liability giving rise to a lien under ERISA, that
proceedings may be or have been instituted to terminate a Plan, that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan, or that the Company, any Corporate Guarantor
or any ERISA Affiliate will or may incur any liability (including any contingent
or secondary liability) to or on account of the termination of or withdrawal
from a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA. The
Company will deliver to the Bank a complete copy of the annual report
(Form 5500) of each Plan required to be filed with the Internal Revenue
Service. In addition to any certificates or notices delivered to the Bank
pursuant to the first sentence hereof, copies of annual reports and any other
notices received by the Company or any Corporate Guarantor required to be
delivered to the Bank hereunder shall be delivered to the Bank no later than
10 days after the later of the date such report or notice has been filed with
the Internal Revenue Service or the PBGC, given to Plan participants or
received by the Company or a Corporate Guarantor.
SECTION 6.09. Compliance with Applicable Laws tc \l2 "SECTION 6.09.
Compliance with Applicable Laws . Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
the breach of which could materially and adversely affect the business,
operations, prospects, properties or assets or the condition, financial or
otherwise, of the Company or any Corporate Guarantor, including, without
limitation, the rules and regulations of the Board of Governors of the
Federal Reserve System and the Federal Deposit Insurance Corporation.
SECTION 6.10. Subsidiaries and Affiliates tc \l2 "SECTION 6.10.
Subsidiaries and Affiliates . Promptly notify the Bank prior to the occurrence
thereof, of the creation, establishment or acquisition, in any manner, of any
Subsidiary of the Company or any Corporate Guarantor not existing on the date
hereof and cause (a) each Subsidiary (other than any Canadian Subsidiary) to
execute a Corporate Guaranty and Security Agreement concurrently with the
creation, establishment or acquisition of such Subsidiary, and concurrently with
the delivery of each Security Agreement and Corporate Guaranty pursuant to this
Section 6.10 provide to the Bank the supporting documents identified in
clauses (a), (b), (c) and (d) of Section 5.01(g) in each case
with respect to the Subsidiary executing the same, together with a favorable
written opinion of counsel to such Subsidiary in form and substance satisfactory
to the Bank, as to the due execution, delivery and enforceability of such
documents and such other matters as the Bank may request.
SECTION 6.11. Default in Other Agreements tc \l2 "SECTION 6.11. Default
in Other Agreements . Promptly notify the Bank of any default which in any
manner could materially and adversely affect the business, properties, assets,
operations or condition, financial or otherwise, of the Company or any Corporate
Guarantor in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or instrument
to which the Company or any Corporate Guarantor is a party.
SECTION 6.12. Environmental Laws. tc \l2 "SECTION 6.12. Environmental
Laws. Comply with and ensure compliance by all tenants and subtenants of their
respective properties with the requirements of all applicable Environmental
Laws, provide to the Bank all documentation in connection with such
compliance that the Bank may request, and defend, indemnify, and hold
harmless the Bank, its employees, agents, officers, and directors, from and
against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs, or expenses of whatever kind of nature, known or unknown,
contingent or otherwise, arising out of, or in any way related to, (a) the
presence, disposal, release, or threatened release of any Hazardous Materials
on any property at any time owned or occupied by the Company or any Corporate
Guarantor; (b) any personal injury (including wrongful death) or property damage
(real or personal) arising out of or related to such Hazardous Materials;
(c) any lawsuit brought or threatened, settlement reached, or government order
relating to such Hazardous Materials, and/or (d) any violation of laws, orders,
regulations, requirements, or demands of government authorities, or any policies
or requirements of the Bank, which are based upon or in any way related to such
Hazardous Materials including, without limitation, reasonable attorney and
consultant fees, investigation and laboratory fees, court costs, and
litigation expenses. Execute and cause each Corporate Guarantor to execute any
and all documentation with respect to environmental matters as the Bank may
request and such documentation shall be in form and substance satisfactory to
the Bank.
SECTION 6.13. Further Assurance. tc \l2 "SECTION 6.13. Further
Assurance. Execute and deliver to the Bank all such documents and instruments
and do all such other acts and things as may be necessary or required by the
Bank to enable the Bank to exercise and enforce its rights under the Loan
Documents to which it is a party, and to record and file and re-record and
re-file all such documents and instruments, at such time or times, in such
manner and at such place or places, all as may be necessary or required by the
Bank to validate, preserve and protect the rights of the Bank under the Loan
Documents.
ARTICLE VII
NEGATIVE COVENANTS tc \l1 "ARTICLE VIINEGATIVE COVENANTS
The Company covenants and agrees with the Bank that so long as the Commitments
shall remain in effect or any of the principal of or interest on the Note or
any other Obligations shall be unpaid, it will not, and will not cause or
permit any Corporate Guarantor or any Canadian Subsidiary, directly or
indirectly, to:
SECTION 7.01. Liens tc \l2 "SECTION 7.01. Liens . Incur, create,
assume or suffer to exist any Lien on any of their respective assets now or
hereafter owned, other than:
(a) Liens existing on the date hereof as set forth on Schedule II attached
hereto but not any renewals or extensions thereof;
(b) Liens for taxes, assessments or other governmental charges or levies not
yet delinquent or which are being contested in good faith by appropriate
proceedings, provided, however, that adequate reserves with respect thereto
are maintained on the books of the Company or any Corporate Guarantor in
accordance with Generally Accepted Accounting Principles;
(c) carriers', warehousemans', mechanics', suppliers or other like Liens
arising in the ordinary course of business and not overdue for a period of
more than 30 days or which are being contested in good faith by appropriate
proceedings in a manner which will not jeopardize or diminish the interest of
the Bank in any of the collateral subject to the Security Agreements;
(d) Liens incurred or deposits to secure the performance of tenders, bids,
trade contracts, leases, statutory obligations, surety, performance and appeal
bonds, and other obligations of similar nature incurred in the ordinary
course of business;
(e) any attachment, judgment or similar Lien arising in connection with any
court or governmental proceeding provided that the execution or other
enforcement of such Lien is effectively stayed;
(f) easements, rights of way, restrictions and other similar charges or
encumbrances which in the aggregate do not interfere with the occupation, use
and enjoyment by the Company or any Corporate Guarantor of the property or
assets encumbered thereby in the normal course of their respective business
or materially impair the value of the property subject thereto;
(g) deposits under workmen's compensation, unemployment insurance and social
security laws;
(h) purchase money Liens for fixed or capital assets, including obligations
under any Capital Lease securing Indebtedness permitted pursuant to Section
7.02(g) and 7.13(e); provided, in each case, (i) no Event of Default or event
which, upon notice or lapse of time or both, would constitute an Event of
Default shall have occurred and be continuing or shall occur after the
grant of the proposed Lien, and (ii) such purchase money Lien does not exceed
100% of the purchase price and encumbers only the property being acquired; and
(i) Liens granted to the Bank.
SECTION 7.02. Indebtedness tc \l2 "SECTION 7.02. Indebtedness . Incur,
create, assume or suffer to exist or otherwise become liable in respect of any
Indebtedness, other than:
(a) Indebtedness incurred prior to the date hereof as described in Schedule
"III" attached hereto but not including any renewals or extensions thereof;
(b) Indebtedness to the Bank;
(c) Indebtedness for trade payables incurred in the ordinary course of business
which are not more than ninety (90) overdue;
(d) Indebtedness consisting of guarantees permitted pursuant to Section 7.03;
(e) Subordinated Indebtedness approved in writing by the Bank;
(f) Indebtedness owing by the Company to any Corporate Guarantor or by any
Corporate Guarantor to the Company or any other Corporate Guarantor; and
(g) Indebtedness secured by purchase money liens as permitted under Section
7.01(h) such Indebtedness not to exceed $100,000 in the aggregate outstanding at
any time.
SECTION 7.03. Guaranties tc \l2 "SECTION 7.03. Guaranties . Guarantee,
endorse, become surety for, or otherwise in any way become or be responsible for
the Indebtedness or obligations of any Person, whether by agreement to
maintain working capital or equity capital or otherwise maintain the net
worth or solvency of any Person or by agreement to purchase the
Indebtedness of any other Person, or agreement for the furnishing of funds,
directly or indirectly, through the purchase of goods, supplies or services for
the purpose of discharging the Indebtedness of any other Person or otherwise, or
enter into or be a party to any contract for the purchase of merchandise,
materials, supplies or other property if such contract provides that payment for
such merchandise, materials, supplies or other property shall be made regardless
of whether delivery of such merchandise, supplies or other property is ever made
or tendered except:
(a) guaranties executed prior to the date hereof as described on Schedule IV
attached hereto but not including any renewals or extension thereof;
(b) endorsements of negotiable instruments for collection or deposit in the
ordinary course of business; and
(c) guaranties of any Indebtedness under this Agreement or any other
Indebtedness owing to the Bank.
SECTION 7.04. Sale of Assets tc \l2 "SECTION 7.04. Sale of Assets . Sell,
lease, transfer or otherwise dispose of their respective properties and assets,
whether or not pursuant to an order of a federal agency or commission, except
for (a) the sale of inventory disposed of in the ordinary course of business,
(b) the sale or other disposition of properties or assets no longer used or
useful in the conduct of their respective businesses, (c) the sale of all the
outstanding shares of capital stock of any Canadian Subsidiary.
SECTION 7.05. Sales of Notes tc \l2 "SECTION 7.05. Sales of Notes . Sell,
transfer, discount or otherwise dispose of notes, accounts receivable or other
obligations owing to the Company or any Corporate Guarantor, with or without
recourse, except for collection in the ordinary course of business.
SECTION 7.06. Loans and Investments tc \l2 "SECTION 7.06. Loans and
Investments . Make or commit to make any advance, loan, extension of credit, or
capital contributions to or purchase or hold beneficially any stock or other
securities, or evidence of Indebtedness of, purchase or acquire all or a
substantial part of the assets of, make or permit to exist any interest
whatsoever in, any other Person except (a) as permitted pursuant to the last
sentence of Section 7.15, (b) for the ownership of stock of any Subsidiaries
existing as of the Closing Date or created after the Closing Date subject to
and in compliance with Section 6.10; (c) the Company may make loans and
advances to a Corporate Guarantor and each Corporate Guarantor may make loans
and advances to the Company or any other Corporate Guarantor; and (d) the
Company and each Corporate Guarantor may invest in:
(i) direct obligations of the United States of America or any governmental
agency thereof, provided that such obligations mature within one year from the
date of acquisition thereof;
(ii) dollar denominated certificates of time deposit maturing within one year
issued by any commercial bank organized and existing under the laws of the
United Sates or any state thereof and having aggregate capital and surplus in
excess of $1,000,000,000;
(iii) money market mutual funds having assets in excess of $2,500,000,000;
(iv) commercial paper rated not less an P-1 or A-1 or their equivalent by
Moody's Investor Services,Inc. or Standard & Poor's Corporation, respectively;
or
(v) tax exempt securities of a U.S. issuer rated A or better by Standard and
Poor's Corporation or Moody's Investors Service, Inc.
SECTION 7.07. Nature of Business tc \l2 "SECTION 7.07. Nature of
Business . Change or alter, in any material respect, the nature of its
business from the nature of the business engaged in by it on the date hereof.
SECTION 7.08. Sale and Leaseback tc \l2 "SECTION 7.08. Sale and
Leaseback . Enter into any arrangement, directly or indirectly, with any Person
whereby it shall sell or transfer any property, whether real or personal, used
or useful in its business, whether now owned or hereafter acquired, if at the
time of such sale or disposition it intends to lease or otherwise acquire the
right to use or possess (except by purchase) such property or like property
for a substantially similar purpose.
SECTION 7.09. Leases tc \l2 "SECTION 7.09. Leases . Become liable in any
way, whether directly or by assignment or as a guarantor or other surety, for
the obligations of the lessee under any operating lease, unless, immediately
after giving effect to the occurrence of the liability with respect to such
leases, the aggregate amount of all rents paid under such leases at the
time in effect during the then current fiscal year will not exceed in the
aggregate $200,000.
SECTION 7.10. Federal Reserve Regulations tc \l2 "SECTION 7.10. Federal
Reserve Regulations . Permit any Loan or the proceeds of any Loan to be used
for any purpose which violates or is inconsistent with the provisions of
Regulations T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 7.11. Accounting Policies and Procedures tc \l2 "SECTION 7.11.
Accounting Policies and Procedures . (i) Permit any change in the accounting
policies and procedures of the Company or any Corporate Guarantor, including a
change in fiscal year, without the prior written consent of the Bank;
provided, however, that any policy or procedure required to be changed by the
FASB (or other board or committee of the FASB in order to comply with
Generally Accepted Accounting Principles) may be so changed.
SECTION 7.12. Limitations on Fundamental Changes tc \l2 "SECTION 7.12.
Limitations on Fundamental Changes . Merge or consolidate with, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
or hereafter acquired) to any Person, or acquire all or substantially all
of the assets or the business of any Person or liquidate, wind up or dissolve or
suffer any liquidation or dissolution. Notwithstanding the foregoing, each
Canadian Subsidiary may sell all or substantially all of its assets on
commercially reasonable terms; provided neither the Company nor any Corporate
Guarantor shall have any obligation or liability, contingent or otherwise, with
respect to any such sale.
SECTION 7.13. Financial Condition Covenants. tc \l2 "SECTION 7.13. Financial
Condition Covenants.
(a) Consolidated Tangible Net Worth Plus Consolidated Subordinated Debt.
Permit at any time Consolidated Tangible Net Worth plus Consolidated
Subordinated Debt to be less than the amount set forth below opposite the
relevant period.
Period Amount
Closing Date through December 30, 1998 $5,750,000
December 31, 1998 and December 29, 1999 $7,000,000
and for each comparable period thereafter
commencing on the last day of a fiscal
year through the day next preceding the
last day of the following fiscal year in
an amount not less than the sum of actual
Consolidated Tangible Net Worth on the last
day of the immediately preceding fiscal year
plus $1,250,000
(b) Total Consolidated Unsubordinated Liabilities to Consolidated Tangible Net
Worth Plus Subordinated Debt. Permit at any time the ratio of Consolidated
Total Unsubordinated Liabilities to Consolidated Tangible Net Worth plus
Consolidated Subordinated Debt to be greater than the ratio set forth below
opposite the relevant period:
Period Ratio
Closing Date through December 30, 1998 2.35:1.00
December 31, 1998 and thereafter 2.00:1.00
(c) Consolidated Debt Service Coverage Ratio. Permit the Consolidated Debt
Service Coverage Ratio to be less than 1.25:1:00 at the end of any fiscal
quarter or fiscal year of the Company.
(d) Consolidated Net Loss. Suffer a Consolidated net loss (calculated exclusive
of extraordinary gains) at the end of any fiscal year of the Company or for any
two fiscal quarters of a period consisting of four consecutive fiscal quarters.
(e) Capital Expenditures. Permit Consolidated Capital Expenditures to exceed
$150,000 in any fiscal year of the Company.
SECTION 7.14. Subordinated Debt tc \l2 "SECTION 7.14. Subordinated
Debt . Directly or indirectly prepay, defease, purchase, redeem, or otherwise
acquire any Subordinated Debt.
SECTION 7.15. Dividends tc \l2 "SECTION 7.15. Dividends . Declare any
dividend on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of stock of the
Company or any Corporate Guarantor, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash, securities or property or in obligations of the Company or
any Corporate Guarantor or in any combination thereof, or permit any
Affiliate to make any payment on account of, or purchase or otherwise
acquire, any shares of any class of the stock of the Company or any Corporate
Guarantor from any Person. Notwithstanding the foregoing, (a) any Corporate
Guarantor may pay and declare dividends and make distributions to the
Company, and (b) the Company may repurchase shares of its common stock from
time to time provided that no Event of Default shall have occurred and be
continuing or would occur after giving effect to such repurchase, and,
provided further that the Company shall notify the Bank prior to any proposed
repurchase and in connection therewith deliver to the Bank a certificate
executed by an Executive Officer certifying compliance with the covenants
contained in Section 7.13 both prior to and after giving effect to the
proposed repurchase.
SECTION 7.16. Transactions with Affiliates tc \l2 "SECTION 7.16.
Transactions with Affiliates . Enter into any transaction, including,
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of the Company's or any of the
Corporate Guarantor's business and upon fair and reasonable terms no less
favorable to the Company or such Corporate Guarantor than they would obtain
in a comparable arms-length transaction with a Person not an Affiliate.
SECTION 7.17. Impairment of Security Interest tc \l2 "SECTION 7.17.
Impairment of Security Interest . Take or omit to take any action which
could reasonably be expected to have the result of effecting or impairing the
security interest in any property subject to a security interest in favor of
the Bank and neither the Company nor any Corporate Guarantor shall, except as
set forth in Section 7.01 and Section 7.04, grant to any person any interest
whatsoever in any property subject to a security interest in favor of the Bank.
SECTION 7.18. Joint Ventures. tc \l2 "SECTION 7.18. Joint
Ventures. Enter into any joint venture or partnership agreement.
SECTION 7.19. Annual Clean Up. tc \l2 "SECTION 7.19. Annual Clean
Up. Permit any loans to be outstanding under any line or lines of credit
maintained by the Company with the Bank from time to time for a period of at
least thirty (30) consecutive days in any fiscal year of the Company.
Nothing in this Section 7.19 shall be construed to require the Bank to
extend or maintain any line of credit with the Company or any Corporate
Guarantor.
SECTION 7.20. Canadian Subsidiaries. tc \l2 "SECTION 7.20. Canadian
Subsidiaries. Permit any Canadian Subsidiary to (a) engage in any business,
incur any Indebtedness or acquire any assets (b) have assets at any time in
excess of $25,000 or (c) have net income for any period in excess of $25,000,
(in each case of (b) and (c) determined exclusive of any duty remission
entitlement due from any Canadian governmental authority).
ARTICLE VIII
EVENTS OF DEFAULT tc \l1 "ARTICLE VIIIEVENTS OF DEFAULT
SECTION 8.01. Events of Default tc \l2 "SECTION 8.01. Events of Default . In
the case of the happening of any of the following events (each an "Event of
Default"):
(a) (i) failure by the Company to pay the principal on any Loan when due and
payable or (ii) failure by the Company or any Corporate Guarantor to pay any
interest on any Loan, or any fees or other amounts payable under any Loan
Document, within three Business Days of the date when due or payable;
(b) default shall be made in the due observance or performance of (i) any
covenant set forth in Section 6.01, 6.02, 6.08, 6.09, 6.12, or 6.13 if such
default shall continue unremedied for a period of thirty (30) days or (ii) any
covenant, condition or agreement of the Company or any Corporate Guarantor to be
performed pursuant to this Agreement or any other Loan Document other than those
specified in Section 8.01(a);
(c) any representation or warranty made in this Agreement or any other Loan
Document shall prove to be false or misleading in any material respect when made
or given or when deemed made or given;
(d) any report, certificate, financial statement or other instrument furnished
in connection with this Agreement or any other Loan Document or the borrowings
hereunder, shall prove to be false or misleading in any material respect when
made or given;
(e) default in the performance or compliance in respect of any agreement or
condition relating to any Indebtedness of the Company or any Corporate
Guarantor in excess of $50,000, individually or in the aggregate, (other than
the Note), if the effect of such default is to accelerate the maturity of
such Indebtedness or to permit the holder or obligee thereof (or a trustee on
behalf of such holder or obligee) to cause such Indebtedness to become due
prior to the stated maturity thereof, or any Indebtedness in excess of $50,000,
individually or in the aggregate, shall not be paid when due;
(f) the Company, any Corporate Guarantor or Symax Garment (1993), Ltd. shall
(i) voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code or any other federal or state
bankruptcy, insolvency or similar law, (ii) consent to the institution of, or
fail to controvert in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) apply for or consent to the employment of
a receiver, trustee, custodian, sequestrator or similar official for the
Company, any Corporate Guarantor or Symax Garment (1993), Ltd. or for a
substantial part of its property; (iv) file an answer admitting the material
allegations of a petition filed against it in such proceeding, (v) make a
general assignment for the benefit of creditors, (vii) become unable or admit in
writing its inability or fail generally to pay its debts as they become due or
(vii) take corporate action for the purpose of effecting any of the foregoing;
(g) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (i) relief in
respect of the Company, any Corporate Guarantor or Symax Garment (1993), Ltd.
or of a substantial part of their respective property, under Title 11 of the
United States Code or any other federal or state bankruptcy insolvency or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for the Company, any Corporate Guarantor or
Symax Garment (1993), Ltd. or for a substantial part of their property, or
(iii) the winding-up or liquidation of the Company, any Corporate Guarantor
or Symax Garment (1993), Ltd. and such proceeding or petition shall continue
undismissed for 30 days or an order or decree approving or ordering any of
the foregoing shall continue unstayed and in effect for 30 days;
(h) one or more orders, judgments (other than any judgment referred to in
Section 8.01(k) below) or decrees for the payment of money in excess of
$100,000 in the aggregate shall be rendered against the Company, any Corporate
Guarantor or any Canadian Subsidiary and the same shall not have been paid in
accordance with such judgment, order or decree and either (i) an enforcement
proceeding shall have been commenced by any creditor upon such judgment,
order or decree, or (ii) there shall have been a period of thirty
(30) days during which a stay of enforcement of such judgment order or
decree, by reason of pending appeal or otherwise, was not in effect;
(i) any Plan shall fail to maintain the minimum funding standard required for
any Plan year or part thereof or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code,
any Plan is, shall have been terminated or the subject of termination
proceedings under ERISA, any Plan shall have an Unfunded Current Liability,
a Reportable Event shall have occurred with respect to a Plan or the
Company, any Corporate Guarantor or any Canadian Subsidiary or any ERISA
Affiliate shall have incurred a liability to or on account of a Plan under
Section 515, 4062, 4063, 4063, 4201 or 4204 of ERISA, and there shall result
from any such event or events the imposition of a lien upon the assets of the
Company or any Corporate Guarantor securing obligations in excess of $25,000,
individually or in the aggregate, the granting of a security interest, or
a liability to the PBGC or a Plan or a trustee appointed under ERISA or a
penalty under Section 4971 of the Code;
(j) any provision of any Loan Document shall for any reason cease to be in full
force and effect in accordance with its terms or the Company or any Corporate
Guarantor shall so assert in writing;
(k) the Company pays or is obligated to pay (i) an amount in excess of
$1,000,000 in connection with the USA Classic Securities Litigation whether
pursuant to a judgment or order issued in such litigation or pursuant to a
settlement of such litigation or (ii) an amount in excess of $350,000,
individually or in the aggregate, in connection with any litigation or
litigations (other than the USA Classic Securities Litigation) arising in whole
or in part from or in connection with the events or circumstances which were
the basis or alleged basis for the USA Classic Securities Litigation whether
pursuant to a judgment or order issued in such litigation or litigations or
pursuant to a settlement of such litigation or litigations;
(l) a Change of Control shall have occurred;
(m) any of the liens purposed to be granted pursuant to any Security Agreement
shall cease for any reason to be legal, valid and enforceable liens on the
collateral purported to be covered thereby or shall cease to have the
priority purported to be created thereby;
(n) two of the following persons: Bruce Reissman, Mitchell Binder and Dennis
Sunshine shall cease to be executive officers of the Company who are actively
involved in the day-to-day management of the Company or any Corporate
Guarantor; or
(o) an Event of Default (as that term is defined in the First Mortgage) shall
have occurred;
then, at any time thereafter during the continuance of any such event, the
Bank may, upon notice to the Company, take either or both of the following
actions at the same or different times (i) terminate the Commitments
whereupon the Commitments shall terminate immediately, and/or (ii) declare
the Loans and all other amounts owing under this Agreement and the Notes,
both as to principal and interest, to be forthwith due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in any Note to the
contrary notwithstanding; provided, however, that if an event specified in
Section 8.01(f) and (g) shall have occurred, the Commitments shall
automatically terminate and the Notes shall be immediately due and payable.
ARTICLE IX
MISCELLANEOUS tc \l1 "ARTICLE IXMISCELLANEOUS
SECTION 9.01. Notices tc \l2 "SECTION 9.01. Notices . All notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing, and unless otherwise expressly provided herein, shall be
conclusively deemed to have been received by a party hereto and to be
effective on the day on which delivered to such party at the address set forth
below, or, in the case of telecopy notice, when acknowledged as received, or if
sent by registered or certified mail, on the third Business Day after the day on
which mailed in the United States, addressed to such party at said address:
(a) if to the Bank, at
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Account Officer
Orbit International Corp.
Telecopy: (516) 755-0139
(b) if to the Company, at
Orbit International Corp.
80 Cabot Court
Hauppauge, New York 11788
Attention: Mr. Mitchell Binder
Vice President - Finance
Telecopy: (516) 435-0065
with a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Barbara A. Wood, Esq.
Telecopy: (212) 697-6686
- and -
(c) as to each such party at such other address as such party shall have
designated to the other in a written notice complying as to delivery with the
provisions of this Section 9.01.
SECTION 9.02. Survival of Agreement tc \l2 "SECTION 9.02. Survival of
Agreement . All covenants, agreements, representations and warranties made
herein and in the other Loan Documents and in the certificates delivered
pursuant hereto or thereto shall survive the making by the Bank of the Loans
herein contemplated and the execution and delivery to the Bank of the Notes
evidencing the Loans and shall continue in full force and effect so long as any
Note is outstanding and unpaid. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or
on behalf of the Company and the Corporate Guarantor which are contained in
this Agreement shall bind and inure to the benefit of the respective
successors and assigns of the Bank. The Company may not assign or transfer
any of its interest under this Agreement, the Notes or any other Loan
Document without the prior written consent of the Bank.
SECTION 9.03. Expenses of the Bank tc \l2 "SECTION 9.03. Expenses of the
Bank . The Company agrees (a) to indemnify, defend and hold harmless the
Bank and its officers, directors, employees, and affiliates (each, an
"indemnified person") from and against any and all losses, claims, damages,
liabilities or judgments to which any such indemnified person may be subject
and arising out of or in connection with the Loan Documents, the financings
contemplated hereby, the use of any proceeds of such financings or any
related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any of such indemnified
persons is a party thereto, and to reimburse each of such indemnified persons
upon demand for any reasonable, legal or other expenses incurred in
connection with the investigation or defending any of the foregoing; provided
that the foregoing indemnity will not, as to any indemnified person, apply
to losses, claims, damages, liabilities, judgments or related expenses to the
extent arising from the wilful misconduct or gross negligence of such
indemnified person; and (b) to reimburse the Bank from time to time, upon
demand, all out-of-pocket expenses (including expenses of its due diligence
investigation, and fees and disbursements of counsel and the allocated costs
of internal counsel) incurred in connection with the financings contemplated
under this Agreement, the preparation, execution and delivery of this
Agreement and the other Loan Documents, any amendments and waivers hereof or
thereof, the security arrangements contemplated thereby and the enforcement
thereof. The provisions of this Section 9.03 shall survive termination of
this Agreement.
SECTION 9.04. No Waiver of Rights by the Bank tc \l2 "SECTION 9.04. No
Waiver of Rights by the Bank . Neither any failure nor any delay on the part
of the Bank in exercising any right, power or privilege hereunder or under
the Notes or any other Loan Document shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege.
SECTION 9.05. APPLICABLE LAW tc \l2 "SECTION 9.05. APPLICABLE
LAW . THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 9.06. SUBMISSION TO JURISDICTION tc \l2 "SECTION 9.06.
SUBMISSION TO JURISDICTION ; JURY WAIVER. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES
DISTRICT COURT OF THE EASTERN DISTRICT OF NEW YORK AND ANY COURT
IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, AND TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY HEREBY WAIVES AND AGREES NOT TO
ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT,
ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT OR
INSTRUMENT REFERRED TO HEREIN OR THEREIN OR THE SUBJECT MATTER
THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES NOT TO (a) SEEK AND
HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH
COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY
BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (b)
ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING.
THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY
CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN
THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK.
EXCEPT AS PROHIBITED BY LAW, THE COMPANY AND THE BANK EACH HEREBY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN
DOCUMENT.
SECTION 9.07. Extension of Maturity tc \l2 "SECTION 9.07. Extension of
Maturity . Except as otherwise expressly provided herein, whenever a payment
to be made hereunder shall fall due and payable on any day other than a
Business Day, such payment may be made on the next succeeding Business Day,
and such extension of time shall be included in computing interest.
SECTION 9.08. Modification of Agreement tc \l2 "SECTION 9.08.
Modification of Agreement . No modification, amendment or waiver of any
provision of this Agreement, the Notes or any other Loan Document, nor
consent to any departure by the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by the Bank and the
Company and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on the
Company in any case shall entitle the Company to any other or further notice
or demand in the same, similar or other circumstance.
SECTION 9.09. Severability tc \l2 "SECTION 9.09. Severability . In case
any one or more of the provisions contained in this Agreement, the Notes or in
any other Loan Document should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby.
SECTION 9.10. Sale of Participations tc \l2 "SECTION 9.10. Sale of
Participations . The Bank reserves the right to sell participations in or to
sell and assign its rights, duties or obligations with respect to the Loans
or the Commitment to such banks, lending institutions or other parties as it
may choose and without the consent of the Company. The Bank may furnish
any information concerning the Company or any Corporate Guarantor in its
possession from time to time to any assignee or participant (or proposed
assignee or participant).
SECTION 9.11. Reinstatement; Certain Payments tc \l2 "SECTION 9.11.
Reinstatement; Certain Payments . If claim is ever made upon the Bank for
repayment or recovery of any amount or amounts received by the Bank in payment
or on account of any of the Obligations under this Agreement, the Bank shall
give prompt notice of such claim to the Company, and if the Bank repays all
or part of said amount by reason of (a) any judgment, decree or order of
any court or administrative body having jurisdiction over the Bank or any of
its property, or (b) any settlement or compromise of any such claim effected
by the Bank with any such claimant, then and in such event the Company agrees
that any such judgment, decree, order, settlement or compromise shall be
binding upon such Company notwithstanding the cancellation of the Notes or
other instrument evidencing the Obligations under this Agreement or the
termination of this Agreement, and the Company shall be and remain liable to
the Bank hereunder for the amount so repaid or recovered to the same extent as
if such amount had never originally been received by the Bank.
SECTION 9.12. Right of Setoff tc \l2 "SECTION 9.12. Right of Setoff . If an
Event of Default shall have occurred and be continuing, the Bank, Chase
Securities, Inc. and each other Affiliate of the Bank are each hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Bank to or for the credit or the account of the Company
against any and all the Obligations, irrespective of whether or not the Bank
shall have made any demand under this Agreement or the Notes and although such
obligations may be unmatured. The rights of the Bank under this Section 9.12
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which the Bank may have.
SECTION 9.13. Counterparts tc \l2 "SECTION 9.13. Counterparts . This
Agreement may be executed in counterparts, each of which shall constitute an
original, but all of which, taken together, shall constitute one and the same
instrument.
SECTION 9.14. Headings tc \l2 "SECTION 9.14. Headings . Section headings
used herein are for convenience of reference only and are not to affect the
construction of or be taken into consideration in interpreting this Agreement.
IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement to be
duly executed by their duly authorized officers, as of the day and year first
above written.
ORBIT INTERNATIONAL CORP.
By:/s/ Dennis Sunshine
Title: President
THE CHASE MANHATTAN BANK
By:/s/ Christopher Zimmerman
Title: Vice President
FF2/69905_A
EXHIBIT A-1
FORM OF TERM NOTE
$950,000 Uniondale, New York
August 4, 1998
FOR VALUE RECEIVED, ORBIT INTERNATIONAL CORP., a Delaware corporation (the
"Company"), promises to pay to the order of THE CHASE MANHATTAN BANK (the
"Bank") on or before June 1, 2003 (the "Maturity Date"), the principal amount of
NINE HUNDRED FIFTY THOUSAND DOLLARS ($950,000) in twenty (20) consecutive
quarterly installments of $47,500 on the first Business Day of each June,
September, December and March commencing September 1, 1998, provided the final
installment on the Maturity Date shall be in an amount equal to the remaining
principal amount outstanding on the Maturity Date.
The Company also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid in full at the rates and at the times
which shall be determined in accordance with the provisions of the Credit
Agreement referred to below.
This Note is the "Term Note" issued pursuant to and entitled to the benefits
of the Credit Agreement dated as of August 4, 1998, between the Bank and the
Company (as the same may be amended, modified or supplemented from time to
time, the "Credit Agreement"), to which reference is hereby made for a more
complete statement of the terms and conditions under which the Loan evidenced
hereby was made and is to be repaid. Capitalized terms used herein without
definition shall have the meanings set forth in the Credit Agreement.
The Bank shall record the date and amount of each payment or prepayment of
principal of the Loan on the grid schedule annexed to this Note; provided,
however, that the failure of the Bank to set forth the Loan, payments and
other information on the attached grid schedule shall not in any manner
effect the obligation of the Company to repay the Loan made by the Bank in
accordance with the terms of this Note.
This Note is subject to optional and mandatory prepayment as provided in
Section 3.03 of the Agreement.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued but unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
All payments of principal and interest in respect of this Note shall be made in
lawful money of the United States of America in same day funds at the office
of the Bank located at the Bank's Payment Office or at such other place as
shall be designated in writing for such purpose in accordance with the terms
of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of an interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
The Company waives presentment, demand, protest and notice of any kind in
connection with this Note.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
delivered by its duly authorized officer, as of the day and year and at the
place first above written.
ORBIT INTERNATIONAL CORP.
By:___________________________
Title:
SCHEDULE OF LOAN
Amount of
Date Principal Principal
of Amount of Maturity Paid or
Loan Loan of Loan Unpaid
EXHIBIT A-2
FORM OF SETTLEMENT NOTE
$500,000 Uniondale, New York
[Date]
FOR VALUE RECEIVED, ORBIT INTERNATIONAL CORP., a Delaware corporation
(the "Company"), promises to pay to the order of THE CHASE MANHATTAN BANK (the
"Bank") on or before [insert the last day of the calendar quarter immediately
preceding the third anniversary of the Settlement Funding Date] (the
"Maturity Date"), the principal amount of FIVE HUNDRED THOUSAND DOLLARS
($500,000) in twelve (12) consecutive quarterly installments of $41,667 on the
first Business Day of each June, September, December and March commencing
[insert last day of calendar quarter in which Settlement Funding Date
occurs], provided the final installment on the Maturity Date shall be in an
amount equal to the remaining principal amount outstanding on the Maturity
Date.
The Company also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid in full at the rates and at the times
which shall be determined in accordance with the provisions of the Credit
Agreement referred to below.
This Note is the "Settlement Note" issued pursuant to and entitled to the
benefits of the Credit Agreement dated as of August 4, 1998, between the Bank
and the Company (as the same may be amended, modified or supplemented from
time to time, the "Credit Agreement"), to which reference is hereby made for
a more complete statement of the terms and conditions under which the Loan
evidenced hereby was made and is to be repaid. Capitalized terms used herein
without definition shall have the meanings set forth in the Credit Agreement.
The Bank shall record the date and amount of each payment or prepayment of
principal of the Loan on the grid schedule annexed to this Note; provided,
however, that the failure of the Bank to set forth the Loan, payments and
other information on the attached grid schedule shall not in any manner effect
the obligation of the Company to repay the Loan made by the Bank in accordance
with the terms of this Note.
This Note is subject to optional and mandatory prepayment as provided in
Section 3.03 of the Agreement.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued but unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
All payments of principal and interest in respect of this Note shall be made in
lawful money of the United States of America in same day funds at the office
of the Bank located at the Bank's Payment Office or at such other place as
shall be designated in writing for such purpose in accordance with the terms
of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of an interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
The Company waives presentment, demand, protest and notice of any kind in
connection with this Note.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
delivered by its duly authorized officer, as of the day and year and at the
place first above written.
ORBIT INTERNATIONAL CORP.
By:___________________________
Title:
SCHEDULE OF LOAN
Amount of
Date Principal Principal
of Amount of Maturity Paid or
Loan Loan of Loan Unpaid
EXHIBIT B-1
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of August 4, 1998 by and between ORBIT
INTERNATIONAL CORP., a Delaware corporation, having its principal place of
business at 80 Cabot Court, Hauppauge, New York 11788 (the "Company") and THE
CHASE MANHATTAN BANK, a New York banking corporation, having an office at 395
North Service Road, Melville, New York 11747 (the "Secured Party").
RECITALS
A. The Secured Party and the Company have entered into a Credit Agreement,
dated as of August 4, 1998 (as the same may be amended, modified or
supplemented from time to time, the "Credit Agreement"), pursuant to which
the Company will receive loans and other financial accommodations from
the Secured Party and will incur Obligations.
B. To induce the Secured Party to extend credit to the Company on and after
the date hereof as provided in the Credit Agreement, the Company wishes to
grant the Secured Party security and assurance in order to secure the payment
and performance of all Obligations and to that effect to grant the Secured
Party a first priority perfected security interest in its assets and in
connection therewith to execute and deliver this Security Agreement.
Accordingly, the parties hereto hereby agree as follows:
DEFINITIONS
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
"Agreement": shall mean this Agreement and shall include all amendments,
modifications and supplements hereto and shall refer to this Agreement as the
same may be in effect at the time such reference becomes operative.
"Equipment": shall mean all machinery, equipment, office machinery,
furniture, fixtures, conveyors, tools, materials, storage and handling
equipment, computer equipment and hardware, including central processing
units, terminals, drives, memory units, printers, keyboards, screens,
peripherals and input or output devices, automotive equipment, trucks, molds,
dies, stamps, motor vehicles and other equipment of every kind and nature and
wherever situated now or hereafter owned by the Company or in which the
Company may have any interest together with all additions and accessions
thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, know-how, warranties and records in connection
therewith, all rights against suppliers, warrantors, manufacturers, sellers or
others in connection therewith, and together with all substitutions for any
of the foregoing.
"General Intangibles": shall mean all "General Intangibles," as such term is
defined in Section 9-106 of the Uniform Commercial Code of the State of New
York, now or hereafter owned by Company, including, without limitation,
present and future trade secrets and other proprietary information;
trademarks, trade names and trademark applications, service marks, business
names, logos and the goodwill of the business relating thereto; copyrights
and copyright applications and all tangible property embodying the copyrights;
unpatented inventions (whether or not patentable); designs; patent applications
and patents; customer contracts, license agreements related to any of the
foregoing and the income therefrom; books, records, computer tapes or disks,
flow diagrams, specification sheets, source codes, object codes, and other
physical manifestations of the foregoing.
"Inventory": shall mean all goods now or hereafter owned by the Company or in
which the Company now or hereafter has an interest intended for sale, lease
or other disposition by, or consumption in the business of, the Company of
every kind and nature and wherever located, including, without limitation, all
raw materials, work in process, finished goods, goods consigned to the Company
to the extent of its interest therein as consignee, goods in transit,
materials and supplies of any kind, nature or description which are or
might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of any such goods; and all documents of
title or documents representing the same and all records, files and writings
with respect thereto.
"Receivables": shall mean and include, with respect to the Company, all
right, title and interest of the Company in all present and future accounts
receivable, contract rights (including, without limitation, all rights to
reimbursement by insurers with respect to legal fees, costs and expenses
under insurance policies maintained by the Company), promissory notes,
chattel paper, all tax refunds and rights to receive tax refunds, bonds,
rights of indemnification, contribution and subrogation, leases, computer
tapes, programs and software, computer service contracts, deposits, causes of
action, choses in action, judgments, and claims against third parties of
every kind or nature, investment securities, notes, drafts, acceptances,
letters of credit and rights to receive proceeds of letters of credit,
instruments and deposit accounts, book accounts, credits and reserves and all
forms of obligations whatsoever owing, together with all instruments, all
documents of title representing any of the foregoing, and all rights in any
merchandise or goods which any of the same may represent, all books, ledgers,
files and records with respect to any Collateral or security given to the
Secured Party hereunder by Company, together with all right, title, security
and guaranties with respect to each Receivable, including any right of
stoppage in transit.
I. SECURITY
SECTION 1.01. Grant of Security. As security for the Obligations, the Company
hereby transfers, assigns and grants the Secured Party a first priority
perfected lien on and first priority perfected security interest in all of
its personal property, including, without limitation, all of its Receivables,
Equipment, Inventory and General Intangibles and all proceeds thereof
together with all accessions and additions thereto, substitutions and
replacements therefor and products and proceeds thereof whether now owned or
existing or hereafter arising or acquired and wherever located (collectively,
the "Collateral").
SECTION 1.02. Deposit Accounts. The Company grants the Secured Party as
further security for all of the Obligations a first priority perfected
security interest in all of the Company's moneys, securities and other
property in the possession of or deposited with or in the custody of the
Secured Party or any representative, agent or correspondent of the Secured
Party whether for safekeeping, pledge, custody, transmission, collection or
otherwise and all of the Company's deposits (general or special), balances,
sums and credits with the Secured Party at any time existing.
SECTION 1.03. Release and Satisfaction. Upon the termination of this
Agreement and the indefeasible payment in full of the Obligations, the
Secured Party shall deliver to the Company upon request therefor and at the
Company's expense, releases and satisfactions of all financing statements,
notices of assignment and other registrations of security.
SECTION 1.04. Records; Location of Collateral. So long as the Company shall
have any Obligation to the Secured Party, (a) the Company shall not move its
chief executive office, principal place of business or office at which is
kept its books and records (including computer printouts and programs) from
the locations existing on the date hereof and listed on Schedule B annexed
hereto; (b) the Company shall not establish any offices or other places of
business at any other location; (c) the Company shall not move any of the
Collateral to any location other than those locations existing on the date
hereof and listed on Schedule B annexed hereto, unless, in each case of
clauses (a), (b) and (c) above, (i) the Company shall have given the Secured
Party thirty (30) day's prior written notice of its intention to do so,
identifying the new location and provides such other information as the
Secured Party deems necessary, and (ii) the Company shall have delivered to
the Secured Party financing statements and such other documentation in form and
substance satisfactory to the Secured Party and required by the Secured Party to
preserve the Secured Party's security interest in the Collateral.
II. REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties With Respect to Security. The
Company hereby represents and warrants to the Secured Party as follows:
(a) Ownership of Collateral. The Company owns all of its personal property and
assets including, without limitation, the Equipment and the Inventory, free
and clear of any lien, encumbrance, mortgage, security agreement, pledge or
charge other than the liens, mortgages, encumbrances, security interests, and
charges permitted under Section 7.01 of the Credit Agreement.
(b) Trademarks, Patents and Copyrights. Annexed hereto as Schedule A is a
complete list of all patents, trademarks, trade names, copyrights,
applications therefor, and other similar General Intangibles which the
Company owns or has the right to use as of the date of this Agreement. The
Company is not aware of any assertions or claims challenging the validity of
any of the foregoing. The business of the Company as now conducted does not
conflict with any patents, patent rights, licenses, trademarks, trademark
rights, trade names, trade name rights or copyrights of others. There is no
infringement of any General Intangible of the Company.
(c) Receivables. Annexed hereto as Schedule B is a list showing the chief
place of business and chief executive offices of the Company and all places
at which Company maintains records relating to its Receivables as of the date
of this Agreement.
(d) Inventory. Annexed hereto as Schedule B is a list showing all places
where the Company maintains its Inventory as of the date of this Agreement.
None of the Company's Inventory is currently maintained or will be maintained
with any bailee that issues negotiable warehouse receipts or other
negotiable instruments therefore.
(e) Equipment. Annexed hereto as Schedule B is a list describing all the
places where the Equipment of the Company is located.
(f) Trade Names. The Company has not done during the five years prior to
this Agreement, and does not currently do, business under fictitious business
names or trade names. The Company has not been known under any other name
during such five year period. The Company will only change its name or do
business under any other fictitious business names or trade names during the
term of this Agreement after giving not less than thirty (30) Day's prior
written notice to the Secured Party.
(g) Enforceability of Security Interests. Upon the execution of this
Agreement by the Company and the filing of financing statements properly
describing the Collateral and identifying the Company as debtor and the
Secured Party as the secured party in the jurisdictions identified on Schedule
C annexed hereto, the security interests and liens granted to the Secured Party
under Section 1.01 hereof shall constitute valid, perfected and first
priority security interests and liens in and to the Collateral, other
than Collateral which may not be perfected by filing under the Uniform
Commercial Code and subject to the Liens expressly permitted pursuant to the
Credit Agreement, in each case enforceable against all third parties and
securing the payment of all Obligations purported to be secured thereby.
III. FURTHER RIGHTS OF SECURED PARTY
SECTION 3.01. Further Actions. The Company shall do all things, take all
further action and deliver all documents and instruments requested by the
Secured Party to protect or perfect any security interest, mortgage or lien
given hereunder or under any other Loan Document to which it is a party,
including, without limitation, financing statements under the Uniform
Commercial Code and all documents and instruments necessary under the Federal
Assignment of Claims Act and under any applicable foreign law. The Company
authorizes the Secured Party to execute, alone, any financing statement or
other documents or instruments that the Secured Party may require to perfect,
protect or establish any lien or security interest hereunder or under any
other Loan Document and further authorizes the Secured Party to sign the
Company's name on the same. The Company appoints the Secured Party or its
designee as the Company's attorney-in-fact to endorse the name of the Company on
any checks, notes, drafts or other forms of payment or security that may come
into the possession of the Secured Party or any Affiliate of the Secured
Party, to sign the Company's name on invoices or bills of lading, drafts
against customers, notices of assignment, verifications and schedules and,
generally, to do all things necessary to carry out this Agreement
and the other Loan Documents. The Secured Party may, at any time, notify the
Postal Service authorities to change the address of delivery of mail to an
address designated by the Secured Party. The powers granted herein, being
coupled with an interest, are irrevocable until all of the Obligations are
irrevocably paid in full and this Agreement is terminated. Neither the
Secured Party nor any attorney-in-fact shall be liable for any act or
omission, error in judgment or mistake of law provided the same is not the
result of gross negligence or willful misconduct.
SECTION 3.02. Insurance and Assessments. In the event the Company shall
fail to purchase or maintain insurance, or pay any tax, assessment,
government charge or levy, except as the same may be otherwise permitted
hereunder or under the Credit Agreement, or in the event that any lien,
encumbrance or secured interest prohibited hereby shall not be paid in full
or discharged, or in the event the Company shall fail to perform or comply
with any other covenant, promise or obligation to the Secured Party
hereunder, or under any other Loan Document, the Secured Party may, but shall
not be required to, perform, pay, satisfy, discharge or bond the same for the
account of the Company, and all money so paid by the Secured Party, including
reasonable attorney's fees, shall be deemed an Obligation of the Company.
SECTION 3.03. Notices. The Secured Party may at any time after the occurrence
and during the continuance of an Event of Default notify customers or account
debtors that the Receivables have been assigned to the Secured Party or of
its secured interest therein and to direct such account debtors or customers
to make payment of all amounts due or to become due to the Company directly to
the Secured Party and upon such notification and at the Company's expense to
enforce collection of any such Receivables, and to adjust, compromise or
settle for cash, credit or otherwise upon any terms the amount of
payment thereof.
SECTION 3.04. Inspection. The Secured Party may examine and inspect the
Inventory, Equipment or other Collateral and may examine, inspect and copy all
books and records with respect thereto or relevant to the Obligations during
the Company's normal business hours.
SECTION 3.05. Right of Entry. Upon the occurrence and during the
continuance of an Event of Default, the Secured Party may, to the extent not
prohibited by law, without charge, enter any of the Company's premises, and
until it completes the enforcement of its rights in the Inventory or the
Equipment or other Collateral subject to its security interest hereunder and
the sale or other disposition of any property subject thereto, take
possession of such premises without charge, rent or payment therefor (through
self help without judicial process and without having first given notice or
obtained an order of any court), or place custodians in control thereof,
remain on such premises and use the same for the purpose of completing any
work in progress, preparing any Collateral for disposition, and disposition of
or collecting any Collateral.
SECTION 3.06. Mortgagee/Landlord Waivers. The Company shall cause each
mortgagee of real property owned by the Company and each landlord of real
property leased by the Company to execute and deliver instruments
satisfactory in form and substance to the Secured Party by which such mortgagee
or landlord waives its rights, if any, in the Collateral and acknowledges the
right of the Secured Party to enter the premises to remove the Collateral.
SECTION 3.07. Indemnification. The Company agrees to indemnify the Secured
Party and hold it harmless from and against any and all injuries, claims,
damages, judgments, liabilities, costs and expenses (including, without
limitation, reasonable fees and disbursements of counsel), charges and
encumbrances which may be incurred by or asserted against the Secured Party
in connection with or arising out of any assertion, declaration or defense of
the Secured Party's rights or security interest under the provisions of this
Agreement or any other Loan Document, permitting it to collect, settle or
adjust Receivables or to deal with account debtors in any way or in
connection with the realization, repossession, safeguarding, insuring or
other protection of the Inventory, the Equipment or other Collateral or in
connection with the collecting, perfecting or protecting the Secured Party
liens and security interests hereunder or under any other Loan Document.
IV. REMEDIES OF SECURED PARTY
SECTION 4.01. Enforcement. Upon the occurrence of any Event of Default, the
Secured Party shall have, in addition to all of its other rights under this
Agreement and the other Loan Documents by operation of law or otherwise
(which rights shall be cumulative), all of the rights and remedies of a secured
party under the Uniform Commercial Code and shall have the right to enter upon
any premises where such Collateral is kept and retake possession thereof.
Upon the occurrence and during the continuance of an Event of Default, the
Secured Party may, without demand, advertising or notice all of which the
Company hereby waives (except as the same may be required by law), sell,
lease, dispose of, deliver and grant options to a third party to purchase,
lease or otherwise dispose of any and all Equipment, Inventory, Receivables,
General Intangibles or other security or Collateral held by it or for its
account at any time or times in one or more public or private sales or other
dispositions, for cash, on credit or otherwise, at such prices and upon
such terms as the Secured Party, in its sole discretion, deems advisable.
The Company agrees that if notice of sale shall be required by law such
requirement shall be met if such notice is mailed, postage prepaid, to the
Company at its address set forth above or such other address as it may have,
in writing, provided to the Secured Party, at least five (5) days before the
time of such sale or disposition. Notice of any public sale shall be
sufficient if it describes the security or Collateral to be sold in general
terms, stating the amounts thereof, the nature of the business in which such
Collateral was created and the location and nature of the properties
covered by the other security interests or mortgages and the prior liens
thereon. The Secured Party may postpone or adjourn any sale of any
Collateral from time to time by an announcement at the time and place
of the sale to be so postponed or adjourned without being required to give a
new notice of sale. The Secured Party may be the purchaser at any such sale
if it is public, free from any right of redemption, which the Company also
waives and payment may be made, in whole or in part, in respect of such purchase
price by the application of the Obligations by the Secured Party.
The Company with respect to its property constituting such Collateral, shall
be obligated for, and the proceeds of sale shall be applied first to, the costs
of retaking, assembling, finishing, collecting, refurbishing, storing, guarding,
insuring, preparing for sale, and selling the Collateral, including the fees
and disbursements of attorneys, auctioneers, appraisers and accountants
employed by the Secured Party. Proceeds shall then be applied to the payment in
whatever order the Secured Party may elect, of all of the Obligations. The
Secured Party shall return any surplus then remaining from proceeds, subject
to the rights of any holder of a lien on the Collateral of which the Secured
Party has actual notice. In the event that the proceeds of any sale or other
disposition of the Collateral are insufficient to cover the principal of, and
premium, if any, and interest on, the Obligations secured thereby plus costs
and expenses of the sale or other disposition, the Company shall remain
liable for any deficiency.
SECTION 4.02. Waiver. The Company waives any right, to the extent applicable
law permits, to receive prior notice of or a judicial or other hearing with
respect to any action or prejudgment remedy or proceeding by the Secured
Party to take possession, exercise control over, or dispose of any item of the
Collateral in any instance (regardless of where the same may be located) where
such action is permitted under the terms of this Agreement or by applicable
law or of the time, place or terms of sale in connection with the exercise of
the Secured Party's rights hereunder and also waives, to the extent permitted by
law, any bonds, security or sureties required by any statute, rule or otherwise
by law as an incident to any taking of possession by the Secured Party of
property subject to the Secured Party's lien. The Company also waives
any damages (direct, consequential or otherwise) occasioned by the
enforcement of the Secured Party's rights under this Agreement including the
taking of possession of any Collateral all to the extent that such waiver
is permitted by law and to the extent that such damages are not caused by the
Secured Party's gross negligence or willful misconduct. These waivers and
all other waivers provided for in this Agreement and any other Loan Documents
have been negotiated by the parties and the Company acknowledges that it has
been represented by counsel of its own choice and has consulted such counsel
with respect to its rights hereunder.
SECTION 4.03. Other Rights. The Company agrees that the Secured Party shall
not have any obligation to preserve rights to any Collateral against prior
parties or to proceed first against any Collateral or to marshall any
Collateral of any kind for the benefit of any other creditors of the Company
or any other Person. The Secured Party is hereby granted, to the extent that
the Company is permitted to grant a license or right of use, a license or
other right to use, without charge, labels, patents, copyrights, rights of
use, of any name, trade secrets, trade names, trademarks and advertising
matter, or any property of a similar nature of the Company as it pertains to
the Collateral, in completing production of, advertising for sale, and selling
any Collateral and the Company's rights under all licenses and any franchise,
sales or distribution agreements shall inure to the Secured Party's benefit.
SECTION 4.04. Expenses. The Company agrees that it shall pay all costs and
expenses incurred in amending, implementing, perfecting, collecting,
defending, declaring and enforcing the Secured Party's rights and security
interests in the Collateral hereunder or under the Credit Agreement or any
other Loan Document or other instrument or agreement delivered in connection
herewith or therewith, including, but not limited to, searches and filings at
all times, and the Secured Party's reasonable attorneys' fees (regardless
of whether any litigation is commenced, whether default is declared
hereunder, and regardless of tribunal or jurisdiction).
V. GENERAL PROVISIONS
SECTION 5.01. Termination. This Agreement shall remain in full force and
effect until all the Obligations shall have been indefeasibly fully paid and
satisfied and the Commitments shall have terminated and, until such time, the
Secured Party shall retain all security in and title to all existing and
future Equipment, Inventory, Receivables and General Intangibles and other
Collateral held by it hereunder.
SECTION 5.02. Remedies Cumulative. The Secured Party's rights and remedies
under this Agreement shall be cumulative and non-exclusive of any other
rights or remedies which it may have under the Credit Agreement, any other
Loan Document or any other agreement or instrument, by operation of law
or otherwise and may be exercised alternatively, successively or concurrently as
the Secured Party may deem expedient.
SECTION 5.03. Binding Effect. This Agreement is entered into for the
benefit of the parties hereto and their successors and assigns. It shall be
binding upon and shall inure to the benefit of the said parties, their
successors and assigns.
SECTION 5.04. Notices. Wherever this Agreement provides for notice to
either party (except as expressly provided to the contrary), it shall be
given in the manner specified and shall be addressed as set forth in the
Credit Agreement.
SECTION 5.05. Waiver. No delay or failure on the part of the Secured Party
in exercising any right, privilege, remedy or option hereunder shall operate
as a waiver of such or any other right, privilege, remedy or option, and no
waiver shall be valid unless in writing and signed by an officer of the
Secured Party and only to the extent therein set forth.
SECTION 5.06. Modifications and Amendments. This Agreement and the other
agreements to which it refers constitute the complete agreement between the
parties with respect to the subject matter hereof and may not be changed,
modified, waived, amended or terminated orally, but only by a writing signed
by the party to be charged.
SECTION 5.07. Survival of Representations and Warranties. The
representations and warranties of the Company made or deemed made herein
shall survive the execution and delivery of this Agreement.
SECTION 5.08. Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OR
CONFLICT OR CHOICE OF LAWS. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK, COUNTY OF
NASSAU IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED
TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
COMPANY HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS,
THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR
THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO
HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH
COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES
(i) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE
JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR
JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH
JUDGMENT AND (ii) NOT TO ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT,
ACTION OR PROCEEDING. THE COMPANY AGREES THAT SERVICE OF PROCESS MAY
BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR
NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE
LAWS OF NEW YORK. THE COMPANY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized, on the day and year
first above written.
ORBIT INTERNATIONAL CORP.
By:
Title:
THE CHASE MANHATTAN BANK
By:
Title: Vice President
Schedule A
List of Intellectual Property
Schedule B
List of Collateral Locations
Schedule C
List of Jurisdictions for Filing
EXHIBIT B-2
CORPORATE GUARANTOR
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of August 4, 1998 by and between
, a corporation, having its principal place of business at
(the "Guarantor") and THE CHASE MANHATTAN BANK, a New York banking corporation,
having an office at 395 North Service Road, Melville, New York 11747 (the
"Secured Party").
RECITALS
A. The Secured Party, and Orbit International Corp. (the "Company") have
entered into a Credit Agreement, dated as of August __, 1998 as the same may
be amended, modified or supplemented from time to time, the "Credit
Agreement"), pursuant to which the Company will receive loans and other
financial accommodations from the Secured Party and will incur Obligations.
B. Pursuant to the Corporate Guaranty dated the date of hereof, the Guarantor
has guaranteed the payment by the Company of all its Obligations (the
obligations of the Guarantor under such guaranty is hereinafter referred to
as the "Guaranty Obligations").
C. To induce the Secured Party to enter into the Credit Agreement and to extend
credit to the Company on and after the date hereof as provided in the Credit
Agreement, the Guarantor wishes to grant the Secured Party security and
assurance in order to secure the payment and performance of all its Guaranty
Obligations and to that effect to grant the Secured Party a first priority
perfected security interest in its assets and in connection therewith to execute
and deliver this Security Agreement.
Accordingly, the parties hereto hereby agree as follows:
DEFINITIONS
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
"Agreement": shall mean this Agreement and shall include all amendments,
modifications and supplements hereto and shall refer to this Agreement as the
same may be in effect at the time such reference becomes operative.
"Equipment": shall mean all machinery, equipment, office machinery, furniture,
fixtures, conveyors, tools, materials, storage and handling equipment,
computer equipment and hardware, including central processing units,
terminals, drives, memory units, printers, keyboards, screens, peripherals
and input or output devices, automotive equipment, trucks, molds, dies,
stamps, motor vehicles and other equipment of every kind and nature and
wherever situated now or hereafter owned by the Guarantor or in which the
Guarantor may have any interest together with all additions and accessions
thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, know-how, warranties and records in connection
therewith, all rights against suppliers, warrantors, manufacturers, sellers
or others in connection therewith, and together with all substitutions for
any of the foregoing.
"General Intangibles": shall mean all "General Intangibles," as such term is
defined in Section 9-106 of the Uniform Commercial Code of the State of New
York, now or hereafter owned by Guarantor, including, without limitation,
present and future trade secrets and other proprietary information; trademarks,
trade names and trademark applications, service marks, business names, logos
and the goodwill of the business relating thereto; copyrights and copyright
applications and all tangible property embodying the copyrights; unpatented
inventions (whether or not patentable); designs; patent applications and
patents; customer contracts, license agreements related to any of the
foregoing and the income therefrom; books, records, computer tapes or disks,
flow diagrams, specification sheets, source codes, object codes, and other
physical manifestations of the foregoing.
"Inventory": shall mean all goods now or hereafter owned by the Guarantor or
in which the Guarantor now or hereafter has an interest intended for sale,
lease or other disposition by, or consumption in the business of, the
Guarantor of every kind and nature and wherever located, including, without
limitation, all raw materials, work in process, finished goods, goods
consigned to the Guarantor to the extent of its interest therein as
consignee, goods in transit, materials and supplies of any kind, nature or
description which are or might be used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of any such goods; and
all documents of title or documents representing the same and all records,
files and writings with respect thereto.
"Receivables": shall mean and include, with respect to the Guarantor, all
right, title and interest of the Guarantor in all present and future accounts
receivable, contract rights (including, without limitation, all rights to
reimbursement by insurers with respect to legal fees, costs and expenses
under insurance policies maintained by the Guarantor, promissory notes,
chattel paper, all tax refunds and rights to receive tax refunds, bonds,
rights of indemnification, contribution and subrogation, leases, computer
tapes, programs and software, computer service contracts, deposits, causes of
action, choses in action, judgments, and claims against third parties of
every kind or nature, investment securities, notes, drafts, acceptances,
letters of credit and rights to receive proceeds of letters of credit,
instruments and deposit accounts, book accounts, credits and reserves and all
forms of obligations whatsoever owing, together with all instruments, all
documents of title representing any of the foregoing, and all rights in any
merchandise or goods which any of the same may represent, all books, ledgers,
files and records with respect to any Collateral or security given to the
Secured Party hereunder by Guarantor, together with all right, title,
security and guaranties with respect to each Receivable, including any right
of stoppage in transit.
I. SECURITY
SECTION 1.01. Grant of Security. As security for the Guaranty Obligations,
the Guarantor hereby transfers, assigns and grants the Secured Party a first
priority perfected lien on and first priority perfected security interest in
all of its personal property, including, without limitation, all of its
Receivables, Equipment, Inventory and General Intangibles and all proceeds
thereof together with all accessions and additions thereto, substitutions
and replacements therefor and products and proceeds thereof whether now
owned or existing or hereafter arising or acquired and wherever located
(collectively, the "Collateral").
SECTION 1.02. Deposit Accounts. The Guarantor grants the Secured Party as
further security for all of the Guaranty Obligations a first priority
perfected security interest in all of the Guarantor's moneys, securities and
other property in the possession of or deposited with or in the custody of the
Secured Party or any representative, agent or correspondent of the Secured
Party whether for safekeeping, pledge, custody, transmission, collection or
otherwise and all of the Guarantor's deposits (general or special),
balances, sums and credits with the Secured Party at any time existing.
SECTION 1.03. Release and Satisfaction. Upon the termination of this
Agreement and the indefeasible payment in full of the Guaranty Obligations,
the Secured Party shall deliver to the Guarantor upon request therefor and at
the Guarantor's expense, releases and satisfactions of all financing
statements, notices of assignment and other registrations of security.
SECTION 1.04. Records; Location of Collateral. So long as the Guarantor shall
have any Guaranty Obligation to the Secured Party, (a) the Guarantor shall not
move its chief executive office, principal place of business or office at which
is kept its books and records (including computer printouts and programs)
from the locations existing on the date hereof and listed on Schedule B
annexed hereto; (b) the Guarantor shall not establish any offices or other
places of business at any other location; (c) the Guarantor shall not move
any of the Collateral to any location other than those locations existing on the
date hereof and listed on Schedule B annexed hereto, unless, in each case of
clauses (a), (b) and (c) above, (i) the Guarantor shall have given the
Secured Party thirty (30) day's prior written notice of its intention to do so,
identifying the new location and provides such other information as the
Secured Party deems necessary, and
(ii) the Guarantor shall have delivered to the Secured Party financing
statements and such other documentation in form and substance satisfactory to
the Secured Party and required by the Secured Party to preserve the Secured
Party's security interest in the Collateral. The Guarantor will not permit
Collateral having an aggregate valve (based on the greater of book value or
fair market value) in excess of $5,000 to be located at its sales office at
4532 Telephone Road, Suite 103, Venture, California.
II. REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Representations and Warranties With Respect to Security. The
Guarantor hereby represents and warrants to the Secured Party as follows:
(a) Ownership of Collateral. The Guarantor owns all of its personal property
and assets including, without limitation, the Equipment and the Inventory,
free and clear of any lien, encumbrance, mortgage, security agreement, pledge
or charge other than the liens, mortgages, encumbrances, security interests,
and charges permitted under Section 7.01 of the Credit Agreement.
(b) Trademarks, Patents and Copyrights. Annexed hereto as Schedule A is a
complete list of all patents, trademarks, trade names, copyrights,
applications therefor, and other similar General Intangibles
which the Guarantor owns or has the right to use as of the date of this
Agreement. The Guarantor is not aware of any assertions or claims
challenging the validity of any of the foregoing. The business of the
Guarantor as now conducted does not conflict with any patents, patent rights,
licenses, trademarks, trademark rights, trade names, trade name rights or
copyrights of others. There is no infringement of any General Intangible of
the Guarantor.
(c) Receivables. Annexed hereto as Schedule B is a list showing the chief
place of business and chief executive offices of the Guarantor and all places
at which Guarantor maintains records relating to its Receivables as of the
date of this Agreement.
(d) Inventory. Annexed hereto as Schedule B is a list showing all places
where the Guarantor maintains its Inventory as of the date of this Agreement.
None of the Guarantor's Inventory is currently maintained or will be
maintained with any bailee that issues negotiable warehouse receipts or other
negotiable instruments therefore.
(e) Equipment. Annexed hereto as Schedule B is a list describing all the
places where the Equipment of the Guarantor is located.
(f) Trade Names. The Guarantor has not done during the five years prior to
this Agreement, and does not currently do, business under fictitious business
names or trade names. The Guarantor has not been known under any other name
during such five year period. The Guarantor will only change its name
or do business under any fictitious business names or trade names during the
term of this Agreement after giving not less than thirty (30) Business Day's
prior written notice thereof to the Secured Party.
(g) Enforceability of Security Interests. Upon the execution of this
Agreement by the Guarantor and the filing of financing statements properly
describing the Collateral and identifying the Guarantor as debtor and the
Secured Party as the secured party in the jurisdictions identified on Schedule
C annexed hereto, the security interests and liens granted to the Secured
Party under Section 1.01 hereof shall constitute valid, perfected and first
priority security interests and liens in and to the Collateral, other
than Collateral which may not be perfected by filing under the Uniform
Commercial Code and subject to the Liens expressly permitted pursuant to the
Credit Agreement, in each case enforceable against all third parties and
securing the payment of all Guaranty Obligations purported to be secured
thereby.
III. FURTHER RIGHTS OF SECURED PARTY
SECTION 3.01. Further Actions. The Guarantor shall do all things, take all
further action and deliver all documents and instruments requested by the
Secured Party to protect or perfect any security interest, mortgage or lien
given hereunder or under any other Loan Document to which it is a party,
including, without limitation, financing statements under the Uniform
Commercial Code and all documents and instruments necessary under the Federal
Assignment of Claims Act and under any applicable foreign law. The Guarantor
authorizes the Secured Party to execute, alone, any financing statement or
other documents or instruments that the Secured Party may require to perfect,
protect or establish any lien or security interest hereunder or under any
other Loan Document and further authorizes the Secured Party to sign the
Guarantor's name on the same. The Guarantor appoints the Secured Party or its
designee as the Guarantor's attorney-in-fact to endorse the name of the
Guarantor on any checks, notes, drafts or other forms of payment or security
that may come into the possession of the Secured Party or any Affiliate of the
Secured Party, to sign the Guarantor's name on invoices or bills of lading,
drafts against customers, notices of assignment, verifications and schedules
and, generally, to do all things necessary to carry out this Agreement and
the other Loan Documents. The Secured Party may, at any time, notify the
Postal Service authorities to change the address of delivery of mail to an
address designated by the Secured Party. The powers granted herein, being
coupled with an interest, are irrevocable until all of the Obligations under
this Agreement are irrevocably paid in full and this Agreement is terminated.
Neither the Secured Party nor any attorney-in-fact shall be liable for any
act or omission, error in judgment or mistake of law provided the same
is not the result of gross negligence or willful misconduct.
SECTION 3.02. Insurance and Assessments. In the event the Guarantor shall
fail to purchase or maintain insurance, or pay any tax, assessment,
government charge or levy, except as the same may be otherwise permitted
hereunder or under the Credit Agreement, or in the event that any lien,
encumbrance or secured interest prohibited hereby shall not be paid in full
or discharged, or in the event the Guarantor shall fail to perform or comply
with any other covenant, promise or obligation to the Secured Party
hereunder, or under any other Loan Document, the Secured Party may, but shall
not be required to, perform, pay, satisfy, discharge or bond the same for the
account of the Guarantor, and all money so paid by the Secured Party,
including reasonable attorney's fees, shall be deemed a Guaranty Obligation
of the Guarantor.
SECTION 3.03. Notices. The Secured Party may at any time after the
occurrence and during the continuance of an Event of Default notify customers
or account debtors that the Receivables have been assigned to the Secured
Party or of its secured interest therein and to direct such account debtors or
customers to make payment of all amounts due or to become due to the Guarantor
directly to the Secured Party and upon such notification and at the
Guarantor's expense to enforce collection of any such Receivables, and to
adjust, compromise or settle for cash, credit or otherwise upon any terms the
amount of payment thereof.
SECTION 3.04. Inspection. The Secured Party may examine and inspect the
Inventory, Equipment or other Collateral and may examine, inspect and copy all
books and records with respect thereto or relevant to the Guaranty
Obligations during the Guarantor's normal business hours.
SECTION 3.05. Right of Entry. Upon the occurrence and during the
continuance of an Event of Default, the Secured Party may, to the extent not
prohibited by law, without charge, enter any of the Guarantor's premises, and
until it completes the enforcement of its rights in the Inventory or the
Equipment or other Collateral subject to its security interest hereunder and
the sale or other disposition of any property subject thereto, take
possession of such premises without charge, rent or payment therefor (through
self help without judicial process and without having first given notice or
obtained an order of any court), or place custodians in control thereof,
remain on such premises and use the same for the purpose of completing any
work in progress, preparing any Collateral for disposition, and disposition
of or collecting any Collateral.
SECTION 3.06. Mortgagee/Landlord Waivers. The Guarantor shall cause each
mortgagee of real property owned by the Guarantor and each landlord of real
property leased by the Guarantor to execute and deliver instruments
satisfactory in form and substance to the Secured Party by which such
mortgagee or landlord waives its rights, if any, in the Collateral and
acknowledges the right of the Secured Party to enter the premises to remove
the Collateral.
SECTION 3.07. Indemnification. The Guarantor agrees to indemnify the
Secured Party and hold it harmless from and against any and all injuries,
claims, damages, judgments, liabilities, costs and expenses (including,
without limitation, reasonable fees and disbursements of counsel), charges
and encumbrances which may be incurred by or asserted against the Secured
Party in connection with or arising out of any assertion, declaration or
defense of the Secured Party's rights or security interest under the
provisions of this Agreement or any other Loan Document, permitting it to
collect, settle or adjust Receivables or to deal with account debtors in any
way or in connection with the realization, repossession, safeguarding,
insuring or other protection of the Inventory, the Equipment or other
Collateral or in connection with the collecting, perfecting or protecting the
Secured Party liens and security interests hereunder or under any other Loan
Document.
IV. REMEDIES OF SECURED PARTY
SECTION 4.01. Enforcement. Upon the occurrence of any Event of Default, the
Secured Party shall have, in addition to all of its other rights under this
Agreement and the other Loan Documents by operation of law or otherwise
(which rights shall be cumulative), all of the rights and remedies of a secured
party under the Uniform Commercial Code and shall have the right to enter upon
any premises where such Collateral is kept and retake possession thereof.
Upon the occurrence and during the continuance of an Event of Default, the
Secured Party may, without demand, advertising or notice all of which the
Guarantor hereby waives (except as the same may be required by law), sell,
lease, dispose of, deliver and grant options to a third party to purchase,
lease or otherwise dispose of any and all Equipment, Inventory, Receivables,
General Intangibles or other security or Collateral held by it or for its
account at any time or times in one or more public or private sales or other
dispositions, for cash, on credit or otherwise, at such prices and upon
such terms as the Secured Party, in its sole discretion, deems advisable. The
Guarantor agrees that if notice of sale shall be required by law such
requirement shall be met if such notice is mailed, postage prepaid, to the
Guarantor at its address set forth above or such other address as it may
have, in writing, provided to the Secured Party, at least five (5) days
before the time of such sale or disposition. Notice of any public sale shall
be sufficient if it describes the security or Collateral to be sold in general
terms, stating the amounts thereof, the nature of the business in which such
Collateral was created and the location and nature of the properties
covered by the other security interests or mortgages and the prior liens
thereon. The Secured Party may postpone or adjourn any sale of any
Collateral from time to time by an announcement at the time and place
of the sale to be so postponed or adjourned without being required to give a
new notice of sale. The Secured Party may be the purchaser at any such sale
if it is public, free from any right of redemption, which the Guarantor also
waives and payment may be made, in whole or in part, in respect of such
purchase price by the application of the Guaranty Obligations to the Secured
Party. The Guarantor with respect to its property constituting such
Collateral, shall be obligated for, and the proceeds of sale shall be applied
first to, the costs of retaking, assembling, finishing, collecting,
refurbishing, storing, guarding, insuring, preparing for sale, and selling the
Collateral, including the fees and disbursements of attorneys, auctioneers,
appraisers and accountants employed by the Secured Party. Proceeds shall
then be applied to the payment in whatever order the Secured Party may elect,
of all of the Guaranty Obligations. The Secured Party shall return any
surplus then remaining from such proceeds, subject to the rights of any holder
of a lien on the Collateral of which the Secured Party has actual notice. In
the event that the proceeds of any sale or other disposition of the
Collateral are insufficient to cover the principal of, and premium, if any,
and interest on, the Guaranty Obligations secured thereby plus costs and
expenses of the sale or other disposition, the Guarantor shall remain liable
for any deficiency.
SECTION 4.02. Waiver. The Guarantor waives any right, to the extent
applicable law permits, to receive prior notice of or a judicial or other
hearing with respect to any action or prejudgment remedy or proceeding by the
Secured Party to take possession, exercise control over, or dispose of any
item of the Collateral in any instance (regardless of where the same may be
located) where such action is permitted under the terms of this Agreement or
by applicable law or of the time, place or terms of sale in connection
with the exercise of the Secured Party's rights hereunder and also waives, to
the extent permitted by law, any bonds, security or sureties required by any
statute, rule or otherwise by law as an incident to any taking of possession
by the Secured Party of property subject to the Secured Party's lien. The
Guarantor also waives any damages (direct, consequential or otherwise)
occasioned by the enforcement of the Secured Party's rights under this
Agreement including the taking of possession of any Collateral all to the
extent that such waiver is permitted by law and to the extent that such
damages are not caused by the Secured Party's gross negligence or willful
misconduct. These waivers and all other waivers provided for in this
Agreement and any other Loan Documents have been negotiated by the parties
and the Guarantor acknowledges that it has been represented by counsel of its
own choice and has consulted such counsel with respect to its rights
hereunder.
SECTION 4.03. Other Rights. The Guarantor agrees that the Secured Party
shall not have any obligation to preserve rights to any Collateral against
prior parties or to proceed first against any Collateral or to marshall any
Collateral of any kind for the benefit of any other creditors of the
Guarantor or any other Person. The Secured Party is hereby granted, to the
extent that the Guarantor is permitted to grant a license or right of use, a
license or other right to use, without charge, labels, patents, copyrights,
rights of use, of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature of the Guarantor as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and the Guarantor's rights under all
licenses and any franchise, sales or distribution agreements shall inure to
the Secured Party's benefit.
SECTION 4.04. Expenses. The Guarantor agrees that it shall pay all costs and
expenses incurred in amending, implementing, perfecting, collecting, defending,
declaring and enforcing the Secured Party's rights and security interests in the
Collateral hereunder or under the Credit Agreement or any other Loan Document
or other instrument or agreement delivered in connection herewith or
therewith, including, but not limited to, searches and filings at all times,
and the Secured Party's reasonable attorneys' fees (regardless of whether any
litigation is commenced, whether default is declared hereunder, and
regardless of tribunal or jurisdiction).
V. GENERAL PROVISIONS
SECTION 5.01. Termination. This Agreement shall remain in full force and
effect until all the Guaranty Obligations shall have been indefeasibly fully
paid and satisfied and the Commitments shall have terminated and, until such
time, the Secured Party shall retain all security in and title to all
existing and future Equipment, Inventory, Receivables and General
Intangibles and other Collateral held by it hereunder.
SECTION 5.02. Remedies Cumulative. The Secured Party's rights and remedies
under this Agreement shall be cumulative and non-exclusive of any other rights
or remedies which it may have under the Credit Agreement, any other Loan
Document or any other agreement or instrument, by operation of law
or otherwise and may be exercised alternatively, successively or concurrently as
the Secured Party may deem expedient.
SECTION 5.03. Binding Effect. This Agreement is entered into for the benefit
of the parties hereto and their successors and assigns. It shall be binding
upon and shall inure to the benefit of the said parties, their successors and
assigns.
SECTION 5.04. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing, and unless
otherwise expressly provided herein, shall be conclusively deemed to have
been received by a party hereto and to be effective on the day on which
delivered to such party at the address set forth below, or, in the case of
telecopy notice, when acknowledged as received, or if sent by registered or
certified mail, on the third Business Day after the day on which mailed in the
United States, addressed to such party at said address:
(a) if to the Secured Party, at
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Account Officer -
Orbit International Corp.
Telecopy: (516) 755-0139
(b) if to the Guarantor, at
[________________________
_________________________
_________________________]
Telecopy:
- and -
(c) as to each such party at such other address as such party shall have
designated to the other in a written notice complying as to delivery with the
provisions of this Section 5.04.
SECTION 5.05. Waiver. No delay or failure on the part of the Secured Party
in exercising any right, privilege, remedy or option hereunder shall operate
as a waiver of such or any other right, privilege, remedy or option, and no
waiver shall be valid unless in writing and signed by an officer of the
Secured Party and only to the extent therein set forth.
SECTION 5.06. Modifications and Amendments. This Agreement and the other
agreements to which it refers constitute the complete agreement between the
parties with respect to the subject matter hereof and may not be changed,
modified, waived, amended or terminated orally, but only by a writing signed
by the party to be charged.
SECTION 5.07. Survival of Representations and Warranties. The
representations and warranties of the Guarantor made or deemed made herein
shall survive the execution and delivery of this Agreement.
SECTION 5.08. Applicable Law; Consent to Jurisdiction; Waiver of Jury Trial.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OR
CONFLICT OR CHOICE OF LAWS. THE GUARANTOR HEREBY IRREVOCABLY SUBMITS
TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK, COUNTY OF
NASSAU IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED
TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE
GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS
A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS,
THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR
THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO
HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH
COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTOR
AGREES (i) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE
JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR
JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH
JUDGMENT AND (ii) NOT TO ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT,
ACTION OR PROCEEDING. THE GUARANTOR AGREES THAT SERVICE OF PROCESS
MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR
NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE
LAWS OF NEW YORK. THE GUARANTOR IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized, on the day and year
first above written.
[GUARANTOR]
By:_____________________
Title:
THE CHASE MANHATTAN BANK
By:_____________________
Title: Vice President
Schedule A
List of Intellectual Property
Schedule B
List of Collateral Locations
Schedule C
List of Jurisdictions for Filing
EXHIBIT C
NOTICE OF BORROWING
August __, 1998
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Account Officer,
Orbit International Corp.
Re: Orbit International Corp.
Ladies and Gentlemen:
Pursuant to the Credit Agreement dated as of August __, 1998 (as the same may
have been and may hereafter be amended, modified or supplement the "Credit
Agreement") by and between Orbit International Corp. and The Chase Manhattan
Bank, we hereby give you irrevocable notice that we request a [Term]
[Settlement] Loan as follows:
1. Amount of [Term] [Settlement] Loan: $
2. Borrowing Date: [Date]
We hereby certify that (i) the representations and warranties contained in the
Credit Agreement and the other Loan Documents are true, correct and complete
on and as of the date hereof; (ii) no Event of
Default or default which upon notice, lapse of time or both would constitute
an Event of Default has occurred and is continuing under the Credit Agreement
or will result after giving effect to the Loan requested hereunder; and
(iii) the Company has performed all agreements and satisfied all conditions
under the Credit Agreement required to be performed by it on or before the
Borrowing Date.
Capitalized terms used herein but not defined shall have the respective
meanings given to them in the Credit Agreement.
IN WITNESS WHEREOF, the Company has caused this document to be executed and
delivered by its Executive Officer as of the date written above.
ORBIT INTERNATIONAL CORP.
By: ________________________
Title:
EXHIBIT D
[FORM OF SECOND MORTGAGE]
EXHIBIT E
CORPORATE GUARANTY
THIS GUARANTY is entered into as of August 4, 1998, by EACH OF THE UNDERSIGNED
(each a "Guarantor" and, collectively, the "Guarantors") in favor of and for the
benefit of THE CHASE MANHATTAN BANK, a New York banking corporation (the
"Bank").
RECITALS
A. Pursuant to a Credit Agreement dated August 4, 1998, by and between Orbit
International Corp. (the "Company"), and the Bank (as the same may be
amended, modified or supplemented from time to time, the "Credit Agreement"),
the Company will receive Loans and other financial accommodations from
the Bank and will incur Obligations.
B. The Guarantors, being members of a group of entities affiliated with the
Company and being engaged in related businesses will receive direct and
indirect benefits from such loans and financial accommodations.
C. Each Guarantor wishes to grant the Bank security and assurance in order to
secure the payment and performance by the Company of all of its present and
future Obligations, and, to that effect, to guaranty the Company's
Obligations as set forth herein.
Accordingly, each Guarantor hereby agrees as follows:
1. Guaranty.
(a) Each Guarantor, jointly and severally, unconditionally and irrevocably
guarantees to the Bank the full and punctual payment by the Company, when
due, whether at the stated due date, by acceleration or otherwise, of all
Obligations of the Company, howsoever created, arising or evidenced,
voluntary or involuntary, whether direct or indirect, absolute or contingent
now or hereafter existing or owing to the Bank, (collectively, the
"Guaranteed Obligations"). This Guaranty is an absolute, unconditional,
continuing guaranty of payment and not of collection of the Guaranteed
Obligations and includes Guaranteed Obligations arising from successive
transactions which shall either continue such Guaranteed Obligations or from
time to time renew such Guaranteed Obligations after the same has been
satisfied. This Guaranty is in no way conditioned upon any attempt to
collect from the Company or upon any other event or contingency, and shall be
binding upon and enforceable against each Guarantor without regard to the
validity or enforceability of the Credit Agreement, the Notes or any other
Loan Document or of any term of any thereof. If for any reason the Company
shall fail or be unable duly and punctually to pay any of the Guaranteed
Obligations (including, without limitation amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the
Bankruptcy Code, 11 U.S.C. ' 362(a)), each Guarantor will forthwith pay the
same, in cash, immediately upon demand.
(b) In the event the Credit Agreement, any Note or any other Loan Document
shall be terminated as a result of the rejection thereof by any trustee,
receiver or liquidating agent of the Company or any of its properties in any
bankruptcy, insolvency, reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar proceeding, each Guarantor's obligations
hereunder shall continue to the same extent as if such Credit Agreement,
Notes or such other Loan Document had not been so rejected.
(c) Each Guarantor shall pay all costs, expenses (including, without
limitation, reasonable attorneys' fees and disbursements) and damages
incurred in connection with the enforcement of the Guaranteed Obligations of
the Company under the Credit Agreement or the Note or any other Loan Document to
the extent that such costs, expenses and damages are not paid by the Company
pursuant to the respective documents, and such costs, fees and disbursements
incurred in connection with the enforcement of the obligations of each
Guarantor under this Guaranty.
(d) Each Guarantor further agrees that if any payment made by the Company or
any Guarantor to the Bank on any Obligation is rescinded, recovered from or
repaid by the Bank, in whole or in part, in any bankruptcy, insolvency or
similar proceeding instituted by or against the Company or any Guarantor,
this Guaranty shall continue to be fully applicable to such Guaranteed
Obligation to the same extent as though the payment so recovered or repaid
had never originally been made on such Guaranteed Obligation.
(e) If any Event of Default shall have occurred and be continuing, the Bank,
Chase Securities, Inc. and any other Affiliate of the Bank is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Bank, Chase Securities, Inc. or any Affiliate of the Bank
to or for the credit or the account of any Guarantor against any of and all
the obligations of any Guarantor now or hereafter existing under this
Guaranty, irrespective of whether or not the Bank shall have made any demand
hereunder and although such obligations may be unmatured. The rights under
this paragraph 1(e) are in addition to other rights and remedies (including
other rights of set off) which the Bank may have.
2. Guaranty Continuing, Absolute, Unlimited.
The obligations of each Guarantor hereunder shall be continuing, absolute,
unlimited and unconditional, shall not be subject to any counterclaim,
set-off, deduction or defense based upon any claim any Guarantor may have
against the Bank or the Company or any other person, and shall remain in full
force and effect without regard to, and, to the fullest extent permitted by
applicable law, shall not be released, discharged or in any way affected by,
any circumstance or condition (whether or not any Guarantor shall have any
knowledge or notice thereof) whatsoever which might constitute a legal or
equitable discharge or defense including, but not limited to, (a) any express or
implied amendment, modification or supplement to the Credit Agreement, any
Note, or any other Loan Document or any other agreement referred to in any
thereof, or any other instrument applicable to the Company or to the Loans,
or any part thereof; (b) any failure on the part of the Company to perform or
comply with the Credit Agreement, any Note or any other Loan Document or any
failure of any other person to perform or comply with any term of the Credit
Agreement, any Note, or any other Loan Document or any other agreement as
aforesaid; (c) any waiver, consent, change, extension, indulgence or other
action or any action or inaction under or in respect of the Credit Agreement,
any Note, or any other Loan Document or any other agreement as aforesaid,
whether or not the Bank, the Company or any Guarantor has notice or knowledge of
any of the foregoing; (d) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceeding
with respect to the Company, or its properties or its creditors, or any
action taken by any trustee or receiver or by any court in any such
proceeding; (e) any furnishing or acceptance of additional security or any
release of any security; (f) any limitation on the liability or obligations
of the Company under the Credit Agreement, any Note or any other Loan
Document or any termination, cancellation, frustration, invalidity or
unenforceability, in whole or in part, of the Credit Agreement, any Note,
this Guaranty or any other Loan Document or any term of any thereof; (g) any
lien, charge or encumbrance on or affecting any Guarantor's or any of the
Company's respective assets and properties; (h) any act, omission or breach
on the part of the Bank under the Credit Agreement, any Note or any other
Loan Document or any other agreement at any time existing between the Bank
and the Company or any law, governmental regulation or other agreement
applicable to the Bank or any Loan; (i) any claim as a result of any other
dealings among the Bank, any Guarantor or the Company; (j) the assignment of
this Guaranty, the Credit Agreement, any Note or any other Loan Document by
the Bank to any other Person; or (k) any change in the name of the
Bank, the Company or any other Person referred to herein.
3. Waiver.
Each Guarantor unconditionally waives, to the fullest extent permitted by
applicable law: (a) notice of any of the matters referred to in Section 2
hereof; (b) all notices which may be required by statute, rule of law or
otherwise to preserve any rights against any Guarantor hereunder, including,
without limitation, notice of the acceptance of this Guaranty, or the
creation, renewal, extension, modification or accrual of the Guaranteed
Obligations or notice of any other matters relating thereto, any presentment,
demand, notice of dishonor, protest, nonpayment of any damages or other
amounts payable under the Credit Agreement, any Note or any other Loan
Documents; (c) any requirement for the enforcement, assertion or exercise of
any right, remedy, power or privilege under or in respect of the Credit
Agreement, any Note or any other Loan Documents, including, without
limitation, diligence in collection or protection of or realization upon
the Guaranteed Obligations or any part thereof or any collateral thereof;
(d) any requirement of diligence; (e) any requirement to mitigate the damages
resulting from a default by the Company under the Credit Agreement, any Note
or any other Loan Documents; (f) the occurrence of every other condition
precedent to which any Guarantor or the Company may otherwise be entitled;
(g) the right to require the Bank to proceed against the Company or any other
person liable on the Guaranteed Obligations, to proceed against or exhaust
any security held by the Company or any other person, or to pursue any other
remedy in the Bank power whatsoever, and (h) the right to have the property
of the Company first applied to the discharge of the Guaranteed Obligations.
The Bank may, at its election, exercise any right or remedy it may have
against the Company without affecting or impairing in any way the liability
of any Guarantor hereunder and each Guarantor waives, to the fullest extent
permitted by applicable law, any defense arising out of the absence,
impairment or loss of any right of reimbursement, contribution or subrogation
or any other right or remedy of any Guarantor against the Company, whether
resulting from such election by the Bank or otherwise. Each Guarantor
waives any defense arising by reason of any disability or other defense of
the Company or by reason of the cessation for any cause whatsoever of the
liability, either in whole or in part, of the Company to the Bank
for the Guaranteed Obligations.
Each Guarantor assumes the responsibility for being and keeping informed of
the financial condition of the Company and of all other circumstances bearing
upon the risk of nonpayment of the Guaranteed Obligations and agrees that the
Bank shall not have any duty to advise any Guarantor of information regarding
any condition or circumstance or any change in such condition or
circumstance. Each Guarantor acknowledges that the Bank has not made any
representations to any Guarantor concerning the financial condition of the
Company.
4. Representations and Covenants of each Guarantor.
(a) The representations and warranties contained in Article IV of the Credit
Agreement, to the extent they relate to a Guarantor, are true and correct as
of the date hereof and the Bank is entitled to rely on such representations
and warranties to the same extent as though the same were set forth in full
herein.
(b) Each Guarantor hereby agrees to perform the covenants contained in Article
VI and Article VII of the Credit Agreement, to the extent they relate to the
Guarantor, and the Bank is entitled to rely on such agreement to perform such
covenants to the same extent as though the same were set forth in full herein.
5. Payments.
Each payment by each Guarantor to the Bank under this Guaranty shall be made
in the time, place and manner provided for payments in the Credit Agreement
without set-off or counterclaim to the account at which such payment is
required to be paid by the Company under the Credit Agreement.
6. Parties.
This Guaranty shall inure to the benefit of the Bank and its successors,
assigns or transferees, and shall be binding upon the Guarantors and their
respective successors and assigns. No Guarantor may delegate any of its
duties under this Guaranty without the prior written consent of the Bank.
7. Notices.
All notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing, and unless otherwise expressly provided
herein, shall be conclusively deemed to have been received by a party hereto
and to be effective on the day on which delivered to such party at the
address set forth below, or, in the case of telecopy notice, when
acknowledged as received, or if sent by registered or certified mail, on the
third Business Day after the day on which mailed in the United States,
addressed to such party at said address:
(a) if to the Bank, at
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Account Officer
Orbit International Inc.
Telecopy: (516) 755-0139
(b) if to the Guarantor, at
c/o Orbit International Corp.
80 Cabot Court
Hauppauge, New York 11788
Attention: Mr. Mitchell Binder
Telecopy: (516) 435-0065
with a copy to:
Squadron, Ellenoff, Plesent &
Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Barbara A. Wood, Esq.
Telecopy: (212) 697-6686
- and -
(c) as to each such party at such other address as such party shall have
designated to the other in a written notice complying as to delivery with the
provisions of this Section 7.
8. Remedies.
Each Guarantor stipulates that the remedies at law in respect of any default or
threatened default by a Guarantor in the performance of or compliance with
any of the terms of this Guaranty are not and will not be adequate, and that
any of such terms may be specifically enforced by a decree for specific
performance or by an injunction against violation of any such terms or
otherwise.
9. Rights to Deal with the Company.
At any time and from time to time, without terminating, affecting or impairing
the validity of this Guaranty or the obligations of any Guarantor hereunder,
the Bank may deal with the Company in the same manner and as fully as if this
Guaranty did not exist and shall be entitled, among other things, to grant the
Company, without notice or demand and without affecting the Guarantor's
liability hereunder, such extension or extensions of time to perform, renew,
compromise, accelerate or otherwise change the time for payment of or
otherwise change the terms of indebtedness or any part thereof contained in
or arising under the Credit Agreement, any Note or any other Loan Documents,
or to waive any obligation of the Company to perform, any act or acts as the
Bank may deem advisable.
10. Subrogation.
(a) Upon any payment made or action taken by a Guarantor pursuant to this
Guaranty, such Guarantor shall, subject to the provisions of Sections 10(b)
and (c) hereof, be fully subrogated to all of the rights of the Bank against
the Company arising out of the action or inaction of the Company for which such
payment was made or action taken by such Guarantor.
(b) Any claims of such Guarantor against the Company arising from payments
made or actions taken by such Guarantor pursuant to the provisions of this
Guaranty shall be in all respects subordinate to the full and complete
indefeasible payment or performance and discharge, as the case may be, of all
amounts, obligations and liabilities, the payments or performance and
discharge of which are guaranteed by this Guaranty, and no payment hereunder
by a Guarantor shall give rise to any claim of such Guarantor against
the Bank.
(c) Notwithstanding anything to the contrary contained in this Section 10, no
Guarantor shall be subrogated to the rights of the Bank against the Company
until all of the Obligations of the Company have been paid indefeasibly in
full, and that subrogation shall be suspended upon the occurrence of the
events described in Section 1(d) until the Obligations are indefeasibly paid in
full.
11. Survival of Representations, Warranties, etc.
All representations, warranties, covenants and agreements made herein,
including representations and warranties deemed made herein, shall survive
any investigation or inspection made by or on behalf of the Bank and shall
continue in full force and effect until all of the obligations of the
Guarantors under this Guaranty shall be fully performed in accordance with
the terms hereof, and until the payment in full of the Guaranteed Obligations.
12. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK. EACH GUARANTOR HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK IN
ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN
CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR
HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR
OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS
NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT ANY
SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM,
THAT THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER, OR
THAT THIS GUARANTY OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO
HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH
COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR
AGREES (i) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE
JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR
JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH
JUDGMENT AND (ii) NOT TO ASSERT ANY COUNTERCLAIM, IN ANY SUCH SUIT,
ACTION OR PROCEEDING. EACH GUARANTOR AGREES THAT SERVICE OF PROCESS
MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR
NOTICES SET FORTH IN THIS GUARANTY OR ANY METHOD AUTHORIZED BY THE
LAWS OF NEW YORK. EACH GUARANTOR IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS GUARANTY, THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
13. Miscellaneous.
(a) All capitalized terms used herein and not defined herein shall have the
meanings specified in the Credit Agreement.
(b) This Guaranty is the joint and several obligation of each Guarantor, and
may be enforced against each Guarantor separately, whether or not enforcement of
any right or remedy hereunder has been sought against any other Guarantor.
Each Guarantor acknowledges that its obligations hereunder will not
be released or affected by the failure of the other Guarantors to execute the
Guaranty or by a determination that all or a part of this Guaranty with
respect to any other Guarantor is invalid or enforceable.
(c) If any term of this Guaranty or any application thereof shall be invalid
or unenforceable, the remainder of this Guaranty and any other application of
such term shall not be affected thereby.
(d) Any term of this Guaranty may be amended, waived, discharged or
terminated only by an instrument in writing signed by each Guarantor and the
Bank.
(e) The headings in this Guaranty are for purposes of reference only and shall
not limit or define the meaning hereof.
(f) No delay or omission by the Bank in the exercise of any right under this
Guaranty shall impair any such right, nor shall it be construed to be waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise of any other right.
IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be executed
and delivered as of the day and year first above written.
ORBIT INSTRUMENT OF CALIFORNIA, INC.
By:___________________________
Title:
BEHLMAN ELECTRONICS, INC.
By:___________________________
Title:
EXHIBIT F
[LETTERHEAD OF COUNSEL TO THE
COMPANY AND THE CORPORATE GUARANTORS]
August __, 1998
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Ladies and Gentlemen:
We have acted as counsel to Orbit International Corp., a Delaware corporation
(the "Company"), Behlman Electronics, Inc., a _________________________
corporation, and Orbit Instrument of California, Inc. (collectively, the
"Corporate Guarantors") in connection with the Credit Agreement (the
"Agreement") dated the date hereof between the Company and The Chase
Manhattan Bank (the "Bank"), pursuant to which the Bank has agreed to make a
loan to the Company as described therein. Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings set forth in
the Agreement.
In acting as such counsel, we have examined:
(a) a counterpart of the Agreement executed by the Company;
(b) the Term Note executed by the Company;
(c) a counterpart of the Security Agreement executed by the Company;
(d) a counterpart of the Corporate Guaranty executed by each Corporate
Guarantor; and
(e) a counterpart of the Second Mortgage executed by the Company.
The documents referred to in items (a) through (e) above are hereinafter
referred to collectively as the "Loan Documents".
We have assumed the authenticity of all documents submitted to us as
originals, the conformity to the originals of all documents submitted to us
as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. We have also examined originals, or copies
certified to our satisfaction, of such corporate records, certificates of
public officials, certificates of corporate officers of the Company and each
Corporate Guarantor and such other instruments and documents as we have deemed
necessary as a basis for the opinions hereinafter set forth. As to questions
of fact, we have, to the extent that such facts were not independently
established by us, relied upon such certificates.
Based upon the foregoing and subject to the qualifications set forth herein,
we are of the opinion that,
1. The Company and the Corporate Guarantors are each a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation and in each jurisdiction wherein the
conduct of its business or any ownership of its properties requires it to be
qualified to do business, and each has the corporate power and authority to
own its assets and to transact the business in which it is now engaged and to
execute and perform each of the Loan Documents to which it is a party.
2. The Company and the Corporate Guarantors each have the requisite corporate
power and authority to execute, deliver and perform the Loan Documents to
which it is a party, each of which has been duly authorized by all necessary
and proper corporate action.
3. The Loan Documents to which the Company or the Corporate Guarantors are a
party constitute the legal, valid and binding obligation of the Company and
the Corporate Guarantors (to the extent they are a party thereto) enforceable
against the Company and each Corporate Guarantor, as the case may be, in
accordance with their respective terms subject as to enforcement by
applicable bankruptcy, insolvency, reorganization or similar laws affecting
the enforcement of creditors' rights generally, and by equitable principles
of general application.
4. Neither the execution and delivery by the Company and the Corporate
Guarantors of the Loan Documents to which they are a party nor the
performance by the Company or the Corporate Guarantors of their respective
obligations under the Loan Documents, will (a) violate any law, rule or
regulation or, to our knowledge, any order or decree of any court or
governmental instrumentality binding upon the Company or any Corporate
Guarantor, (b) contravene the Certificate of Incorporation or By-Laws
of the Company or any Corporate Guarantor or, result in a breach of or
constitute a default (with due notice or lapse of time or both) under any
agreements to which the Company or any Corporate Guarantor is bound
of which we are aware, or, to our knowledge, result in the creation or
imposition of any lien, charge, or encumbrance upon any of the property or
assets of the Company or any Corporate Guarantor other than the
liens granted pursuant to the Loan Documents, or (c) require the consent,
license, approval or authorization of any governmental or public body or
authority.
5. Neither the Company nor any Corporate Guarantor is an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940.
6. No consent or authorization of, filing with or other act by or in respect of
any governmental authority is required to be obtained by the Company or any
Corporate Guarantor for the valid execution, delivery and performance of the
Loan Documents to which they are a party.
7. Assuming the proceeds of the Loans are used for the purposes set forth in
Section 3.02 of the Agreement, the making of the loans contemplated therein
and the application of the proceeds thereof will not violate the provisions
of Regulation G, U or X of the Board of Governors of the Federal Reserve System.
8. To the best of our knowledge there are no actions, suits or proceedings
against any of the Company or any Corporate Guarantor, pending or threatened
against the Company or any Corporate Guarantor, before any court,
governmental agency or arbitrator which challenges the validity or
enforceability of any Loan Documents or which, if adversely determined, would
impair the ability of the Company or any Corporate Guarantor to perform their
respective obligations under the Loan Documents to which they are a party or
have a material adverse effect on the businesses, operations, prospects,
properties or assets or conditions, financial or otherwise, of the Company or
any Corporate Guarantor.
9. Each Security Agreement grants to the Bank a valid security interest (the
"Security Interest") in the Collateral (as defined in the Security Agreement)
that is owned by the party thereto and purported to be covered thereby to the
extent that the Uniform Commercial Code is applicable thereto, in favor of the
Bank, as security for, with respect to the Company, the Obligations and, with
respect to the Corporate Guarantor, the Guaranty Obligations. Upon the
proper filing of an original counterpart of the Financing Statements in the
offices identified on Schedule C to the Security Agreements, the Security
Interest will constitute a perfected security interest in the Collateral.
Very truly yours,
69905_A
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 15th day of February 1999 (the
AAgreement@), 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
April 1, 1996, between the Company and Employee (the "1996 Employment
Agreement"). The Company and Employee desire to amend and restate the 1996
Employment Agreement effective February 15, 1999 and to amend and restate 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: AMENDMENT AND RESTATEMENT OF 1996
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
February 15, 1999 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 February 15, 1999
and terminating on the date on which the Employment Period is terminated in
accordance with the provisions of Section 1.2 below.
1.2 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 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.
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 Two Hundred
Ninety Thousand ($290,000) 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 - 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 February 28, 1999 (the "Base Period"). If the Consumer Price Index for
the month of February in any year, commencing in 2000, 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
February 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 4.00% of
the Company=s APre-Tax Earnings@ (as hereinafter defined) between $500,000
and $1,000,000; 5.0% of the Company=s Pre-Tax Earnings between $1,000,001 and
$2,000,000; 6.0% of the Company=s Pre-Tax Earnings between $2,000,001 and
$3,000,000; and 7.5% of the Company=s Pre-Tax Earnings in excess of
$3,000,001, 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. Employee shall not be entitled to Incentive Compensation if the
Company=s Pre-Tax Earnings for a fiscal year are less than $500,000. 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 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.
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 of the 1996 Employment Agreement,
Employee purchased 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.
5.4 The Shares shall be registered on a 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.
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 February 15, 1999, 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.
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 February 15, 1999, 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) 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 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.
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: Barbara A. Wood.
15. 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.
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.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and year above-written.
ORBIT INTERNATIONAL CORP.
By:
Bruce Reissman, Executive Vice President
and Chief Operating Officer
By:
Dennis Sunshine
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 15th day of February 1999 (the
AAgreement@), 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
April 1, 1996, between the Company and Employee (the "1996 Employment
Agreement"). The Company and Employee desire to amend and restate the 1996
Employment Agreement effective February 15, 1999 and to amend
and restate 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; AMENDMENT AND RESTATEMENT OF 1996
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
February 15, 1999 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 February 15, 1999
and terminating on the date on which the Employment Period is terminated in
accordance with the provisions of Section 1.2 below.
1.2 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.
2. DUTIES
2.1 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.
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 Two Hundred
Forty Thousand ($240,000) 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 - 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 February 28, 1999 (the "Base Period"). If the Consumer Price Index for
the month of February in any year, commencing in 2000, 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 February 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 2.40% of
the Company=s A Pre-Tax Earnings@ (as hereinafter defined) between $500,001
and $1,000,000; 3.00% of the Company=s Pre-Tax Earnings between
$1,000,001 and $2,000,000; 3.60% of the Company=s Pre-Tax Earnings between
$2,000,001 and $3,000,000; and 4.5% of the Company's Pre-Tax Earnings in
excess of $3,000,001 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. Employee shall not be entitled to Incentive Compensation if the
Company=s Pre-Tax Earnings for a fiscal year are less than $500,000. 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 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.
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. BENEFITS; REIMBURSEMENT OF EXPENSES
5.1 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.
5.2 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.
5.3 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.
5.4 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.
6. DISABILITY
6.1 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.
6.2 "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.
6.3 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.
7. CHANGE IN CONTROL
7.1 In the event at any time after February 15, 1999, 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.
7.2 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.
7.3 "Continuing Directors" shall mean (i) the directors of the Company at the
close of business on February 15, 1999, 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.
8. CONFIDENTIAL INFORMATION; INVENTIONS; RESTRICTIVE COVENANT
8.1 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.
8.2 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.
8.3 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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:
Barbara A. Wood.
14. 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.
15. 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.
16. 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:
Dennis Sunshine, President
and Chief Executive Officer
By:
Bruce Reissman
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 15th day of February 1999 (the
AAgreement@), 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
April 1, 1996, between the Company and Employee (the "1996 Employment
Agreement"). The Company and Employee desire to amend and restate the 1996
Employment Agreement effective February 15, 1999 and to amend and restate 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; AMENDMENT AND RESTATEMENT OF 1996
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
February 15, 1999 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 February 15, 1999
and terminating on the date on which the Employment Period is terminated in
accordance with the provisions of Section 1.2 below.
1.2 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.
2. DUTIES
2.1 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.
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 Two Hundred
Eighteen Thousand ($218,000) 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 - 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 February 28, 1999 (the "Base Period"). If the Consumer Price Index for
the month of February in any year, commencing in 2000, 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 February 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") 1.60% of the
Company=s APre-Tax Earnings@ (as hereinafter defined) between $500,001 and
$1,000,000; 2.00% of the Company=s Pre-Tax Earnings between $1,000,001
and $2,000,000; 2.40% of the Company=s Pre-Tax Earnings between $2,000,001
and $3,000,000; and 3.00% of the Company's Pre-Tax Earnings in excess of
$3,000,001 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. Employee shall not be entitled to Incentive Compensation if the
Company=s Pre-Tax Earnings for a fiscal year are less than $500,000. 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 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.
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. BENEFITS; REIMBURSEMENT OF EXPENSES
5.1 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.
5.2 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.
5.3 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.
5.4 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.
6. DISABILITY
6.1 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.
6.2 "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.
6.3 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.
7. CHANGE IN CONTROL
7.1 In the event at any time after February 15, 1999, 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.
7.2 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.
7.3 "Continuing Directors" shall mean (i) the directors of the Company at the
close of business on February 15, 1999, 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.
8. CONFIDENTIAL INFORMATION; INVENTIONS; RESTRICTIVE COVENANT
8.1 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.
8.2 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.
8.3 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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: Barbara A. Wood.
14. 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.
15. 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.
16. 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:
Dennis Sunshine, President
and Chief Executive Officer
By:
Mitchell Binder
Form 10-K - Item 14(a)(1) & (2)
Orbit International Corp. and Subsidiaries
Index to Financial Statements and Financial
Statement Schedule
Report of Independent Auditors F- 2
Consolidated Balance SheetsCDecember 31, 1998 and 1997 F- 3
Consolidated Statements of OperationsCYears ended December 31, 1998, 1997 and
1996................ F- 5
Consolidated Statements of Stockholders= EquityCYears ended December 31, 1998,
1997 and 1996 F- 6
Consolidated Statements of Cash FlowsCYears ended December 31, 1998, 1997 and
1996 F- 8
Notes to Consolidated Financial Statements F-10
The following financial statement schedule is included in Item 14(d):
Schedule IICValuation and qualifying accounts S- 1
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.
Report of Independent Auditors
Stockholders and Board of Directors
Orbit International Corp.
We have audited the accompanying consolidated balance sheets of Orbit
International Corp. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders= equity, and cash
flows for each of the three years in the period ended December 31, 1998. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company=s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Orbit
International Corp. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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 taken as a whole, presents fairly in all
material respects the information set forth therein.
New York, New York
March 5, 1999
Orbit International Corp. and Subsidiaries
Consolidated Balance Sheets
December 31,
1998
1997
Assets
Current assets:
Cash and cash equivalents
$ 438,000
$ 1,096,000
Investments in marketable securities
3,230,000
2,004,000
Accounts receivable, less allowance for doubtful
accounts of $178,000 in 1998 and $203,000 in 1997
2,345,000
3,045,000
Inventories
7,089,000
6,319,000
Restricted investments, related to discontinued
operations
26,000
451,000
Assets held for sale, net
80,000
265,000
Other current assets
140,000
304,000
Deferred tax assets
276,000
B
Total current assets
13,624,000
13,484,000
Property, plant and equipment at cost, less accumulated
depreciation and amortization
2,267,000
2,342,000
Excess of cost over the fair value of assets acquired, less
accumulated amortization of $234,000 in 1998 and
$157,000 in 1997
1,155,000
1,251,000
Investments in marketable securities
517,000
470,000
Other assets
658,000
352,000
Deferred tax assets
924,000
B
Total assets
$19,145,000
$17,899,000
Orbit International Corp. and Subsidiaries
Consolidated Balance Sheets (continued)
December 31,
1998
1997
Liabilities and stockholders= equity
Current liabilities:
Current portion of long-term obligations
$ 593,000
$1,624,000
Accounts payable
1,189,000
1,086,000
Accrued expenses
2,432,000
2,114,000
Notes payable
B
97,000
Accounts payable, accrued expenses and
reservesapplicable to discontinued operations
669,000
900,000
Due to factor
15,000
260,000
Customer advances
785,000
B
Total current liabilities
5,683,000
6,081,000
Long-term obligations
3,881,000
3,667,000
Accounts payable, accrued expenses and reserves
applicable to discontinued operations, less current
portion
522,000
864,000
Total liabilities
10,086,000
10,612,000
Commitments and contingencies
Stockholders= equity:
Common stock - $.10 par value
912,000
909,000
Additional paid-in capital
23,555,000
23,538,000
Accumulated deficit
(5,596,000)
(7,477,000)
Deferred compensation
(19,000)
(97,000)
Accumulated other comprehensive income
9,000
2,000
Treasury stock, at cost
18,861,000
(9,802,000)
16,875,000
(9,588,000)
Total stockholders= equity
9,059,000
7,287,000
Total liabilities and stockholders= equity
$19,145,000
$17,899,000
See notes to consolidated financial statements.
Orbit International Corp. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
<S>
1998
1997
1996
<C>
<C>
<C>
Net sales
$16,351,000
$17,626,000
$16,971,000
Cost of sales
9,516,000
10,023,000
9,361,000
Gross profit
6,835,000
7,603,000
7,610,000
Selling, general and administrative
expenses
5,719,000
5,596,000
5,501,000
Class action litigation settlement
500,000
B
B
Interest expense
328,000
253,000
118,000
Investment and other income, net
(393,000)
(284,000)
(1,320,000)
Income from continuing operations
before income taxes
681,000
2,038,000
3,311,000
Income tax benefit
1,200,000
B
B
Income from continuing operations
1,881,000
2,038,000
3,311,000
Discontinued operations:
Loss from operations
-
(4,200,000)
Loss from disposal
-
(4,600,000)
Net income (loss)
$1,881,000
$2,038,000
$(5,489,000)
Income (loss) per common share:
Income from continuing operations:
Basic
$0.30
$0.34
$0.56
Diluted
$0.27
$0.30
$0.53
(Loss) from discontinued operations:
Basic
$(1.48)
Diluted
$(1.42)
Net income (loss):
Basic
$0.30
$0.34
$(0.92)
Diluted
$0.27
$0.30
$(0.89)
</TABLE>
See notes to consolidated financial statements.
Orbit International Corp. and Subsidiaries
Consolidated Statements of Stockholders= Equity
<TABLE>
<CAPTION>
Common Stock
25,000,000 Shares
Accumulated
Authorized
Additional
Comprehensive
Shares
Paid-in
Accumulated
Treasury Stock
Deferred
Income
Issued
Amount
Capital
Deficit
Shares
Amount
Compensation
(Loss)
Total
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
BalanceCDecember 31, 1995
8,771,000
$ 877,000
$23,285,000
$(4,026,000)
(2,885,000)
$(9,588,000)
$B
$(1,230,000)
$9,318,000
Issuance of compensatory stock
300,000
30,000
233,000
B
B
B
(233,000)
B
30,000
Deferred compensation earned
B
B
B
B
B
B
59,000
B
59,000
Comprehensive loss:
Net loss
B
B
B
(5,489,000)
B
B
B
B
(5,489,000)
Write-off of foreign currency
translation adjustment, included in
discontinued operations
B
B
B
B
B
B
B
1,230,000
1,230,000
Comprehensive loss
B
B
B
B
B
B
B
B
(4,261,000)
BalanceCDecember 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
Orbit International Corp. and Subsidiaries
Consolidated Statements of Stockholders= Equity (continued)
Common Stock
25,000,000 Shares
Accumulated
Authorized
Additional
Comprehensive
Shares
Paid-in
Accumulated
Treasury Stock
Deferred
Income
Issued
Amount
Capital
Deficit
Shares
Amount
Compensation
(Loss)
Total
BalanceCDecember 31, 1996
9,071,000
$907,000
$23,518,000
$(9,515,000)
(2,885,000)
$(9,588,000)
$(174,000)
$(2,000)
Deferred compensation earned
B
- -
B
B
B
B
77,000
B
$77,000
Exercises of stock options
22,000
2,000
20,000
B
B
B
B
B
22,000
Comprehensive income:
Net income
B
B
B
2,038,000
B
B
B
B
2,038,000
Unrealized gain on marketable
securities
B
B
B
B
B
B
B
4,000
4,000
Comprehensive income
B
B
B
B
B
B
B
B
2,042,000
BalanceCDecember 31, 1997
9,093,000
909,000
23,538,000
(7,477,000)
(2,885,000)
(9,588,000)
(97,000)
2,000
7,287,000
Deferred compensation earned
B
B
B
B
B
B
78,000
B
78,000
Exercises of stock options
25,000
3,000
17,000
B
B
B
B
B
20,000
Purchase of treasury stock
B
B
B
B
(125,000)
(214,000)
B
B
(214,000)
Comprehensive income:
Net income
B
B
B
1,881,000
B
B
B
B
1,881,000
Unrealized gain on marketable
securities
B
B
B
B
B
B
B
7,000
7,000
Comprehensive income
B
B
B
B
B
B
B
B
1,888,000
BalanceCDecember 31, 1998
9,118,000
$912,000
$23,555,000
$(5,596,000)
(3,010,000)
$(9,802,000)
$(19,000)
$9,000
$9,059,000
</TABLE>
See notes to consolidated financial statements
Orbit International Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31,
<TABLE>
<CAPTION>
<S>
1998
1997
1996
Cash flows from operating activities
<C>
<C>
<C>
Net income (loss)
$1,881,000
$2,038,000
$(5,489,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
(Credit) provision for doubtful accounts
(25,000)
53,000
B
Depreciation and amortization
139,000
143,000
122,000
Amortization of goodwill
96,000
72,000
919,000
Compensatory issuance of stock and options
78,000
77,000
59,000
Benefit for deferred taxes
(1,200,000)
B
B
Loss on sale of fixed assets
8,000
B
B
Write-off of foreign currency translation
B
B
1,230,000
Loss on disposal of discontinued operations
B
B
4,600,000
Changes in operating assets and liabilities,
excluding effect of acquisition:
Accounts receivable
725,000
16,000
(2,992,000)
Inventories
(770,000)
338,000
914,000
Other current assets
164,000
(58,000)
985,000
Other assets
(62,000)
(132,000)
(268,000)
Accounts payable
103,000
146,000
655,000
Accrued expenses
318,000
(431,000)
(395,000)
Customer advances
785,000
B
B
Assets held for sale, net
185,000
447,000
1,473,000
Accounts payable, accrued expenses and reserves
applicable to discontinued operations
(573,000)
(2,296,000)
B
Other long term liabilities
B
B
3,000
Net cash provided by operating activities
1,852,000
413,000
1,816,000
Cash flows from investing activities
Purchases of marketable securities
(5,876,000)
(4,899,000)
(17,765,000)
Proceeds from sales of marketable securities
5,035,000
6,363,000
29,237,000
Purchase of property, plant and equipment
(72,000)
(51,000)
(170,000)
Purchase of net assets of acquired company
B
B
(3,779,000)
Payment of deferred transaction costs
(78,000)
B
B
Net cash (used in) provided by investing activities
(991,000)
1,413,000
7,523,000
</TABLE
Orbit International Corp. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended December 31,
</TABLE>
<TABLE>
<CAPTION>
1998
1997
1996
Cash flows from financing activities
<C>
<C>
<C>
Repayments of long-term debt
$(4,414,000)
$(1,203,000)
$(1,956,000)
Proceeds from long-term debt
3,500,000
116,000
2,482,000
Deferred financing costs
(166,000)
B
B
Decrease in due to factor
(245,000)
(592,000)
(11,242,000)
Proceeds from exercise of stock options
20,000
22,000
B
Purchase of treasury stock
(214,000)
B
B
Proceeds from issuance of performance shares
B
B
30,000
Net cash used in financing activities
(1,519,000)
(1,657,000)
(10,686,000)
Net (decrease) increase in cash and cash
equivalents
(658,000)
169,000
(1,347,000)
Cash and cash equivalentsCbeginning of year
1,096,000
927,000
2,274,000
Cash and cash equivalentsCend of year
$438,000
$1,096,000
$927,000
</TABLE>
Supplemental cash flow information
Cash paid for interest
$328,000
$497,000
$1,806,000
The Company acquired property, plant and equipment of approximately $87,000
during the year ended December 31, 1997 pursuant to various capital leases.
See notes to consolidated financial statements
1. Organization and Business
The consolidated financial statements include the accounts of Orbit
International Corp. and its wholly-owned subsidiaries (collectively, the
ACompany@). All significant intercompany transactions have been eliminated in
consolidation.
The Company has two reportable segments: (a) the Orbit Instrument division
(Electronics Segment) is engaged in the design, manufacture and sale of
customized electronic components and subsystems, and (b) the Behlman
Electronics subsidiary (Power Units Segment) is engaged in the design and
manufacture of distortion free commercial power units, power conversion
devices and electronic devices for measurement and display. The Company
discontinued its operations in the apparel business in 1996 (see Note 17).
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are priced at the lower of cost (first-in, first-out basis) or
market.
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 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.
2. Summary of Significant Accounting Policies (continued)
Investments
The Company=s investment in available-for-sale securities is stated at fair
value, with the unrealized gains and losses, net of tax, reported in other
comprehensive income. 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 such securities are included
in investment income.
Revenue Recognition
Substantially all of the Company=s revenues are recognized from the sale of
tangible products.
The Company records sales upon delivery of the units under its manufacturing
contracts.
Orbit earned a one-time royalty payment from a former affiliate pursuant to a
Stock Purchase Agreement executed in November 1991, which was realized partially
during 1996. Such amounts have been included in Investment and other income
in the accompanying Consolidated Statements of Operations.
Income Taxes
Income taxes have been provided using the liability method.
Accounting Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
Long-Lived Assets
When impairment indicators are present, the Company reviews the carrying
value of its long-lived assets in determining the ultimate recoverability of
their unamortized values using future undiscounted cash flow analyses. (See
Note 17-Discontinued Operations, for impairment losses recorded during 1996).
Stock Based Compensation
The Company grants options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option
2. Summary of Significant Accounting Policies (continued)
grants in accordance with APB Opinion No. 25, AAccounting for Stock Issued to
Employees@ and related Interpretations because the Company believes the
alternate fair value accounting provided for under FASB Statement No. 123,
AAccounting for Stock-Based Compensation@ (AStatement 123") requires the use
of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, compensation expense is not recorded
when the exercise price of the Company=s employee stock options equals the
market price of the underlying stock on the date of grant.
Fair Value of Financial Instruments
The recorded amounts of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities approximate their fair values
principally because of the short-term nature of these items. 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, 1998 and 1997.
Comprehensive Income
As of January 1, 1998, the Company adopted FASB Statement No. 130, AReporting
Comprehensive Income@. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company=s net income or shareholders=
equity. Statement 130 requires unrealized gains or losses on the Company=s
available-for-sale securities, which prior to adoption was reported
separately in shareholders= equity, to be included in other comprehensive
income. The related tax effect on comprehensive income is not material for
the periods presented. Prior year consolidated financial statements have been
restated to conform to the requirements of Statement 130.
Research and Development
Research and development costs are expensed when incurred. The Company expensed
approximately $793,000, $795,000 and $710,000 for research and development
during the years ended December 31, 1998, 1997 and 1996, respectively. Such
expenses are included in selling, general and administrative expenses.
3. Acquisition
On February 6, 1996, the Company, acquired certain assets subject to certain
liabilities of Astrosystems, Inc. and Behlman Electronics, Inc. (collectively,
ABehlman@). The assets are primarily used in the business of manufacturing
and selling various power supply and power source products. The operations of
Behlman have been included in the consolidated financial statements from the
date of acquisition. During 1998, the final determination of an inventory
valuation dispute resulted in a charge to the Company=s operations of
approximately $236,000.
4. Inventories
Inventories consist of the following:
December 31,
1998
1997
Raw materials
$2,609,000
$2,262,000
Work in progress
4,480,000
4,057,000
$7,089,000
$6,319,000
5. Property, Plant and Equipment
Property, plant and equipment are as follows:
December 31,
1998
1997
Land and building
$2,688,000
$2,688,000
Building and leasehold improvements
293,000
288,000
Machinery and equipment
1,113,000
1,079,000
Furniture and fixtures
543,000
515,000
4,637,000
4,570,000
Accumulated depreciation and amortization
2,370,000
2,228,000
$2,267,000
$2,342,000
6. Available-For-Sale Securities
The following is a summary of available-for-sale securities:
December 31, 1998
Cost
Estimated
Fair
Value
U.S. Treasury bills
$2,883,000
$2,883,000
Corporate debt securities
881,000
890,000
3,764,000
3,773,000
Restricted value of portfolio used to collateralize
credit facility
26,000
26,000
Balance of securities portfolio
$3,738,000
$3,747,000
December 31, 1997
Cost
Estimated
Fair
Value
U.S. Treasury bills
$2,455,000
$2,455,000
Corporate debt securities
468,000
470,000
2,923,000
2,925,000
Restricted value of portfolio used to collateralize
credit facility
451,000
451,000
Balance of securities portfolio
$2,472,000
$2,474,000
Under the terms of a credit facility, the Company=s investment portfolio and
certain cash balances must be maintained at a minimum collateral value. At
December 31, 1998 and 1997, such collateral requirement amounted to
approximately $26,000 and $451,000, respectively.
The amortized cost and estimated fair value of marketable debt securities at
December 31, 1998 and 1997 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, 1998
Cost
Estimated
Fair
Value
Due in one year or less
$3,255,000
$3,256,000
Due after one year through three years
204,000
208,000
Due after three years
305,000
309,000
3,764,000
3,773,000
Restricted value of portfolio used to collateralize
credit facility
26,000
26,000
$3,738,000
$3,747,000
December 31, 1997
Cost
Estimated
Fair
Value
Due in one year or less
$2,455,000
$2,455,000
Due after one year through three years
15,000
15,000
Due after three years
453,000
455,000
2,923,000
2,925,000
Restricted value of portfolio used to collateralize
credit facility
451,000
451,000
$2,472,000
$2,474,000
7. Debt
On August 4, 1998, the Company entered into an agreement with a bank that
provided for a $950,000 term loan, a $2,550,000 mortgage and a $500,000
settlement loan, collectively the AAgreement@. The Company received the
proceeds under the term loan and mortgage during the year ended December 31,
1998 and used such proceeds to repay amounts outstanding under its previous
credit agreements. The Company=s long-term debt obligations are as follows:
December 31,
1998
1997
Mortgage noteCcollateralized by certain real estate of the Company ,
interest at prime (7.75% at December 31, 1998) plus .75%, payable in
monthly installments of $14,167 commencing September 1998, with a
final payment of $850,000 in September 2008
$2,493,000
$B
Term loanCcollateralized by accounts receivable, inventories and
machinery and equipment, interest at prime (7.75% at December 31,
1998) plus .75%, payable in 20 quarterly installments of $47,500 through
June 2003
855,000
B
Promissory note payable to the sellers of the East/West divisionCnoninterest
bearing, imputed interest at 6%, $250,000 paid in 1997 and 20 quarterly
installments of $42,500, including interest, commencing March 31, 2002
850,000
850,000
Note due to the estate of the former principal officer, non-interest bearing,
payable in monthly installments through 1999
212,000
289,000
Capitalized lease obligationCcollateralized by certain computer software,
interest at 10%, payable in monthly installments of $1,804
64,000
87,000
Term loanCcollateralized by accounts receivable and inventories, interest
at prime (8.50% at December 31, 1997) plus 1%
B
3,065,000
Term loanCcollateralized by certain real estate of the Company, interest at
prime (8.50% at December 31, 1997) plus 1.5%
B
1,000,000
4,474,000
5,291,000
Less current portion
593,000
1,624,000
$3,881,000
$3,667,000
7. Debt (continued)
Payments due on the Company=s long-term debt for years ending December 31 are
as follows:
1999
$593,000
2000
382,000
2001
381,000
2002
530,000
2003
435,000
Thereafter
2,153,000
$4,474,000
The Company=s short-term notes payable aggregated $97,000 at December 31, 1997.
This was in connection with the previous credit agreement which paid interest at
prime (8.50% at December 31, 1997) plus 1%.
In January 1999, the Company borrowed $500,000 pursuant to the settlement loan
portion of the Agreement to partially fund the class action securities
litigation settlement of $1,000,000 (see Note 14). Such borrowing is
collateralized by accounts receivable, inventories and machinery and
equipment, bears interest at prime plus .75% and is payable in 12 quarterly
installments of $41,667, commencing March 1999 through December 2001.
Pursuant to the terms of the Agreement, the Company must comply with, among
other matters, certain financial covenants which include minimum levels of
working capital, debt to equity ratios, debt service coverage and tangible
net worth, all as defined. The Company is also precluded from declaring and
paying dividends without the consent of the lender. At December 31, 1998, the
Company was in default of two financial covenants which were waived by the bank.
8. Common Stock Repurchase Program
In September 1998, the Company=s Board of Directors authorized the repurchase
of up to 250,000 shares of the Company=s outstanding common stock. During the
year ended December 31, 1998, the Company repurchased 124,800 shares for
approximately $214,000.
9. Stock Based Compensation Plans
The Company has stock option plans which provide for the granting of
non-qualified or incentive stock options to officers and key employees and
non-employee directors. The plans authorize granting of up to 1,500,000
shares to officers and key employees and 150,000 shares to non-employee
directors 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 income (loss) and net income (loss) per
share is required by Statement 123 and has been determined as if the Company
had accounted for its stock options granted under the fair value method of
that Statement. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for the years ended December 31, 1998, 1997
and 1996: risk-free interest rates of 6%; no dividend yield; volatility
factors of the expected market price of the Company=s common stock of 47.4%,
59.4% and 85.5% and a weighted-average expected life of the options of 3.0
years.
The Black-Scholes option valuation model was developed for use in estimating the
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 the Company=s employee 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.
9. Stock Based Compensation Plans (continued)
For purposes of pro-forma disclosures, the estimated fair value of the options
is amortized to expense over the options= vesting period. The Company=s
pro-forma information follows:
1998
1997
1996
Income from continuing operations:
As reported
$1,881,000
$2,038,000
$3,311,000
Pro-forma
1,711,000
1,971,000
2,830,000
Basic EPS:
As reported
$0.30
$0.34
$0.56
Pro-forma
0.27
0.32
$0.46
Diluted EPS:
As reported
0.27
0.30
$0.53
Pro-forma
0.25
0.29
$0.42
Net income (loss):
As reported
$1,881,000
$2,038,000
$(5,489,000)
Pro-forma
1,711,000
1,971,000
(5,970,000)
Basic EPS:
As reported
$0.30
$0.34
$(0.92)
Pro-forma
0.27
0.32
(0.96)
Diluted EPS:
As reported
0.27
0.30
(0.89)
Pro-forma
0.25
0.29
(0.89)
9. Stock Based Compensation Plans (continued)
The following table summarizes activity in stock options:
<TABLE>
<CAPTION>
Year ended
December 31, 1998
Year ended
December 31, 1997
Year ended
December 31, 1996
Weighted -
Average
Weighted -
Average
Weighted -
Average
Options
Exercise Price
Options
Exercise Price
Options
Exercise
Price
<S>
<C>
<C>
<C>
<C>
<C>
<C>
Outstanding at beginning
of year
1,259,000
$1.34
1,282,000
$0.92
964,000
$1.25
Granted
88,000
2.14
179,000
2.44
333,000
0.92
Forfeited
(197,000)
2.42
(180,000)
1.21
(15,000)
0.92
Exercised
(25,000)
0.81
(22,000)
1.01
B
B
Outstanding at end of
year
1,125,000
1.23
1,259,000
1.34
1,282,000
0.92
Exercisable at end of
year
1,057,000
1,080,000
964,000
Weighted-averagefair
value of options
granted during the
year
$1.34
$1.09
$0.54
</TABLE>
The weighted-average remaining contractual life of the options outstanding is
three years.
At December 31, 1998, 479,000 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 ended December 31, 1996, the Company sold to the officer 300,000
shares of its common stock at the 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 issuance price is being charged to operations over a
three-year period.
10. 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.
The Company contributed approximately $208,000, $178,000 and $117,000 to the
plan during the years ended December 31, 1998, 1997 and 1996, respectively.
11. Income Taxes
During the year ended December 31, 1998, the Company recorded a current year
deferred tax asset and reduced the valuation allowance against its deferred
tax assets by $1,200,000, based on its actual and projected operating
results, of which $276,000 is classified as current. During the years ended
December 31, 1997 and 1996, the Company had cumulative taxable losses and
there was no assurance of future taxable income, therefore, a valuation
allowance had been established to offset the full amount of net deferred tax
assets.
For the years ended December 31, 1997 and 1996, the Company recorded no net
income tax provision. At December 31, 1998, the Company has an alternative
minimum tax credit of approximately $564,000 with no limitation on the
carryforward period, a net operating loss carryforward of approximately
$24,705,000 which expires through 2018 and a capital loss carryforward of
approximately $2,059,000 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 company.
These benefits consist of a net operating loss carryforward of approximately
$2,405,000 and certain tax credits which amount to approximately $ 541,000
which are available through 1999.
11. Income Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
December 31,
1998
1997
1996
Tax at U.S. statutory rates
34.0%
34.0%
34.0%
Foreign and state income taxes, net of
federal tax benefit
7.0
7.0
B
Deferred tax assets
(176.2)
B
B
Net operating and capital losscarryforwards
and carrybacks
(41.0)
(41.0)
34.0
(176.2%)
B%
B%
Deferred tax assets and liabilities are comprised of the following:
December 31,
1998
1997
Deferred tax assets:
Alternative minimum tax credit carryforward
$564,000
$564,000
Net operating loss and capital loss carryforwards
(including pre-acquisition net operating loss
carryforwards)
9,917,000
9,810,000
Various temporary differences
979,000
745,000
Total deferred tax assets
11,460,000
11,119,000
Valuation allowances
(10,260,000)
(10,977,000)
Net deferred tax assets
1,200,000
142,000
Deferred tax liabilities:
Various temporary differences
B
(142,000)
Net deferred taxes
$1,200,000
$B
12. Significant Customers and Concentrations of Credit Risk
Sales to significant customers accounted for approximately 48% (27% and 21%),
50% (33% and 17%) and 72% (28%, 15%, 17% and 12%) of the Company=s net sales
from continuing operations for the years ended December 31, 1998, 1997 and
1996, respectively.
Significant customers of the Company=s Electronics Segment accounted for
approximately 80% (34%, 32% and 14%), 84% (38%, 29% and 17%) and 85% (43%,
25% and 17%) of the Electronics Segment=s net sales for the years ended
December 31, 1998, 1997 and 1996, respectively.
Significant customers of the Company=s Power Units Segment accounted for
approximately 29% (16% and 13%), 44% (27% and 17%) and 45% (29% and 16%) of
the Power Units Segment=s net sales for the years ended December 31, 1998,
1997 and 1996, respectively.
Certain significant customers of the Company sell the Company=s products to the
U.S. Government. Accordingly, a substantial portion of the net sales is
subject to audit by agencies of the U.S. Government. In the opinion of
management, adjustments to such net sales, if any, will not have a material
effect on the Company=s financial position or result of operation.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables from its
customers. The Company performs credit evaluations on its customers and
collateral is generally not required. Credit losses are provided for in the
consolidated financial statements during the period in which an impairment
has been determined. At times, cash at financial institutions may be in excess
of FDIC insurance limits.
13. 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.
13. Leasing Arrangements (continued)
Future minimum lease payments as of December 31, 1998 under operating lease
agreements that have initial or remaining noncancellable lease terms in
excess of one year are as follows:
Year ending
December 31,
Total
1999
$64,000
2000
51,000
2001
22,000
2002
4,000
Total future minimum lease payments
$141,000
Rent expense for operating leases was approximately $14,000, $13,000 and $41,000
for the years ended December 31, 1998, 1997 and 1996, respectively. Lease
commitments attributed to the discontinued operations amounted to
approximately $911,000, prior to sublease agreements of approximately $440,000.
14. Commitments and Contingencies
[a] 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 $1,016,000. 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 agreements. In addition, the five officers are entitled to bonuses
based on a percentage of earnings before taxes, as defined. Total bonus
compensation expense was approximately $53,000, $202,000 and $281,000 during
the years ended December 31, 1998, 1997 and 1996, respectively.
[b] On September 23, 1993, a class action securities litigation (AClass 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 U.S.
District Court for the Southern District of New York. The action was
commenced on behalf of shareholders,
14. Commitments and Contingencies (continued)
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 were 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 Acontrolling person@ of USA Classic and an Aaider and
abettor@ of the alleged violations of the securities laws. 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, USA Classic, certain directors and added
PaineWebber Incorporated and Ladenburg Thalmann & Co. Inc. (the lead
underwriters in the offering) as additional defendants (collectively, the
ADefendants@).
On August 21, 1998, the Company and the Defendants entered into a Stipulation
and Agreement of Settlement (the ASettlement Agreement@) of the Class Action.
Pursuant to the terms of the Settlement Agreement and in complete
satisfaction of its obligations thereunder, the Company paid $1,000,000 in
January 1999 as its portion to settle the Class Action, of which $500,000 was
accrued for at December 31, 1997 and $500,000 was charged to the Company=s
operations during the year ended December 31, 1998.
[c] The Company, in the ordinary course of business is 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 position, results of
operation or cash flows of the Company.
15. Business Segments
The Company operates through two business segments. Its Electronics Segment,
through the Orbit Instrument Division, is engaged in the design, manufacture and
sale of customized electronic components and subsystems. Its Power Units
Segment, through the Behlman Electronics, Inc. subsidiary, is engaged in the
design, manufacture and sale of distortion free commercial power units, power
conversion devices and electronic devices for measurement and display.
15. Business Segments (continued)
The Company=s reportable segments are business units that offer different
products. The Company=s reportable segments are each managed separately as they
manufacture and distribute distinct products with different production
processes.
The following is the Company=s business segment information as of and for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
<S>
1998
1997
1996
Net sales:
<C>
<C>
<C>
Electronics
$10,250,000
$10,045,000
$10,092,000
Power Units:
Domestic
5,166,000
6,381,000
5,904,000 (a)
Foreign
935,000
1,200,000
975,000 (a)
Total Power Unites
6,101,000
7,581,000
6,879,000
Total net sales
16,351,000
17,626,000
16,971,000
Income (loss) from continuing operations:
Electronics
2,412,000
2,457,000
2,581,000
Power Units
(461,000)
634,000
659,000
General corporate expenses not allocated
(1,335,000) (b)
(1,083,000)
(1,131,000)
Interest expense
(328,000)
(253,000)
(118,000)
Investment and other income, net
393,000
283,000
1,320,000
Income from continuing operations before
income taxes
$681,000
$2,038,000
$3,311,000
</TABLE>
December 31,
1998
1997
Assets:
Electronics
$7,863,000
$8,033,000
Power Units
3,964,000
3,967,000
General corporate assets not allocated
7,238,000
5,634,000
Assets held for sale, net
80,000
265,000
Total assets
$19,145,000
$17,899,000
(a) The Power Units Segment was acquired on February 6, 1996.
(b) Includes $500,000 charge for the class action securities litigation
settlement (see Note 14).
16. Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted income
(loss) per common share:
<TABLE>
<CAPTION>
December 31,
<S>
1998
1997
1996
Denominator:
<C>
<C>
<C>
Denominator for basic income (loss) per
share-weighted-average common shares
6,182,000
6,070,000
5,961,000
Effect of dilutive securities:
Employee and directors stock options
618,000
558,000
89,000
Warrants
173,000
157,000
58,000
Unearned stock award
18,000
81,000
77,000
Dilutive potential common shares
809,000
796,000
224,000
Denominator for diluted income (loss) per
share-weighted-average common shares and
assumed conversions
6,991,000
6,886,000
6,185,000
</TABLE>
The numerator for basic and diluted income (loss) per share for the years
ended December 31, 1998, 1997 and 1996 is the income from continuing
operations and net income (loss) for all such years.
17. 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.
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 AEast/West@ trademark in the
U.S. and Canada. The Company has otherwise ceased operations of the East/West
division and the Company=s East End Apparel Group, Ltd. subsidiary. Accordingly,
the Company completed the disposal of its U.S. apparel operations in December
1996.
17. Discontinued Operations (continued)
The Canadian apparel operations had been operated through the Company=s three
wholly-owned subsidiaries in Canada; Canada Classique (AClassique@), Winnipeg
Leather (1991) Inc. (AWinnipeg Leather@) and Symax Garment Co. (1993) Ltd.
(ASymax@). Pursuant to the Company=s plans to dispose of its apparel operations,
it recorded an impairment loss of approximately $793,000 related to the Canadian
apparel operations in 1996. On March 12, 1997, the Company commenced
bankruptcy proceedings against Classique and Winnipeg Leather. Classique and
Winnipeg Leather are now in bankruptcy and the Company appointed a receiver
and manager for the purpose of liquidating their assets. All assets have been
sold and the proceeds from the sale of such assets were used to pay down the
outstanding obligations to its secured lender. Consequently, all operations of
the Canadian apparel operations were terminated during 1997. 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.
Amounts previously reported for the apparel segments during 1996 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 for the year ended December 31, 1996 are summarized
as follows:
Sales
$26,235,000
Loss from operations
$(4,200,000)
Loss from disposal
$(4,600,000)
At December 31, 1998, the assets and liabilities of the discontinued operations
consisted primarily of certain current assets, accrued expenses and other
reserves. At December 31, 1997, the assets and liabilities of the discontinued
operations consisted primarily of accounts receivable, inventories, accounts
payable, accrued expenses and other reserves.
<TABLE>
<CAPTION>
Orbit International Corp. and Subsidiaries
Schedule IICValuation and Qualifying Accounts
Additions
Balance at
Charged to
Charged to
Balance at
Beginning
Costs
Other Accounts-
Deductions-
End of
Description
of Period
and Expenses
Describe
Describe
Period
<S>
Year ended December 31, 1998:
<C>
<C>
< <C>
<C>
<C>
Reserves and allowances deducted from asset accounts:
Reserve for estimated doubtful accounts and allowance
$203,000
$B
$B
$25,000(a)
$178,000
Valuation allowance on deferred tax assets
10,977,000
B
717,000(c)
10,260,000
Year ended December 31, 1997:
Reserves and allowances deducted from asset accounts:
Reserve for estimated doubtful accounts and allowance
150,000
53,000
B
B
203,000
Valuation allowance on deferred tax asset
10,249,000
B
728,000(b)
B
10,977,000
Year ended December 31, 1996:
Reserves and allowances deducted from asset accounts:
Reserve for estimated doubtful accounts and allowance
150,000(d)
B
B
B
150,000
Valuation allowance on deferred tax asset
14,220,000
B
B
3,971,000(a)
10,249,000
</TABLE>
(a) Reduction in allowances
(b) Increase to allowance
(c) Reduction in valuation allowance for deferred tax assets
(d) Restated to exclude all activity related to discontinued operations
Exhibit 23 - Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-
25979) pertaining to the Orbit International Corporation 1995 Employee Stock
Option Plan and
the Orbit International Corporation 1995 Stock Option Plan for Non-Employee
Directors of our
report dated March 5, 1999, with respect to the consolidated financial
statements and schedule of
Orbit International Corp. included in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/ Ernst & Young LLP
New York, New York
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 438,000
<SECURITIES> 3,230,000
<RECEIVABLES> 2,345,000
<ALLOWANCES> (178,000)
<INVENTORY> 7,089,000
<CURRENT-ASSETS> 13,624,000
<PP&E> 4,637,000
<DEPRECIATION> (2,370,000)
<TOTAL-ASSETS> 19,145,000
<CURRENT-LIABILITIES> 5,683,000
<BONDS> 3,881,000
0
0
<COMMON> 912,000
<OTHER-SE> 8,147,000
<TOTAL-LIABILITY-AND-EQUITY> 19,145,000
<SALES> 16,351,000
<TOTAL-REVENUES> 16,351,000
<CGS> 9,516,000
<TOTAL-COSTS> 9,516,000
<OTHER-EXPENSES> 6,219,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328,000
<INCOME-PRETAX> 681,000
<INCOME-TAX> (1,200,000)
<INCOME-CONTINUING> 1,881,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,881,000
<EPS-PRIMARY> .30
<EPS-DILUTED> .27
</TABLE>
