-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VLYQW/YSs7/xEguqG2lgae4YIcgcnq0tDNt5Bs6waDx0GUn8YzNXzjycLmEyBDeU SujX4i5NZaxLzD2c+hKzCg== 0000912057-95-001943.txt : 19950613 0000912057-95-001943.hdr.sgml : 19950613 ACCESSION NUMBER: 0000912057-95-001943 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERNITRON CORP CENTRAL INDEX KEY: 0000206030 STANDARD INDUSTRIAL CLASSIFICATION: 3620 IRS NUMBER: 111962029 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16182 FILM NUMBER: 95524953 BUSINESS ADDRESS: STREET 1: 645 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2125937900 MAIL ADDRESS: STREET 1: 645 MADISON AVENUE STREET 2: 645 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1994 Commission File No.: 0-16182 VERNITRON CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 11-1962029 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 645 MADISON AVENUE NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) (212) 593-7900 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par value $.01 per share $1.20 Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE ---------------- Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. Aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on February 28, 1995: $4,283,000 Common Stock outstanding at February 28, 1995: 12,538,012 shares. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- DOCUMENT FORM 10-K REFERENCE -------- ------------------- Portion of Vernitron Corporation Notice of Annual Meeting of Stockholders and Proxy Statement. Part III, Items 10-13 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL Vernitron Corporation (the "Company"), incorporated in New York in 1959 and reincorporated in Delaware in 1968, is primarily engaged in the design, manufacture, distribution and sale of electromagnetic sub-systems, specialty AC (alternating current) and DC (direct current) motors, position and pressure sensing components, connectors, and the distribution and service of precision ball bearings. The Company's products are manufactured primarily for use in high reliability applications in the aerospace, defense, communications, medical equipment, office equipment and industrial markets. BUSINESS OF THE COMPANY The Company operates in three manufacturing plants and three distribution facilities located in the United States in one business segment, electromechanical components and sub-systems, which is organized into two product groups: the Motion Control group and the Industrial Components group. The Company also uses contract production capacity in Mexico. Motion Control group sales accounted for 42% and Industrial Components group sales made up 58% of consolidated net sales of $62.1 million in 1994 (see Management's Discussion and Analysis of Financial Condition and Results of Operations for three year sales comparisons). MOTION CONTROL GROUP. The Motion Control group designs, manufactures and sells electromagnetic sub-systems, specialty AC and DC motors, synchros and resolvers, optical and contact shaft encoders, potentiometers and pressure transducers. These product lines produce all of the Company's motor and sensor products sold either as individual components or in sub-systems. The group's products generally involve a high degree of interactive applications engineering to meet each customer's unique requirements for reliability and accuracy under demanding and often hostile environmental or shock conditions, such as space flight or industrial automation. Unit prices generally exceed $100 and range upward to more than $1,000. In the military and aerospace markets, contract quantities are relatively low while contract awards may be large in dollar value. In the commercial market, contract quantities may be significantly greater while the average sales price is generally lower. Approximately 65% of current bookings by this group are for military (both U.S. and foreign government) and aerospace applications. The remainder of the business is spread over a variety of industrial automation and instrumentation applications. A large percentage of the military/aerospace business is used in or to support tactical missile programs, shipboard instruments and infrared night vision systems. Markets for the group's products are generally fragmented and competition is focused and often well entrenched. Motors manufactured by the Company are used in applications which require extremely reliable and precise motion control, such as computer disk drives, laser scanners in high-speed printers and bar code readers, missile guidance systems, industrial controls, aircraft instrumentation and controls and robotics. Motor technology includes AC and both brush and brushless DC motors. Synchros and resolvers are each used to measure absolute angular position. These rugged devices have military and aerospace applications in the guidance systems of ships, aircraft and missiles. In commercial applications, resolvers are used to measure the absolute position and velocity of a shaft. Optical and contact shaft encoders are devices which accurately measure rotational motion or shaft position in a digital format and have applications in satellites, weapon systems, radar and industrial control systems. The Company's precision potentiometers are variable resistors, utilizing either wire wound or conductive film technologies. These products generally sense position and produce a feedback signal for use in high reliability 2 military, aerospace and industrial applications. Other related products include pressure transducers which, among other applications, monitor pressure in hydraulic and HVAC applications. INDUSTRIAL COMPONENTS GROUP. The Industrial Components group manufactures connector products and distributes and services precision miniature ball bearings. The group's products are almost always sold as components, require a minimum amount of specialized application engineering and are sold through a network of manufacturers' representatives and distributors. Average unit selling prices range from $1 to $3 and individual purchase orders generally cover large unit quantities. Competition is often fragmented and focused on niches within the markets served. Quality, customer service and competitive cost are the critical factors in serving these markets. Substantially all of the Industrial Components group sales are to domestic commercial and industrial markets. The group's connector product line focuses mainly on safety agency approved barrier terminal blocks in the .5 amp to 50 amp range. The products are used in a broad range of power applications, including telecommunications, power supplies, security and fire alarms and industrial controls. The group produces power connectors for frequent connect/disconnect applications, such as vending machines and coin changers. The group also distributes precision miniature ball bearings from three warehouse locations - Montville, New Jersey, Irvine, California and Dallas, Texas - to bearing distributors and to end users in a variety of industries, including manufacturers of computer equipment, medical equipment and a variety of other precision instruments. MARKETING. The Company's products are sold directly to original equipment manufacturers and U.S. Government agencies and contractors, and are also sold through distributors and representatives. DOMESTIC AND FOREIGN SALES. The following table sets forth, for each of the last three fiscal years, information concerning the Company's domestic and foreign net sales and operating income from continuing operations and identifiable assets (dollars in thousands):
FISCAL YEARS ------------------------------------- 1994 1993 1992 ------- ------- ------- Net sales: USA . . . . . . . . . . . . . . . . . . . . . . . . . . . $57,752 $53,668 $57,091 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 4,380 4,981 5,821 ------- ------- ------- $62,132 $58,649 $62,912 ------- ------- ------- ------- ------- ------- Export sales as a % of total sales: . . . . . . . . . . . . 7.0% 8.5% 9.3% ------- ------- ------- ------- ------- ------- Operating income (loss): USA . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,363 $ 1,969 $ 1,447 Foreign . . . . . . . . . . . . . . . . . . . . . . . . . 314 183 148 Restructuring/inventory writedown charges (USA) . . . . . (1,315) (3,500) ------- ------- ------- $ 2,362 $(1,348) $ 1,595 ------- ------- ------- ------- ------- ------- Identifiable assets: USA . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,197 $47,261 $52,247 ------- ------- ------- ------- ------- -------
COMPETITION. The Company competes primarily on the basis of its ability to design and engineer its products to meet relatively stringent shape, performance and other requirements of its customers, most of whom are original equipment manufacturers who purchase the component parts for inclusion in their end products. There are a limited number of competitors in each of the markets for the various types of electromechanical products manufactured and sold by the Company. Some of these competitors have substantially greater resources than the Company. Imports of end products incorporating foreign manufactured electromechanical components have increased in recent years resulting, in part, in smaller available domestic markets for the Company's components. 3 In addition, reductions in Government defense spending have resulted in shrinking markets and increased competition for the remaining business. While price is a competitive factor, the Company believes that its applications engineering capability, which enables it to meet a customer's special needs, is its principal competitive strength. CUSTOMERS. There is no customer or group of affiliated customers to which sales during the fiscal year ended December 31, 1994 were in the aggregate 10% or more of the Company's consolidated net sales, and there is no customer, the loss of which would have a material adverse effect on the Company's operations taken as a whole. In fiscal 1994, the Company had aggregate sales, both military and non- military, of approximately $3.6 million directly to the U.S. Government, including its agencies and departments. These sales accounted for approximately 6% of total net sales in 1994 as compared to 5% in 1993 and 7% in 1992. Approximately 18% of net sales in 1994 were derived from subcontracts with U.S. Government contractors as compared to 21% in 1993 and 22% in 1992. The majority of these contracts may be subject to termination at the convenience of the Government, and certain of them may also be subject to renegotiation. Currently, the Company is not aware of any termination or renegotiation of such contracts which would have a material adverse effect on its business. Because approximately 24% of the Company's business is derived directly from contracts with the U.S. Government or agencies or departments thereof, or indirectly through subcontracts with U.S. Government contractors, the Company's results of operations could be materially affected by changes in Government expenditures for products using component parts it produces. However, the Company believes that its exposure to such risk may be lessened by the conventional tactical nature of the programs it participates in as well as the broad number and diversity of its product applications and the strength of its engineering capabilities. BACKLOG; SEASONALITY. As of December 31, 1994 and December 31, 1993, the Company had a backlog of orders of $23.0 million and $24.0 million, respectively. Management believes that a substantial portion of the backlog of orders at December 31, 1994 will be filled during fiscal 1995. Bookings and shipments, while subject to fluctuation due to the build-to-order nature of a substantial portion of the Company's business, are not subject to significant seasonal variations. PRODUCT DEVELOPMENT. The Company develops new electromechanical sub- systems and components and improves existing products in order to keep pace with the technological advances which generally characterize its markets. During fiscal 1994, combined Company and customer sponsored engineering expense associated with product development, before customer reimbursement, was $695,000 compared to $639,000 in fiscal 1993 and $535,000 in fiscal 1992. In general, the Company recovers from customers between a quarter and a third of such engineering expense. RAW MATERIALS; OTHER SUPPLIERS. There is no one supplier whose delivery of raw materials or other products is material to the operations of the Company. While several divisions use substantial amounts of cobalt, chromium, titanium, gold, silver and copper in certain of their products, the Company has not experienced any serious difficulty in obtaining adequate supplies. PATENTS, TRADEMARKS AND LICENSES. The Company's business is not dependent on any patent or trademark. ENVIRONMENTAL REGULATIONS. The Company does not believe that its compliance with federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to the protection of the environment has or will have any material effect upon its capital expenditures, earnings or competitive position. There can be no assurance, however, (i) that changes in federal, state or local laws or regulations, changes in regulatory policy or the discovery of unknown problems or conditions will not in the future require substantial expenditures, or (ii) as to the extent of the Company's liabilities, if any, for past failures, if any, to comply with applicable environmental laws, regulations and permits. EMPLOYEES. The Company employs approximately 600 persons, all in the United States. Approximately 120 of such employees are subject to union contracts, before giving effect to the disposition of the Electronic Components business (see Note 2 to the Financial Statements). Following this disposition, approximately 70 4 employees will be covered by union contracts. The Company considers its relations with its employees to be satisfactory. There has been no significant interruption of operations due to labor disputes. WORKING CAPITAL PRACTICES. The markets in which the Company competes are not characterized by any unusual inventory or collection practices. ITEM 2. PROPERTIES The Company leases its executive office, located at 645 Madison Avenue, New York, New York. The principal plants and other materially important properties at December 31, 1994 are:
OWNED OR TYPE OF SQUARE LEASED; LOCATION FACILITY FOOTAGE EXPIRATION - -------- -------- ------- ---------- St. Petersburg, FL Industrial 52,500 Owned Deer Park, NY Industrial 69,600 Owned San Diego, CA Industrial 60,100 Leased; 2000 Montville, NJ Industrial 76,200 Leased; 1999 Gilford, NH Industrial 84,250 Owned Irvine, CA Industrial 7,800 Leased; 1995 Dallas, TX Industrial 1,400 Leased; 1997
All of the facilities owned by the Company are subject to mortgages or security interests which secure the Company's obligations under its revolving credit facility or industrial development bonds (see Note 4 to the Financial Statements). The Deer Park, NY facility is classified as held for disposal (see Notes 1 and 8 to the Financial Statements). The Company believes that its properties are suitable and adequate for its operations. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits, none of which is expected to have a material adverse affect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock has traded on the National Association of Securities Dealers Automated Quotation Small-Cap Market ("NASDAQ") under the symbol VRNT, since the completion of the Exchange Offer on August 13, 1991. The following table sets forth the range of high and low market prices for the fiscal quarters indicated as quoted on NASDAQ: 1994 1993 ------------- -------------- High Low High Low ---- --- ---- --- Fiscal Years Ended December 31: First Quarter $ 5/8 $ 5/8 $ 1 3/4 $ 1 5/8 Second Quarter 1 1/8 5/8 1 5/8 1 5/8 Third Quarter 1 11/16 1 5/8 1 1/16 Fourth Quarter 3/4 5/8 1 1/16 5/8 The high and low market price information presented above is based on real- time sales. On March 1, 1995, the high and low sales price was $5/8. On March 1, 1995, the approximate number of holders of record of the Common Stock was 1,068. The Company did not pay cash dividends on the Common Stock during the three fiscal years ended December 31, 1994. The Company's policy is to retain earnings for the foreseeable future. The Company's credit facility prohibits the payment of cash dividends. 6 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five fiscal years presented below is derived from the audited Financial Statements of the Company as adjusted to reflect the discontinuance of the Electronic Components group (see Note 2 to the Financial Statements). The data should be read in conjunction with the Financial Statements and the related Notes thereto included elsewhere herein.
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1994 1993 1992 1991 1990 --------------------------------------------------------------------- (Dollars in thousands, except per share data) Net sales. . . . . . . . . . . . . . . . . . . . . $ 62,132 $ 58,649 $ 62,912 $ 67,091 $ 62,763 Income from continuing operations before interest and special charges . . . . . . . . . . . . . . . . . 3,606 2,081 1,555 2,036 1,182 Interest expense . . . . . . . . . . . . . . . . . 2,264 2,437 2,597 3,371 3,696 Special charges (1). . . . . . . . . . . . . . . . (1,315) (3,500) -- -- (13,650) Income (loss) from continuing operations. . . . . . . . . . . . . . . . . . . . 27 (3,856) (1,042) (1,335) (16,164) Loss from continuing operations per common share (2). . . . . . . . . . . . . . . (.04) (.82) (.23) (.39) (7.47) Total assets (3) . . . . . . . . . . . . . . . . . 42,197 47,261 52,247 54,479 79,244 Total debt (4) . . . . . . . . . . . . . . . . . . 12,363 26,470 26,920 28,836 32,000 $3.75 Cumulative Exchangeable Redeemable Preferred Stock (5). . . . . . . . . . -- -- -- -- 38,580 Shareholders' Equity (5) . . . . . . . . . . . . . 13,269 5,076 9,603 9,463 (9,663) (1) In 1994 and 1993, the Company recorded restructuring/inventory writedown charges related to the restructuring of its Motion Control group (see Note 8 to the Financial Statements). In 1990, the Company recorded a charge as a result of the termination of the Company's efforts to acquire Kollmorgen and the termination of all outstanding litigation and the mutual release of claims between the parties. (2) The Company's earnings per share information has been restated for 1990 to reflect an Exchange Offer completed in 1991 and a reverse stock split effected on June 20, 1991. (3) At December 31, 1991, the Company elected to adjust its balance sheet to fair value in accordance with quasi-reorganization accounting principles, resulting in, among other adjustments, a $16.2 million reduction in the carrying value of goodwill. (4) Includes short-term debt and current portion of long-term debt of $442,000 in 1994, $1,200,000 in 1993 $1,000,000 in 1992, $2,130,000 in 1991 and $3,000,000 in 1990. (5) As a result of the Exchange Offer, the Company's $3.75 Cumulative Exchangeable Redeemable Preferred Stock was either exchanged for Common Stock or amended (see Note 3 to the Financial Statements for a description of the amended terms).
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales by product group for continuing operations for the past three years are presented in the table below. The Company has adopted a plan to dispose of its Electronic Components business which, together with the Industrial Components business, was previously reported as part of the Precision Components product group (see Note 2 to the Financial Statements). As a result, the net sales and results of operations of the discontinued product group have been excluded from the table and the discussion which follow.
1994 1993 1992 ------- ------- ------- (Dollars in thousands) Motion Control $26,052 $26,648 $32,024 Industrial Components 36,080 32,001 30,888 ------- ------- ------- Net Sales $62,132 $58,649 $62,912 ------- ------- ------- ------- ------- -------
1994 VS. 1993 Net sales increased by $3.5 million, or 6%, in 1994, compared to 1993. The Motion Control group's sales declined by $.6 million, or 2%, in 1994, as compared to 1993, primarily as a result of lower shipments of AC motors and potentiometers due largely to lower U.S. and foreign government bookings and lower bookings for certain technologically mature product applications. These lower shipments were partially offset by higher shipments of resolvers, due to the timing of certain large orders received in 1993, and higher electromagnetic sub-system shipments due to new product introductions. The Industrial Components group's sales increased in 1994 by $4.1 million, or 13%, as compared to 1993. Sales of bearings were up by $2.9 million, or 16%, reflecting sales to new customers and an improvement in general economic conditions. Sales of connector products rose by $1.2 million, or 9%, principally as a result of sales to new customers in the OEM market, higher sales of Eurostyle connectors and an improvement in general economic conditions. The Company's backlog at December 31, 1994 of $23.0 million was $1.0 million, or 4% lower, than 1993 year-end, while bookings of $61.2 million were substantially the same as the prior year. The lower backlog was primarily due to a reduction of backlog in the Motion Control group of $1.9 million resulting from lower bookings in resolvers, primarily due to timing as several large orders received in 1993 did not repeat in 1994, and potentiometers, primarily due to lower U.S. Government and foreign bookings. These lower bookings were partially offset by higher bookings of electromagnetic sub-systems due to new product introductions. The Industrial Components group's backlog increased $1.0 million due primarily to increased bookings in the bearings product line resulting from an improvement in general economic conditions. Operating income, excluding restructuring/inventory writedown charges of $1.3 million and $3.5 million in 1994 and 1993, respectively, was $3.7 million in 1994, as compared to $2.2 million in 1993, representing a $1.5 million increase. This increase was primarily due to the gross margin earned on the incremental sales volume and improved profit margins in the Motion Control product group resulting from restructuring actions taken in 1993, which were partially offset by higher selling, general and administrative expenses. Gross margins were 27.7% in 1994, up from 26.1% in 1993. Productivity, as measured by the value-added per employee, increased 24.9% to approximately $65,900 in 1994, from approximately $52,800 in 1993. Selling, general and administrative expense, as a percentage of sales, declined to 21.5% in 1994 from 22.1% in 1993. Selling, general and administrative expense was up by $.4 million in 1994 as a result of increased expenses related to the relocation of Motion Control's potentiometer and pressure transducer product lines from the Company's Deer Park, New York facility to St. Petersburg, Florida and the reinstatement of certain profit sharing provisions. 8 These incremental costs were partially offset by efficiencies resulting from the aforementioned Motion Control restructuring initiated in 1993. In 1993, the Company recorded a $3.5 million charge related to the restructuring of the Motion Control group, of which $2.3 million was related to the write-down of certain slow-moving and excess raw material inventory (see discussion of 1993 vs. 1992 below). As part of this restructuring, the Company also announced its intention to close and sell the Deer Park, New York facility. In 1994, the Company recorded an additional $1.3 million charge related to this restructuring, $1.0 million of which is to provide additional inventory reserves to reflect slower turnover of the inventory than was anticipated in the 1993 charge calculation. The remaining $.3 million of the 1994 charge is to adjust the carrying amount of the other assets held for disposal in connection with the restructuring to reflect current market values. Interest expense declined by $.2 million in 1994 as a result of lower average borrowings due primarily to the repurchase of the Company's bank indebtedness at a discount (see Note 4 to the Financial Statements). This was partially offset by higher interest rates. At December 31, 1994, the Company had approximately $11 million of net operating loss carryforwards available to reduce future taxable income. 1993 VS. 1992 Net sales declined by $4.3 million, or 7%, in 1993, compared to 1992. The Motion Control group's sales accounted for $5.4 million of this decline, primarily due to lower U.S. and foreign military sales in 1993 and to the completion of deliveries for certain commercial equipment and space programs in 1992. Industrial Components group sales increased by $1.1 million, a 4% increase, compared to 1992. Sales of connector products rose by 7% as the result of increased market penetration and the introduction of the Eurostyle connector. Sales of bearings were up 1%, reflecting some pickup in general economic activity. The Company's total bookings increased approximately 3% in 1993 over 1992, while backlog at December 31, 1993 was approximately 13% higher compared to year-end 1992. Motion Control group bookings were up approximately 3% in 1993 over 1992, primarily as a result of increased bookings of military products. Bookings for the Motion Control group's sensor products (comprised of potentiometers, encoders, resolvers and synchros), which declined in 1992, increased slightly in 1993 over their 1992 level. Backlog for the Motion Control group at December 31, 1993 was up by approximately $.7 million compared to backlog at December 31, 1992. Industrial Components group bookings increased by approximately 4% in 1993 compared to 1992 due primarily to the introduction of the Eurostyle connector. Backlog for the Industrial Components group increased by approximately $1.3 million at December 31, 1993, compared to backlog at December 31, 1992. Operating income of $2.2 million, excluding the $3.5 million restructuring/inventory writedown charge described below, was $.6 million above 1992. Cost reductions and productivity improvements achieved through reduced headcount and improved operating efficiencies in the Motion Control group and the connector product line of the Industrial Components group and lower selling, general and administrative expense (see below) more than offset the negative impact on operating income of the lower sales volume in the Motion Control group. Gross margins were 26.1% in 1993, up from 25.2% in 1992. Productivity, as measured by the value-added per employee, increased 13.5% to approximately $52,800 in 1993 from approximately $46,500 in 1992. Selling, general and administrative expense was $1.1 million lower in 1993 primarily as a result of staff reductions and elimination of profit sharing provisions due to lower earnings. During 1993, the company determined to restructure its Motion Control group, which had operated as two separate divisions. The restructuring provided for the consolidation of the two separate divisions under a single operating management based in San Diego, California. The Company also determined to increase its reserves for slow moving and excess inventories in the Motion Control group. The Company determined to consolidate the two divisions because it believed that the combination would allow the use of more productive, higher quality 9 manufacturing techniques in San Diego. In addition, the Company believed that the consolidation in San Diego would substantially increase the interaction of the Motion Control group's various engineering disciplines in response to commercial and industrial requirements. The Company determined to increase its reserves for slow moving and excess inventory in the Motion Control group to reflect its determination of a permanent reduction in the demand for certain wire wound potentiometer product lines based on the Company's belief that demand for such products, which had declined in prior years, was not likely to return in sufficient amounts. The reduced demand for such products contributed to the decision to consolidate the Motion Control group in San Diego and the other steps taken as part of the restructuring. The Company recorded a charge of $3.5 million related to the restructuring of its Motion Control group. The charge included $2.3 millon for the write-down of slow moving and excess raw material and finished good inventories of wire wound potentiometers. In addition, $1.2 million was recorded for severance, early retirement, other employee-related benefits and other costs of the restructuring. Of the $1.2 million accrued in 1993, approximately $250,000 and $850,000 were charged against such accrual in 1993 and 1994, respectively. It is expected that the balance will be charged against the accrual in 1995 (see Note 8 to the Financial Statements). In connection with the restructuring, major cost reduction programs were initiated. The plan included reducing the group's workforce by more than 15%, mostly in non-production positions, and the consolidation of engineering staff and design facilities. The Company expects that the reduction in workforce will result in lower labor costs and, together with other reductions in costs resulting from the consolidation, should increase the Company's competitiveness. Interest expense declined by $.2 million in 1993 as a result of both lower average borrowings and lower interest rates. LIQUIDITY AND CAPITAL RESOURCES During 1994, the Company obtained a new $15.0 million four-year, senior secured credit facility (see Note 4 to the Financial Statements). In addition, the Company completed a rights offering of Common Stock which provided $2.3 million of proceeds, net of expenses (see Note 3 to the Financial Statements). The proceeds of the new credit facility, along with the net proceeds of the rights offering, were used to repurchase the Company's then existing bank indebtedness at a discount and to provide additional working capital. Subsequent to December 31, 1994, the Company negotiated an amendment to its new credit facility increasing the amount that can be borrowed under the facility to $17.5 million, subject to availability based on the satisfaction of certain borrowing base formulas. During 1994, the Company received proceeds of $.6 million from the sale of certain product lines of the discontinued Electronic Components business. Subsequent to December 31, 1994, the Company has sold the remaining product line of this business for $1.5 million, of which $1.0 million has been collected as of February 24, 1995. The remaining $.5 million is scheduled to be collected in the first half of 1995. The proceeds from these sales will be used to fund expenses related to the decision to discontinue the Electronic Components group, to pay down bank indebtedness and to provide additional working capital. The Company had no material commitments for capital expenditures as of December 31, 1994. The Company believes that its $17.5 million credit facility, cash generated from operations and proceeds from the sale of assets included in net assets held for disposal, will be sufficient to meet its future capital expenditure and working capital requirements and required debt amortization. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is included in Item 14(a) of this Report. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. See Item 14(b) of this Report. 10 PART III The information required by Part III is incorporated by reference to the Company's definitive proxy statement in connection with its 1994 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year ended December 31, 1994. If such proxy statement is not so filed, such information will be filed as an amendment to this Form 10-K within 120 days following the end of the Company's fiscal year ended December 31, 1994. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) AND (2) FINANCIAL STATEMENTS See accompanying index to financial statements and schedules. (a)(3) EXHIBITS See accompanying index to Exhibits. (b) REPORTS ON FORM 8-K During the quarter ended December 31, 1994, the Company filed no reports on Form 8-K. 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: VERNITRON CORPORATION (REGISTRANT) By /s/ STEPHEN W. BERSHAD STEPHEN W. BERSHAD CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 28th day of March, 1994. /s/ Stephen W. Bershad Chairman of the Board of STEPHEN W. BERSHAD Directors and Chief Executive Officer /s/ Raymond F. Kunzmann Vice President - Finance, Controller RAYMOND F. KUNZMANN and Chief Financial Officer /s/ Anthony J. Fiorelli, Jr. Director ANTHONY J. FIORELLI, JR. /s/ Eliot M. Fried Director ELIOT M. FRIED 12 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1994 VERNITRON CORPORATION FORM 10-K -- ITEM 14(a)(1) AND (2) AND ITEM 14(d) VERNITRON CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following financial statements of Vernitron Corporation are included in Item 8: Balance sheets -- December 31, 1994 and 1993. . . . . . . . . . . . . . F-4 Statements of operations -- For the years ended December 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6 Statements of cash flows -- For the years ended December 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Statements of shareholders' equity -- For the years ended December 31, 1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . F-8 Notes to financial statements . . . . . . . . . . . . . . . . . . . . . F-9 The following financial statement schedule of Vernitron Corporation is included in Item 14(d): Schedule II -- Valuation and qualifying accounts. . . . . . . . . . . .F-17 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Vernitron Corporation: We have audited the accompanying balance sheets of Vernitron Corporation (a Delaware corporation) as of December 31, 1994 and 1993, and the related statements of operations, shareholders' equity and cash flows for the three years ended December 31, 1994. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vernitron Corporation as of December 31, 1994 and 1993, and the results of its operations and its cash flows for the three years ended December 31, 1994 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York March 24, 1995 F-3 BALANCE SHEETS VERNITRON CORPORATION (DOLLARS IN THOUSANDS)
DECEMBER 31, ----------------------- 1994 1993 ------- ------- A S S E T S CURRENT ASSETS: Cash . . . . . . . . . . . . . . . . . . . $ 27 $ 103 Accounts receivable, net of allowance for doubtful accounts of $345 in 1994 and $278 in 1993 . . . . . . . . . . . . 9,293 8,323 Inventories, net . . . . . . . . . . . . . 14,527 18,797 Other current assets . . . . . . . . . . . 468 1,025 ------- ------- TOTAL CURRENT ASSETS . . . . . . . . . 24,315 28,248 NET PROPERTY, PLANT AND EQUIPMENT. . . . . . 7,990 9,389 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $627 in 1994 and $418 in 1993 . . . . . . . . . 6,832 7,041 NET ASSETS HELD FOR DISPOSAL . . . . . . . . 2,507 1,886 OTHER ASSETS . . . . . . . . . . . . . . . . 553 697 ------- ------- TOTAL ASSETS . . . . . . . . . . . . . $42,197 $47,261 ------- ------- ------- -------
See notes to financial statements. F-4 BALANCE SHEETS - (CONTINUED) VERNITRON CORPORATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ----------------------- 1994 1993 ------- ------- L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . . . $ 6,394 $ 6,524 Accrued expenses and other liabilities . . 5,941 5,051 Current portion of long-term debt. . . . . 442 1,200 ------- ------- TOTAL CURRENT LIABILITIES . . . . . . . 12,777 12,775 LONG-TERM DEBT, less current portion . . . . 11,921 25,270 OTHER LONG-TERM LIABILITIES. . . . . . . . . 3,579 3,357 DEFERRED INCOME. . . . . . . . . . . . . . . 651 783 SHAREHOLDERS' EQUITY: $1.20 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE: authorized 1,400,000 shares, issued and outstanding 672,344 shares in 1994 and 577,946 shares in 1993 . . . . . . . . . . . . . . . . . . 7 6 COMMON STOCK, $.01 PAR VALUE: authorized 20,000,000 shares, issued and outstanding 12,538,012 in 1994 and 5,185,070 shares in 1993. . . . . . . . . . 125 52 CAPITAL IN EXCESS OF PAR . . . . . . . . . . 13,982 9,544 RETAINED DEFICIT (Reflects application of quasi-reorganization accounting principles as of December 31, 1991 eliminating a deficit of $14,094). . . . . . . . . . . . (845) (4,526) ------- ------- TOTAL SHAREHOLDERS' EQUITY. . . . . . . 13,269 5,076 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $42,197 $47,261 ------- ------- ------- -------
See notes to financial statements. F-5 STATEMENTS OF OPERATIONS VERNITRON CORPORATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ----------------------------------------- 1994 1993 1992 ----------- ----------- ------------ NET SALES $ 62,132 $ 58,649 $ 62,912 Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,903 43,338 47,081 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,343 12,950 14,027 Restructuring/inventory writedown charges. . . . . . . . . . . . . . . . . . . . 1,315 3,500 Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . 209 209 209 ----------- ----------- ------------ OPERATING INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,362 (1,348) 1,595 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,264 2,437 2,597 Other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 71 13 ----------- ----------- ------------ Income (loss) from continuing operations before taxes and extraordinary gain . . 44 (3,856) (1,015) Charge in lieu of taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 27 ----------- ----------- ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN . . . . . . . 27 (3,856) (1,042) Discontinued Operations: Income (loss) from operations, net of tax benefit of $92 in 1994 . . . . . . . (143) (670) 1,144 Loss on disposal, net of tax benefit of $1,317 in 1994 . . . . . . . . . . . . (2,059) ----------- ----------- ------------ INCOME (LOSS) BEFORE EXTRAORDINARY GAIN. . . . . . . . . . . . . . . . . . . . . (2,175) (4,526) 102 Extraordinary gain on debt repurchase, net of charge in lieu of taxes of $3,744 in 1994 . . . . . . . . . . . . . . . 5,856 ----------- ----------- ------------ NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,681 (4,526) 102 Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 375 158 ----------- ----------- ------------ Net income (loss) applied to common shareholders'equity. . . . . . . . . . . . . $ 3,326 $ (4,901) $ (56) ----------- ----------- ------------ ----------- ----------- ------------ NET INCOME (LOSS) PER COMMON SHARE: Continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.04) $ (.82) $ (0.23) Discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.26) (.13) 0.22 Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.69 ----------- ----------- ------------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.39 $ (.95) $ (0.01) ----------- ----------- ------------ ----------- ----------- ------------ Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . . 8,509,003 5,185,070 5,182,000 ----------- ----------- ------------ ----------- ----------- ------------
See notes to financial statements. F-6 STATEMENTS OF CASH FLOWS VERNITRON CORPORATION (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------------- 1994 1993 1992 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,681 $ (4,526) $ 102 Adjustments to reconcile net income (loss) to cash provided by operating activities: Extraordinary gain on debt repurchase, net. . . . . . . . . . . . . . . . . . (5,856) Loss on disposal of discontinued operations, net. . . . . . . . . . . . . . . 2,059 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,742 1,732 1,588 (Increase) decrease in accounts receivable. . . . . . . . . . . . . . . . . . (970) 934 1,268 Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 682 2,019 507 Decrease in other current assets. . . . . . . . . . . . . . . . . . . . . . . 498 449 72 Increase (decrease) in accounts payable and accrued expenses. . . . . . . . . 365 10 (469) Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (810) 200 37 ------- ------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . 1,391 818 3,105 ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (797) (381) (1,122) Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . 605 ------- ------- -------- NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . (192) (381) (1,122) ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,665 3,900 8,800 Repayment of borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,272) (4,350) (10,716) Net proceeds from common stock rights offering . . . . . . . . . . . . . . . . 2,332 Other, net.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ------- ------- -------- NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . (1,275) (450) (1,896) ------- ------- -------- NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . (76) (13) 87 Cash at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 116 29 ------- ------- -------- CASH AT END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 27 $ 103 $ 116 ------- ------- -------- ------- ------- --------
See notes to financial statements. F-7 STATEMENTS OF SHAREHOLDERS' EQUITY VERNITRON CORPORATION (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED ------------------ ------------------- IN EXCESS EARNINGS SHARES AMOUNT SHARES AMOUNT OF PAR (DEFICIT) ------ ------ ------ ------ --------- --------- Balance at December 31, 1991 . . . . . . 415,593 $ 4 5,170,671 $ 52 $ 9,407 $ -- Net Income . . . . . . . . . . . . . . 102 Amount realized from utilization of pre quasi-reorganization tax benefits. . . . . . . . . . . . . 18 Dividends (b). . . . . . . . . . . . . 70,770 1 157 (158) Contribution to 401(k) plan. . . . . . 14,399 27 Transfer to Capital in Excess of Par (a). . . . . . . . . . . . . . (56) 56 Other. . . . . . . . . . . . . . . . . 9,533 (7) ------- --- ---------- ---- ------- ------- Balance at December 31, 1992 . . . . . . 495,896 5 5,185,070 52 9,546 -- ------- --- ---------- ---- ------- ------- Net Loss . . . . . . . . . . . . . . . (4,526) Dividends (b). . . . . . . . . . . . . 82,050 1 374 (375) Transfer to Capital in Excess of Par (a). . . . . . . . . . . . . . (375) 375 Other. . . . . . . . . . . . . . . . . (1) ------- --- ---------- ---- ------- ------- Balance at December 31, 1993 . . . . . . 577,946 6 5,185,070 52 9,544 (4,526) ------- --- ---------- ---- ------- ------- Net Income . . . . . . . . . . . . . . 3,681 Dividends (b). . . . . . . . . . . . . 94,398 1 354 (355) Transfer to Capital in Excess of Par (a). . . . . . . . . . . . . . (355) 355 Common Stock rights offering . . . . . . . . . . . . . . 7,352,942 73 2,259 Amount realized from utilization of pre quasi-reorganization tax benefits . . . . . . . . . . . . 2,182 Other. . . . . . . . . . . . . . . . . (2) ------- --- ---------- ---- ------- ------- Balance at December 31, 1994 . . . . . . 672,344 $ 7 12,538,012 $125 $13,982 $ (845) ------- --- ---------- ---- ------- ------- ------- --- ---------- ---- ------- ------- (a) Represents transfer of the excess of Preferred Stock dividends over available Retained Earnings. (b) Represents a 15% dividend paid in additional shares and valued at the average of the closing bid and ask price as of the dividend record date. The per share amounts of these dividends were $.34, $.70 and $.57 per share of Preferred Stock in 1992, 1993 and 1994, respectively.
See notes to financial statements. F-8 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION DECEMBER 31, 1994 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Inventories are priced at the lower of cost (principally first-in, first- out, or specific identification) or market. Deferred financing costs are amortized ratably over the life of the corresponding debt or commitment. The excess of cost over net assets acquired is being amortized over thirty- five years using the straight-line method. Depreciation and amortization are provided primarily by the straight-line method over the estimated useful lives of property, plant and equipment, which are stated at cost, except as otherwise indicated in Note 2. Other assets held for disposal are stated at the lower of cost or estimated net realizable value (see Note 8). Inter-division items and transactions have been eliminated in consolidation. Certain items in the 1993 and 1992 financial statements have been reclassified to conform to the 1994 presentation. Per share data is based upon the weighted average of common shares outstanding during each period. Outstanding common stock options or warrants have not been included in the 1994, 1993 or 1992 computation of per share data as they were deemed to have been anti-dilutive. NOTE 2 - DISCONTINUED OPERATIONS Effective September 30, 1994, the Company adopted a plan to dispose of all of its Electronic Components business which was comprised of the trimmer, transformer and microwave component product lines. The disposal is being accounted for as a discontinued operation and, accordingly, the related net assets and operating results have been reported separately from continuing operations. The Company's prior year's Statements of Operations have been restated to reflect continuing operations. The loss on disposal of the Electronic Components business for the year ended December 31, 1994 is comprised of the estimated loss on disposal of the net assets of the business and a provision for anticipated operating losses until disposal. During 1994, the Company sold a portion of the assets of its Electronic Components business for gross proceeds of $605. Subsequent to December 31, 1994, the Company has sold the remaining discontinued business' assets for $1,500, of which $1,000 has been collected as of February 24, 1995. The remaining $500 is scheduled to be collected in the first half of 1995. F-9 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 2 - DISCONTINUED OPERATIONS (CONT'D) Net assets held for disposal as of December 31, 1994 consisted of the following: Inventory $1,992 Machinery and equipment 365 Other current assets 59 Current liabilities (478) Reserve for anticipated operating losses until disposal (75) Reserve for estimated loss on disposal of net assets (990) ------ Net assets of discontinued operations 873 Other assets held for disposal 1,634 ------ Net assets held for disposal $2,507 ------ ------
Revenues applicable to the discontinued business for the years ended December 31, 1994, 1993 and 1992 were $6,897, $9,095, and $11,355, respectively. The loss from operations of the discontinued Electronic Components business from September 30, 1994 to December 31, 1994, which is included in the loss on disposal, was $326, net of a tax benefit of $209. NOTE 3 - SHAREHOLDERS' EQUITY COMMON STOCK - On July 20, 1994, the Company completed a rights offering of Common Stock in which 7,352,942 shares were issued for gross proceeds of $2,500 ($2,332, net of expenses). As a result of the completion of the rights offering, the total number of outstanding shares of Common Stock as of December 31, 1994 is 12,538,012. PREFERRED STOCK - The certificate of designation (as amended in 1991) setting forth the amended terms of the Company's $1.20 (formerly $3.75) Cumulative Exchangeable Redeemable Preferred Stock provides for, among other things, (1) a liquidation preference of $8 per share, (2) an annual dividend of $1.20 per share, and (3) the ability to pay dividends thereon in additional shares instead of cash up to March 1, 1996. The Company's Senior Credit Facility, however, prohibits the payment of cash dividends (see Note 4). The Company at its option may redeem the Preferred Stock at a price of $8.00 per share or an amount per share equal to the product of 1.1 and the average of the NASDAQ daily closing prices per share (defined in general to be the average of the highest reported bid and the lowest reported asked prices) for ten consecutive trading days, as defined, together with all accrued and unpaid dividends to the redemption date. Since August, 1991, the Company has paid quarterly dividends on the Preferred Stock in additional shares at an annual rate of 15% based on the shares outstanding. F-10 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 4 - LONG-TERM DEBT
1994 1993 ------- ------- Credit Facility . . . . . . . . . . $10,493 $24,600 Industrial Revenue Bond . . . . . . 1,870 1,870 ------- ------- 12,363 26,470 Less current portion. . . . . . . . 442 1,200 ------- ------- $11,921 $25,270 ------- ------- ------- -------
On July 20, 1994, the Company obtained a new $15,000 four-year, senior secured credit facility (the "Senior Credit Facility"). The proceeds of the Senior Credit Facility along with the net proceeds of the rights offering (see Note 3) were used to repurchase the Company's bank indebtedness at a discount and to provide additional working capital. As a result of the repurchase of indebtedness, an extraordinary gain of $5,856, net of a charge in lieu of taxes of $3,744, was recorded. Subsequent to December 31, 1994, the Company negotiated an amendment to the Senior Credit Facility increasing the amount that can be borrowed under the facility to $17,500, subject to availability based on the satisfaction of certain borrowing base formulas. Had this amendment been effective as of December 31, 1994, $15,800 of the $17,500 credit facility would have been available to the Company. Borrowings under the Senior Credit Facility bear interest at a fluctuating rate per annum equal to the rate of interest publicly announced by Chemical Bank as its prime rate plus 2.5% (the prime rate was 8.5% at December 31, 1994). A commitment fee of .5% is payable on any unused amount of the Senior Credit Facility. The Senior Credit Facility contains certain restrictive covenants which, among other things, impose limitations with respect to the incurrence of additional liens, mergers, consolidations and specified sale of assets. In addition, the Senior Credit Facility prohibits the payment of cash dividends. Borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company. The Company had outstanding at December 31, 1993, industrial development revenue bonds (the "Bonds") in the amount of $1,870 secured by its Gilford, NH manufacturing facility which has a net carrying amount of approximately $2,400. The bonds are payable in 2005. During 1994, the bonds were remarketed and, as a result, a letter of credit securing repayment was released and the interest rate was converted from a floating rate to a fixed rate of 13% per annum. Scheduled debt maturities during the next five years, which are comprised solely of payment under the Company's Senior Credit Facility (as amended) are $442 (1995), $589 (1996), $589 (1997) and $8,873 (1998). F-11 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 5 - BALANCE SHEET INFORMATION The details of certain balance sheet accounts are as follows:
1994 1993 -------- ------- INVENTORIES: Raw materials . . . . . . . . . . . . . $ 2,551 $ 5,820 Work-in-process . . . . . . . . . . . . 5,879 5,225 Finished goods. . . . . . . . . . . . . 6,097 7,752 -------- ------- $14,527 $18,797 -------- ------- -------- ------- NET PROPERTY, PLANT AND EQUIPMENT: Land. . . . . . . . . . . . . . . . . . $ 600 $ 600 Buildings and improvements. . . . . . . 3,562 3,506 Machinery and equipment . . . . . . . . 7,490 7,942 ------- ------- 11,652 12,048 Less accumulated depreciation and amortization . . . . . . . . . . . 3,662 2,659 ------- ------- $ 7,990 $ 9,389 ------- ------- ------- ------- ACCRUED EXPENSES AND OTHER LIABILITIES: Compensation and related benefits . . . $ 2,180 $ 1,813 Motion Control relocation . . . . . . . 81 953 Legal . . . . . . . . . . . . . . . . . 443 236 Other . . . . . . . . . . . . . . . . . 3,237 2,049 ------- ------- $ 5,941 $ 5,051 ------- ------- ------- -------
NOTE 6 - INCOME TAXES At December 31, 1994, the Company has net operating loss carryforwards of approximately $11,250 which expire in the years 2005 through 2008 and alternative minimum tax credit carryforwards of approximately $320. In addition, the Company has approximately $8,200 of previously unrecognized tax benefits, principally related to inventories. As the portion of the loss carryforwards and deferred tax benefits originating prior to the 1991 quasi- reorganization are realized, the corresponding tax effect will be credited to Capital in Excess of Par under quasi-reorganization accounting principles rather than reducing the Provision for Taxes. In 1994, $2,182 was credited to Capital in Excess of Par representing the utilization of such pre quasi-reorganization tax benefits to offset current year tax expense related to both continuing and discontinued operations as well as the extraordinary gain. As of December 31, 1994, $5,008 of the pre quasi-reorganization tax effected benefits remain unutilized. The utilization and realization of the carryforwards and future tax benefits will substantially reduce or eliminate the amount of cash taxes payable on taxable income in the future. F-12 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 6 - INCOME TAXES (CONT'D) The Company utilizes the liability method (SFAS No. 109) in accounting for income taxes. Income (loss) from continuing operations before taxes is from domestic sources only for the three years ended December 31, 1994. The provision for taxes on income from continuing operations consists of:
1994 1993 1992 ------ ------ ------ Current taxes: U.S. Federal - charge in lieu of taxes . . . . . . . $ 14 $ -- $ 18 State and local. . . . . . . . . . . . . 3 9 ---- ----- ----- 17 -- 27 ---- ----- ----- Deferred taxes: U.S. Federal . . . . . . . . . . . . . . ---- ----- ----- $ -- $ -- $ 27 ---- ----- ----- ---- ----- -----
The reasons for the difference between the provision for taxes and the amount computed by applying the statutory federal income tax rate to income (loss) before taxes are as follows:
1994 1993 1992 ------ ------ ------ U.S. federal statutory rate. . . . . . . . . . 34% 34% 34% Computed expected tax provision (benefit). . . $ 15 $(1,539) $ 44 Increase (decrease) in taxes resulting from: State and local taxes, net of federal tax benefit. . . . . . . . . . . . . . . . 2 6 Recognition of previously unrecognized deferred tax assets. . . . . . . . . . . . (71) (94) Amortization of goodwill. . . . . . . . . . 71 71 71 Portion of loss not currently realizable . . . 1,468 ---- ------- ----- Actual tax provision . . . . . . . . . . . . . $ 17 $ -- $ 27 ---- ------- ----- ---- ------- -----
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
December 31, ----------------- 1994 1993 ------- ------- Tax net operating loss carryfowards . . . . $ 4,130 $ 5,100 Inventory valuation differences . . . . . . 1,736 3,050 Other, net. . . . . . . . . . . . . . . . . 1,057 486 ------- ------- Sub-Total . . . . . . . . . . . . . . . . 6,923 8,636 Valuation allowance . . . . . . . . . . . . (6,923) (8,636) ------- ------- Total deferred taxes. . . . . . . . . . . . $ -- $ -- ------- ------- ------- -------
Total federal, foreign and state and local income taxes paid (refunded), net of refunds, in 1994, 1993 and 1992 were $(9), $(8) and $57, respectively. F-13 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 7 - PENSION ARRANGEMENTS The Company terminated its noncontributory defined benefit plan covering substantially all employees not subject to a collective bargaining agreement in 1992. Included in the determination of 1992 pension expense is a curtailment loss of $16 relating to this plan. The Company has two other plans for which benefits and participation have been frozen. Pension benefits under these plans are generally based upon years of service and compensation. The Company's funding policy is to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company may determine to be appropriate from time to time. Multi-employer plans covering certain union members generally provided benefits of stated amounts for each year of service. During 1994, in connection with the restructuring of the Motion Control group (see Note 8), the employment of the union members participating in these multi-employer plans ended and, as a result, contributions to these plans ceased. As of December 31, 1994, there were no unpaid contributions to multi-employer plans. A summary of components of net periodic pension cost for the defined benefit plans and the total contribution charged to pension expense for the multi-employer plans follows:
1994 1993 1992 ------ ------ ------ Defined benefit plans: Service cost-benefits earned during the period. . . . . . . . . . . . . $ -- $ -- $ 14 Interest cost on projected benefit obligation . . . . . . . . . . . . . . . . 73 105 163 Actual return on plan assets. . . . . . . . 1 5 (30) Net amortization and deferral . . . . . . . (5) (10) (16) ---- ---- ---- Net pension cost of defined benefit plans. . . . . . . . . . . . . . . . . . . 69 100 131 Multi-employer plans. . . . . . . . . . . . 59 301 427 Curtailment loss. . . . . . . . . . . . . . 16 ---- ---- ---- Total pension expense . . . . . . . . . . . $128 $401 $574 ---- ---- ---- ---- ---- ----
Assumptions used in accounting for the defined benefit plans as of the plans' measurement dates were:
1994 1993 1992 ------ ------ ------ Weighted-average discount rate. . . . . . . 7.5% 7.5% 7.3% Expected long-term rate of return on assets . . . . . . . . . . . . . . . . 6.0% 7.3% 7.0%
F-14 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 7 - PENSION ARRANGEMENTS, (CONT'D) The following table sets forth the funded status and amount recognized in the consolidated balance sheets for the Company's defined benefit pension plans. Computations for certain plans were made using a September 30 measurement date.
1994 1993 1992 ------ ------ ------ Actuarial present value of benefit obligations: Vested benefit obligation. . . . . . . . . $1,026 $1,003 $1,866 ------ ------ ------ ------ ------ ------ Accumulated benefit obligation . . . . . . $1,026 $1,003 $1,866 ------ ------ ------ ------ ------ ------ Projected benefit obligation . . . . . . . $1,026 $1,003 $1,866 Less plan assets at fair market value. . . 32 35 642 ------ ------ ------ Projected benefit obligation in excess of plan assets . . . . . . . . . . . . . . . 994 968 1,224 Unrecognized net gain. . . . . . . . . . . 83 80 111 ------ ------ ------ Net pension liability recognized in the balance sheet . . . . . . . . . . . . . . $1,077 $1,048 $1,335 ------ ------ ------ ------ ------ ------
Unrecognized net gains and losses are amortized over the average future service lives of participants. Plan assets are primarily invested in fixed income instruments. Under the Company's 401(k) plan, eligible employees may elect to contribute a percentage of their earnings which the Company has matched up to 3% of gross earnings based on the level of consolidated income. Company matching contributions were $363 in 1994 and $423 in 1992. The Company made no matching contribution in 1993. NOTE 8 - OTHER INFORMATION RESTRUCTURING PLAN - During 1993, the Company announced its plan to restructure its Motion Control group. The motion control business had been organized as two separate divisions. The plan consolidated the two divisions under a single operating management based in San Diego. In connection with the restructuring, the Company recorded a charge of $3,500. The charge included $2,300 for the write-down of slow moving and excess inventory to net realizable value. In addition, $1,200 was recorded for severance, early retirement, other employee-related benefits and other related charges. As part of the restructuring, the Company has closed and is in the process of selling the Deer Park, New York facility. During 1994, the Company recorded an additional $1,315 charge related to this restructuring, $1,015 of which is to provide additional inventory reserves to reflect slower turnover of the inventory than was anticipated in the 1993 charge calculation. The remaining $300 of the 1994 charge is to adjust the carrying amount of other assets held for disposal in connection with the restructuring to reflect current market values. F-15 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 8 - OTHER INFORMATION, (CONT'D) STOCK OPTIONS - Options to purchase up to 218,000 shares of Vernitron common stock, with exercise prices of $.75 - $.83 per share, have been issued to certain key employees of the Company. Of that amount, 102,000 options are vested, with the balance becoming vested as follows: 47,900 (1995), 37,800 (1996) and 30,300 (1997). These options are exercisable for up to seven years from the date of grant. There are 532,000 shares available for future grant. INTEREST PAID - in 1994, 1993 and 1992 was $1,883, $2,168 and $2,346, respectively. NOTE 9 - COMMITMENTS AND CONTINGENCIES Future minimum payments, under noncancellable operating leases (exclusive of property expenses and net of sublease rental income), as of December 31, 1994, are as follows: 1995 . . . . . . . . . . . . . $ 1,581 1996 . . . . . . . . . . . . . 1,542 1997 . . . . . . . . . . . . . 1,489 1998 . . . . . . . . . . . . 1,257 1999 . . . . . . . . . . . . . 1,176 2000 and thereafter. . . . . . 409 ------- $ 7,454 ------- ------- Rent expense under such leases, net of sublease rental income, amounted to $1,379 in 1994, $1,348 in 1993 and $1,308 in 1992. In February 1990, the Company sold and leased back its San Diego, California facility under an operating lease. The Company has a deferred gain as of December 31, 1994 on this transaction of $651, which is being amortized to income over the ten year lease term as a reduction of annual rent expense. The Company is a defendant in various lawsuits, none of which is expected to have a material adverse effect on the Company's financial position or results of operations. F-16 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS VERNITRON CORPORATION (DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E COL. F - -------------------------------------------------------------------------------------------------------------------------------- Additions ------------------------ Balance at Charged to Charged to Beginning Costs and Other Balance at Classification of Period Expenses Accounts Deductions End of Period -------------- ---------- ---------- ----------- ---------- -------------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended December 31, 1994: $278 $124 $ 57(a) $345 Year ended December 31, 1993: $291 $ 40 $ 53(a) $278 Year ended December 31, 1992: $466 $ 51 $226(a) $291 - -------------------- (a) Uncollectible accounts written off, net of recoveries.
F-17 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION SEQ. PG. NO. - ------- ----------- ------------ 3(1) Certificate of Incorporation of the Registrant (filed as Exhibit 1 to the Form 8-A, filed on August 8, 1991 (the "Form 8-A") and incorporated herein by reference). 3(2) By-Laws of the Registrant (filed as Exhibit 2 to the Form 8-A and incorporated herein by reference). 4(1) Certificate of the Designation, Powers, Preferences and Rights of the $3.75 Cumulative Exchangeable Redeemable Preferred Stock ("Preferred Stock") (filed as Exhibit 4(2) to the Registrant's Registration Statement on Form S-4 (Registration Number 33-16310), filed on August 6, 1987 (the "Registration Statement") and incorporated herein by reference). 4(2) Certificate of Amendment of Certificate of Incorporation Effecting the Amendment and Restatement of the Certificate of the Designation, Powers, Preferences and Rights of the Preferred Stock, dated as of August 14, 1991 (filed as Exhibit 4(2) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-K") and incorporated herein by reference). 4(3) Form of Indenture between Registrant and the Bank of Montreal Trust Company, as Trustee, relating to the 15% Subordinated Debentures of the Registrant, issuable at the option of the Registrant in exchange for the Preferred Stock (filed as Exhibit 4(1) to the Registration Statement and incorporated herein by reference). 10(1) Indenture of Trust by and between the Industrial Development Authority of the State of New Hampshire and Laconia Peoples National Bank and Trust Company for $3,000,000 principal amount of Industrial Development Authority of the State of New Hampshire Floating Rate Monthly Demand Industry Facility Bonds (filed as Exhibit 10(18) to the Registrant's Annual Report or Form 10-K for the fiscal year ended December 28, 1985, filed on April 15, 1986 (the "1985 Form 10-K") and incorporated herein by reference). 10(2) Loan Agreement by and among the Industrial Development Authority of the State of New Hampshire, the Registrant and V Land Corporation for $3,000,000 principal amount of Industrial Development Authority of the State of New Hampshire Floating Rate Monthly Demand Industry Facility Bonds (filed as Exhibit 10(19) to the 1985 Form 10-K and incorporated herein by reference). 10(3) Reimbursement Agreement by and among V Land Corporation, the Registrant and National Westminster Bank PLC for $3,000,000 principal amount of Industrial Development Authority of the State of New Hampshire Floating Rate Monthly Demand Industry Facility Bonds (filed as Exhibit 10(20) to the 1985 Form 10-K and incorporated herein by reference). E-1 EXHIBIT NUMBER DESCRIPTION SEQ. PG. NO. - ------- ----------- ------------ 10(4) Bond Purchase Agreement by and between E.F. Hutton & Company, Inc. and the Industrial Development Authority of the State of New Hampshire for $3,000,000 principal amount of the Industrial Development Authority of the State of New Hampshire Floating Rate Monthly Demand Industry Facility Bonds (filed as Exhibit 10(21) to the 1985 Form 10-K and incorporated herein by reference). 10(5) Amended and Restated Credit Agreement, dated as of March 28, 1991 (the "Credit Agreement") by and among the Registrant, The Bank of New York and National Westminster Bank USA (filed as Exhibit 10(5) to the Form 10-K for the fiscal year ended December 30, 1990, filed on March 28, 1991 (the "1990 Form 10-K") and incorporated herein by reference). 10(6) Amendment No. 1 to the Credit Agreement, dated as of December 31, 1991 (filed as Exhibit 10(6) to the 1991 Form 10-K and incorporated herein by reference). 10(7) Security Agreement dated as of August 28, 1987 among the Registrant, certain subsidiaries of the Registrant, Irving Trust Company, National Westminster Bank USA and Irving Trust Company, as Collateral Agent (filed as Exhibit 10(79) to Post-Effective Amendment No. 1, filed on September 2, 1987 to the Registration Statement (the "Post-Effective Amendment") and incorporated herein by reference). 10(8) Stock Pledge and Security Agreement dated as of August 28, 1987 among the Registrant, certain subsidiaries of the Registrant, Irving Trust Company, National Westminster Bank USA and Irving Trust Company as Collateral Agent (filed as Exhibit 10(80) to the Post-Effective Amendment and incorporated herein by reference). 10(9) Reimbursement, Contribution and Subrogation Agreement (the "Reimbursement Agreement") dated as of August 28, 1987 among certain subsidiaries of the Registrant (filed as Exhibit 10(81) to the Post-Effective Amendment and incorporated herein by reference). 10(10) Waiver/Amendment dated as of August 28, 1987 to Reimbursement Agreement, as amended, between the Registrant, V Land Corporation and National Westminster Bank PC (filed as Exhibit 10(78) to the Post-Effective Amendment and incorporated herein by reference). 10(11) Fifth amendment dated as of June 15, 1990, to Reimbursement Agreement (filed as Exhibit 10(10) to the 1990 Form 10-K and incorporated herein by reference). E-2 EXHIBIT NUMBER DESCRIPTION SEQ. PG. NO. - ------- ----------- ------------ 10(12) Employment Agreement dated as of September 5, 1989, by and between the Registrant and Edward M. Murchie (filed as Exhibit 10(32) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989, filed on March 28, 1990 (the "1989 Form 10-K") and incorporated herein by reference). 10(13) Agreement by and between the Registrant and John R. Slowik, dated as of September 17, 1990 (filed as Exhibit 10(14) to the 1990 Form 10-K and incorporated herein by reference). 10(14) Agreement by and between the Registrant and One Lambda, Inc., dated as of December 27, 1990 (filed as Exhibit 10(15) to the 1990 Form 10-K and incorporated herein by reference). 10(15) Form of Indemnification Agreement (filed as Exhibit 10(16) to the 1990 Form 10-K and incorporated herein by reference). 10(16) Vernitron Corporation Long-Term Stock Incentive Plan (filed as Exhibit 10(16) to the 1991 Form 10-K and incorporated herein by reference). 10(17) Form of Stock Option Agreement, dated as of September 30, 1991 (filed as Exhibit 10(17) to the 1991 Form 10-K and incorporated herein by reference). 10(18) Amendment No. 2 to the Credit Agreement, dated as of December 31, 1992 (filed as Exhibit 10(18) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (the "1992 Form 10-K") and incorporated herein by reference). 10(19) Amendment No. 3 to the Credit Agreement, dated as of September 30, 1993 (filed as Exhibit 10(19) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 Form 10-K") and incorporated herein by reference). 10(20) Amendment No. 4 to the Credit Agreement, dated as of December 29, 1993 (filed as Exhibit 10(20) to the 1993 Form 10-K and incorporated herein by reference). 10(21) Amendment No. 5 to the Credit Agreement, dated as of March 15, 1994 (filed as Exhibit 10(21) to the 1993 Form 10-K and incorporated herein by reference). 10(22) Letter Agreement, dated March 15, 1994, between Vernitron Corporation and The Bank of New York and National Westminster Bank USA (filed as Exhibit 10(1) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1994 (the "1994 First Quarter Form 10- Q") and incorporated herein by reference). 10(23) Letter Agreement, dated May 4, 1994, between Vernitron Corporation and The Bank of New York and National Westminster Bank USA (filed as Exhibit 10(2) to the 1994 First Quarter Form 10- Q and incorporated herein by reference). E-3 EX-10.(37) 2 EXHIBIT 10(37) March 17, 1995 THE CIT GROUP/CREDIT FINANCE, INC. 135 West 50th Street New York, New York 10020 Re: AMENDMENT TO FINANCING AGREEMENTS Gentlemen: Reference is made to certain financing arrangements heretofore entered into between VERNITRON CORPORATION ("Borrower") and THE CIT GROUP/CREDIT FINANCE, INC. ("Lender") pursuant to certain financing agreements, including, but not limited to, the Loan and Security Agreement dated July 20, 1994 entered into between Borrower and Lender (the "Loan Agreement"), the $2,451,000 Promissory Note dated July 20, 1994 (the "Note") and related agreements, documents, instruments, notes, mortgages and guaranties creating or evidencing indebtedness or granting collateral security therefor, executed and delivered in connection therewith (all of the foregoing, as the same may now exist or may hereafter be amended, modified, supplemented, renewed, extended or replaced are hereinafter collectively referred to as the "Financing Agreements"). All capitalized terms used herein which are not otherwise defined herein, shall have the respective meaning ascribed to such terms as set forth in the Loan Agreement. Borrower has requested that Lender make additional loans available to Borrower and modify and amend certain provisions of the Financing Agreements, and Lender is willing to do so subject to the terms and conditions of this Letter Re: Amendment to Financing Agreements (the "Amendment"). In consideration of the foregoing, the parties hereto hereby agree as follows: 1. (a) Contemporaneously herewith, Lender is making an additional advance to Borrower in the original principal amount of $837,050.62 (the "Additional Term Loan"). The Additional Term Loan shall be consolidated with the outstanding principal balance of the Term Loan (collectively, the "Term Loan") which Term Loan shall be evidenced by that certain Promissory Note dated of even date herewith in the original principal amount of $2,701,334 executed and delivered by Borrower in favor of Lender (the "Note"). All references to the "Term Loan" or "Note" (as each said quoted term is defined in the Loan Agreement) shall be deemed amended to mean the Term Loan or Note, respectively, as defined in this paragraph 1. (b) Contemporaneously with the execution and delivery of the Note to Lender, Lender is delivering to Borrower the original Promissory Note dated July 20, 1994 by Borrower in favor of Lender in the original principal amount of $2,451,000, marked "Amended and Restated and Replaced by Promissory Note dated March 17, 1995 in the original principal amount of $2,701,334". 2. (a) As a one time financial accommodation to the Borrower, Lender has agreed to make a supplemental advance to Borrower in respect of Eligible WIP Inventory. As of the date hereof, after giving effect to such advance, the outstanding principal amount of the WIP Advance, as defined in Section 2.1(e)(ii) of the Loan Agreement, is $825,000. (b) Notwithstanding anything to the contrary contained in Section 2.1(e)(ii) of the Loan Agreement, (i) the WIP Advance shall be repaid in forty-eight (48) consecutive monthly installments, on the first (1st) day of each month, commencing April 1, 1995, of which the first forty-seven (47) installments shall each be in the amount of $17,187.50 and the last and forty- eighth (48th) installment shall be in the amount of the then unpaid outstanding balance of the WIP Advance; and (ii) if for any fiscal quarter (i.e., at March 31, June 30, September 30 or December 31 of any year) commencing with Borrower's fiscal quarter ending March 31, 1995, the Borrower's net loss before extraordinary items, and excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida, determined in accordance with GAAP, and as reported on Borrower's quarterly or annual financial statements, as the case may be, provided for under Section 6.1(c) of the Loan Agreement ("Quarterly Net Loss") exceeds $250,000, then, from and after the last day of such fiscal quarter, the monthly installments payable in respect of the WIP Advance shall be in the amount of $22,916.67 until the repayment in full of the WIP Advance; EXCEPT THAT, if, for any subsequent fiscal quarter following any fiscal quarter in which the Quarterly Net Loss exceeds $250,000, Borrower reports net income before extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida, determined in accordance with GAAP, in excess of $500,000, then, commencing with the immediately following month, the monthly installments payable in respect of the WIP Advance shall be in the amount of $17,187.50 until the WIP Advance is paid in full, PROVIDED HOWEVER, that if during any subsequent fiscal quarter the Borrower's Quarterly Net Loss again exceeds $250,000 then the monthly installments payable thereafter shall be in the increased amount of $22,916.67 as set forth above in this paragraph 2(b)(ii), subject to further reduction to $17,187.50 and to further increase to $22,916.67 in accordance with the terms hereof. (c) In addition to, and not in limitation of, the foregoing, Borrower shall make mandatory prepayments against the outstanding principal balance of the WIP -2- Advance in an amount equal to the amount by which the value at cost of Eligible WIP Inventory (as determined by Lender in its sole discretion) is less than $2,000,000. Such mandatory prepayments shall be made at such times and from time to time as Lender determines that the value, at cost, of Eligible WIP Inventory is less than $2,000,000. All payments required to be paid hereunder may, at Lender's option, be charged to any account(s) of Borrower maintained with Lender. 3. Section 3.1(b) of the Loan Agreement is hereby amended and replaced in its entirety as follows: "(b) Notwithstanding anything to the contrary contained herein, if (i) as of any Interest Adjustment Date (as defined below), the outstanding amount of loans by Lender to Borrower: (1) against Borrower's real property located in St. Petersburg, Florida as provided in Section 10.2(a)(i) hereof does not exceed 50% of the quick-sale value thereof, as determined by Lender in its sole discretion, AND (2) against Borrower's Equipment, as provided for in Section 10.2(a)(iii) hereof does not exceed 80% of the auction value of such Equipment, as determined by Lender in its sole discretion, AND (3) against Borrower's inventory does not exceed 75% of the orderly liquidation value thereof, as determined by Lender in Lender's sole discretion, AND (4) against Borrower's AST Bearings and Beau Interconnect Accounts, as determined by Lender in its sole discretion, does not exceed 85% of the value thereof, AND (5) against Borrower's Motion Control Accounts, as determined by Lender in its sole discretion, does not exceed 83% of the value thereof AND (6) against Borrower's Precision Components Accounts, as determined by Lender in its sole discretion, does not exceed 79% of the value thereof, then from and after the Interest Adjustment Date and so long as all such advance rate limitations described above continue to be met, the Interest Rate as provided under Section 3.1 (a) and Section 10.4(a) then in effect (after giving effect to any adjustment as provided for under Section 2.1(g) hereof) shall be reduced by one-quarter of one (.25%) percent per annum; and (ii) as of any Interest Adjustment Date, if (x) all advance rate limitations under Section 3.1(b)(i) are met AND (y) the Borrower's Cash Flow (as defined below), calculated quarterly on a cumulative basis, is positive, then, from and after the Interest Adjustment Date and so long as all such advance rate limitations under Section 3.1(b)(i) continue to be met, THEN, the Interest Rate as provided under Section 3.1(a) and Section 10.4(a) then in effect (after giving effect to any adjustments as provided for under Section 2.1(g) hereof) shall be reduced, in addition to the reduction as set forth in Section 3.1(b)(i) hereof, by an additional one-quarter of one (.25%) percent per annum." 4. Notwithstanding anything to the contrary contained in Section 9.2 of the Loan Agreement, if Lender terminates the Loan Agreement upon or after the occurrence of an Event of Default, or if Borrower shall terminate the Loan Agreement as -3- permitted therein effective prior to the end of the then-current Term for any reason other than an Acquisition Financing Termination Event (as defined below), in addition to all other Obligations, Borrower shall pay to Lender, upon the effective date of termination, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits, an early termination fee equal to (a) three (3%) percent of the Maximum Credit if such termination occurs on or prior to the first anniversary of this Amendment, (b) two (2%) percent of the Maximum Credit if such termination occurs after the first anniversary and on or before the second anniversary of this Amendment, (c) one (1%) percent of the Maximum Credit if such termination occurs after the second anniversary of this Amendment. In the event the Borrower terminates the Loan Agreement in accordance with Section 9 in connection with an Acquisition Financing Termination Event, Borrower shall pay to Lender the early termination fee as set forth in Section 9.2 of the Loan Agreement. For purposes hereof, "Acquisition Financing Termination Event" shall mean a termination by Borrower of the then existing financing arrangements between Lender and Borrower resulting from Lender's inability or unwillingness to provide, upon terms reasonably acceptable to Borrower, financing for the purchase by Borrower of all or substantially all of the capital stock and/or assets of another entity, including, in connection with the financing of such purchase, the continuation, amendment or refinancing, upon terms reasonably acceptable to Borrower, of the then existing financing arrangements between Lender and Borrower. 5. Sections 10.1 and 10.2 of the Loan Agreement are hereby amended and replaced in their entirety as follows: "10.1 (a) Maximum Credit: $17,500,000 (b) Gross Availability Formulas: (i) Eligible Accounts Percentages (the term "Quarterly Net Loss" shall have the meaning as set forth in that certain Letter Re: Amendment to Financing Agreements dated March __, 1995 (the "Amendment")): (1) AST BEARINGS AND BEAU INTERCONNECT ELIGIBLE ACCOUNTS PERCENTAGE: Subject to the succeeding terms of this Section 10.1(b)(i)(1), the applicable AST Bearings and Beau Interconnect Eligible Accounts Percentage for AST Bearings and Beau Interconnect Accounts shall -4- be 90% PROVIDED, HOWEVER, that in the event that Borrower's Quarterly Net Loss for any fiscal quarter, commencing with Borrower's fiscal quarter ending March 31, 1995, exceeds $250,000 (whether the same occurs prior to or subsequent to any fiscal quarter in which Borrower reports, in any fiscal quarter, quarterly net income before extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) in excess of $500,000) the AST Bearings and Beau Interconnect Eligible Accounts Percentage shall be reduced in each succeeding month by .25%, FURTHER PROVIDED, however, that in no event shall the AST Bearings and Beau Interconnect Eligible Accounts Percentage be thereby reduced below 85%. In the event that, AFTER a fiscal quarter, commencing with Borrower's fiscal quarter ending March 31, 1995, in which Borrower's Quarterly Net Loss exceeded $250,000, Borrower reports in any such fiscal quarter quarterly net income prior to extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) exceeding $500,000, unless and until Borrower's Quarterly Net Loss in any succeeding fiscal quarter exceeds $250,000, the AST Bearings and Beau Interconnect Eligible Accounts Percentage shall be increased in each month by .25%, PROVIDED HOWEVER, that in no event shall the AST Bearings and Beau Interconnect Eligible Accounts Percentage exceed 90%. If the aggregate amount of Borrower's credits, allowances, discounts, write-offs, contra-accounts, and other offsets which reduce the value of AST Bearings and Beau Interconnect Accounts, as determined by Lender in its sole discretion, divided by gross AST Bearings and Beau Interconnect Accounts invoices ("AST BEARINGS AND BEAU INTERCONNECT DILUTION PERCENTAGE") is equal to or greater than two (2%) percent, then the AST Bearings and Beau Interconnect Eligible Accounts Percentage then in -5- effect shall be reduced by one (1%) percentage point for each percentage point, by which the AST Bearings and Beau Interconnect Dilution Percentage exceeds two (2%) percent. Any such adjustment resulting from the AST Bearings and Beau Interconnect Dilution Percentage shall be in addition to any adjustment in the AST Bearings and Beau Interconnect Eligible Accounts Percentage as provided for above. The AST Bearings and Beau Interconnect Dilution Percentage shall be calculated on a rolling 90 day average. (2) MOTION CONTROL ELIGIBLE ACCOUNTS PERCENTAGE: Subject to the succeeding terms of this Section 10.1(b)(i)(2), the applicable Motion Control Eligible Accounts Percentage shall be 85% PROVIDED, HOWEVER, that in the event that Borrower's Quarterly Net Loss for any fiscal quarter, commencing with Borrower's fiscal quarter ending March 31, 1995, exceeds $250,000 (whether the same occurs prior to or subsequent to any fiscal quarter in which Borrower reports quarterly net income before extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) in excess of $500,000) the Motion Control Eligible Accounts Percentage shall be reduced in each succeeding month by .25%, FURTHER PROVIDED, however, that in no event shall the Motion Control Eligible Accounts Percentage be thereby reduced below 80%. In the event that, AFTER a fiscal quarter, commencing with Borrower's fiscal quarter ending March 31, 1995, in which Borrower's Quarterly Net Loss exceeded $250,000, Borrower reports in any such fiscal quarter quarterly net income prior to extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) exceeding $500,000, unless and until Borrower's Quarterly Net Loss in any succeeding fiscal quarter exceeds $250,000, the Motion Control Eligible Accounts Percentage shall be increased in each month -6- by .25% PROVIDED HOWEVER, that in no event shall the Motion Control Eligible Accounts Percentage exceed 85%. If the aggregate amount of Borrower's credits, allowances, discounts, write-offs, contra-accounts, and other offsets which reduce the value of Motion Control Accounts, as determined by Lender in its sole discretion, divided by gross Motion Control invoices ("MOTION CONTROL DILUTION PERCENTAGE") is equal to or greater than five (5%) percent, then the Motion Control Eligible Accounts Percentage then in effect shall be reduced by one (1%) percentage point for each percentage point, by which the Motion Control Dilution Percentage exceeds five (5%) percent. Any such adjustment resulting from the Motion Control Dilution Percentage shall be in addition to any adjustment in the Motion Control Eligible Accounts Percentage as provided for above. The Motion Control Dilution Percentage shall be calculated on a rolling 90 day average. (3) PRECISION COMPONENTS ELIGIBLE ACCOUNTS PERCENTAGE: Subject to the succeeding terms of this Section 10.1(b)(i)(3), the applicable Precision Components Eligible Accounts Percentage shall be 84% PROVIDED, HOWEVER, that in the event that Borrower's Quarterly Net Loss for any fiscal quarter, commencing with Borrower's fiscal quarter ending March 31, 1995, exceeds $250,000 (whether the same occurs prior to or subsequent to any fiscal quarter in which Borrower reports quarterly net income before extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) in excess of $500,000) the Precision Components Eligible Accounts Percentage shall be reduced in each succeeding month by .25%, FURTHER PROVIDED, however, that in no event shall the Precision Components Eligible Accounts Percentage be thereby reduced below 79%. In the event that, AFTER a fiscal quarter, commencing with Borrower's fiscal quarter ending March 31, 1995, in which Borrower's -7- Quarterly Net Loss exceeded $250,000, Borrower reports in any such fiscal quarter quarterly net income prior to extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) exceeding $500,000, unless and until Borrower's Quarterly Net Loss in any succeeding fiscal quarter exceeds $250,000, the Precision Components Eligible Accounts Percentage shall be increased in each month by .25%, PROVIDED HOWEVER, that in no event shall the Precision Components Eligible Accounts Percentage exceed 84%. If the aggregate amount of Borrower's credits, allowances, discounts, write-offs, contra-accounts, and other offsets which reduce the value of Precision Component Accounts, as determined by Lender in its sole discretion, divided by gross Precision Component Accounts invoices ("PRECISION COMPONENT ACCOUNTS DILUTION PERCENTAGE") is equal to or greater than six (6%) percent, then the Precision Component Eligible Accounts Percentage then in effect shall be reduced by one (1%) percentage point for each percentage point, by which the Precision Component Accounts Dilution Percentage exceeds six (6%) percent. Any adjustment resulting from the Precision Component Accounts Dilution Percentage shall be in addition to any adjustment in the Precision Component Accounts Percentage as provided for above. The Precision Component Accounts Dilution Percentage shall be calculated on a rolling 90 day average. (ii) Eligible Inventory Percentages - Borrower hereby acknowledges, confirms and agrees that each of the Eligible Inventory Percentages as set forth below in this Section 10.1(b)(ii) is based upon 90% of the orderly liquidation value as set forth in the Accuval Associates, Inc. appraisal dated March, 1994 ("INVENTORY APPRAISAL"). In addition to, and not in limitation of, Lender's rights hereunder, commencing with Borrower's fiscal year ending December 31, 1995, after any fiscal year in which Borrower's net loss (before extraordinary items and excluding any loss arising from the sale of -8- Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida) exceeds $1,000,000, Lender shall in the succeeding year have the right to update the Inventory Appraisal, at Borrower's sole cost and expense, and Lender shall have the right to adjust the Eligible Inventory Percentages as set forth herein accordingly. The Borrower further acknowledges, confirms and agrees that in the event that Borrower's Quarterly Net Loss exceeds $250,000 during the Term of this Agreement (whether the same occurs prior to or subsequent to any fiscal quarter in which Borrower reports quarterly net income before extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) in excess of $500,000), then commencing with the first month immediately following said quarter, each of the Eligible Inventory Percentages as set forth in this Section 10.1(b)(ii) shall be recalculated based upon an orderly liquidation value reduced by .25% each month, PROVIDED, however, that in no event shall the advance rate be calculated on less than 80% of the orderly liquidation value of the Eligible Inventory as set forth in the Inventory Appraisal. In the event that, AFTER a fiscal quarter in which Borrower's Quarterly Net Loss exceeded $250,000, Borrower reports net income prior to extraordinary items, excluding any loss arising from the sale of Borrower's owned real estate located in Deer Park, New York and St. Petersburg, Florida (determined in accordance with GAAP) for any fiscal quarter exceeding $500,000, unless and until Borrower's Quarterly Net Loss in any succeeding fiscal quarter exceeds $250,000, each of the Eligible Inventory Percentages as set forth in this Section 10.1(b)(ii) shall be recalculated each month based upon an orderly liquidation value increasing by .25% each month, PROVIDED, HOWEVER, that in no event shall such advance rates be calculated based upon greater than 90% of the orderly liquidation value of the Eligible Inventory as set forth in the Inventory Appraisal: (1) For acceptable and eligible finished good inventory of each of the following Divisions or Groups of Borrower, as Lender may in its sole discretion classify inventory -9- of Borrower, the following shall be the respective applicable Eligible Inventory Percentages: (A) AST Bearings Division Slow Moving (as defined below) ball bearing inventory 36% (B) AST Bearings Division Fast Moving (as defined below) ball bearing inventory 54% (C) INTENTIONALLY OMITTED (D) Precision Components Group Non-Trimmer inventory located in St. Petersburg, Florida 9% (E) Beau Interconnect Systems Division Inventory #1 (Standard) 45% (F) Beau Interconnect Systems Division Inventory #2 (Purch. For Resale) 14% (G) Beau Interconnect Systems Division Inventory #3 (Std. Allocated) 68% (H) Beau Interconnect Systems Division Inventory #4 (Purch. For Resale) 23% (I) Beau Interconnect Systems Division Inventory #5 (On The Floor) 45% For the purposes of this Section 10.1(b)(ii), "SLOW MOVING" is defined as finished goods inventory that turns less than once a year but more than once every five years (as determined by Lender in its discretion) and "FAST MOVING" is defined as finished goods inventory that turns more than once a year (as determined by Lender in its discretion). -10- (2) For acceptable and eligible raw material inventory of each of the following Divisions or Groups of Borrower, as Lender may in its sole discretion classify inventory of Borrower, the following shall be the respective applicable Eligible Inventory Percentages: (A) Motion Control Group raw materials 9% (B) Precision Components Group raw materials 9% (C) Beau Interconnect Systems Division raw materials #1 (Metal) 54% (D) Beau Interconnect Systems Division raw materials #2 (Compound) 63% (E) Beau Interconnect Systems Division raw materials #3 (Screws Purch.) 45% (F) Beau Interconnect Systems Division raw materials #4 (Purch. Hdwre-Europe) 27% (G) Beau Interconnect Systems Division raw materials #5 (Other Purchased) 9% (H) Beau Interconnect Systems Division raw materials #6 (On The Floor) 45% (I) Beau Interconnect Systems Division raw materials #7 (Brass Salvage) 72% (J) Beau Interconnect Systems Division raw materials #8 (Bulk) 23% (K) Beau Interconnect Systems Division raw materials #9 (QC Awaiting) 45% (L) Beau Interconnect Systems Division raw materials #10 (Screw Adj.) 23% -11- (c) Inventory Sublimit(s): The maximum aggregate outstanding amount of Revolving Loans against Eligible Inventory, plus the WIP Advance then outstanding, shall not exceed, at any one time outstanding, the aggregate principal amount of $6,000,000 ("INVENTORY SUBLIMIT"). Additionally, the maximum aggregate amount of Revolving Loans against Eligible Inventory outstanding at any one time PLUS the then outstanding principal balance of the WIP Advance shall not exceed, in the aggregate, seventy-five (75%) percent of the aggregate amount of Revolving Loans then available with respect to the Borrower's Eligible Accounts. (d) Minimum Borrowing: (i) $9,000,000 (ii) $5,000,000 (e) Maximum days after Invoice Date for Eligible Accounts: 90 (f) Accounts Sublimits: The maximum outstanding aggregate amount of Revolving Loans made by Lender to Borrower hereunder against all U.S. Government Accounts and Foreign Accounts shall not exceed, at any one time outstanding, the aggregate amount of $1,000,000 PROVIDED THAT, within such sublimit (i) the maximum aggregate amount of Revolving Loans against Foreign Subsidiary Accounts shall not exceed, at any one time outstanding, the aggregate amount of $500,000 and (ii) the maximum aggregate amount of Revolving Loans against Open Foreign Accounts shall not exceed, at any one time outstanding, the aggregate amount of $25,000 against any individual account debtor and the aggregate amount of $500,000 against all Open Foreign Accounts. 10.2 Term Loan: $2,701,334 (a) Sublimits: (i) St. Petersburg, Florida real estate $882,000 (ii) Deer Park, New York real estate $880,000 (iii) Equipment $939,334 6. Except as specifically set forth herein, no other changes or modifications to the Loan Agreement, the Note or the other Financing Agreements are intended or implied, and in all other respects the Loan Agreement, the Note and the other -12- Financing Agreements are hereby specifically ratified and confirmed in accordance with their respective terms as of the date hereof. 7. In the event any term or provision of the Loan Agreement, the Note or the other Financing Agreements conflicts with any term or provision of this letter agreement, the term or provision of this letter agreement shall control. Very truly yours, VERNITRON CORPORATION By: /S/ RAYMOND F. KUNZMANN ---------------------------------------------- Title: Vice President ------------------------------------------- ACCEPTED: THE CIT GROUP/CREDIT FINANCE, INC. By: /S/ BENJAMIN SZTEINBERG -------------------------- Title: Assistant Vice President ---------------------------- -13- EX-10.(38) 3 EXHIBIT 10(38) PURSUANT TO SECTION 201.08 OF FLORIDA STATUTES, FLORIDA DOCUMENTARY STAMP TAXES REQUIRED TO BE PAID ON ACCOUNT OF THAT PORTION OF THE INDEBTEDNESS EVIDENCED BY THIS PROMISSORY NOTE WHICH IS SECURED BY THE MORTGAGE AND SECURITY AGREEMENT DATED JULY 20, 1994, AS MODIFIED BY THE MORTGAGE MODIFICATION AGREEMENT DATED OF EVEN DATE HEREWITH GRANTED BY MAKER IN FAVOR OF PAYEE (COLLECTIVELY, THE "FLORIDA MORTGAGE") HAVE BEEN PAID, AND THE DOCUMENTARY STAMPS SO PURCHASED HAVE BEEN AFFIXED TO THE FLORIDA MORTGAGE RECORDED IN THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, ON OR ABOUT JULY 21, 1994, AND CANCELLED. PROMISSORY NOTE $2,701,334 New York, New York March 17, 1995 FOR VALUE RECEIVED, the undersigned, a Delaware corporation ("Maker"), hereby unconditionally promises to pay to the order of THE CIT GROUP/CREDIT FINANCE, INC. (the "Payee"), at its offices located at 135 West 50th Street, New York, New York 10020 or at such other place as the Payee or any holder hereof may from time to time designate, the principal sum of TWO MILLION SEVEN HUNDRED ONE THOUSAND THREE HUNDRED THIRTY-FOUR ($2,701,334) DOLLARS in lawful money of the United States and in immediately available funds, in eighty-four (84) consecutive monthly installments (or earlier, as hereinafter provided) commencing April 1, 1995 and on the first day of each month thereafter, of which the first eighty-three (83) installments shall each be in the amount of Thirty Two Thousand One Hundred Fifty-Eight and 74/100 ($32,158.74) Dollars, and the eighty-fourth (84th) installment shall be in the amount of the entire unpaid balance hereof. Maker hereby further promises to pay interest to the order of Payee in like money at said office or place on the unpaid principal balance hereof computed at the rate of interest as set forth in paragraphs 3.1 and 10.4(a) of the Loan and Security Agreement dated July 20, 1994, executed and delivered by Maker in favor of Payee, as amended by that certain Letter Re: Amendment to Financing Agreements dated of even date herewith (the "Loan Agreement"; together with all agreements, documents and instruments now or at any time hereafter executed and/or delivered in connection therewith or otherwise related thereto, as the same may now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"). Such interest shall be payable commencing on the first day of the month next following the date hereof (i.e., April 1, 1995 and on the first day of each month thereafter. Interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. In no event shall the interest charged hereunder exceed the maximum permitted under the laws of the State in which the office of Payee set forth above is located. The term "Event of Default" shall mean an Event of Default under the Financing Agreements. This Note is issued as evidence of certain indebtedness arising pursuant to the terms and provisions of the Loan Agreement. This Note is entitled to the benefits of the Financing Agreements and is secured by, and entitled to the benefits of, any and all collateral security pledged or granted by Maker or related parties to Payee as set forth in the Financing Agreements or otherwise. This Note may be prepaid, in whole or in part, as provided in the Financing Agreements. Any prepayment made by Maker which is not made in connection with the termination of the Financing Agreements, under Section 9.2 of the Loan Agreement, shall not be subject to any penalty or premium. At the time any payment is due hereunder, at its option, Payee may charge the amount thereof to any account(s) of Maker, or any guarantors thereof, maintained by Payee. If any principal or interest payment is not made when due hereunder or if any Event of Default shall occur for any reason under the Financing Agreements, or if the Financing Agreements shall be terminable or be terminated or not renewed for any reason, then and in any such event, in addition to all rights and remedies of the Payee under the Financing Agreements, applicable law and otherwise, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively and concurrently, Payee may, at its option, declare any or all of Maker's obligations, liabilities and indebtedness owing Payee under the Financing Agreements, including, without limitation, any or all amounts owing under this Note (the "Obligations"), to be due and payable, whereupon the then unpaid balance thereof together with all interest accrued thereon shall forthwith become due and payable, together with interest accruing thereafter at the highest rate provided for in this Note or the other Financing Agreements until this Note and such other Obligations are fully paid, plus the costs and expenses of collection thereof, including attorneys' fees and legal expenses. Maker hereby waives diligence, demand, presentment, protest and notice of any kind and assents to extensions of the time of payment, release, surrender or substitution of collateral security or forbearance or other indulgence, without notice. Payee shall not be required to attempt to realize upon any collateral security for payment, -2- but may proceed against Maker and any guarantors in such order or manner as Payee may choose. The provisions of this Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the party to be charged, nor shall any waiver be applicable except in the specific instance for which it is given. Payee agrees not to assign this Note except in accordance with Section 9.6 of the Loan Agreement. Maker hereby waives all rights to trial by jury in any action or proceeding instituted by either Maker or Payee against the other arising on, out of or by reason of this Note, any alleged tortious conduct by Maker or Payee or in any way, directly or indirectly, arising out of or related to the relationship between Maker and Payee. In no event will Payee be liable for lost profits or other special or consequential damages. Maker hereby waives all rights to interpose any claims, deductions, setoffs or counterclaims of any kind, nature or description in any action or proceeding instituted by Maker with respect to this Note or any matter arising herefrom or relating hereto, except compulsory counterclaims. Maker hereby irrevocably submits and consents to the non-exclusive jurisdiction of the State and Federal Courts located in the State of New York with respect to any action or proceeding arising out of this Note or any matter arising herefrom or relating hereto. Any such action or proceeding commenced by Maker against Payee will be litigated only in a Federal Court located in the district, or a State Court in the State and County, in which the office of Payee set forth above is located and Maker waives any objection based on FORUM NON CONVENIENS and any objection to venue in connection therewith. Service of process or notice in connection with any proceedings may be served (i) inside or outside the State in which the office of Payee indicated above is located by registered or certified mail, return receipt requested, addressed to the Maker at the address set forth below or of which Maker has advised Payee in writing, as indicated in the records of Payee, and service or notice so served shall be deemed complete five (5) days after the same shall have been posted, or (ii) in such manner as may be permissible under the rules of said Courts. The execution and delivery of this Note has been authorized by the Board of Directors of Maker. This Note and the other Financing Agreements, shall be governed by and construed, and all rights and obligations hereunder determined, in accordance with the laws of the State in which the office of Payee indicated above is located and shall be -3- binding upon the successors and assigns of the Maker and inure to the benefit of the Payee, its successors, endorsees and assigns. If the undersigned are more than one, this Note shall be binding jointly and severally upon the undersigned and their respective successors and assigns and the term "Maker" shall mean, individually and collectively, all the undersigned and any one or more of them and their successors and assigns. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. This Note amends and restates in its entirety a Term Note in the original principal amount of $2,451,000 dated July 20, 1994 heretofore executed and delivered by Maker in favor of Payee (the "Existing Note"), and, further, evidences additional loans made by Payee to Maker on or about the date hereof. This Note is being delivered in substitution for and replacement of, and not in satisfaction of, the Existing Note. This Note is not intended to extinguish, release or otherwise discharge the Maker's obligations under the Existing Note and is not intended to be a novation of the Maker's obligations thereunder. Extinguishment, release or other discharge of this Note shall constitute extinguishment, release or other discharge, as the case may be, of the Existing Note to the extent of such extinguishment, release or discharge of this Note. This Note is entitled to the benefits of the Financing Agreements and is secured by, and entitled to the benefits of any and all collateral security pledged or granted by Maker or related parties to Payee as set forth in the Financing Agreements or otherwise. VERNITRON CORPORATION By:/S/ RAYMOND F. KUNZMANN -------------------------------------- Title: Vice President ----------------------------------- -4- STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this 17th day of March, 1995, before me personally came Raymond F. Kunzmann, to me known, who, being duly sworn, did depose and say, that he is the Vice President of VERNITRON CORPORATION, the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the board of directors of said corporation. /S/ SHARON KAY MILLER --------------------------------------------- Notary Public SHARON KAY MILLER Notary Public, State of New York No. 41-4922738 Qualified in Queens County Commission Expires April 4, 1996 EX-10.(39) 4 EXHIBIT 10(39) MORTGAGE MODIFICATION AGREEMENT between VERNITRON CORPORATION and THE CIT GROUP/CREDIT FINANCE, INC. dated the 17th day of March, 1995 ---------------------------------------------------------------- ---------------------------------------------------------------- PREMISES: The Tyrone Planned Industrial District, Pinellas County, Florida ---------------------------------------------------------------- ---------------------------------------------------------------- Prepared by, Record & Return to: OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C. 230 Park Avenue New York, New York 10169 Attention: Mitchell M. Brand, Esq. FLORIDA DOCUMENTARY STAMP TAXES HAVE BEEN PAID IN FULL ON THAT CERTAIN MORTGAGE AND SECURITY AGREEMENT RECORDED IN O.R. BOOK 8732, PAGE 1319, OF THE PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA BASED UPON THE MAXIMUM PRINCIPAL AMOUNT SECURED UNDER SUCH MORTGAGE, WHICH REMAINS UNCHANGED AND UNMODIFIED. MORTGAGE MODIFICATION AGREEMENT THIS MORTGAGE MODIFICATION AGREEMENT made as of the 17th day of March, 1995 between VERNITRON CORPORATION, a Delaware corporation, having an office at 645 Madison Avenue, New York, New York 10022 (the "Mortgagor") and THE CIT GROUP/CREDIT FINANCE, INC., a New York corporation, having an office at 135 West 50th Street, New York, New York 10020 ("Mortgagee"). W I T N E S S E T H: WHEREAS, Mortgagor is the owner of certain real property situate, lying and being in the Tyrone Planned Industrial District, Pinellas County, Florida as such real property is more particularly described on Exhibit A annexed hereto and made a part hereof ("Premises"); and WHEREAS, Mortgagor has executed that certain Mortgage and Security Agreement dated July 20, 1994 and recorded on July 21, 1994 in O.R. Book 8732, Page 1319 in the public records of Pinellas County, Florida (the "Mortgage"), pursuant to which Mortgagor has mortgaged, given, granted, bargained, sold, confirmed and assigned the Premises, with mortgage covenants, unto the Mortgagee and its successors and assigns; and WHEREAS, the Mortgage secures the payment and performance by Mortgagor of all of Mortgagor's obligations to Mortgagee arising under or in connection with that certain Promissory Note dated July 20, 1994 executed by Mortgagor in favor of Mortgagee in the original principal amount of $2,451,000 ("Existing Note") issued pursuant to certain financing agreements, including, without limitation, that certain Loan and Security Agreement dated July 20, 1994 (all of the foregoing, as the same may now exist or may hereinafter be amended, modified, supplemented, renewed or extended are hereinafter collectively referred to as the "Financing Agreements"); and WHEREAS, notwithstanding any provision in the Mortgage to the contrary, the maximum principal amount secured under the Mortgage at any one time is limited to the amount of $1,200,000; and WHEREAS, contemporaneously herewith, Mortgagor and Mortgagee are amending and modifying the Financing Agreements, and in connection therewith Mortgagor is executing a promissory note to replace and restate the Existing Note. NOW, THEREFORE, in order to induce Mortgagee to amend and modify the Financing Agreements and to continue to make loans and advances to the Mortgagor as provided for in the Financing Agreements, and for other good and valuable consideration, including, without limitation, the benefits which will accrue to Mortgagor from the foregoing, Mortgagor hereby agrees as follows: 1. All references in the Mortgage to the "Note" shall be deemed amended to mean and include that certain Promissory Note dated of even date herewith in the original principal amount of $2,701,334 executed and delivered by Mortgagor in favor of Mortgagee ("Restated Note"), and the Mortgage is hereby modified and amended to secure the Restated Note, which Restated Note (a) is being delivered in substitution for and replacement of, and not in satisfaction of, the Existing Note and (b) is not intended to extinguish, release or otherwise discharge the Mortgagor's obligations under the Existing Note and is not intended to be a novation of the Mortgagor's obligations thereunder. Notwithstanding anything to the contrary contained herein, extinguishment, release or other discharge of the Restated Note shall constitute extinguishment, release or other discharge, as the case may be, of the Existing Note to the extent of such extinguishment, release or discharge of the Restated Note. 2. All references in the Mortgage to the "Loan Agreement" shall be deemed amended to mean and include the Loan Agreement as amended and modified by that certain Letter Re: Amendment to Financing Agreements dated of even date herewith (as amended, "Loan Agreement"). 3. Notwithstanding the provisions of this Mortgage Modification Agreement, the maximum principal amount secured by the Mortgage remains unmodified and unchanged and at any one time shall not exceed the amount of One Million Two Hundred Thousand and No/100 Dollars ($1,200,000). 4. Except as specifically set forth herein, no other changes or modifications in the Mortgage are intended or implied and, in all other respects, the Mortgage is hereby specifically ratified, restated and confirmed by the parties hereto as of the date hereof. -2- IN WITNESS WHEREOF, Mortgagor has caused this Mortgage Modification Agreement to be executed as of the date and year first above written. SIGNED IN THE PRESENCE OF: VERNITRON CORPORATION, a Delaware corporation [CORPORATE SEAL] /S/ EDDA RICHARDS - ------------------------- (Signature) By: /S/ RAYMOND F. KUNZMANN ------------------------------------------ Edda Richards Name: Raymond F. Kunzmann - ------------------------- ---------------------------------------- (Printed Name) Title: Vice President --------------------------------------- /S/ EDDA RICHARDS - ------------------------- (Signature) Post Office Address: Edda Richards - ------------------------- 645 Madison Avenue (Printed Name) New York, New York 10022 SIGNED IN THE PRESENCE OF: THE CIT GROUP/CREDIT FINANCE, INC., a New York corporation [CORPORATE SEAL] /S/ EDDA RICHARDS - ------------------------- (Signature) By: /S/ BENJAMIN SZTEINBERG ------------------------------------------ Edda Richards Name: Benjamin Szteinberg - ------------------------- ---------------------------------------- (Printed Name) Title: Assistant Vice President --------------------------------------- /S/ EDDA RICHARDS - ------------------------- (Signature) Post Office Address: Edda Richards 135 West 50th Street - ------------------------- New York, New York 10020 (Printed Name) -3- STATE OF New York COUNTY OF New York The foregoing instrument was acknowledged before me this 17th day of March, 1995, by Raymond F. Kunzmann as Vice President of VERNITRON CORPORATION, a Delaware corporation, on behalf of the corporation. He/She is personally known to me or has produced New York (state) driver's license no. ID# 148058152 as identification. My Commission Expires: /S/ SHARON KAY MILLER --------------------------------------------- Notary Public (Signature) (AFFIX NOTARY SEAL) Sharon Kay Miller --------------------------------------------- (Printed Name) Legal Assistant/Secretary --------------------------------------------- (Title or Rank) --------------------------------------------- (Serial Number, if any) SHARON KAY MILLER Notary Public, State of New York No. 41-4922738 Qualified in Queens County Commission Expires April 4, 1996 -4- STATE OF New York COUNTY OF New York The foregoing instrument was acknowledged before me this 17th day of March, 1995, by Benjamin Szteinberg as Assist. Vice Pres. of THE CIT GROUP/CREDIT FINANCE INC., a New York corporation, on behalf of the corporation. He/She is personally known to me or has produced _________________ (state) driver's license no. __________________ as identification. My Commission Expires: /S/ SHARON KAY MILLER --------------------------------------------- Notary Public (Signature) (AFFIX NOTARY SEAL) Sharon Kay Miller --------------------------------------------- (Printed Name) Legal Assistant/Secretary --------------------------------------------- (Title or Rank) --------------------------------------------- (Serial Number, if any) SHARON KAY MILLER Notary Public, State of New York No. 41-4922738 Qualified in Queens County Commission Expires April 4, 1996 -5- EXHIBIT A LEGAL DESCRIPTION TRACT B, TYRONE PLANNED INDUSTRIAL DISTRICT, 2ND REPLAT AND ADDITION, according to the plat thereof recorded in Plat Book 57, pages 17 and 18, of the Public Records of Pinellas County, Florida. Lot 7, Block 2, TYRONE PLANNED INDUSTRIAL DISTRICT, according to the plat thereof recorded in Plat Book 34, pages 56 and 57, of the Public Records of Pinellas County, Florida END OF LEGAL DESCRIPTION EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET OF VERNITRON CORPORATION AS OF DECEMBER 31, 1994 AND THE RELATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 27 0 9,638 345 14,527 24,315 11,652 3,662 42,197 12,777 11,921 125 0 7 13,137 42,197 62,132 62,132 44,903 44,903 14,867 124 2,264 44 17 27 (2,202) 5,856 0 3,681 .39 .39
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