-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BxdOanh/uurSF1yQdh16m7YojJ+C2S6HThp5NRD7U4WmRpUS8uJb0wz4ylNO0FZf 5mX7rnJ/UlDKoc9AsccdrA== 0000074818-97-000001.txt : 19970401 0000074818-97-000001.hdr.sgml : 19970401 ACCESSION NUMBER: 0000074818-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBIT INTERNATIONAL CORP CENTRAL INDEX KEY: 0000074818 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 111826363 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-03936 FILM NUMBER: 97571453 BUSINESS ADDRESS: STREET 1: 80 CABOT CT CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5164358300 MAIL ADDRESS: STREET 1: 80 CABOT COURT STREET 2: 80 CABOT COURT CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: ORBIT INSTRUMENT CORP DATE OF NAME CHANGE: 19911015 10-K 1 FORM 10-K - ITEM 14(a)(1) & (2) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULE REPORTS OF INDEPENDENT AUDITORS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED IN ITEM 14(d): II - VALUATION AND QUALIFYING ACCOUNTS All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. F-1 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Orbit International Corp. We have audited the accompanying consolidated balance sheet of Orbit International Corp. and subsidiaries as of December 31, 1996 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 14(a) for the year ended December 31, 1996. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Orbit International Corp. and subsidiaries at December 31, 1996 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements as a whole, presents fairly in all material respects the information set forth therein for the year ended December 31, 1996. We also audited the adjustments described in Note B that were applied to restate the 1995 and 1994 consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. Ernst & Young LLP New York, New York March 12, 1997 F-2 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Orbit International Corp. Hauppauge, New York We have audited the accompanying consolidated balance sheet of Orbit International Corp. and subsidiaries as at December 31, 1995 and the related consolidated statements of operations, changes in stockholders' equity, cash flows and Schedule II, for the years ended December 31, 1995 and December 31, 1994 prior to their restatement for the adjustments described in Note B to the 1996 consolidated financial statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements described above present fairly, in all material respects, the consolidated financial position of Orbit International Corp. and subsidiaries at December 31, 1995 and the consolidated results of their operations and their consolidated cash flows for the years ended December 31, 1995 and December 31, 1994 prior to their restatement for the adjustments described in Note B to the 1996 consolidated financial statements in conformity with generally accepted accounting principles. Further, it is our opinion that the schedule referred to above presents fairly, in all material respects the information set forth therein, in compliance with the applicable accounting regulation of the Securities and Exchange Commission. Richard A. Eisner & Company, LLP New York, New York March 21, 1996 F-3 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 ASSETS Current assets: Cash and cash equivalents.............. $ 927,000 $ 2,274,000 Investments in marketable securities... 782,000 7,495,000 Accounts receivable (less allowance for doubtful accounts of $150,000 (1996) and $1,576,000 (1995))................ 3,114,000 854,000 Inventories............................ 6,657,000 13,124,000 Restricted investments, related to discontinued operations............... 2,453,000 Assets held for sale, net.............. 712,000 Other current assets................... 246,000 1,669,000 Total current assets................. 14,891,000 25,416,000 Property, plant and equipment - at cost less accumulated depreciation and amortization........................... 2,347,000 3,069,000 Excess of cost over the fair value of assets acquired (less accumulated amortization of $85,000 (1996) and $252,000 (1995)........................ 1,019,000 834,000 Restricted investments in marketable securities............................. 7,567,000 Investments in marketable securities.... 1,150,000 795,000 Other assets............................ 524,000 347,000 TOTAL ASSETS............................ $19,931,000 $38,028,000 See accompanying notes. F-4 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) December 31, 1996 1995 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations.. $ 1,656,000 $ 2,292,000 Accounts payable.......................... 940,000 3,860,000 Accrued expenses.......................... 2,545,000 4,090,000 Notes payable............................. 65,000 Accounts payable, accrued expenses and reserves for discontinued operations..... 2,636,000 Due to factor............................. 852,000 15,294,000 Total current liabilities............... 8,694,000 25,536,000 Long-term obligations, less current portion................................... 4,352,000 1,097,000 Accounts payable, accrued expenses and reserves for discontinued operations, less current portion...................... 1,424,000 Other liabilities.......................... 315,000 2,077,000 Total liabilities....................... 14,785,000 28,710,000 Commitments and contingencies STOCKHOLDERS' EQUITY Common stock - $.10 par value.............. 907,000 877,000 Additional paid-in capital................. 23,518,000 23,285,000 Accumulated deficit........................ (9,515,000) (4,026,000) Less treasury stock, at cost............... (9,588,000) (9,588,000) Less deferred compensation................. (174,000) Less cumulative translation adjustment..... (1,230,000) Less unrealized loss on marketable securities................................ (2,000) Total stockholders' equity............... 5,146,000 9,318,000 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. $19,931,000 $38,028,000 See accompanying notes. F-5 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 1996 1995 1994 Net sales.......................... $16,971,000 $11,763,000 $12,254,000 Cost of sales...................... 9,361,000 6,529,000 7,078,000 Gross profit....................... 7,610,000 5,234,000 5,176,000 Selling, general and administrative expenses........... 5,501,000 5,274,000 4,489,000 Interest expense................... 118,000 236,000 323,000 Investment and other (income)...... (1,320,000) (2,614,000) ( 734,000) Income from continuing operations before income taxes............... 3,311,000 2,338,000 1,098,000 Tax (benefit)...................... (153,000) . Income from continuing operations......................... 3,311,000 2,491,000 1,098,000 Discontinued operations: (Loss) from operations........... (4,200,000) (24,744,000) (18,093,000) (Loss) from disposal............. (4,600,000) . NET (LOSS)......................... $(5,489,000) $(22,253,000) $(16,995,000) Income (loss) per share: Income from continuing operations: Primary......................... $ .53 $ .42 $ .18 Fully diluted................... .50 .42 .18 (Loss) from discontinued operations: Primary......................... (1.42) (4.20) (2.93) Fully diluted................... (1.32) (4.20) (2.93) NET (LOSS): Primary......................... ( .89) (3.78) (2.75) Fully diluted................... ( .82) (3.78) (2.75) See accompanying notes. F-6
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Common Stock 25,000,000 Shares Authorized Treasury Stock Unrealized Number of Additional Retained Number Cumulative loss on Shares Paid-in Earnings of Deferred Translation Marketable Issued Amount Capital (Deficit) Shares Amount Compensation Adjustment Securities Total Balance - December 31, 1993 . . . . . . . . . 11,723,000 $ 1,172,000 $32,710,000 $ 35,222,000 (5,316,000) $ (18,106,000) $ (442,000) $ (930,000) $ - $ 49,626,000 Purchase of treasury stock . . . . . . . . . . . . (480,000) (1,480,000) (1,480,000) Deferred compensation earned. . . . . . . . . . 294,000 294,000 Compensation attributable to stock options 231,000 231,000 Foreign currency translation adjustment. . (413,000) (413,000) Retirement of treasury shares . . . . . . . . . (2,952,000) (295,000) (9,771,000) 2,952,000 10,066,000 Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,995,000) . . . . . (16,995,000) Balance - December 31, 1994 . . . . . . . . . 8,771,000 877,000 23,170,000 18,227,000 (2,844,000) (9,520,000) (148,000) (1,343,000) - - 31,263,000 Purchase of treasury stock . . . . . . . . . . . (41,000) (68,000) (68,000) Deferred compensation earned. . . . . . . . . . 148,000 148,000 Compensation attributable to stock options 115,000 115,000 Foreign currency translation adjustment. . 113,000 113,000 Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,253,000) . . . . . (22,253,000) Balance - December 31, 1995 . . . . . . . . . 8,771,000 877,000 23,285,000 (4,026,000) (2,885,000) (9,588,000) - - (1,230,000) - - 9,318,000 Issuance of compensatory stock . . . . . . . 300,000 30,000 233,000 (233,000) 30,000 Deferred compensation earned. . . . . . . . . . 59,000 59,000 Write-off of foreign currency translation adjustment, included in discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . 1,230,000 1,230,000 Marketable securities valuation adjustment (2,000) (2,000) Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,489,000) . . . . . (5,489,000) Balance - December 31, 1996 9,071,000 $ 907,000 $23,518,000 $ (9,515,000) (2,885,000) $ (9,588,000) $ (174,000) $ - . $ (2,000) $ 5,146,000 See accompanying notes. F - 7
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1996 1995 1994 Cash flows from operating activities: Net (loss)........................................................................................................ $ (5,489,000) $ (22,253,000) $ (16,995,000) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Inventory reserves......................................................................................... 4,500,000 Deferred compensation................................................................................. 801,000 Provision for doubtful accounts..................................................................... 798,000 (85,000) Depreciation and amortization....................................................................... 122,000 398,000 521,000 Write-off of intangible assets........................................................................ 9,780,000 Amortization and write-off of goodwill............................................................ 919,000 58,000 671,000 Write-down of investment in affiliate............................................................. 13,987,000 Deferred tax (benefit).................................................................................... (2,115,000) Compensatory issuance of stock and options............................................... 59,000 262,000 525,000 Gain on sales of marketable securities......................................................... (173,000) Change in value of marketable securities...................................................... (222,000) (222,000) Imputed interest on acquisition note.............................................................. 213,000 274,000 Purchases of marketable securities ............................................................. (24,229,000) (24,594,000) Proceeds of sales of marketable securities................................................... 25,710,000 22,122,000 Gain on sale of fixed assets.......................................................................... (79,000) Write-off of fixed assets................................................................................ 144,000 Write-off of foreign currency translation....................................................... 1,230,000 (Loss) on disposal of discontinued operations.............................................. 4,600,000 Changes in operating assets and liabilities, excluding effect of acquisitions: Accounts receivable..................................................................................... (2,992,000) 3,729,000 (192,000) Inventories................................................................................................... 914,000 3,465,000 (6,036,000) Prepaid and refundable taxes...................................................................... 168,000 Other current assets................................................................................... 985,000 (4,000) 641,000 Other assets............................................................................................... (268,000) Accounts payable........................................................................................ 655,000 165,000 (784,000) Accrued expenses...................................................................................... (395,000) 1,881,000 (1,597,000) Income taxes payable.................................................................................. (245,000) 188,000 Assets held for sale.................................................................................... 1,473,000 Other long term liabilities............................................................................. 3,000 . . Net cash provided by (used in) operating activities................................... 1,816,000 4,699,000 (13,523,000) Cash flows from investing activities: Purchases of marketable securities................................................................. (17,765,000) Proceeds of sales of marketable securities...................................................... 29,237,000 Purchase of fixed assets.................................................................................. (170,000) (455,000) (611,000) Purchase of net assets of acquired companies............................................... (3,779,000) Proceeds on sale of fixed assets..................................................................... 216,000 479,000 Acquisition costs related to purchase of businesses....................................... . . (27,000) Net cash provided by (used in) investing activities..................................... 7,523,000 (239,000) (159,000) (continued) F - 8
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) Year Ended December 31, 1996 1995 1994 Cash flows from financing activities: Repayments of debt......................................................................................... (1,956,000) (7,079,000) (5,746,000) Proceeds of debt.............................................................................................. 2,482,000 395,000 5,214,000 Increase (decrease) in due to factor................................................................. (11,242,000) 3,754,000 11,086,000 Purchase of treasury stock.............................................................................. (68,000) (1,480,000) Proceeds from issuance of performance shares............................................. 30,000 . . Net cash (used in) provided by financing activities.................................... (10,686,000) (2,998,000) 9,074,000 Effect of exchange rate changes on cash......................................................... - . (3,000) (24,000) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (1,347,000) 1,459,000 (4,632,000) Cash and cash equivalents - beginning of year................................................. 2,274,000 815,000 5,447,000 CASH AND CASH EQUIVALENTS - END OF YEAR..................................... $927,000 $2,274,000 $815,000
Supplemental disclosures of cash flow information: Year Ended December 31, 1996 1995 1994 Cash paid for: Interest....................... $1,806,000 $ 2,994,000 $ 1,392,000 Income taxes (net of refunds of $115,000 (1995) and $444,000, (1994) respectively) $ - $ (85,000) $ (268,000) See accompanying notes. F-9 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS December 31, 1996 (NOTE A) - Organization, Business and Summary of Significant Accounting Policies: Organization and Business The consolidated financial statements include the accounts of Orbit International Corp. and its wholly-owned subsidiaries (collectively, the "Company"). All significant intercompany transactions have been eliminated in consolidation. The Company is engaged in the design, manufacture and sale of customized electronic components and subsystems, distortion free commercial power units, power conversion devices and electronic devices for measurement and display. The Company discontinued its operations (see Note B) in the apparel business in 1996. Summary of Significant Accounting Policies Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Inventories Inventories are valued at the lower of cost (first-in, first-out basis) or market price. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation and amortization of the respective assets are computed using the straight-line method over their estimated useful lives ranging from 8 years to 40 years. Leasehold improvements are amortized using the straight-line method over the remaining life of the lease or the life of the improvement, whichever is less. Intangible Assets Excess of cost over the fair value of net assets acquired is being amortized on a straight-line basis over fifteen years. (continued) F-10 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE A) - Organization, Business and Summary of Significant Accounting Policies: (continued) Investments The Company classifies its investments as held-to-maturity, available for sale, or trading. The Company classified all of its securities as trading securities until December 30, 1995 when it transferred all of its securities from trading securities to available-for-sale securities. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretions of discounts to maturity. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities are included in investment income. Revenue Recognition The Company records sales upon delivery for manufacturing contracts and upon completion of performance under certain engineering contracts. Income (Loss) Per Share Income (loss) per share is based on the weighted average number of common and common equivalent shares outstanding during each period, utilizing the treasury stock method or modified treasury stock method where applicable. The average number of shares and equivalent shares outstanding for the year ended December 31, 1996 was 6,688,000 for continuing operations. The average number of shares and equivalent shares outstanding for the year ended December 31, 1995 and December 31, 1994 were 5,886,000 and 6,169,000, respectively for continuing operations. Foreign Currency Assets and liabilities of the Company's discontinued Canadian operations are translated at the foreign currency exchange rate in effect at the balance sheet date. Results of operations are translated using weighted average exchange rates during the period. Stockholders' equity accounts are translated at historical exchange rates. Prior to the discontinuance of the operations, the accumulated gains and losses resulting from the translation of foreign currency financial statements were included in a separate component of stockholders' equity. Foreign currency translation adjustments have been written-off as part of the loss on disposal of discontinued operations during the year ended December 31, 1996. (continued) F-11 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE A) - Organization, Business and Summary of Significant Accounting Policies: (continued) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the financial statements and accompany notes. Actual results could differ from those estimates. Long-Lived Assets The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). The statement requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less then the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. This standard specifies when assets should be reviewed for impairment, how to determine if an asset is impaired, how to measure an impairment loss, and what disclosures are necessary in the financial statements. Stock Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretations in accounting for its stock options. Fair Value of Financial Instruments The book values of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values principally because of the short-term maturities of these instruments. The fair value of the Company's long-term obligations is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company's fair value of long-term obligations was not significantly different than the stated value at December 31, 1996 and 1995. (continued) F-12 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE B) - Discontinued Operations: On August 6, 1996, the Board of Directors of the Company adopted a plan to dispose of its U.S. and Canadian apparel operations. The Company estimated the loss on the discontinuance to be approximately $8,800,000, including approximately $4,200,000 of operating losses and approximately $4,600,000 of estimated losses on the disposal of the operations. Such estimated losses include a $1,456,000 write-off of cumulative translation adjustments, $1,333,000 pursuant to certain operating lease agreements and $1,300,000 resulting from the write-down of assets to net realizable value. The U.S. apparel operations consisted of the design, importation and manufacture of women's active-wear and outerwear, principally under the East/West label, through the Company's East/West division and East End Apparel Group, Ltd. subsidiary. In the fourth quarter of 1996, the Company entered into a three-year license agreement with a third party pursuant to which the Company granted the right to manufacture and sell ladies apparel under the "East/West" trademark in the U.S. and Canada. The Company has otherwise ceased operations of the East/West division. During the fourth quarter of 1996, the Company commenced discussions with the Company's factor to convert the amounts due to the factor from the Company's discontinued U.S. apparel operations to a term loan from the Company. The new term loan is expected to commence on May 1, 1997 at which time the factor expects to complete its collection of all outstanding accounts receivable. Under the terms of the new lending arrangement, amortization of the loan would be based on a 60 month repayment period with payments due on a monthly basis for 35 months and a final payment of approximately $1,493,000 due April 1, 2000. The loan would have an interest rate of prime rate plus 1%. In accordance with FASB No. 6 and management's intent to refinance this obligation on a long-term basis, a substantial portion of the short term amounts due to the factor have been classified as non-current (See Note G). Pursuant to the Company's plans to dispose of its U.S. and Canadian apparel operations, it recorded an impairment loss of $793,000 in 1996 and $13,216,000 in 1995. The Canadian apparel operations have been operated through the Company's three wholly-owned subsidiaries in Canada; Canada Classique ("Classique"), Winnipeg Leather (1991) Inc. ("Winnipeg Leather") and Symax Garment Co. (1993) Ltd. ("Symax"). On March 12, 1997, the Company commenced bankruptcy proceedings against Classique, which manufactured and sold branded and private label men's, women's and children's outerwear in Winnipeg, Canada and Winnipeg Leather, which manufactured and sold women's garments under private labels in Winnipeg, Canada. Classique and Winnipeg Leather are now in Bankruptcy and Orbit has appointed a receiver and manager for the purpose of liquidating their assets; the Company is currently seeking buyers. On March 7, 1997, substantially all of the assets of Symax, which manufactured and sold private label men's outerwear in Vancouver, British Columbia, Canada, were sold to a third-party. (continued) F-13 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE B) - Discontinued Operations: (continued) In July 1988 the Company, through USA Classic ("Classic"), a wholly-owned subsidiary, acquired all of the outstanding stock of U.S. Apparel, Inc. In November 1992, Classic completed an initial public offering (the "Offering") of 3,105,000 shares of its common stock, thereby reducing the Company's ownership to approximately 43%. Classic designed, manufactured and marketed men's, women's and children's active-wear, sportswear and outerwear until it, and its subsidiaries, filed petitions under Chapter 11 of the United States Bankruptcy Code in 1994. The Company recorded a non cash charge related to such bankruptcy of $13,987,000, which includes its 43% equity interest in Classic, subordinated debt owing by Classic to the Company of approximately $2,400,000 and approximately $2,500,000 of related costs (see Note M (2)). Amounts previously reported for the apparel segments in 1995 and 1994 have been restated to give effect to recording of the discontinued operations in the accompanying consolidated statements of operations. The operating results of the discontinued operations are summarized as follows: For the Year Ended December 31, 1996 1995 1994 Sales $26,235,000 $46,471,000 $45,576,000 (Loss) before tax benefit (8,800,000) (24,755,000) (20,020,000) Tax benefit 11,000 1,927,000 Net (loss) (8,800,000) (24,744,000) (18,093,000) Net (loss) per share of common stock: Primary $(1.42) $(4.20) $(2.93) Fully diluted $(1.32) $(4.20) $(2.93) At December 31, 1996, the assets of the discontinued operations consist primarily of inventories and accounts receivable. Liabilities of the discontinued operations consist of accounts payable, accrued expenses and other reserves. The consolidated balance sheet at December 31, 1995 has not been restated. (continued) F-14 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE C) - Acquisition: On February 6, 1996, the Company, through a wholly-owned subsidiary acquired certain assets subject to certain liabilities of Astrosystems, Inc. and Behlman Electronics, Inc. (collectively, "Behlman"). The assets are primarily used in the business of manufacturing and selling various power supply and power source products. The purchase price is subject to adjustment based upon final valuations. The transaction was partially financed pursuant to a bridge loan in the amount of $500,000 from the Company's primary lender which was replaced by a term loan and revolving credit facility (See Note G). The operations of Behlman have been included in the consolidated financial statements from February 6, 1996. Had the acquisition been made on January 1, 1995 (unaudited) proforma sales, income and earnings per share from continuing operations would have been $20,635,000, $1,734,000 and $.29 per share respectively, for the year ended December 31, 1995. The fair value of the net assets as of the date of acquisition is presented below: Inventory $ 2,560,000 Property, plant and equipment 115,000 Excess of cost over the fair value of assets acquired 1,104,000 $ 3,779,000 (NOTE D) - Inventories: Inventories consist of the following: December 31, 1996 1995 Raw materials. . . . . . $ 2,332,000 $ 1,594,000 Work in process. . . . . 4,325,000 4,756,000 Finished goods (apparel) - 6,774,000 $ 6,657,000 $13,124,000 (continued) F-15 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE E) - Property, Plant and Equipment: Property, plant and equipment are as follows: December 31, 1996 1995 Land and building. . . . . . . . . . . $ 2,688,000 $ 2,688,000 Building and leasehold improvements. . 279,000 599,000 Machinery and equipment. . . . . . . . 1,053,000 1,418,000 Furniture and fixtures . . . . . . . . 413,000 937,000 4,433,000 5,642,000 Accumulated depreciation and amortization . . . . . . . . . . 2,086,000 2,573,000 $ 2,347,000 $ 3,069,000 (NOTE F) - Available-For-Sale Securities: On December 30, 1995 the Company transferred its marketable securities to the available for sale category of investments. On the date of the transfer, all debt securities were being carried at their amortized cost which approximated fair market value. Under the terms of certain credit facilities, the Company's investment portfolio and certain cash balances must be maintained at a minimum collateral value. On December 31, 1996, this collateral requirement amounted to approximately $2,453,000 and on December 31, 1995 it was approximately $11,647,000 of which $540,000 represents the balance in cash accounts, $3,540,000 represents available-for-sale securities classified as current assets and the remainder was shown as restricted investments. The following is a summary of available-for-sale securities: December 31, 1996 Estimated Fair Cost Value U.S. Treasury bills............ $3,235,000 $3,235,000 Debt securities issued by government agencies.......... 5,000 5,000 Corporate debt securities...... 1,147,000 1,145,000 4,387,000 4,385,000 Restricted value of portfolio used to collateralize credit facility (included in assets held for sale).............. 2,453,000 2,453,000 Balance of securities portfolio................... $1,934,000 $1,932,000 (continued) F-16 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE F) - Available-For-Sale Securities: (continued) December 31, 1995 Estimated Fair Cost Value U.S. Treasury Bills $10,400,000 $10,400,000 Debt securities issued by government agencies......... 2,919,000 2,919,000 Corporate debt securities..... 2,526,000 2,526,000 Total debt securities......... 15,845,000 15,845,000 Equity securities............. 12,000 12,000 15,857,000 15,857,000 Restricted value of portfolio used to collateral credit facility.................... 7,567,000 7,567,000 Balance of securities portfolio (including $3,450,000 of marketable securities used to satisfy outstanding debt classified as a current obligation).... $8,290,000 $8,290,000 The amortized cost and estimated fair value of debt and marketable equity securities at December 31, 1996 and December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties. December 31, 1996 Estimated Fair Cost Value Due in one year or less............... $3,235,000 $3,235,000 Due after three years ................ 1,152,000 1,150,000 4,387,000 4,385,000 Restricted value of portfolio used to collateralize credit facilities..... 2,453,000 2,453,000 $1,934,000 $1,932,000 (continued) F-17 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE F) - Available-For-Sale Securities: (continued) December 31, 1995 Estimated Fair Cost Value Due in one year or less............... $15,050,000 $15,050,000 Due after three years................. 795,000 795,000 15,845,000 15,845,000 Equity securities..................... 12,000 12,000 15,857,000 15,857,000 Restricted value of portfolio used to collateralize credit facilities..... 7,567,000 7,567,000 $ 8,290,000 $ 8,290,000 (NOTE G) - Debt: Long-term obligations consist of the following: December 31, 1996 1995 Term loan collateralized by $1,120,000 of treasury bills, inventories, accounts receivable and general tangibles of the electronics division, bearing interest at LIBOR (5.875% at December 31, 1995) plus .75%, paid in full on January 1, 1996. $1,000,000 Term loan collateralized by certain real estate of the Company bearing interest at prime (8.25% at December 31, 1996) plus 1.5%, payable in monthly installments of $56,000 commencing July 1996 through June 1999........... $1,667,000 Promissory note payable to the sellers of the East/ West division (face amount $1,850,000) - noninterest bearing, imputed interest at 6% payable in one installment of $500,000 on March 28, 1996, two installments of $250,000 on July 1, 1996 and January 1, 1997 and twenty quarterly installments of $42,500 commencing March 31, 2002 785,000 1,535,000 (continued) F-18 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE G) - Debt: (continued) December 31, 1996 1995 Term loan collateralized by certain real estate of the electronics division, bearing interest at LIBOR (5.875% at December 31, 1995) plus .75% (floating), payable in $250,000 quarterly installments through April 1, 1996..... 250,000 Note due to the estate of the former principal officer payable in monthly installments through February 1998 (Note N)........................... 356,000 604,000 Short term debt expected to be refinanced, collateralized by accounts receivable and inventories of the Company, bearing interest at prime (8.25% at December 31, 1996) plus 1%. The replacement debt is expected to be payable in monthly payments of $53,000 commencing May 1997 with a final payment of approximately $1,493,000 in April, 2000 (see Note B)..................................... 3,200,000 . 6,008,000 3,389,000 Less current portion.............................. 1,656,000 2,292,000 $4,352,000 $1,097,000 Payments due on the Company's long-term debt at December 31, 1996 are as follows: Year Ending December 31, 1997................. $1,656,000 1998................. 1,351,000 1999................. 973,000 2000 (January through April)......... 1,493,000 Thereafter........... 535,000 $6,008,000 (continued) F-19 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE G) - Debt: (continued) Short-term notes payable aggregated $65,000 at December 31, 1996. This is in connection with the Company's revolving line of credit which bears interest at prime (8.25% at December 31, 1996) plus 1%. Under the various debt agreements, the Company must comply with certain covenants which require it to maintain minimum levels of working capital, minimum levels of debt to equity and tangible net worth at all times. The Company is also precluded from declaring and paying dividends without the consent of such lender. (NOTE H) - Stock Based Compensation Plans: The alternative fair value accounting provided for under Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"), requires use of opinion valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has a stock option plan which provides for the granting of non- qualified or incentive options to officers, directors and key employees. The plan authorizes granting of up to 1,500,000 shares of the Company's common stock at the market value on the date of such grants. All options are exercisable at times as determined by the Board of Directors not to exceed ten years from the date of grant. Pro forma information regarding net loss and net loss per share is required by Statement 123, which also requires that the information be determined as if the Company has accounted for its stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using the Black-Sholes option pricing model with the following weighted average assumptions: risk-free interest rate of 6%; no dividend yields; volatility factor of the expected market price of the Company's common stock of 85.5%; and a weighted-average expected life of the options of 3.0 years at December 31, 1996 and 1995. The Black-Sholes option valuation model was developed for use in estimating fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because (continued) F-20 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE H) - Stock Based Compensation Plans:(continued) the Company's employers stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vested period. The Company's pro forma information follows: 1996 1995 Net earnings from continuing operations: As Reported $ 3,311,000 $ 2,491,000 Pro Forma 2,830,000 2,325,000 Primary EPS: As Reported .53 .42 Pro Forma .46 .38 Fully Diluted EPS: As Reported .50 .42 Pro Forma .42 .35 1996 1995 Net (loss): As Reported $(5,489,000) $(22,253,000) Pro Forma (5,970,000) (22,419,000) Primary EPS: As Reported (.89) (3.78) Pro Forma (.96) (3.81) Fully Diluted EPS: As Reported (.82) (3.78) Pro Forma (.89) (3.81) Because Statement 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until 1997. As required by Statement 123, the fair values method of accounting has not been applied to options granted prior to January 1, 1995. As a result, the pro forma compensation cost may not be representative of that to be expected in future years. (continued) F-21 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE H) - Stock Based Compensation Plans:(continued) Information as to options for share of common stock is as follows: 1996 . 1995 . 1994 . Weighted Average Weighted Average Weighted Average Options Exercise Price Options Exercise Price Options Exercise Price Outstanding at the beginning of year............. 964,000 $1.25 965,000 $3.13 900,000 $4.93 Granted........................... 332,500 0.92 1,017,000 1.25 965,000 3.13 Canceled......................... (15,000) 0.92 (1,018,000) 2.70 (900,000) 4.93 Outstanding at the end of year....................... 1,281,500 0.92 964,000 1.25 965,000 3.13 Exercisable at end of year. 964,000 - - Weighted average fair value of options granted.. 0.54 0.54 The weighted average remaining contractual life of the options outstanding is 3 years. At December 31, 1996, 218,500 shares of common stock were reserved for future issuance of stock options. In consideration of an executive officer's entry into an employment agreement during the year, the Company sold to the officer 300,000 shares of its common stock at par value $.10 per share. The stock is subject to repurchase by the Company, at the same price, in the event of resignation or discharge for cause, of the officer. The difference between the fair value of the shares and its issue price will be charged to operations over a three year period. (NOTE I) - Employee Benefit Plans: A profit-sharing and incentive-savings plan provides benefits to certain employees who meet specified minimum service and age requirements. The plan provides for contributions by the Company equal to one-half of employee contributions (but not more than 2% of eligible compensation), and the Company may make additional contributions out of current or accumulated net earnings at the sole discretion of the Company's Board of Directors. (continued) F-22 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE I) - Employee Benefit Plans: The Company contributed $117,000, $185,000 (including $24,000 applicable to discontinued operations) and $312,000 (including $139,000 applicable to discontinued operations) to the plans for the years ended December 31, 1996, December 31, 1995 and December 31, 1994, respectively. (NOTE J) - Income Taxes: The Company uses the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. For the year ended December 31, 1996, the Company recorded no income tax provision. The Company has an alternative minimum tax credit of $ 564,000 with no limitation on the carryforward period, a net operating loss carryforward of $18,400,000 which expire in 2010 and a capital loss carryforward of $ 1,968,000 which expires in 1999. In addition, a subsidiary whose operations were disposed of in 1991 has various income tax benefits which are available to offset future taxable income of the parent only. These benefits consist of a net operating loss carryforward of approximately $ 5,900,000 and certain tax credits which amount to approximately $ 594,000 which are available through 1999. The provision (benefit) for income taxes for the years December 31, 1995 and 1994 are as follows: December 31, 1995 1994 Current: Foreign and state.... $(164,000) $ 188,000 Deferred: Federal.............. - (1,823,000) Foreign and state.... - (292,000) . $(164,000) $(1,927,000) (continued) F-23 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE J) - INCOME TAXES: (continued) A reconciliation of the Federal statutory tax rate with the effective tax rate is as follows: December 31, 1996 1995 1994 Federal statutory tax rate... (34.0%) (34.0%) (34.0%) Increase (reduction) in taxes resulting from: Foreign and state income tax, net of federal income tax benefit...... 3.3 (.3) Nondeductible items..... 1.3 1.3 Non taxable life insurance proceeds................. (6.7) Nonutilization of net operating and capital loss carryforwards and carrybacks............... 34.0 35.0 22.1 Other .5 .7 0% (.7%) (10.2%) (continued) F-24 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE J) - INCOME TAXES: (continued) The deferred tax assets (liability) are as follows: December 31, 1996 1995 Deferred tax asset: Alternative minimum tax credit carryforward.. $ 564,000 $ 561,000 Net operating loss and capital loss carryforwards (including pre-acquisition net operating loss carryforwards)........... 8,931,000 7,100,000 Various temporary differences.............. 912,000 6,559,000 Total deferred tax assets 10,407,000 14,220,000 Valuation allowances on....... (10,249,000) (14,220,000) Net deferred tax assets....... 158,000 - Deferred tax liability: Various temporary differences.............. (158,000) . Net deferred tax assets....... $ - $ - . As the Company has had cumulative losses and there is no assurance of future taxable income, a valuation allowance has been established to offset deferred tax assets. (NOTE K) - Major Customer and Concentrations of Credit Risk: Sales to significant customers accounted for approximately 72% (28%, 15%, 17% and 12%), 79% (54%, 12% and 13%) and 77% (66% and 11%) of the Company's net sales from continuing operations for the years ended December 31, 1996, 1995 and 1994, respectively. Certain major customers of the Company sell the Company's products to the United States Government. Accordingly, a substantial portion of the net sales is subject to audit by agencies of the United States government. In the opinion of management, adjustments to such net sales, if any, will not have a material effect on the Company's position. (continued) F-25 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE K) - Major Customer and Concentrations of Credit Risk: (continued) Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables. The Company places its cash and cash equivalents with one financial institution. At times, cash may be in excess of FDIC insurance limits. (NOTE L) - Leasing Arrangements: Operating leases are for a sales office and certain equipment and vehicles for continuing operations and office, showroom, warehouse and manufacturing facilities for discontinued operations, and are subject to annual increases based on changes in the Consumer Price Index and increases in real estate taxes and certain operating expenses. Future minimum lease payments as of December 31, 1996 under operating lease agreements that have initial or remaining noncancellable lease terms in excess of one year are as follows: Year Ending Continuing Discontinued December 31, Operations Operations Total 1997 . . . . . . . . $ 78,000 $ 901,000 $ 979,000 1998 . . . . . . . . 34,000 876,000 910,000 1999 . . . . . . . . 646,000 646,000 2000 . . . . . . . . 239,000 239,000 Total minimum lease payments $ 112,000 $ 2,662,000 $ 2,774,000 Operating lease rent expense for the years ended December 31, 1996, 1995 and 1994 was $1,083,000, $1,170,000 and $1,100,000, respectively. Continuing operations account for approximately $41,000 of operating lease expense for the year ended December 31, 1996. Leasing arrangements for discontinued operations do not include amounts owed to the Company under certain sublease agreements. (continued) F-26 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE M) - Commitments and Contingencies: [1] The Company has employment agreements with its three executive officers which may be terminated by the Company on not less than three years prior notice and with two other principal officers, for aggregate annual compensation of $1,099,000. In the event of a change in control of the Company, the executive officers have the right to elect a lump sum payment representing future compensation due them over the remaining years of their contracts. In addition, the five officers are entitled to bonuses based on a percentage of earnings before taxes, as defined. Total bonus compensation paid to the executive officers was approximately $281,000 in 1996. No bonuses were earned or paid in 1995 or 1994. [2] On September 23, 1993, a class action was commenced by an alleged shareholder of USA Classic (formerly a subsidiary of the Company), against USA Classic and certain of its directors in the United States District Court for the Southern District of New York. The action was commenced on behalf of shareholders, other than the defendants, who acquired their shares from November 20, 1992, the date of the initial offering, through September 22, 1993, and alleges violations of the Securities Act of 1933 in connection with the offering as well as violations of Section 10b of the Securities Act of 1934. The plaintiffs are seeking compensatory damages as well as fees and expenses. On February 1, 1994, a Consolidated Amended Complaint was filed in the class action. The amended Complaint adds the Company as a defendant and alleges that the Company is a "controlling person" of USA Classic and an "aider and abetter" of the alleged violations of the securities laws. The Amended Complaint was answered on March 21, 1994. The class action has been stayed against USA Classic as a result of its filing for protection for relief under Chapter 11 of the bankruptcy code. On October 4, 1994, a Second Amended and Consolidated Complaint was filed in the class action. The Second Amended and Consolidated Complaint restated the allegations against the Company and added Paine Webber Incorporated and Ladenburg Thalmann & Co. Inc., the lead underwriters in the Offering, as additional defendants. On November 15, 1994, the Company and such underwriters moved to dismiss certain of the allegations in the Second Amended and Consolidated Complaint. On June 16, 1995, the motion for dismissal was denied in its entirety. On March 8, 1995, the plaintiff's representatives filed a motion for class certification. Since that date, the parties have been conducting depositions and reviewing documents relevant to issues of class certification. It is estimated that discovery in this matter will continue throughout 1997. The Company plans to continue to vigorously defend against this action. (continued) F-27 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (NOTE M) - Commitments and Contingencies: (continued) [3] The Company, in the ordinary course of business, is the subject of or a party to various lawsuits, the outcome of which, in the opinion of management, will not have a material adverse effect on the consolidated financial statements. (NOTE N) - Death of Principal Officer: On February 24, 1995, the Company's principal officer died. Pursuant to his employment contract, the Company owed approximately $800,000 to the principal officer's estate, payable in monthly installments over a three year period. During 1995, the Company received insurance proceeds aggregating $1,500,000 on keyman policies on the life of the principal officer (see Note G). F-28
ORBIT INTERNATIONAL CORP. VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E Additions (1) (2) Balance at Charged to Charged to Balance at Beginning cost and Other accounts - Deductions - end of of Period expenses describe describe period Year ended December 31, 1996: Reserve for estimated doubtful accounts and allowance............... $1,576,000 $359,000 $(338,000)** $(1,447,000)*** $150,000 Valuation allowance on deferred tax asset........................................ $14,220,000 $(3,971,000)** $10,249,000 Year ended December 31, 1995: Reserve for estimated doubtful accounts and allowance............... $769,000 $887,000 $ 80,000* $1,576,000 Valuation allowance on deferred tax asset........................................ $6,380,000 $7,840,000 $14,220,000 Year ended December 31, 1994: Reserve for estimated doubtful accounts and allowance............... $882,000 $226,000 $ 339,000* $769,000 Valuation allowance on deferred tax asset........................................ $2,425,000 $3,995,000 $6,380,000 TOTAL $3,307,000 $4,181,000 $339,000 $7,149,000 *Amount represents write-offs. **Relief of allowances ***Transfer of allowances of apparel companies to discontinued operations. EX-99 2 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K XX Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the fiscal year ended December 31, 1996. [No Fee Required] or Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 for transition period from to . [No Fee Required] Commission File No. 0-3936 ORBIT INTERNATIONAL CORP. (Exact name of registrant as specified in its charter) Delaware 11-1826363 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 80 Cabot Court, Hauppauge, New York 11788 (Address of principal executive offices) Registrant's telephone number, including area code: (516) 435-8300 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Common Stock, $.10 par value per share Indicate by check mark whether the Registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes X No ______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Aggregate market value of Registrant's voting stock held by non- affiliates (based on shares held and the closing price quoted on the Nasdaq National Market on March 19, 1997): $15,465,000 Number of shares of common stock outstanding as of the close of the period covered by this report: 6,186,093. Documents incorporated by reference: the Registrant's definitive proxy statement to be filed pursuant to regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the Registrant's 1996 Annual Meeting of Stockholders, the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, the Registrant's Current Report on Form 8-K filed February 7, 1996 and the Registrant's Current Report on Form 8-K/A filed July 8, 1996. PART I Item 1. BUSINESS General Orbit International Corp. (the "Company" or "Orbit") conducts its operations through its Orbit Instrument Division and its subsidiary, Behlman Electronics, Inc. In August 1996, the Company announced that it was discontinuing operations of its apparel businesses. Through its Orbit Instrument Division, which includes its wholly-owned subsidiary, Orbit Instrument of California, Inc., the Company is engaged in the design, manufacture and sale of customized electronic components and subsystems. Behlman Electronics, Inc., is engaged in the design and manufacture of distortion free commercial power units, power conversion devices and electronic devices for measurement and display. In February 1996, the Company, through its wholly-owned subsidiary, Cabot Court, Inc., completed the acquisition of certain of the assets, subject to certain liabilities, of Astrosystems, Inc. and its wholly-owned subsidiary Behlman Electronics, Inc. Concurrent with the purchase, Cabot Court, Inc. changed its name to Behlman Electronics, Inc. ("Behlman"). On August 6, 1996, the Board of Directors of the Company adopted a plan to sell and/or liquidate its U.S. and Canadian apparel operations. The U.S. operations consisted of the design, importation and manufacture of women's active-wear and outer-wear, principally under the East/West label, through the Company's East/West Division and its subsidiary East End Apparel Group Ltd.("East End"). In the fourth quarter of 1996, the Company entered into a three-year license agreement with a third party pursuant to which Orbit granted to the third party the right to manufacture and sell ladies apparel under the "East/West" trademark in the U.S. and Canada. The operations of the East/West Division are limited to servicing such license. The Canadian apparel operations have been operated through the Company's three wholly-owned subsidiaries in Canada: Canada Classique Inc. ("Classique"), Winnipeg Leather (1991) Inc. ("Winnipeg Leather") and Symax Garment Co. (1993) Ltd. ("Symax"). On March 12, 1997, Orbit commenced bankruptcy proceedings against Classique, which manufactured branded private label men's, women's and children's outer-wear in Winnipeg, Manitoba, Canada, and Winnipeg Leather, which manufactured women's garments under private labels in Winnipeg, Manitoba, Canada. Classique and Winnipeg Leather are now in bankruptcy and Orbit has appointed a receiver and manager for the purpose of liquidating their assets. The Company is currently seeking buyers for such assets. On March 7, 1997, substantially all of the assets of Symax, which manufactured private label men's outer wear in Vancouver, British Columbia, Canada were sold to a third party. In July 1988 Orbit, through a wholly-owned subsidiary, USA Classic, Inc. ("USA Classic"), acquired all of the outstanding stock of U.S. Apparel, Inc. In November 1992, USA Classic completed an initial public offering of 3,105,000 shares of its common stock, thereby reducing Orbit's ownership to approximately 43%. USA Classic designed, manufactured and marketed men's, women's and children's active-wear, sportswear and outer-wear until it, and its subsidiaries, filed petitions under Chapter 11 of the United States Bankruptcy Code in May 1994. Financial Information about Industry Segments The Company currently operates in one industry segment which involves the design and manufacture of various electronic components. In prior years it also operated in two additional segments in which it designed and manufactured items of apparel in the United States and Canada. The Company discontinued its apparel operations in August 1996. Description of Business General The Orbit Instrument Division designs, manufactures and sells customized panels, components, and subsystems for contract program requirements to prime contractors, governmental procurement agencies and research and development ("R&D") laboratories. The Company primarily designs and manufactures in support of specific military program requirements. More recently, the Company has focused on providing commercial, non-military "ruggedized" hardware for prime contractor programs at cost competitive prices. Products include a variety of custom designed plasma based telephonic intercommunication panels for secure voice airborne and shipboard program requirements, full-mil keyboards, trackballs and data entry display devices. The Instrument Division's products, which in all cases are designed for customer requirements on a firm fixed price contract basis, have been successfully incorporated on surveillance aircraft programs, including E-2C, J/STARS, AWACS and P-3 requirements and shipboard programs, including AEGIS, DDG'S, BFTT, LSD'S and LHA applications, as well as a variety of land based guidance control programs. On February 6, 1996, Cabot Court, Inc. ("Cabot Court"), a wholly-owned subsidiary of Orbit, acquired for $3,706,700 (the "Purchase Price") certain of the assets, subject to certain liabilities, of Astrosystems, Inc. ("Astrosystems") and Astrosystems wholly-owned subsidiary, BEI Electronics, Inc. ("BEI"). The acquired assets, which included inventory, fixtures and equipment, had been used by Astrosystems and BEI in the business of manufacturing and selling power supplies, AC power sources, frequency converters, uninterruptable power supplies ("UPS") and associated analytical equipment and other electronic equipment. The Purchase Price is subject to adjustment based upon a final inventory valuation. Orbit and Astrosystems have not yet agreed upon the final inventory valuation. Cabot Court changed its name to Behlman Electronics, Inc. ("Behlman") on February 7, 1996. The military division of Behlman designs and manufactures power conversion devices and electronic products for measurement and display. The commercial products division produces high quality, distortion free commercial power units and low noise UPS. Products Plasma Intercommunication Panels The Company has recently completed its design and development efforts for an AC plasma display panel that includes bit mapping and graphics technologies. Prime contractors in support of combat communication requirements, in addition to command systems and display functions, have used these plasma display units. The Company has completed a design effort to incorporate telephonic and secure voice functions into several of the newly designed plasma configurations. The Company has completed land-based and shipboard integration and functional testing of the secure voice and telco-based designs, and has recently been awarded a Basis Ordering Agreement as a mechanism for the potential procurement of these panels. Graphic Display Terminal The Company's family of graphic terminals enables the operator to monitor and control radar systems for shipboard and airborne applications. These terminals are used throughout a ship or surveillance plane as adjuncts to larger console displays. The modular design of the terminals facilitates applications for surface ship, submarine, aircraft and land based requirements. Color Liquid Crystal Display Panels The Company has recently completed its initial production color liquid crystal display unit for testing and integration. This unit has been designed as a high speed, windows-based display that provides the operator with crisp, color resolution to be used in a full military combat environment. Operator Control Trays The Company has designed and manufactures a variety of operator control trays, that help organize and process data created by interactive communications systems, making such data more manageable for operator consumption. These trays are presently used to support patrol and surveillance airborne aircraft programs, standard shipboard display console requirements and shore land based defense systems applications. Data Entry, Keyboards, and Display Systems The Company has designed and manufactures computer controlled action entry panels (CCAEP'S), which provide a console operator with multiple displays of computer generated data. The Company's data entry and display panels have been designed and manufactured to support fire control, sonar control and command communication console requirements. Power Sources The Company's AC Power sources are used in the production of various types of equipment such as ballasts for fluorescent lighting, CRT terminals, hair dryers and hospital beds and are used in test labs to meet European Community required testing, aircraft testing and simulators. Other uses include powering equipment for oil and gas exploration. The Company's frequency converters are used to convert local power frequency (e.g., 60HZ in the U.S.) to local frequencies elsewhere (e.g., 50 HZ in Europe). The Company's products are used for backup power when local power is lost. The Company only competes in the "ruggedized" market as opposed to the commercial UPS market. The Company's military division has certified value- engineering personnel who are capable of reconfiguring obsolete or hard-to-maintain government equipment. In most circumstances, the Company will be contracted to build the equipment but in the event the component is contracted to be built elsewhere based upon the Company's engineering design, the Company will receive a percentage of the government savings over the life of the program. The Company also performs reverse engineering of analog systems for the government or government contractors to enable them to have a new contractor with high quality capabilities at a competitive price. The Company also operates as a qualified repair depot for many Air Force and Navy programs. Proposed Products Product Development The Company is currently expanding its design and development resources to update hardware previously used for full military program requirements. The Instrument Division believes its wide variety of components, controls, subsystems and plasma secure voice and intercommunication panels that have supported the military for aircraft, shipboard, subsurface and land based program requirements have alternative uses. It is the intent of the Company to update the electrical and mechanical functionality of these units and subsystems and provide "ruggedized" and commercial equivalent hardware at cost competitive prices. Construction of color flatpanel displays exhibiting specialized software routines may also provide the Company with future areas of growth. The Company continues to focus on integration of small but extremely functional high resolution displays for use in embedded instrumentation products. Further, the emergence of high speed digital modem interfaces such as ISDN are allowing for increased bandwidth of digital communications that can handle large files for both voice and data. The merging of these two concepts have produced successful results that should contribute to the Company's already extensive product line. Demonstration of new products in this category are scheduled in the third quarter of this year and are expected to transcend the Company's historical customer base. The Company has formed a sales organization to specifically target the railroad industry. Railroad signaling is powered from a unique voltage and frequency which the Company has the capability to manufacture. The Company is currently working with a manufacturer of electro luminescent power supplies for the architectural market. Finally, the Company is developing power supplies and control systems for the cooling systems used for high speed computers, IC manufacturing, cellular telephones and telecommunication superconducting amplifiers. The Company is utilizing modular power supplies to produce power supply systems for the government and government contractors at prices lower than its competition. The Company is also looking at various way to reconfigure its commercial hardware to meet military specifications so that its hardware may be considered "Commercial Off the Shelf" for military requirements. The products described above are presently being developed by the Company. However, there can be no assurance that such development efforts will result in any marketable products. Sales and Marketing Products of the Orbit Instrument Division are marketed by the Division's sales personnel and management. Products of the military division are marketed by Behlman's program managers and other management personnel. Behlman's commercial products are sold by regional sales managers, manufacturer's representatives and non-exclusive distributors. Competition The Instrument Division's competitive position within the electronics industry is, in management's view, predicated upon the Company's manufacturing techniques, its ability to design and manufacture products which will meet the specific needs of its customers and its long-standing successful relationship with its major customers. There are numerous companies (many of which are substantially larger than the Company) capable of producing substantially all of the Company's products. However, to the Company's knowledge, none of such competitors currently produce all of the products that the Instrument Division produces. (See - "Substantial Customers"). Competition in the markets for Behlman's commercial and military products depends on such factors as price, product reliability and performance, engineering and production. In particular, due primarily to budgetary restraints and program cutbacks, competition in Behlman's government markets has been increasingly severe and price has become the major overriding factor in contract and subcontract awards. To the best of the Company's knowledge, some of Behlman's regular competitors include larger companies with substantially greater capital resources and far larger engineering, administrative, sales and production staffs than Behlman. (See - "Substantial Customers"). Substantial Customers General Motors Hughes Electronics Corporation ("GMHEC"), Northrup Grumman, various agencies of the United States government and Western Atlas accounted for approximately 28%, 15%, 17% and 12% respectively, of net sales of the Company for the year ended December 31, 1996. The loss of any of these customers would have a materially adverse effect on the sales and earnings of the Company. Since a significant amount of all of the products which the Company manufactures are used in military applications, any substantial reduction in overall military spending by the United States Government could have a materially adverse effect on the Company's sales and earnings. Backlog As of December 31, 1996 and December 31, 1995 the Company's consolidated backlog was $17,000,000 and $13,000,000 respectively. Of the backlog for the year ended December 31, 1996, approximately $4,000,000 represents backlog under contracts which will not be shipped during 1997. Additionally, a significant number of the Company's contracts are subject to termination at the convenience of the United States Government. Special Features of Government Contracts Orders under government prime contracts or subcontracts are customarily subject to termination at the convenience of the government, in which event the contractor is normally entitled to reimbursement for allowable costs and to a reasonable allowance for profits, unless the termination of a contract was due to a default on the part of the contractor. No material terminations of Company contracts at the convenience of the government occurred during the year ended December 31, 1996. A significant portion of the Company's revenues are subject to audit under the Vinson-Trammel Act of 1934 and other federal statutes since they are derived from sales under government contracts. The Company believes that adjustments to such revenues, if any, will not have a material effect on the Company's financial position. Research and Development The Company incurred approximately $710,000 of research and development expenses during the year ended December 31, 1996, as compared with $420,000 of such expenses during the comparable period of the prior year. Patents The Company does not own any patents which are of material significance to its operations. Employees As of March 14, 1997, the Company employed 126 persons. Of these, the Instrument Division employed 62 people consisting of 11 in engineering and drafting, 3 in sales and marketing, 11 in direct and corporate administration and the balance in production. Behlman employed 64 people, consisting of 11 in engineering and drafting, 5 in sales, 4 in direct and corporate administration and the balance in production. Item 2. PROPERTIES The Company's plant and executive offices, located at 80 Cabot Court, Hauppauge, New York, consist of 60,000 square feet (of which approximately 50,000 square feet are utilized for manufacturing operations) in a two-story, sprinklered, brick building which was completed in October 1982 and expanded in 1985. Behlman leases 1700 square feet in Ventura, California which is used for sales. The lease expires in December 1997. As part of its discontinued apparel operations, the Company has leases for showroom and office space in New York, New York, warehouse space in New Jersey and showroom, office and manufacturing space in Winnipeg, Manitoba, Canada. Item 3. LEGAL PROCEEDINGS There are no material pending legal proceedings against the Company, other than routine litigation incidental to the Company's business, except as described below. In re USA Classic Securities Litigation: On September 23, 1993, a class action (the "Class Action") was commenced by an alleged shareholder of USA Classic, against USA Classic and certain of its directors in the United States District Court for the Southern District of New York. The action was commenced on behalf of shareholders, other than the defendants, who acquired their shares from November 20, 1992, the date of the initial public offering of common stock of USA Classic (the "Offering"), through September 22, 1993, and alleges violations of the Securities Act of 1933 in connection with the Offering as well as violations of Section 10(b) of the Securities Exchange Act of 1934. The plaintiffs are seeking compensatory damages as well as fees and expenses. On February 1, 1994, a First Amended and Consolidated Complaint was filed in the Class Action. The First Amended and Consolidated Complaint added the Company as a defendant and alleged that the Company is a "controlling person" of USA Classic and an "aider and abetter" of the alleged violations of the securities laws. The Company answered the First Amended and Consolidated Complaint on March 21, 1994. The Class Action has been stayed as against USA Classic as a result of USA Classic's filing of a petition for reorganization under Chapter 11 of the United States Bankruptcy Code. On October 4, 1994, a Second Amended and Consolidated Complaint was filed in the Class Action. The Second Amended and Consolidated Complaint restated the allegations against the Company and added Paine Webber Incorporated and Ladenburg Thalmann & Co. Inc., the lead underwriters in the Offering (the "Underwriters"), as additional defendants. On November 15, 1994, the Company and the Underwriters moved to dismiss certain of the allegations in the Second Amended and Consolidated Complaint. On or about June 16, 1995, the Honorable John S. Martin, Jr. denied the dismissal motion in its entirety. On March 8, 1995, the plaintiffs' representatives filed a motion for class certification. Since that date, the parties have been conducting depositions and reviewing documents relevant to the class certification issue. The defendants' response to the class certification motion has been adjourned without a future date pending completion of discovery into that issue. On or about February 6, 1996, the Underwriters moved the court to stay all substantive discovery until the court rules upon the class certification motion. The Company joined in said motion. On March 7, 1996, the court denied the motion to stay substantive discovery. Depositions and documentary discovery are continuing. It is estimated that discovery in this matter will continue throughout 1997. The Company plans to continue to vigorously defend this action. Sandra Lakritz v. Orbit International Corp.: On July 7, 1995, Sandra Lakritz, a former employee of the Company's East/West division commenced an action in Supreme Court, New York County, claiming employment discrimination based upon age and disability. On December 4, 1995, the Company answered the complaint and denied the allegations set forth therein. Simultaneously with its answer, the Company served upon plaintiff's counsel numerous discovery requests. To date, plaintiff has only partially responded to the discovery requests. Additionally, the plaintiff has requested certain discovery from the Company. Although the Company has offered to make that information available to the plaintiff, the plaintiff has failed to follow up on these requests. The Company intends to vigorously defend this action. Bankruptcy and Liquidation of Canadian Subsidiaries: On March 12, 1997, Orbit commenced bankruptcy proceedings against Classique, which manufactured branded private label men's, women's and children's outer-wear in Winnipeg, Manitoba, Canada and Winnipeg Leather, which manufactured women's garments under private labels in Winnipeg, Manitoba, Canada. Classique and Winnipeg Leather are now in bankruptcy and Orbit has appointed a receiver and manager for the purpose of liquidating their assets. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS An Annual Meeting of Stockholders of the Company was held on June 28,1996. The holders of 6,186,093 shares of Common Stock of the Company were entitled to vote at the meeting, the holders of 5,885,255 shares of Common Stock, or approximately 95% of shares entitled to vote at the meeting, were represented by proxy and the holders of 25,000 shares of Common Stock were present in person. The following action took place: 1. The stockholders voted for the election of each of the following persons nominated to serve as a director of the Company until the next annual meeting and until his successor is elected and qualified: Dennis Sunshine by 5,696,921 votes for and 213,334 against, Bruce Reissman by 5,696,421 votes for and 213,834 against, Mitchell Binder by 5,696,421 votes for and 213,834 against, Nathan A. Greenberg by 5,696,421 votes for and 213,834 against, John Molloy by 5,696,921 votes for and 213,834 against and Stanley Morris by 5,696,408 votes for and 213,847 against. PART II Item 5. MARKET FOR REGISTRANT'S CAPITAL STOCK AND RELATED SECURITY HOLDER MATTERS As of March 20, 1997 the Company had 729 shareholders of record. The Company's stock is traded on the Nasdaq National Market (Nasdaq symbol ORBT). The quarterly closing prices for the period January 1, 1995 through December 31, 1996, as reported by Nasdaq, were as follows: CLOSE High Low 1995: First Quarter 2 1/2 1 5/8 Second Quarter 2 1/8 1 3/8 Third Quarter 1 5/8 1 3/16 Fourth Quarter 1 9/16 3/4 1996: First Quarter 1 47/64 Second Quarter 1 5/16 7/8 Third Quarter 1 3/4 3/4 Fourth Quarter 2 3/4 1 9/16 The Company has not declared any dividends during the aforesaid period.
Item 6. SELECTED FINANCIAL DATA* Year ended December 31 Six Month Period Ended December 31** Year Ended June 30 1996 1995 1994 1993 (unaudited) 1993 1992 Net sales $16,971,000 $11,763,000 $12,254,000 $6,659,000 $14,191,000 $14,496,000 Net income (loss) from continuing operations 3,311,000 2,491,000 1,098,000 1,642,000 ( 707,000) ( 131,000) Net income (loss) from discontinued operations ( 8,800,000) (22,744,000) (18,093,000) 4,277,000 11,942,000 3,033,000 Income per share from continuing operations primary fully diluted .53 .50 .42 .42 .18 .18 .25 .25 (.11) (.02) (.11) (.02) Income (loss) per share from discontinued operations primary fully diluted ( 1.42) ( 1.32) ( 4.20) ( 4.20) ( 2.93) ( 2.93) .64 .64 1.79 .48 1.79 .48 Total assets at period-end 19,931,000 38,028,000 63,511,000 73,105,000 71,835,000 71,730,000
Year ended December 31 Six Month Period Ended December 31** Year Ended June 30 1996 1995 1994 1993 (unaudited) 1993 1992 Long-term obligations 3,817,000 1,097,000 8,909,000 10,419,000 2,451,000 6,757,000 Total stockholders' equity 5,146,000 9,318,000 31,263,000 49,626,000 54,483,000 43,110,000 _________________ * Restated to reflect discontinued operations ** In 1993, the Company opted to change its fiscal year end from June 30 to December 31. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Year Ended December 31, 1996 v. Year Ended December 31, 1995 In August, 1996, the Company adopted a plan to sell its apparel businesses. The Company estimates the loss on the disposal to be approximately $4,600,000 and charged 1996 operations with such amount. Such loss includes a write-off of foreign currency translation adjustments, monies owed pursuant to operating lease agreements, the write-down of assets to net realizable value offset by the reduction in liabilities due to the bankruptcy of two of the companies and the balance for professional fees and other contractual obligations. The discontinuance of the Company's apparel operations leaves the Company solely with its Electronic Segment which consists of its Orbit Instrument Division and its Behlman subsidiary. Consolidated net sales for the year ended December 31, 1996 increased to $16,971,000 from $11,763,000 for the prior year due principally to $6,879,000 of revenues recorded by the Company's new Behlman subsidiary which was acquired in February 1996, offset by a decrease in the number of units shipped by the Orbit Instrument Division. The net loss for the year ended December 31, 1996 decreased to $5,489,000 from $22,253,000 for the prior year. The loss for the current year is principally due to operating losses from the Company's discontinued apparel operations of $4,200,000 and the estimated loss of $4,600,000 on the disposal of such operations. The loss in the prior year was principally due to non-cash charges of $9,780,000 reflecting the Company's write-off of goodwill and other intangible costs related to its U.S. apparel businesses as well as $12,192,000 of operating losses from all of the Company's apparel businesses. Net income from continuing operations for the year ended December 31, 1996 increased to $3,311,000 from $2,491,000 for the prior year due principally to earnings recorded during the period by the Company's new Behlman subsidiary, increased earnings from the Orbit Instrument Division offset by a decrease in investment and other income. Gross profit, as a percentage of sales, for the year ended December 31, 1996 increased to 44.8% from 44.5% for the prior year. Selling, general and administrative expenses for the year ended December 31, 1996 increased to $5,501,000 from $5,274,000 for the prior year principally due to selling, general and administrative expenses incurred by the Company's new Behlman subsidiary and offset by lower corporate expenses and lower selling, general and administrative expenses incurred by the Orbit Instrument Division. Selling, general and administrative expenses, as a percentage of sales decreased to 32.4% for the year ended December 31, 1996 from 44.8% for the prior year due to additional sales and greater efficiencies derived from the Behlman acquisition and lower corporate expenses. Interest expense for the year ended December 31, 1996 decreased to $118,000 from $236,000 for the prior year due to a reduction in the average amounts owed during the current year. Investment and other income for the year ended December 31, 1996 decreased to $1,320,000 from $2,614,000 for the prior year due principally to interest earned on higher cash balances in the prior year. Both the current and prior years included non- recurring income resulting from, in the current year, the realization of approximately $800,000 representing the final payment of royalty income from Orbit Semiconductor, Inc., pursuant to a Stock Purchase Agreement signed in November, 1991 and, in the prior year, $869,000 of insurance proceeds realized upon the death of the Company's former chief executive officer, net of accrued costs to the officer's estate, and $1,000,000 resulting from the partial realization of royalty income mentioned above. The Company did not record any tax benefit on the current years pre-tax loss because of the uncertainty of future realization. Year Ended December 31, 1995 v. Year Ended December 31, 1994 Consolidated net sales for the year ended December 31, 1995 decreased to $11,763,000 from $12,254,000 in the prior year due to a decrease in 1995 in the number of units shipped. The net loss for the year ended December 31, 1995 increased to $22,253,000 from $16,995,000 for the prior year. The loss for the year ended December 31, 1995 was due to $12,192,000 of operating losses from the Company's discontinued apparel operations and to non-cash charges in the period of $9,780,000 reflecting the Company's write-off of goodwill and other intangible costs related to its U.S. apparel businesses. The loss in 1994 reflects the Company's write-off of its 43% equity interest in USA Classique, Inc., a subordinated receivable and other related costs. Net income from continuing operations for the year ended December 31, 1995 increased to $2,491,000 from $1,098,000 for the prior year due principally to non-recurring investment and other income. Gross profit, as a percentage of sales, for the year ended December 31, 1995 increased to 44.5% from 42.2% for the prior year. Selling, general and administrative expenses for the year ended December 31, 1995 increased to $5,274,000 from $4,489,000 for the prior year due principally to a provision taken in the year ended December 31, 1995 of approximately $875,000 in anticipation of costs to be incurred to repair and/or refurbish certain units that had already been shipped to one of the Instrument Division's customers. Selling, general and administrative expenses, as a percentage of sales, increased to 44.8% in 1995 from 36.6% in 1994 due to the aforementioned reasons. Interest expense for the year ended December 31, 1995 decreased to $236,000 from $323,000 for the prior year due to a reduction in the average amounts owed during the period. Investment and other income increased during the year ended December 31, 1995 to $2,614,000 from $734,000 for the prior year due to (i) insurance proceeds received by the Company upon the death of the Company's former chief executive officer net of accrued costs due to the officer's estate, and (ii) the partial realization of $1,000,000 of royalty income received from Orbit Semiconductor, Inc. pursuant to a Stock Purchase Agreement signed in November 1991. The Company did not record any tax benefit on the current pre-tax loss because of the uncertainty of future realization. Liquidity, Capital Resources and Inflation Working capital increased by $6,317,000 to $6,197,000 during the year ended December 31, 1996 from a working capital deficit of $120,000 as of December 31, 1995 principally due to approximately $7,567,000 of non-current restricted assets which were used to either reduce amounts owed under certain lending facilities and the reclassification of certain amounts due under the Company's factoring arrangements to a three year term loan. The Company's working capital ratio at December 31, 1996 was 1.7 to 1 compared to 1.0 to 1 at December 31, 1995. All losses and obligations of the apparel businesses have been provided for in the December 31, 1996 financial statements and, accordingly, the Company does not anticipate using any significant portion of its resources towards these apparel businesses. During the fourth quarter of 1996, the Company commenced discussions with the Company's factor to convert the amounts due to the factor from the Company's discontinued U.S. Apparel operations to a term loan. The new term loan is expected to commence on May 1, 1997 at which time the factor expects to complete its collection efforts on all outstanding accounts receivable. Under the proposed terms of the new lending arrangement, the loan amortization is based on a 60 month period with payments due on a monthly basis for 35 months and a final balloon payment due April 1, 2000. The loan will have an interest rate of prime rate plus 1%. Under the Company's factoring arrangements related to the discontinued apparel operations, the Company has provided standby letters of credit as security for its guarantees under these arrangements, collaterallized by marketable securities. As of December 31, 1996, the Company has provided $2,200,000 in standby letters of credit. Between January and December 1996, the Company used approximately $8,918,000 of marketable securities to reduce the amount owed under two of the facilities. In February 1996, the Company, through a wholly-owned subsidiary, purchased from Astrosystems, Inc. substantially all of the assets of its wholly-owned subsidiary, Behlman Electronics, Inc., and substantially all of the assets of Astrosystems Military Electronics Division. The purchase price of $3,706,000 was substantially funded by the Company's cash and a $500,000 bridge loan from BNY Financial Corporation ("BNY"). In June 1996, the Company completed a $2,000,000 Term Loan and $2,000,000 Revolving Credit facility with BNY. The proceeds were used to pay off the bridge loan and to provide working capital for the Company's electronics operations. The Term Loan is payable in 36 monthly installments and bears interest at prime plus 1.50%. The Revolving Credit facility bears interest at prime plus 1.0%. The Company's existing capital resources, including its bank credit facilities, and its cash flow from operations are expected to be adequate to cover the Company's cash requirements for the foreseeable future. Inflation has not materially impacted the operations of the Company. Certain Material Trends Despite continued profitability in 1996, the Company continues to face a difficult business environment with continuing pressure on the Company's prices for its sole source sales and a general reduction in the level of funding for the defense sector. Based on current delivery schedules and as a result of the acquisition of Behlman, however, revenues for the Company should be sustained at the levels recorded in 1996, although there can be no assurance that such increased revenues will actually be achieved. The Company continues to seek new contracts which require incurring up-front design, engineering, prototype and preproduction costs. While the Company attempts to negotiate contract awards for reimbursement of product development, there is no assurance that sufficient monies will be set aside by the government for such effort. In addition, even if the government agrees to reimburse development costs, there is still a significant risk of cost overrun which may not be reimbursable. Furthermore, once the Company has completed the design and preproduction stage, there is no assurance that funding will be provided for future production. The Company is heavily dependent upon military spending as a source of revenues and income. World events have led the government of the United States to reevaluate the level of military spending necessary for national security. Any significant reductions in the level of military spending by the Federal government could have a negative impact on the Company's future revenues and earnings. In addition, due to major consolidations in the defense industry, it has become more difficult to avoid dependence on certain customers for revenue and income. Behlman's product line gives the Company some diversity with its line of commercial products. Forward Looking Statements Statements in this Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document as well as statements made in press releases and oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company's behalf that are not statements of historical or current fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes", "belief", "expects", "intends", "anticipates" or "plans" to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See index to financial statements, which is a part of the financial statements, and the financial statements and schedules included elsewhere in this Annual Report on Form 10-K. The following sets forth certain selected, unaudited quarterly financial data:
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES QUARTERLY FINANCIAL DATA (Consolidated) Year Ended December 31, 1996 First Quarter Second Quarter Third Quarter Fourth Quarter Net Sales $2,881,000 $4,889,000 $4,798,000 $4,403,000 Gross Profit 1,102,000 2,292,000 2,150,000 2,066,000 Income from continuing operations 771,000 1,068,000 741,000 731,000 (Loss) from discontinued operations (1,541,000) (6,460,000) 0 (799,000) Net income (loss) (770,000) (5,392,000) 741,000 (68,000) Income per share from continuing operations 0.14 0.18 0.12 0.11 (Loss) per share from discontinued operations (0.28) (1.07) (0.12) Net income (loss) per share (fully diluted) (0.14) (0.89) 0.12 (0.01)
Year Ended December 31, 1995 First Quarter Second Quarter Third Quarter Fourth Quarter Net Sales $4,106,000 $4,069,000 $1,851,000 $1,737,000 Gross Profit 1,817,000 1,402,000 542,000 1,473,000 Income (loss) from continuing operations 1,786,000 920,000 (401,000) 186,000 (Loss) from discontinued operations (2,099,000) (3,053,000) (14,887,000) (4,705,000) Net (loss) (313,000) (2,133,000) (15,288,000) (4,519,000) Income (loss) per share from continuing operations 0.30 0.16 ( 0.07) 0.03 (Loss) per share from discontinued operations 0.36) (0.52) (2.53) (0.80) Net (loss) per share (0.05) (0.36) (2.60) (0.77)
Item 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On July 8, 1996, the Board of Directors of the Company approved the engagement of Ernst & Young LLP as its independent auditors for the fiscal year ended December 31, 1996 to replace the firm of Richard A. Eisner & Company, LLP who had been dismissed by the Company. See the Company s Current Report on Form 8-K/A dated July 8, 1996. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders. Item 11. EXECUTIVE COMPENSATION Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the Company's definitive proxy statement to be filed pursuant to regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 1.& 2. Financial Statements and Schedule: The index to the financial statements and schedule is incorporated by reference to the index to financial statements attached as an exhibit to this Annual Report on Form 10-K. 3. Exhibits: Exhibit No. Description of Exhibit 3 (a) Certification of Incorporation, as amended. Incorporated by reference to Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991. 3 (b) By-Laws, as amended. Incorporated by reference to Exhibit 3(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988. 4 (a) Orbit International Corp. 1995 Employee Stock Option Plan. Incorporated by reference to Exhibit 4(a) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 4 (b) Orbit International Corp. 1995 Stock Option Plan for Non-Employee Directors. Incorporated by reference to Exhibit 4(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 10 (a) Employment Agreement, dated July 1, 1996 between Registrant and Mitchell Binder. 10 (b) Employment Agreement dated July 1, 1996 between Registrant and Bruce Reissman. 10 (c) Employment Agreement dated July 1, 1996 between Registrant and Dennis Sunshine. 10 (d) Form of Indemnification Agreement between the Company and each of its Directors. Incorporated by reference to Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988. 10 (e) Asset Purchase Agreement, dated July 12, 1993, among The Panda Group, Inc., Kenneth Freedman, Frederick Meyers and Registrant. Incorporated by reference to Exhibit 1 to Registrant's Current Report on Form 8-K dated July 12, 1993. 10 (f) Asset Purchase Agreement, dated as of January 11, 1996, by and among Astrosystems, Inc., and BEI Electronics, Inc., Orbit International Corp. and Cabot Court, Inc. Incorporated by reference to the Registrant's Current Report on Form 8-K dated February 7, 1996. 10 (g) Form of Agreement among Kenneth Freedman, Frederick Meyers, The Panda Group, Inc. and Orbit International Corp. dated March 28, 1996; Form of Amendment Promissory Note dated March 28, 1996; and Form of Warrant to purchase 125,000 shares of Orbit International Corp. Common Stock. Incorporated by reference to Exhibit 10(g) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. 16 Letter re change in certifying accountant. Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated July 8, 1996. 21 Subsidiaries of Registrant. 27 Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K have been filed during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunder duly authorized. ORBIT INTERNATIONAL CORP. Dated: March 31, 1997 By: /s/ Dennis Sunshine Dennis Sunshine, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Dennis Sunshine Dennis Sunshine President, Chief Executive Officer and Director March 31, 1997 /s/ Mitchell Binder Mitchell Binder Vice President-Finance, Chief Financial Officer and Director March 31, 1997 /s/ Bruce Reissman Bruce Reissman Executive Vice President, Chief Operating Officer and Director March 31, 1997 /s/ Harlan Sylvan Harlan Sylvan Treasurer, Secretary and Controller March 31, 1997 /s/ Nathan A. Greenberg Nathan A. Greenberg Director March 31, 1997 /s/ John Molloy John Molloy Director March 31, 1997 /s/ Stanley Morris Stanley Morris Director March 31, 1997 J J:\...\ J:\...\ J:\... EX-99 3 EMPLOYMENT AGREEMENT, dated as of the 1st day of April 1996, by and between ORBIT INTERNATIONAL CORP., a Delaware corporation (the "Company"), with an office at 80 Cabot Court, Hauppauge, New York, and MITCHELL BINDER ("Employee"), with an address at 800 Barberry Lane, Woodsburgh, New York 11598. W I T N E S S E T H : WHEREAS, Employee is presently employed by the Company in a senior executive capacity pursuant to the terms of a certain Employment Agreement dated as of July 1, 1992, between the Company and Employee (the "1992 Employment Agreement"). The Company and Employee desire to cancel the 1992 Employment Agreement effective April 1, 1996 and to enter into an employment agreement which will set forth the terms and conditions upon which Employee shall continue in the employ of the Company. NOW THEREFORE, in consideration of the premises and of the mutual covenants hereinafter set forth, the parties hereto have agreed, and do hereby agree, as follows: EMPLOYMENT TERM; CANCELLATION OF 1992 EMPLOYMENT AGREEMENT 0.1 The Company will continue to employ Employee in its business and Employee will continue to work for the Company for a term commencing as of April 1, 1996 and continuing for the duration of the Employment Period (as hereinafter defined). During the Employment Period, Employee will, if so requested, serve as an officer or director of any subsidiary of the Company. Employment Period shall mean the period commencing as of April 1, 1996 and terminating on the date on which the Employment Period is terminated in accordance with the provisions of Section 1.3 below. 0.2 Upon the execution of this Agreement by both the Company and Employee, the 1992 Employment Agreement shall be deemed to have been cancelled and terminated as of midnight March 31, 1996, and thereafter to be of no further force and effect. 0.3 The Employment Period shall terminate on the earlier to occur of (i) Employee's death or at the election of the Company at any time after Employee's Disability (as such term is hereinafter defined); (ii) At the election of the Company on not less than three years' prior written notice to Employee; (iii) At the election of Employee on not less than six months' prior written notice to the Company, or upon a "change of control" in accordance with the provisions of Section 7.1 below; or (iv) At the election of the Company for "cause" (as such term is hereinafter defined). As used herein the term "cause" means (i) willful and repeated failure by Employee to perform his duties hereunder which are not remedied within thirty days after written notice from the Company, (ii) conviction of Employee for a felony, (iii) Employee's dishonesty or willfully engaging in conduct that is demonstrably and materially injurious to the Company or (iv) willful violation by Employee of any provisions of this Agreement which is not remedied within thirty days after written notice from the Company. 1. DUTIES 1.1 During the Employment Period, Employee shall perform the duties of Vice President - Finance and Chief Financial Officer or such other or additional executive duties consistent with such office as shall, from time to time, be reasonably delegated or assigned to him by the Board of Directors of the Company consistent with Employee's abilities. 1.2 During the term of this Agreement, Employee shall, if elected, serve as a member of the Board of Directors of the Company and such other committees of the Board to which Employee may be appointed. 2. DEVOTION OF TIME During the Employment Period, Employee shall expend substantially all of his working time for the Company; shall devote his best efforts, energy and skill to the services of the Company and the promotion of its interests; and shall not take part in activities which are detrimental to the best interests of the Company or which are directly competitive to the business of the Company. 3. COMPENSATION DURING EMPLOYMENT PERIOD 3.1 In respect of services to be performed by Employee during the Employment Period, the Company agrees to pay Employee an annual salary of Two Hundred Thirty Five Thousand One Hundred Twenty Five ($235,125) Dollars ("Basic Compensation"), payable in accordance with the Company's customary payroll practices for executive employees. 3.2 Employee's Basic Compensation shall be increased by an amount established by reference to the "Consumer Price Index for Urban Wage Earners and Clerical Workers, New York, New York, all items - Series A-01 (1982 - 84=100)" published by the Bureau of Labor Statistics of the United States Department of Labor (the "Consumer Price Index"). The base period shall be the month ended March 31, 1996 (the "Base Period"). If the Consumer Price Index for the month of March in any year, commencing in 1997, is greater than the Consumer Price Index for the Base Period, Basic Compensation shall be increased to the amount obtained by multiplying Basic Compensation by a fraction, the numerator of which is the Consumer Price Index for the month of March of the year in which such determination is being made and the denominator of which is the Consumer Price Index for the Base Period. 3.3 In addition to his Basic Compensation, during the Employment Period Employee shall also be entitled to receive for all services rendered hereunder an annual cash bonus ("Incentive Compensation") equal to 1.46% percent of the first $5,000,000 of the Company's "Pre-Tax Earnings" and 2.20% of the Company's Pre-Tax Earnings in excess of $5,000,000, as hereinafter defined, to be paid on or before March 15 of each year based on the Company's Pre-Tax Earnings for its fiscal year ended immediately prior thereto. In the event that the Employment Period shall end on any day other than the last day of a fiscal year the Incentive Compensation payable to Employee hereunder shall be prorated based on the ratio that the number of days in that fiscal year which are included in the Employment Period bears to the total number of days in that fiscal year. 3.4 As used herein, the term Pre-Tax Earnings shall mean the net income of the Company and its subsidiaries, as determined on a consolidated basis as shown on the Company's statement of operations which is included in its audited financial statements, in accordance with generally accepted accounting principles applied consistently with those employed in the preparation of the Company's audited financial statements, as adjusted as follows: (i) No deduction or provision shall be made for taxes (which term shall not include any related interest or penalties) based on income or profits of any nature whatsoever (including but not limited to all federal, state, municipal and or other income, franchise, excess profit, sales value added, gross receipts, surtaxes or other taxes upon the Company or any of its subsidiaries or arising from or related to the income of the Company or any of its subsidiaries in any jurisdiction); (ii) No deduction shall be made for any Incentive Compensation payable to Employee hereunder or any incentive compensation, bonus or similar payment made to any other executive employee of the Company which is based upon or measured by the earnings of the Company (however defined); (iii) Pre-tax earnings (or losses) of consolidated subsidiaries of the Company which are less than 100% owned by the Company shall be included in the computation of "Pre-Tax Earnings" only to the extent of the Company's percentage ownership interest in each such subsidiary; and (iv) Pre-Tax Earnings shall not include: (A) extraordinary gains or extraordinary losses; or (B) any gain or loss from discontinued business operations. The amounts earned by Employee hereunder shall be initially computed by the Company and any dispute between the Company and Employee as to the computation thereof shall be determined by the independent certified public accountants then regularly retained by the Company based upon financial statements certified by said accountants and such determination shall be final and binding upon the Company and Employee. 3.5 Employee shall also be entitled to such additional increments and bonuses as shall be determined from time to time by the Board of Directors of the Company. 3.6 As used in this Agreement the term "Total Compensation" shall mean, with respect to any period, the total amounts paid or payable to Employee with respect to such period whether as Basic Compensation, Incentive Compensation, or as additional payments made pursuant to Paragraph 4.5. 4. BENEFITS; REIMBURSEMENT OF EXPENSES 4.1 Employee shall at all times have the use of a Company- owned or leased automobile with full maintenance and insurance. All costs of such automobile, including lease costs or purchase price, gasoline and oil and garaging (except at Employee's home) shall be paid by the Company. 4.2 The Company shall pay directly, or reimburse Employee, for all other reasonable and necessary expenses and disbursements incurred by him for and on behalf of the Company in the performance of his duties during the Employment Period in accordance with the regular practices of the Company regarding the reimbursement of such expenses. 4.3 Employee and any beneficiary of Employee shall be accorded the right to participate in and receive benefits under and in accordance with the provisions of any pension, insurance, medical and dental insurance or reimbursement, or other similar plan or program of the Company now in existence or hereafter adopted for the benefit of its executive employees. 4.4 The Company shall maintain keyman life insurance on Employee in the minimum amount of $1 million. Upon termination of employment, Employee may continue to pay premiums due under such policy and designate beneficiaries thereunder. 5. DISABILITY 5.1 If the Employment Period is terminated by reason of Employee's Disability, as defined below, Employee shall be paid a sum equal to 50% of the Total Compensation paid or payable to him with respect to the immediately preceding full fiscal year, such payment to be made to him in six substantially equal monthly installments commencing promptly following any such termination of the Employment Period. 5.2 "Disability" shall mean the inability of Employee, for a continuous period of more than six (6) months, to perform substantially all of his regular duties and carry out substantially all of his responsibilities hereunder because of physical or mental incapacity. The Company shall have the right to have Employee examined by a competent doctor for purposes of determining his physical or mental incapacity. 5.3 The obligations of the Company under Article 6.1 may be satisfied, in whole or in part, by payments to Employee under disability insurance provided by the Company, and under laws providing disability benefits for employees. 6. CHANGE IN CONTROL 6.1 In the event at any time after March 31, 1996, a majority of the Board of Directors is composed of persons who are not "Continuing Directors," as hereinafter defined, (i) all stock options and the Shares granted to Employee under any of the Company's stock option plans, which stock options are currently outstanding and not vested, shall immediately become fully vested and (ii) Employee shall have the option, to be exercised by written notice to the Company, to resign as an employee and terminate this Agreement, effective as of such date as may be specified in his written notice of resignation. 6.2 In the event Employee exercises such option under (ii) above, he shall be entitled to receive, as termination pay, a lump sum equal to the maximum amount that can be paid to Employee, after giving effect to all other benefits accruing to Employee upon the termination of his employment, without any portion thereof constituting an "excess parachute payment" as defined in 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor section of the Code. The computation of the termination payment to be made to Employee under (ii) above shall be performed, at the sole cost and expense of the Company, by the independent auditors then retained by the Company, or if such auditors notify the Company that they are unwilling to perform such computation, then by any nationally or regionally recognized independent public accounting firm selected by Employee. The computation provided by such auditors shall be final and binding on the Company and Employee. The Company and Employee shall provide such auditors with any documents and other information that the auditors may reasonably request. 6.3 "Continuing Directors" shall mean (i) the directors of the Company at the close of business on March 31, 1996, and (ii) any person who was or is recommended to (A) succeed a Continuing Director or (B) become a director as a result of an increase in the size of the Board, in each case, by a majority of the Continuing Directors then on the Board. 7. CONFIDENTIAL INFORMATION; INVENTIONS; RESTRICTIVE COVENANT 7.1 Employee agrees not to divulge, furnish or make available to anyone (other than in the regular course of business of the Company) any confidential knowledge or information with respect to the Company, or with respect to any other confidential or secret aspect of the Company's activities. 7.2 Any methods, developments, inventions and/or improvements, whether patentable or unpatentable, which Employee may conceive or make along the lines of the Company's business while in its employ as an employee or consultant, shall be and remain the property of the Company. Employee further agrees on request to execute patent applications based on such methods, developments, inventions and/or improvements, including any other instruments deemed necessary by the Company for the prosecution of such patent application or the acquisition of Letters Patent of this and any foreign country. 7.3 Employee agrees to communicate and make known to the Company all knowledge possessed by him relating to any methods, developments, inventions and/or improvements, whether patented, patentable or unpatentable, which concern in any way the business of the Company, whether acquired by him before or during the term hereof, provided, however, that nothing herein shall be construed as requiring any such communication where the method, development, invention and/or improvement is lawfully protected from disclosure as the trade secret of a third party or by any other lawful bar to such communication. 8.4 The services of Employee are unique and extraordinary and essential to the business of the Company, especially since Employee shall have access to the Company's customer lists, trade secrets and other privileged and confidential information essential to the Company's business. Therefore, Employee agrees that if his employment services hereunder shall at any time be terminated for any reason other than a termination resulting from a breach by the Company of any provision of this Agreement, Employee will not at any time within one (1) year after such termination, without the prior written approval of the Company, directly or indirectly, within one-hundred (100) miles of the Company's corporate headquarters in Hauppauge, New York, or any other area in which the Company shall then conduct substantial operations, engage in any business activity which is similar to the business of the Company; and further, Employee agrees that during such one (1) year period he shall not solicit, directly or indirectly, any employee or customer or account of the Company who at the time of such termination was then actively being solicited by the Company. 8. VACATIONS Employee shall be entitled to reasonable vacations consistent with the Company's vacation policy, not less than three weeks per year, during each twelve-month period until June 30, 1998 and not less than four weeks per year, during each twelve-month period thereafter, the time and duration thereof to be determined by mutual agreement between Employee and the Company. In the event Employee does not use his entire vacation in a twelve-month period, he shall be entitled to receive a cash payment in lieu thereof based upon Basic Compensation. 9. INJUNCTIVE RELIEF Employee acknowledges and agrees that, in the event he shall violate any of the restrictions of Articles 3 and 8 hereof, the Company will be without adequate remedy at law and will therefor be entitled to enforce such restrictions by temporary or permanent injunctive or mandatory relief obtained in an action or may have at law or in equity, and Employee hereby consents to the jurisdiction of such Court for such purpose, it being understood that such injunction shall be in addition to any remedy which the Company may have at law or otherwise. 10. ASSIGNMENT, ETC. This Agreement, as it relates to the employment of Employee, is a personal contract and the rights and interests of Employee hereunder may not be sold, transferred, assigned, pledged or hypothecated. 11. RIGHT TO PAYMENTS, ETC. Employee shall not under any circumstances have any option or right to require payments hereunder otherwise than in accordance with the terms hereof. To the extent allowed by law, Employee shall not have any power of anticipation, alienation or assignment of payments contemplated hereunder, or any rights and benefits of Employee, and no other person shall acquire any right, title or interest hereunder by reason of any sale, assignment, transfer, claim or judgment or bankruptcy proceedings against Employee. 12. NOTICES, ETC. Any notice required or permitted to be given to Employee pursuant to this Agreement shall be sufficiently given if sent to Employee by certified mail addressed to him at the following address: 80 Cabot Court, Hauppauge, New York, 11788, or at any such other address as he shall designate by notice to the Company, and any notice required or permitted to be given to the Company pursuant to this Agreement shall be sufficiently given if sent to the Company by certified mail addressed to it at 80 Cabot Court, Hauppauge, New York, attention of Corporate Secretary, or such other address as the Company shall designate by notice to Employee, with a copy to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York, 10176, Attention: Kenneth R. Koch. 13. GOVERNING LAW This Agreement shall be governed by, and construed in accordance with the laws of the State of New York, applicable to agreements made and to be performed solely within such state. 14. WAIVER OF BREACH; PARTIAL INVALIDITY The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. If any provisions of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and not in any way affect or render invalid or unenforceable any other provisions of this Agreement, and this Agreement shall be carried out as if such invalid or unenforceable provision were not embodied therein. 15. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties hereto and there are no representations, warranties or commitments except as set forth herein. This Agreement supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties hereto relating to the transactions contemplated by this Agreement. This Agreement may be amended only in writing executed by the parties hereto affected by such amendment. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year above-written. ORBIT INTERNATIONAL CORP. By: /s/ Dennis Sunshine Dennis Sunshine, President and Chief Executive Officer By: /s/ Mitchell Binder Mitchell Binder Q:\SSDATA1\COGENER2\138647.1 Q:\SSDATA1\COGENER2\138647.1 EX-99 4 EMPLOYMENT AGREEMENT, dated as of the 1st day of April 1996, by and between ORBIT INTERNATIONAL CORP., a Delaware corporation (the "Company"), with an office at 80 Cabot Court, Hauppauge, New York, and BRUCE REISSMAN ("Employee"), with an address at 323 Doral Court, Jericho, New York 11753. W I T N E S S E T H : WHEREAS, Employee is presently employed by the Company in a senior executive capacity pursuant to the terms of a certain Employment Agreement dated as of July 1, 1992, between the Company and Employee (the "1992 Employment Agreement"). The Company and Employee desire to cancel the 1992 Employment Agreement effective April 1, 1996 and to enter into an employment agreement which will set forth the terms and conditions upon which Employee shall continue in the employ of the Company. NOW THEREFORE, in consideration of the premises and of the mutual covenants hereinafter set forth, the parties hereto have agreed, and do hereby agree, as follows: EMPLOYMENT TERM; CANCELLATION OF 1992 EMPLOYMENT AGREEMENT 0.1 The Company will continue to employ Employee in its business and Employee will continue to work for the Company for a term commencing as of April 1, 1996 and continuing for the duration of the Employment Period (as hereinafter defined). During the Employment Period, Employee will, if so requested, serve as an officer or director of any subsidiary of the Company. Employment Period shall mean the period commencing as of April 1, 1996 and terminating on the date on which the Employment Period is terminated in accordance with the provisions of Section 1.3 below. 0.2 Upon the execution of this Agreement by both the Company and Employee, the 1992 Employment Agreement shall be deemed to have been cancelled and terminated as of midnight March 31, 1996, and thereafter to be of no further force and effect. 0.3 The Employment Period shall terminate on the earlier to occur of (i) Employee's death or at the election of the Company at any time after Employee's Disability (as such term is hereinafter defined); (ii) At the election of the Company on not less than three years' prior written notice to Employee; (iii) At the election of Employee on not less than six months' prior written notice to the Company, or upon a "change of control" in accordance with the provisions of Section 7.1 below; or (iv) At the election of the Company for "cause" (as such term is hereinafter defined). As used herein the term "cause" means (i) willful and repeated failure by Employee to perform his duties hereunder which are not remedied within thirty days after written notice from the Company, (ii) conviction of Employee for a felony, (iii) Employee's dishonesty or willfully engaging in conduct that is demonstrably and materially injurious to the Company or (iv) willful violation by Employee of any provisions of this Agreement which is not remedied within thirty days after written notice from the Company. 1. DUTIES 1.1 During the Employment Period, Employee shall perform the duties of Executive Vice President and Chief Operating Officer or such other or additional executive duties consistent with such office as shall, from time to time, be reasonably delegated or assigned to him by the Board of Directors of the Company consistent with Employee's abilities. 1.2 During the term of this Agreement, Employee shall, if elected, serve as a member of the Board of Directors of the Company and such other committees of the Board to which Employee may be appointed. 2. DEVOTION OF TIME During the Employment Period, Employee shall expend substantially all of his working time for the Company; shall devote his best efforts, energy and skill to the services of the Company and the promotion of its interests; and shall not take part in activities which are detrimental to the best interests of the Company or which are directly competitive to the business of the Company. 3. COMPENSATION DURING EMPLOYMENT PERIOD 3.1 In respect of services to be performed by Employee during the Employment Period, the Company agrees to pay Employee an annual salary of Three Hundred Thirteen Thousand Five Hundred ($313,500) Dollars ("Basic Compensation"), payable in accordance with the Company's customary payroll practices for executive employees. 3.2 Employee's Basic Compensation shall be increased by an amount established by reference to the "Consumer Price Index for Urban Wage Earners and Clerical Workers, New York, New York, all items - Series A-01 (1982 - 84=100)" published by the Bureau of Labor Statistics of the United States Department of Labor (the "Consumer Price Index"). The base period shall be the month ended March 31, 1996 (the "Base Period"). If the Consumer Price Index for the month of March in any year, commencing in 1997, is greater than the Consumer Price Index for the Base Period, Basic Compensation shall be increased to the amount obtained by multiplying Basic Compensation by a fraction, the numerator of which is the Consumer Price Index for the month of March of the year in which such determination is being made and the denominator of which is the Consumer Price Index for the Base Period. 3.3 In addition to his Basic Compensation, during the Employment Period Employee shall also be entitled to receive for all services rendered hereunder an annual cash bonus ("Incentive Compensation") equal to 1.77% percent of the first $5,000,000 of the Company's "Pre-Tax Earnings" and 2.65% of the Company's Pre- Tax Earnings in excess of $5,000,000, as hereinafter defined, to be paid on or before March 15 of each year based on the Company's Pre-Tax Earnings for its fiscal year ended immediately prior thereto. In the event that the Employment Period shall end on any day other than the last day of a fiscal year the Incentive Compensation payable to Employee hereunder shall be prorated based on the ratio that the number of days in that fiscal year which are included in the Employment Period bears to the total number of days in that fiscal year. 3.4 As used herein, the term Pre-Tax Earnings shall mean the net income of the Company and its subsidiaries, as determined on a consolidated basis as shown on the Company's statement of operations which is included in its audited financial statements, in accordance with generally accepted accounting principles applied consistently with those employed in the preparation of the Company's audited financial statements, as adjusted as follows: (i) No deduction or provision shall be made for taxes (which term shall not include any related interest or penalties) based on income or profits of any nature whatsoever (including but not limited to all federal, state, municipal and or other income, franchise, excess profit, sales value added, gross receipts, surtaxes or other taxes upon the Company or any of its subsidiaries or arising from or related to the income of the Company or any of its subsidiaries in any jurisdiction); (ii) No deduction shall be made for any Incentive Compensation payable to Employee hereunder or any incentive compensation, bonus or similar payment made to any other executive employee of the Company which is based upon or measured by the earnings of the Company (however defined); (iii) Pre-tax earnings (or losses) of consolidated subsidiaries of the Company which are less than 100% owned by the Company shall be included in the computation of "Pre-Tax Earnings" only to the extent of the Company's percentage ownership interest in each such subsidiary; and (iv) Pre-Tax Earnings shall not include: (A) extraordinary gains or extraordinary losses; or (B) any gain or loss from discontinued business operations. The amounts earned by Employee hereunder shall be initially computed by the Company and any dispute between the Company and Employee as to the computation thereof shall be determined by the independent certified public accountants then regularly retained by the Company based upon financial statements certified by said accountants and such determination shall be final and binding upon the Company and Employee. 3.5 Employee shall also be entitled to such additional increments and bonuses as shall be determined from time to time by the Board of Directors of the Company. 3.6 As used in this Agreement the term "Total Compensation" shall mean, with respect to any period, the total amounts paid or payable to Employee with respect to such period whether as Basic Compensation, Incentive Compensation, or as additional payments made pursuant to Paragraph 4.5. 4. BENEFITS; REIMBURSEMENT OF EXPENSES 4.1 Employee shall at all times have the use of a Company-owned or leased automobile with full maintenance and insurance. All costs of such automobile, including lease costs or purchase price, gasoline and oil and garaging (except at Employee's home) shall be paid by the Company. 4.2 The Company shall pay directly, or reimburse Employee, for all other reasonable and necessary expenses and disbursements incurred by him for and on behalf of the Company in the performance of his duties during the Employment Period in accordance with the regular practices of the Company regarding the reimbursement of such expenses. 4.3 Employee and any beneficiary of Employee shall be accorded the right to participate in and receive benefits under and in accordance with the provisions of any pension, insurance, medical and dental insurance or reimbursement, or other similar plan or program of the Company now in existence or hereafter adopted for the benefit of its executive employees. 4.4 The Company shall maintain keyman life insurance on Employee in the minimum amount of $2 million. Upon termination of employment, Employee may continue to pay premiums due under such policy and designate beneficiaries thereunder. 5. DISABILITY 5.1 If the Employment Period is terminated by reason of Employee's Disability, as defined below, Employee shall be paid a sum equal to 50% of the Total Compensation paid or payable to him with respect to the immediately preceding full fiscal year, such payment to be made to him in six substantially equal monthly installments commencing promptly following any such termination of the Employment Period. 5.2 "Disability" shall mean the inability of Employee, for a continuous period of more than six (6) months, to perform substantially all of his regular duties and carry out substantially all of his responsibilities hereunder because of physical or mental incapacity. The Company shall have the right to have Employee examined by a competent doctor for purposes of determining his physical or mental incapacity. 5.3 The obligations of the Company under Article 6.1 may be satisfied, in whole or in part, by payments to Employee under disability insurance provided by the Company, and under laws providing disability benefits for employees. 6. CHANGE IN CONTROL 6.1 In the event at any time after March 31, 1996, a majority of the Board of Directors is composed of persons who are not "Continuing Directors," as hereinafter defined, (i) all stock options and the Shares granted to Employee under any of the Company's stock option plans, which stock options are currently outstanding and not vested, shall immediately become fully vested and (ii) Employee shall have the option, to be exercised by written notice to the Company, to resign as an employee and terminate this Agreement, effective as of such date as may be specified in his written notice of resignation. 6.2 In the event Employee exercises such option under (ii) above, he shall be entitled to receive, as termination pay, a lump sum equal to the maximum amount that can be paid to Employee, after giving effect to all other benefits accruing to Employee upon the termination of his employment, without any portion thereof constituting an "excess parachute payment" as defined in 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor section of the Code. The computation of the termination payment to be made to Employee under (ii) above shall be performed, at the sole cost and expense of the Company, by the independent auditors then retained by the Company, or if such auditors notify the Company that they are unwilling to perform such computation, then by any nationally or regionally recognized independent public accounting firm selected by Employee. The computation provided by such auditors shall be final and binding on the Company and Employee. The Company and Employee shall provide such auditors with any documents and other information that the auditors may reasonably request. 6.3 "Continuing Directors" shall mean (i) the directors of the Company at the close of business on March 31, 1996, and (ii) any person who was or is recommended to (A) succeed a Continuing Director or (B) become a director as a result of an increase in the size of the Board, in each case, by a majority of the Continuing Directors then on the Board. 7. CONFIDENTIAL INFORMATION; INVENTIONS; RESTRICTIVE COVENANT 7.1 Employee agrees not to divulge, furnish or make available to anyone (other than in the regular course of business of the Company) any confidential knowledge or information with respect to the Company, or with respect to any other confidential or secret aspect of the Company's activities. 7.2 Any methods, developments, inventions and/or improvements, whether patentable or unpatentable, which Employee may conceive or make along the lines of the Company's business while in its employ as an employee or consultant, shall be and remain the property of the Company. Employee further agrees on request to execute patent applications based on such methods, developments, inventions and/or improvements, including any other instruments deemed necessary by the Company for the prosecution of such patent application or the acquisition of Letters Patent of this and any foreign country. 7.3 Employee agrees to communicate and make known to the Company all knowledge possessed by him relating to any methods, developments, inventions and/or improvements, whether patented, patentable or unpatentable, which concern in any way the business of the Company, whether acquired by him before or during the term hereof, provided, however, that nothing herein shall be construed as requiring any such communication where the method, development, invention and/or improvement is lawfully protected from disclosure as the trade secret of a third party or by any other lawful bar to such communication. 8.4 The services of Employee are unique and extraordinary and essential to the business of the Company, especially since Employee shall have access to the Company's customer lists, trade secrets and other privileged and confidential information essential to the Company's business. Therefore, Employee agrees that if his employment services hereunder shall at any time be terminated for any reason other than a termination resulting from a breach by the Company of any provision of this Agreement, Employee will not at any time within one (1) year after such termination, without the prior written approval of the Company, directly or indirectly, within one- hundred (100) miles of the Company's corporate headquarters in Hauppauge, New York, or any other area in which the Company shall then conduct substantial operations, engage in any business activity which is similar to the business of the Company; and further, Employee agrees that during such one (1) year period he shall not solicit, directly or indirectly, any employee or customer or account of the Company who at the time of such termination was then actively being solicited by the Company. 8. VACATIONS Employee shall be entitled to reasonable vacations consistent with the Company's vacation policy, not less than four weeks per year, during each twelve-month period of the term hereof, the time and duration thereof to be determined by mutual agreement between Employee and the Company. In the event Employee does not use his entire vacation in a twelve-month period, he shall be entitled to receive a cash payment in lieu thereof based upon Basic Compensation. 9. INJUNCTIVE RELIEF Employee acknowledges and agrees that, in the event he shall violate any of the restrictions of Articles 3 and 8 hereof, the Company will be without adequate remedy at law and will therefor be entitled to enforce such restrictions by temporary or permanent injunctive or mandatory relief obtained in an action or may have at law or in equity, and Employee hereby consents to the jurisdiction of such Court for such purpose, it being understood that such injunction shall be in addition to any remedy which the Company may have at law or otherwise. 10. ASSIGNMENT, ETC. This Agreement, as it relates to the employment of Employee, is a personal contract and the rights and interests of Employee hereunder may not be sold, transferred, assigned, pledged or hypothecated. 11. RIGHT TO PAYMENTS, ETC. Employee shall not under any circumstances have any option or right to require payments hereunder otherwise than in accordance with the terms hereof. To the extent allowed by law, Employee shall not have any power of anticipation, alienation or assignment of payments contemplated hereunder, or any rights and benefits of Employee, and no other person shall acquire any right, title or interest hereunder by reason of any sale, assignment, transfer, claim or judgment or bankruptcy proceedings against Employee. 12. NOTICES, ETC. Any notice required or permitted to be given to Employee pursuant to this Agreement shall be sufficiently given if sent to Employee by certified mail addressed to him at the following address: 80 Cabot Court, Hauppauge, New York, 11788, or at any such other address as he shall designate by notice to the Company, and any notice required or permitted to be given to the Company pursuant to this Agreement shall be sufficiently given if sent to the Company by certified mail addressed to it at 80 Cabot Court, Hauppauge, New York, attention of Corporate Secretary, or such other address as the Company shall designate by notice to Employee, with a copy to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 Fifth Avenue, New York, New York, 10176, Attention: Kenneth R. Koch. 13. GOVERNING LAW This Agreement shall be governed by, and construed in accordance with the laws of the State of New York, applicable to agreements made and to be performed solely within such state. 14. WAIVER OF BREACH; PARTIAL INVALIDITY The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. If any provisions of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and not in any way affect or render invalid or unenforceable any other provisions of this Agreement, and this Agreement shall be carried out as if such invalid or unenforceable provision were not embodied therein. 15. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties hereto and there are no representations, warranties or commitments except as set forth herein. This Agreement supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties hereto relating to the transactions contemplated by this Agreement. This Agreement may be amended only in writing executed by the parties hereto affected by such amendment. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year above-written. ORBIT INTERNATIONAL CORP. By: /s/ Dennis Sunshine, President Dennis Sunshine, President and Chief Executive Officer By: /s/ Bruce Reissman Bruce Reissman Q:\SSDATA1\COGENER2\138646.1 Q:\SSDATA1\COGENER2\138646.1 14 13 EX-99 5 EMPLOYMENT AGREEMENT AGREEMENT, dated as of the 1st day of April 1996, by and between ORBIT INTERNATIONAL CORP., a Delaware corporation (the "Company") with an office at 80 Cabot Court, Hauppauge, New York and DENNIS SUNSHINE ("Employee"), with an address at 32 Ryder Avenue, Dix Hills, New York 11746. W I T N E S S E T H: WHEREAS, Employee is presently employed by the Company in a senior executive capacity pursuant to the terms of a certain Employment Agreement dated as of July 1, 1992, between the Company and Employee (the "1992 Employment Agreement"). The Company and Employee desire to cancel the 1992 Employment Agreement effective April 1, 1996 and to enter into an employment agreement which will set forth the terms and conditions upon which Employee shall continue in the employ of the Company. NOW THEREFORE, in consideration of the premises and of the mutual covenants hereinafter set forth, the parties hereto have agreed, and do hereby agree, as follows: 1. EMPLOYMENT TERM: CANCELLATION OF 1992 EMPLOYMENT AGREEMENT 1.1 The Company will continue to employ Employee in its business and Employee will continue to work for the Company for a term commencing as of April 1, 1996 and continuing for the duration of the Employment Period (as hereinafter defined). During the Employment Period, Employee will, if so requested, serve as an officer or director of any subsidiary of the Company. Employment Period shall mean the period commencing as of April 1, 1996 and terminating on the date on which the Employment Period is terminated in accordance with the provisions of Section 1.3 below. 1.2 Upon the execution of this Agreement by both the Company and Employee, the 1992 Employment Agreement shall be deemed to have been cancelled and terminated as of midnight March 31, 1996, and thereafter to be of no further force and effect. 1.3 The Employment Period shall terminate on the earlier to occur of (i) Employee's death or at the election of the Company at any time after Employee's Disability (as such term is hereinafter defined); (ii) At the election of the Company on not less than three years' prior written notice to Employee; (iii) At the election of Employee [AT ANY TIME?] on not less than six months' prior written notice to the Company, or upon a "change of control" in accordance with the provisions of Section 8.1 below; or (iv) At the election of the Company for "cause" (as such term is hereinafter defined). As used herein the term "cause" means (i) willful and repeated failure by Employee to perform his duties hereunder which are not remedied within thirty days after written notice from the Company, (ii) conviction of Employee for a felony, (iii) Employee's dishonesty or willfully engaging in conduct that is demonstrably and materially injurious to the Company or (iv) willful violation by Employee of any provisions of this Agreement which is not remedied within thirty days after written notice from the Company. 2. DUTIES 2.1 During the Employment Period, Employee shall perform the duties of President and Chief Executive Officer, or such other or additional executive duties consistent with such office as shall, from time to time, be reasonably delegated or assigned to him by the Board of Directors of the Company consistent with Employee's abilities. 2.2 During the term of this Agreement, Employee shall, if elected, serve as a member of the Board of Directors of the Company and such other committees of the Board to which Employee may be appointed. 3. DEVOTION OF TIME During the Employment Period, Employee shall expend substantially all of his working time for the Company; shall devote his best efforts, energy and skill to the services of the Company and the promotion of its interests; and shall not take part in activities which are detrimental to the best interests of the Company or which are directly competitive to the business of the Company. 4. COMPENSATION DURING EMPLOYMENT PERIOD 4.1 In respect of services to be performed by Employee during the Employment Period, the Company agrees to pay Employee an annual salary of Three-Hundred Thirteen Thousand Five Hundred ($313,500) Dollars ("Basic Compensation"), payable in accordance with the Company's customary payroll practices for executive employees. 4.2 Employee's Basic Compensation shall be increased by an amount established by reference to the "Consumer Price Index for Urban Wage Earners and Clerical Workers, New York, New York, all items - Series A-01 (1982 - 84=100)" published by the Bureau of Labor Statistics of the United States Department of Labor (the "Consumer Price Index"). The base period shall be the month ended March 31, 1996 (the "Base Period"). If the Consumer Price Index for the month of March in any year, commencing in 1997, is greater than the Consumer Price Index for the Base Period, Basic Compensation shall be increased to the amount obtained by multiplying Basic Compensation by a fraction, the numerator of which is the Consumer Price Index for the month of March of the year in which such determination is being made and the denominator of which is the Consumer Price Index for the Base Period. 4.3 In addition to his Basic Compensation, during the Employment Period Employee shall also be entitled to receive for all services rendered hereunder an annual cash bonus ("Incentive Compensation") equal to 4.0 percent of the Company's "Pre-Tax Earnings," as hereinafter defined, to be paid on or before March 15 of each year based on the Company's Pre-Tax Earnings for its fiscal year ended immediately prior thereto. In the event that the Employment Period shall end on any day other than the last day of a fiscal year the Incentive Compensation payable to Employee hereunder shall be prorated based on the ratio that the number of days in that fiscal year which are included in the Employment Period bears to the total number of days in that fiscal year. 4.4 As used herein, the term Pre-Tax Earnings shall mean the net income of the Company and its subsidiaries, as determined on a consolidated basis as shown on the Company's statement of operations which is included in its audited financial statements, in accordance with generally accepted accounting principles applied consistently with those employed in the preparation of the Company's audited financial statements, as adjusted as follows: (i) No deduction or provision shall be made for taxes (which term shall not include any related interest or penalties) based on income or profits of any nature whatsoever (including but not limited to all federal, state, municipal and or other income, franchise, excess profit, sales value added, gross receipts, surtaxes or other taxes upon the Company or any of its subsidiaries or arising from or related to the income of the Company or any of its subsidiaries in any jurisdiction); (ii) No deduction shall be made for any Incentive Compensation payable to Employee hereunder or any incentive compensation, bonus or similar payment made to any other executive employee of the Company which is based upon or measured by the earnings of the Company (however defined); (iii) Pre-tax earnings (or losses) of consolidated subsidiaries of the Company which are less than 100% owned by the Company shall be included in the computation of "Pre-Tax Earnings" only to the extent of the Company's percentage ownership interest in each such subsidiary; and (iv) Pre-Tax Earnings shall not include: (A) extraordinary gains or extraordinary losses; or (B) any gain or loss from discontinued business operations. The amounts earned by Employee hereunder shall be initially computed by the Company and any dispute between the Company and Employee as to the computation thereof shall be determined by the independent certified public accountants then regularly retained by the Company based upon financial statements certified by said accountants and such determination shall be final and binding upon the Company and Employee. 4.5 Employee shall also be entitled to such additional increments and bonuses as shall be determined from time to time by the Board of Directors of the Company. 4.6 As used in this Agreement the term "Total Compensation" shall mean, with respect to any period, the total amounts paid or payable to Employee with respect to such period whether as Basic Compensation, Incentive Compensation, or as additional payments made pursuant to Paragraph 4.5. 5. PURCHASE OF SHARES 5.1 Concurrent with the execution hereof, Employee shall purchase 300,000 shares of common stock, par value $.10 of the Company (the "Shares") for an aggregate purchase price of $30,000. Such shares shall vest according to the following schedule: Shares Vesting Date 100,000 April 1, 1997 100,000 April 1, 1998 100,000 April 1, 1999 5.2 In the event Employee's employment is terminated at any time prior to April 1, 1999, any shares remaining uninvested shall be forfeited to the Company. 5.3 Until vested, Employee shall have no dispositive power with regard to the Shares. However, Employee shall be entitled to voting power with regard to the Shares. The Shares shall be registered on a Form S-8 (or such other form as shall be available at such time) with the Securities and Exchange Commission concurrent with the registration of any securities issued pursuant to any of the Company's employee benefit plans. 6. BENEFITS; REIMBURSEMENT OF EXPENSES 6.1 Employee shall at all times have the use of a Company-owned or leased automobile with full maintenance and insurance. All costs of such automobile, including lease costs or purchase price, gasoline and oil and garaging (except at Employee's home) shall be paid by the Company. 6.2 The Company shall pay directly, or reimburse Employee, for all other reasonable and necessary expenses and disbursements incurred by him for and on behalf of the Company in the performance of his duties during the Employment Period in accordance with the regular practices of the Company regarding the reimbursement of such expenses. 6.3 Employee and any beneficiary of Employee shall be accorded the right to participate in and receive benefits under and in accordance with the provisions of any pension, insurance, medical and dental insurance or reimbursement, or other similar plan or program of the Company now in existence or hereafter adopted for the benefit of its executive employees. 6.4 The Company shall maintain keyman life insurance on Employee in the minimum amount of $2 million. Upon termination of employment, Employee may continue to pay premiums due under such policy and designate beneficiaries thereunder. 7. DISABILITY 7.1 If the Employment Period is terminated by reason of Employee's Disability, as defined below, Employee shall be paid a sum equal to 50% of the Total Compensation paid or payable to him with respect to the immediately preceding full fiscal year, such payment to be made to him in six substantially equal monthly installments commencing promptly following any such termination of the Employment Period. 7.2 "Disability" shall mean the inability of Employee, for a continuous period of more than six (6) months, to perform substantially all of his regular duties and carry out substantially all of his responsibilities hereunder because of physical or mental incapacity. The Company shall have the right to have Employee examined by a competent doctor for purposes of determining his physical or mental incapacity. 7.3 The obligations of the Company under Article 7.1 may be satisfied, in whole or in part, by payments to Employee under disability insurance provided by the Company, and under laws providing disability benefits for employees. 8. CHANGE IN CONTROL 8.1 In the event at any time after March 31, 1996, a majority of the Board of Directors is composed of persons who are not "Continuing Directors," as hereinafter defined, (i) all stock options and the Shares granted to Employee under any of the Company's stock option plans, which stock options are currently outstanding and not vested, shall immediately become fully vested and (ii) Employee shall have the option, to be exercised by written notice to the Company, to resign as an employee and terminate this Agreement, effective as of such date as may be specified in his written notice of resignation. In the event Employee exercises such option under (ii) above, he shall be entitled to receive, as termination pay, a lump sum equal to the maximum amount that can be paid to Employee, after giving effect to all other benefits accruing to Employee upon the termination of his employment, without any portion thereof constituting an "excess parachute payment" as defined in 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), or any Successor section of the Code. The computation of the termination payment to be made to Employee under (ii) above shall be performed, at the sole cost and expense of the Company, by the independent auditors then retained by the Company, or if such auditors notify the Company that they are unwilling to perform such computation, then by any nationally or regionally recognized independent public accounting firm selected by Employee. The computation provided by such auditors shall be final and binding on the Company and Employee. The Company and Employee shall provide such auditors with any documents and other information that the auditors may reasonably request. 8.2 "Continuing Directors" shall mean (i) the directors of the Company at the close of business on March 31, 1996, and (ii) any person who was or is recommended to (A) succeed a Continuing Director or (B) become a director as a result of an increase in the size of the Board, in each case, by a majority of the Continuing Directors then on the Board. 9. CONFIDENTIAL INFORMATION; INVENTION RESTRICTIVE COVENANT. 9.1 Employee agrees not to divulge, furnish or make available to anyone (other than in the regular course of business of the Company) any confidential knowledge or information with respect to the Company, or with respect to any other confidential or secret aspect of the Company's activities. 9.2 Any methods, developments, inventions and/or improvements, whether patentable or unpatentable, which Employee may conceive or make along the lines of the Company's business while in its employ as an employee or consultant, shall be and remain the property of the Company. Employee further agrees on request to execute patent applications based on such methods, developments, inventions and/or improvement, including any other instruments deemed necessary by the Company for the prosecution of such patent application or the acquisition of Letters Patent of this and any foreign country. 9.3 Employee agrees to communicate and make known to the Company all knowledge possessed by him relating to any methods, developments, inventions and/or improvements, whether patented, patentable or unpatentable, which concern in any way the business of the Company, whether acquired by him before or during the term hereof, provided, however, that nothing herein shall be construed as requiring any such communication where the method, development, invention and/or improvement is lawfully protected from disclosure as the trade secret of a third party or by any other lawful bar to such communication. 9.4 The services of Employee are unique and extraordinary and essential to the business of the Company, especially since Employee shall have access to the Company's customer lists, trade secrets and other privileged and confidential information essential to the Company's business. Therefore, Employee agrees that if his employment services hereunder shall at any time be terminated [for any reason other than a termination resulting from a breach by the Company of any provision of this agreement], Employee will not at any time within one (1) year after such termination, without the prior written approval of the Company, directly or indirectly, within one-hundred (100) miles of the Company's corporate headquarters in Hauppauge, New York, or any other area in which the Company shall then conduct substantial operations, engage in a similar business activity with the business of the Company; and further, Employee agrees that during such two (2) year period he shall not solicit, directly or indirectly, any employee or customer or account of the Company who at the time of such termination was then actively being solicited by the Company. 10. VACATIONS. Employee shall be entitled to reasonable vacations consistent with the Company's vacation policy, not less than four weeks per year, during each twelve-month period of the term hereof, the time and duration thereof to be determined by mutual agreement between Employee and the Company. In the event Employee does not use his entire vacation in a twelve-month period, he shall be entitled to receive a cash payment in lieu thereof based upon Basic Compensation. 11. INJUNCTIVE RELIEF. Employee acknowledges and agrees that, in the event he shall violate any of the restrictions of Articles 3 and 8 hereof, the Company will be without adequate remedy at law and will therefor be entitled to enforce such restrictions by temporary or permanent injunctive or mandatory relief obtained in an action or may have at law or in equity, and Employee hereby consents to the jurisdiction of such Court for such purpose, it being understood that such injunction shall be in addition to any remedy which the Company may have at law or otherwise. 12. ASSIGNMENT. ETC. This Agreement, as it relates to the employment of Employee, is a personal contract and the rights and interests of Employee hereunder may not be sold, transferred, assigned, pledged or hypothecated. 13. RIGHT TO PAYMENTS. ETC. Employee shall not under any circumstances have any option or right to require payments hereunder otherwise than in accordance with the terms hereof. To the extent allowed by law, Employee shall not have any power of anticipation, alienation or assignment of payments contemplated hereunder or any rights and benefits of Employee, and no other person shall acquire any right, title or interest hereunder by reason of any sale, assignment, transfer, claim or judgment or bankruptcy proceedings against Employee. 14. NOTICES, ETC. Any notice required or permitted to be given to Employee pursuant to this Agreement shall be sufficiently given if sent to Employee by certified mail addressed to him at the following address: 80 Cabot Court, Hauppauge, New York, 11788, or at any such other address as he shall designate by notice to the Company, and any notice required or permitted to be given to the Company pursuant to this Agreement shall be Sufficiently given if sent to the Company by certified mail addressed to it at 80 Cabot Court, Hauppauge, New York, attention of Corporate Secretary, or such other address as the Company shall designate by notice to Employee, with a copy to Squadron, Ellenoff, Plesent & Sheinfeld, LLP, 551 5th Avenue, New York, NY 10176, Attention: Kenneth R. Koch. 15. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with the laws of the State of New York, applicable to agreements made and to be performed solely within such state. 16. WAIVER OF BREACH; PARTIAL INVALIDITY. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. If any provisions of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and not in any way affect or render invalid or unenforceable any other provisions of this Agreement, and this Agreement shall be carried out as if such invalid or unenforceable provision were not embodied therein. 17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto and there are no representations, warranties or commitments except as set forth herein. This Agreement supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties hereto relating to the transactions contemplated by this Agreement. This Agreement may be amended only in writing executed by the parties hereto affected by such amendment. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year above-written. ORBIT INTERNATIONAL CORP. By: /s/ Bruce Reissman Bruce Reissman, Executive Vice President and Chief Operating Officer By: /s/ Dennis Sunshine Dennis Sunshine Q:\SSDATA1\COGENER2\132305.1 Q:\SSDATA1\COGENER2\132305.1 14 13 EX-21 6 Exhibit 21 Orbit International Corp. Subsidiaries of Registrant Name State of Incorporation Behlman Electronics, Inc. Delaware Canada Classique Inc. New Jersey Orbit Instrument of California, Inc. California Symax Garment Co. (1993) Ltd. Delaware Winnepeg Leather (1991) Inc. Delaware EX-27 7
5 12-MOS DEC-31-1996 DEC-31-1996 927,000 782,000 3,264,000 150,000 6,657,000 14,891,000 4,432,000 2,085,000 19,931,000 14,785,000 4,352,000 0 0 907,000 4,239,000 19,931,000 16,971,000 16,971,000 9,361,000 9,361,000 5,501,000 0 118,000 3,311,000 0 3,311,000 (8,800,000) 0 0 (5,489,000) (.89) (.82)
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