<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________________ to _________________.
Commission File No. 1-7109
SERVOTRONICS, INC.
(Name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 16-0837866
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1110 Maple Street, Elma, New York 14059
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 716-655-5990
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
<S> <C>
Common Stock, $.20 par value American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x . No .
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $16,165,000.
As of March 14, 2000 the aggregate market value of the voting common stock
held by non-affiliates of the registrant was $7,882,459.97 based on the average
of sales prices reported by the American Stock Exchange on that day.
As of March 14, 2000 the number of $.20 par value common shares outstanding
was 2,405,488.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Document Part of Form 10-KSB
-------- -------------------
<S> <C>
2000 Proxy Statement Part III
</TABLE>
Transitional Small Business Disclosure Format. Yes / /. No /x/.
<PAGE> 2
PART I
Item 1. Description of Business
General
Servotronics, Inc. and its subsidiaries (collectively the "Registrant" or
the "Company") design, manufacture and market advanced technology products
consisting primarily of control components and consumer products consisting of
knives and various types of cutlery.
The Registrant was incorporated in New York in 1959. In 1972, the
Registrant was merged into a wholly-owned subsidiary organized under the laws of
the State of Delaware, thereby changing the Registrant's state of incorporation
from New York to Delaware.
Products
Advanced Technology Products
The Registrant designs, manufactures and markets a variety of servo-control
components which convert an electrical current into a mechanical force or
movement and other related products. The principal servo-control components
produced include torque motors, electromagnetic actuators, proportional
solenoids, hydraulic valves, pneumatic valves and similar devices, all of which
perform the same general function. These are sold principally to the commercial,
aerospace, missile, aircraft and government related industries.
To fill most of its orders for components, the Registrant must either
modify a catalog model or design a new item in order to satisfy the customer's
particular requirements. The Registrant also produces unique products based on
specifications provided by its customers. The Registrant produces under
long-term contracts and other types or orders.
The Registrant also produces metallic seals of various cross-sectional
configurations. These seals fit between two surfaces, usually metal, to produce
a more secure and leak-proof joint. They are generally designed for use under
circumstances in which more conventional seals and gaskets do not perform
adequately, such as exposure to extremes of temperature, high pressures,
vacuums, radiation or corrosive atmospheres. The Registrant manufactures these
seals to close tolerances from standard and special alloy steels. Ductile
coatings are often applied to the seals in order to increase their
effectiveness.
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<PAGE> 3
From time to time, the Registrant has also produced other products of its
own and/or of a given design to meet customers' requirements.
Consumer Products
The Registrant designs, manufactures and sells a variety of cutlery
products. These products include a wide range of knives such as steak, carving,
bread, butcher and paring knives for household use and for use in restaurants,
government installations, institutions and private industry and pocket and other
types of knives for hunting, fishing and camping. The Registrant also produces
and markets other cutlery items such as carving forks, sharpeners and various
specialty tools such as putty knives, linoleum sheet cutters and field knives.
The Registrant manufactures its cutlery products from stainless or high carbon
steel in numerous styles, designs, models and sizes. Substantially all of the
Registrant's cutlery and cutlery related products are intended for the medium to
premium priced markets.
The Registrant sells many of its cutlery products under its own brand names
including "Old Hickory" and "Queen."
Sales, Marketing and Distribution
Advanced Technology Products
The Registrant's advanced technology products are marketed throughout the
United States and are essentially nonseasonal in nature. These products are sold
to the United States Government, government prime contractors and commercial
manufacturers and end users. Sales are made primarily by the Registrant's
professional staff.
During the Registrant's last fiscal year, sales of advanced technology
products pursuant to subcontracts with prime or subcontractors for various
branches of the United States Government or pursuant to prime contracts directly
with the government accounted for approximately 18% of the Registrant's total
revenues. If the Registrant were deemed to be unqualified by the United States
Government as a contractor or subcontractor, it would lose approximately 30% of
its revenue of advanced technology products. In 1999 and 1998 sales of advanced
technology products to Honeywell/AlliedSignal and United Technologies, through
several of their subsidiaries and/or divisions, respectively, exceeded 10% of
Registrant's total revenues. No other single customer represented more than 10%
of the Company's revenues in any of these years.
The Registrant's prime contracts and subcontracts with the Government are
subject to termination for the convenience of the Government. In the event of
such termination, the Registrant
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<PAGE> 4
is ordinarily entitled to receive payment for its costs and profits on work done
prior to termination. Since the inception of the Registrant's business, less
than 1% of its government contracts have been terminated for convenience.
Consumer Products
The Registrant's consumer products are marketed throughout the United
States. Consumer sales are moderately seasonal. Sales are to hardware,
supermarket, variety, department, discount, gift and drug stores. The Registrant
also sells its cutlery products (principally machetes, survival knives and
kitchen knives) to various branches of the United States Government. The
Registrant sells its products through its own sales personnel and through
independent manufacturers' representatives.
Business Segments
Business segment information is presented in Note 12 of the accompanying
consolidated financial statements.
Intellectual Properties
The Company has rights under certain copyrights and registered domain
names. In the view of management, the Registrant's competitive position is not
dependent on patent protection.
Research Activities
The amount spent by the Registrant in research and development activities
during its 1999 and 1998 fiscal years was not significant.
Environmental Compliance
The Registrant does not anticipate that the cost of compliance with current
environmental laws will be material.
Manufacturing
The Registrant manufactures its consumer products in Franklinville, New
York and Titusville, Pennsylvania and its advanced technology products in Elma,
New York.
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<PAGE> 5
Raw Materials and Other Supplies
The Registrant purchases raw materials and certain components for its
products from outside vendors. The Registrant is not generally dependent upon a
single source of supply for any raw material or component used in its
operations.
Competition
Although no reliable industry statistics are available to enable the
Registrant to determine accurately its relative competitive position with
respect to any of its products, the Registrant believes that it is a significant
factor with respect to certain of its servo-control components. The Registrant's
share of the overall cutlery market is not significant.
The Registrant encounters active competition with respect to its products
from numerous companies, many of which are larger than it in terms of
manufacturing capacity, financial resources and marketing organization. Its
principal competitors vary depending upon the customer and/or the products
involved. The Registrant believes that it competes primarily with more than 20
companies with respect to its consumer products, in addition to foreign imports.
To the Registrant's knowledge, its principal competitors with regard to cutlery
include ECKO Housewares, Inc., Russell Harrington Cutlery, Inc., W. R. Case &
Sons Cutlery Company, Imperial Schrade Corporation and Camillus Cutlery Company.
The Registrant has many different competitors with respect to servo-control
components because of the nature of that business and the fact that these
products also face competition from other types of control components which, at
times, can accomplish the desired result.
The Registrant markets most of its products throughout the United States.
The Registrant believes that it competes in marketing its consumer products
primarily on the basis of price, quality and delivery, and its control products
primarily on the basis of operating performance, adherence to rigid
specifications, quality, price and delivery.
Employees
The Registrant at December 31, 1999 had approximately 238 employees of
which approximately 221 are full time. In excess of 87% of its employees are
engaged in production, inspection, packaging or shipping activities. The balance
are engaged in executive, engineering, administrative, clerical or sales
capacities.
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<PAGE> 6
Item 2. Description of Properties
The Registrant's executive offices are located on premises leased by the
Registrant at 1110 Maple Street, Elma, a suburb of Buffalo, New York. The
Registrant owns and/or leases real property as set forth in the following table:
<TABLE>
<CAPTION>
Number of
Principal buildings and Approx.
Approx. product type of floor area
Location acreage manufactured construction (sq. feet)
-------- ------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Elma, New York 38.4 Advanced 1-concrete block 82,000
technology and steel
products
Franklinville, 7.7 Cutlery products 1-tile and
New York wood 85,000
Titusville,
Pennsylvania .4 Cutlery products 2-brick 25,000
</TABLE>
In Elma, New York, the Registrant leases approximately 38.4 acres of land
and a facility from a local industrial development agency. The lease is
accounted for as a capital lease and entitles the Registrant to purchase the
property for a nominal amount.
See the consolidated financial statements, including Note 10 thereto, for
further information with respect to the Registrant's lease commitments.
The Registrant possesses modern precision manufacturing and testing
equipment suitable for the development, manufacture, assembly and testing of its
advanced technology products. The Registrant designs and makes substantially all
of the tools, dies, jigs and specialized testing equipment necessary for the
production of the advanced technology products. The Registrant also possesses
automatic and semi-automatic grinders, tumblers, presses and miscellaneous metal
finishing machinery and equipment for use in the manufacture of consumer
products.
Item 3. Legal Proceedings
There are no legal proceedings which are material to the Company currently
pending by or against the Company other than ordinary routine litigation
incidental to the business which is not expected to materially adversely affect
the business or earnings of the Company.
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<PAGE> 7
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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<PAGE> 8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Price range of common stock
The following table shows the range of high and low prices for the
Registrant's common stock as reported by the American Stock Exchange
for 1999 and 1998.
<TABLE>
<CAPTION>
High Low
--------- -------
1999
<S> <C> <C>
Fourth Quarter $ 6-1/8 $ 4-7/8
Third Quarter 7 3/8 4-3/4
Second Quarter 5-7/16 4-1/4
First Quarter 7 4-3/4
1998
Fourth Quarter $ 7-3/4 $ 6-5/8
Third Quarter 11 7-1/2
Second Quarter 13-3/8 8-3/8
First Quarter 10-1/2 7-5/16
</TABLE>
(b) Approximate number of holders of common stock
<TABLE>
<CAPTION>
Title Approximate number of
of record holders (as of
class December 31, 1999)
----- ---------------------
<S> <C>
Common Stock, $.20 par value 703
</TABLE>
(c) Dividends on common stock
No cash dividends were paid in 1999 or 1998.
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<PAGE> 9
Item 6. Management's Discussion and Analysis or Plan of Operation
Summary
The following table sets forth for the periods indicated the percentage
relationship of certain items in the consolidated statement of income to net
revenues and the percentage increase or decrease of such items as compared to
the indicated prior period:
<TABLE>
<CAPTION>
PERIOD TO
RELATIONSHIP TO PERIOD
NET REVENUES YEAR INCREASE
ENDED (DECREASE)
DECEMBER 31, YEAR ENDED
1999 1998 1999-98
---- ---- ----------
<S> <C> <C> <C>
Net revenues:
Advanced technology products 60.6% 62.4% (10.7)%
Consumer products 39.4 37.6 (3.5)
------ ------ ------
100.0 100.0 (8.0)
Cost of goods sold 75.2 68.2 1.4
------ ------ ------
Gross profit 24.8 31.8 (28.1)
------ ------ ------
Selling, general and administrative 20.0 18.1 1.3
Restructuring charge 5.3 0.0 0.0
Interest 2.1 1.8 10.3
Depreciation 4.2 3.6 6.2
------ ------ ------
31.6 23.5 17.8
------ ------ ------
Income (loss) before income taxes and cumulative
change in accounting principle and after
restructure charge (6.7) 8.3 N/A
Income tax provision (2.5) 3.4 N/A
------ ------ ------
Income (loss) before cumulative effect of a change
in accounting principle and after restructure charge (4.2) 4.9 N/A
Cumulative effect of a change in accounting principle (10.7) 0.0 0.0
------ ------ ------
Net income (loss) (14.9)% 4.9% N/A
====== ====== ======
</TABLE>
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<PAGE> 10
Management Discussion
During the year ended December 31, 1999 and for the comparable period ended
December 31, 1998, approximately 21% and 24% respectively of the Company's
revenues were derived from contracts with agencies of the U.S. Government or
their prime contractors. The Company's business is performed under fixed price
contracts. It is noted that the many uncertainties in today's global economy and
the difficulty in predicting defense appropriations (both actual and proposed)
preclude any guarantees or even assurances that current government and/or
commercial programs will be continued or that programs in the prototype stages
will ultimately result in production applications. It is because of such
volatile uncertainties and because such adverse occurrences may not be
counterbalanced with new programs or otherwise that cyclical downturns in
operational performances are realistic expectations.
See also Note 12 to the consolidated financial statements for information
concerning business segment operating results.
Results of Operations - Year 1999 as Compared to 1998
The Company's consolidated results of operations for the year ended
December 31, 1999 showed an approximate 6.9% decrease in net revenues after
excluding $210,000 of gross receipts recorded in 1998 on the settlement of
disputes, as previously reported. This decrease is the result of stretch-outs of
certain Advanced Technology Group's deliveries as well as the discontinuance of
certain product lines in the Consumer Products Group (CPG). Operating income as
a percentage of net revenues decreased from approximately 13.7% to 5% when
compared to the same period in 1998 primarily due to write-off of costs incurred
to start new programs at both the Advanced Technology and Consumer Products
Groups.
Selling, general and administrative costs increased by approximately 1% for
the year ended December 31, 1999 when compared to the same period in 1998. This
was primarily incurred to support certain new programs and contract commitments.
Restructuring charges of $854,000 were recorded in 1999 in connection with
the discontinuance of certain products in the CPG in an effort to restructure
the overall business' strategic plan and to redirect the Company's efforts to
target "niche" and core-products. (See also Note 2 to the consolidated financial
statements.) No similar charges were incurred in 1998.
Interest expense increased by approximately 10% for the year ended December
31, 1999 when compared to the same period in 1998 due to an increase in both
institutional debt and fluctuations
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<PAGE> 11
in interest rates on long-term debt. Depreciation expense increased due to an
increase in capital expenditures.
As the result of the early adoption of the newly enacted accounting
pronouncements [Emerging Issues Task Force ("EITF") 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements " and timely
adoption of Statement of Position No. 98-5 "Reporting on the Cost of Start-Up
Activities" (SoP 98-5)] the Company wrote-off $1,727,000 after tax which were
previously appropriately capitalized. The early adoption of these pronouncements
resulted in the recognition of the related tax benefit of $1,013,000 in the
December 31, 1999 financial statements. These charges were recorded as a
cumulative effect of a change in accounting principle in the December 31, 1999
Consolidated Statement of Income. (See Note 4 to the consolidated financial
statements.)
No similar charges were incurred in 1998.
Results of Operations - Year 1998 as Compared to 1997
The Company's consolidated results of operations for the year ended
December 31, 1998 showed an approximate 10.6% increase in net revenues, which
includes $210,000 of gross receipts on the settlement of disputes. Operating
income as a percentage of net revenues increased from approximately 12.7% to
13.7% when compared to the same period in 1997. The increase in revenues is
attributable to an approximate 15% increase in revenues at the Advanced
Technology Group as the result of past and current engineering, marketing and
other support efforts and new programs and applications, and an increase in
revenues at the Consumer Products Group of approximately 4%.
Income before income taxes increased $446,000 or 44.2% to $1,456,000 for
the year ended December 31, 1998 from $1,010,000 for the year ended December 31,
1997.
Selling, general and administrative costs increased by approximately 4% for
the year ended December 31, 1998 when compared to the same period in 1997. This
is primarily attributable to the increase in net revenues. Interest expense
decreased by approximately 7% for the same comparable periods due to a decrease
in interest rates and long-term debt while depreciation expense decreased due to
a decrease in capital expenditures.
Income taxes for the year ended December 31, 1998, as a percentage of
income before taxes, increased when compared to the same period in 1997 because
of the effects of variable state income taxes.
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<PAGE> 12
Liquidity and Capital Resources
The Company's primary liquidity and capital requirements relate to the
working capital needs; primarily inventory, accounts receivable, capital
investments in facilities, machinery, tools/dies and equipment and
principal/interest payments on indebtedness. The Company's primary sources of
liquidity have been from positive cash flows and from bank financing.
During the year ended December 31, 1999, the Company expended $841,000 on
capital expenditures. During the year ended December 31, 1998, the Company
expended $471,000. The Company also has a $1,000,000 line of credit at December
31, 1999 on which there is $450,000 outstanding at December 31, 1999.
There are no material commitments for capital expenditures at December 31,
1999.
Year 2000
The Company's year 2000 computer compliance efforts were successful. The
Company moved into the year 2000 without impact or interruption to its business
as a result of year 2000 computer problems. Although no year 2000 computer
problems have occurred or are anticipated, the Company continues to monitor the
situation.
Item 7. Financial Statements
The financial statements of the Registrant which are included in this Form
10-KSB Annual Report are described in the accompanying Index to Consolidated
Financial Statements on Page F1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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<PAGE> 13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Information regarding directors and executive officers of the Registrant is
incorporated herein by reference to the information included in the Registrant's
definitive proxy statement if it is filed with the Commission within 120 days
after the end of the Registrant's 1999 fiscal year or such information will be
included by amendment.
Item 10. Executive Compensation
Information regarding executive compensation is incorporated herein by
reference to the information included in the Registrant's definitive proxy
statement if it is filed with the Commission within 120 days after the end of
the Registrant's 1999 fiscal year or such information will be included by
amendment.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the information included in
the Registrant's definitive proxy statement if it is filed with the Commission
within 120 days after the end of the Registrant's 1999 fiscal year or such
information will be included by amendment.
Item 12. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information included in the Registrant's
definitive proxy statement if it is filed with the Commission within 120 days
after the end of the Registrant's 1999 fiscal year or such information will be
included by amendment.
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<PAGE> 14
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------- ------------ ---------
<S> <C> <C>
3(A)(1) Certificate of Incorporation Exhibit 3(A)(1) to 1996
Form 10-KSB*
3(A)(2) Amendments to Certificate Exhibit 3(A)(2) to 1996
of Incorporation dated Form 10-KSB*
August 27, 1984
3(A)(3) Certificate of designation Exhibit 4(A) to 1987
regarding Series I Form 10-K*
preferred stock
3(A)(4) Amendments to Certificate Exhibit 3(A)(4) to 1998
of Incorporation dated Form 10-K*
June 30, 1998
3(B) By-laws Exhibit 3(B) to 1986
Form 10-K*
4.1(A) First amended and restated Exhibit 4(A) to 1993
term loan agreement with Form 10-KSB*
Fleet Bank of New York
dated October 4, 1993
4.1(B) Second amended and restated Filed herewith
term loan agreement with
Fleet Bank of New York
dated February 26, 1999
4.1(C) First amendment to second Filed herewith
amended and restated term
loan agreement with
Fleet Bank of New York dated
December 17, 1999
4.2(A)(1) Letter of Credit Reimbursement Exhibit 4(B)(1)
to Agreement with Fleet Bank 1994 10-KSB*
dated December 1, 1994
</TABLE>
- --------------------------------------------------------------
* Incorporated herein by reference (File No. 1-7109)
** Indicates management contract or compensatory plan or arrangement
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------- ------------ ---------
<S> <C> <C>
4.2(B) First Amendment and Extension Filed herewith
to Letter of Credit and Reimbursement
Agreement with Fleet Bank of New York
dated as of December 17, 1999
4.2(B)(2) Agency Mortgage and Security Exhibit 4(B)(2) to
Agreement dated as of 1994 10-KSB*
December 1, 1994 from the
Registrant and its subsidiaries
4.2(B)(3) Guaranty Agreement dated as Exhibit 4(B)(3) to
of December 1, 1994 from the 1994 10-KSB*
Registrant and its subsidiaries to the Erie
County Industrial Development Agency ("ECIDA"),
Norwest Bank Minnesota, N.A., as Trustee, and
Fleet Bank
4.3 Shareholder Rights Plan Attachment B to Form
dated as of August 13, 8-K filed August 17,
1992 1992*
10(A)(1) Employment contract** Exhibit 10(A) to 1986
Form 10-K*
10(A)(2) Amendment to employment Filed herewith
contract**
10(A)(3) Amendment to employment Filed herewith
contract**
10(B) Form of Indemnification Exhibit 10(E) to 1986
Agreement between the Form 10-K*
Registrant and each of
its Directors and Officers**
10(C)(1) Loan agreement between Exhibit 10(C)(1)
the Company and its to 1991 Form 10-K*
employee stock ownership
trust, as amended
10(C)(2) Stock purchase agreement Exhibit 10(D)(2) to
between the Company 1988 Form 10-K*
and its employee stock ownership trust
</TABLE>
- --------------------------------------------------------------
* Incorporated herein by reference (File No. 1-7109)
** Indicates management contract or compensatory plan or arrangement
-15-
<PAGE> 16
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------- ------------ ---------
<S> <C> <C>
10(D)(1)(a) 1989 Employees Stock Exhibit A to Form
Option Plan** 8: Amendment
No. 1 to 1988
Form 10-K*
10(D)(1)(b) Amendment to 1989 Exhibit 10(D)(1)(b)
Employees Stock Option to 1990 Form 10-K*
Plan**
10(D)(1)(c) Amendment No. 2 to Exhibit 10(D)(1)(d) to
1989 Employees Stock 1991 Form 10-K*
Option Plan**
10(D)(2) Stock Option Agreement Exhibit 10(D)(2) to 1998
for Donald W. Hedges Form 10-K*
dated March 24, 1998**
10(D)(3)(a) Stock Option Agreement Exhibit D to Form
for Nicholas D. 8: Amendment
Trbovich, Sr. dated No. 1 to 1988
March 29, 1989** Form 10-K*
10(D)(3)(b) Stock Option Agreement Exhibit 10(D)(3)(b) to 1998
for Nicholas D. Form 10-K*
Trbovich, Sr. dated
March 24, 1998**
10(D)(4) Stock Option Agreement Exhibit 10(D)(4) to 1998
for William H. Duerig Form 10-K*
dated March 24, 1998**
10(D)(5)(a) Stock Option Agreement Exhibit 10(D)(5) to 1990
for Nicholas D. Form 10-K*
Trbovich, Jr. dated
December 21, 1990**
10(D)(5)(b) Stock Option Agreement Exhibit 10(D)(5)(b) to 1998
for Nicholas D. Form 10-K*
Trbovich, Jr. dated
March 24, 1998**
10(D)(6)(a) Stock Option Agreement Exhibit 10(D)(6) to 1991
for Nicholas D. Form 10-K*
Trbovich, Jr. dated
October 17, 1991**
</TABLE>
- --------------------------------------------------------------
* Incorporated herein by reference (File No. 1-7109)
** Indicates management contract or compensatory plan or arrangement
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<PAGE> 17
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------- ------------ ---------
<S> <C> <C>
10(D)(6)(b) Stock Option Agreement Exhibit 10(D)(6)(b) to 1998
for Nicholas D. Form 10-K*
Trbovich, Jr. dated
March 24, 1998**
10(D)(7)(a) Stock Option Agreement Exhibit 10(D)(7) to 1991
for Lee D. Burns dated Form 10-K*
October 17, 1991**
10(D)(7)(b) Stock Option Agreement Exhibit 10(D)(7)(b) to 1998
for Lee D. Burns dated Form 10-K*
March 24, 1998**
10(D)(8)(a) Stock Option Agreement Exhibit 10(D)(8) to 1991
for Raymond C. Zielinski Form 10-K*
dated October 17, 1991**
10(D)(8)(b) Stock Option Agreement Exhibit 10(D)(8)(b) to 1998
for Raymond C. Zielinski Form 10-K*
dated March 24, 1998**
10(D)(9) Land Lease Agreement between Exhibit 10(D)(9) to 1992
TSV, Inc. (wholly-owned Form 10-KSB*
subsidiary of the Registrant)
and the ECIDA
dated as of May 1, 1992, and
Corporate Guaranty of the
Registrant dated as of May 1,
1992
10(D)(10) Amendment to Land Lease Exhibit 10(D) (11) to 1993
Agreement and Interim Form 10-KSB*
Lease Agreement dated
November 19, 1992
10(D)(11) Lease Agreement dated as of Exhibit 10(D)(11) to
December 1, 1994 between 1994 10-KSB*
County Industrial Development Agency
("ECIDA") and TSV, Inc.
10(D)(12) Sublease Agreement dated as Exhibit 10(D)(12) to
of December 1, 1994 between 1994 10-KSB*
TSV, Inc. and the Registrant
</TABLE>
- --------------------------------------------------------------
* Incorporated herein by reference (File No. 1-7109)
** Indicates management contract or compensatory plan or arrangement
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------- ------------ ---------
<S> <C> <C>
21 Subsidiaries of the Filed herewith
Registrant
</TABLE>
The Registrant hereby agrees that it will furnish to the Securities
and Exchange Commission upon request a copy of any instrument
defining the rights of holders of long-term debt not filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter
of the year ended December 31, 1999.
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain sections of this Form 10-KSB
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's capital resources and profitability.
Forward-looking statements involve numerous risks and uncertainties. The Company
derives a material portion of its revenues from contracts with agencies of the
U.S. Government or their prime contractors. The Company's business is performed
under fixed price contracts and the following factors, among others discussed
herein, could cause actual results and future events to differ materially from
those set forth or contemplated in the forward-looking statements: uncertainties
in today's global economy, global competition, difficulty in predicting defense
appropriations, the vitality of the commercial aviation industry and its ability
to purchase new aircraft, the willingness and ability of the Company's customers
to fund long-term purchase programs and market demand and acceptance both for
the Company's products and its customers' products which incorporate
Company-made components. The success of the Company also depends upon the trends
of the economy, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed
elsewhere in this Form 10-KSB. Readers are cautioned not to place undue reliance
on forward-looking statements, which reflect management's analysis only as the
date hereof. The Company assumes no obligation to update forward-looking
statements.
-18-
<PAGE> 19
SIGNATURES
In accordance with of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SERVOTRONICS, INC.
March 24, 2000 By /s/ Nicholas D. Trbovich, President
-----------------------------------
Nicholas D. Trbovich
President, Chief Executive Officer
and Chairman of the Board
In accordance with 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.
<TABLE>
<S> <C> <C>
/s/ Nicholas D. Trbovich President, Chief Executive March 24, 2000
- --------------------------- Officer, Chairman of the
Nicholas D. Trbovich Board and Director
/s/ Lee D. Burns Treasurer and Secretary March 24, 2000
- --------------------------- (Chief Financial Officer)
Lee D. Burns
/s/ Donald W. Hedges Director March 24, 2000
- ---------------------------
Donald W. Hedges
/s/ William H. Duerig Director March 24, 2000
- ---------------------------
William H. Duerig
/s/ Nicholas D. Trbovich Jr. Director March 24, 2000
- ---------------------------
Nicholas D. Trbovich Jr.
</TABLE>
-19-
<PAGE> 20
SERVOTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent accountants F2
Consolidated balance sheet at December 31, 1999 F3
Consolidated statement of income for the years ended
December 31, 1999 and 1998 F4
Consolidated statement of cash flows for the years ended
December 31, 1999 and 1998 F5
Notes to consolidated financial statements F6-F20
</TABLE>
Financial statement schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
-F1-
<PAGE> 21
Report of Independent Accountants
To the Board of Directors and Shareholders of
Servotronics, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statement of income and of cash flows present fairly, in all
material respects, the financial position of Servotronics, Inc. and its
subsidiaries at December 31, 1999 and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States
of America. 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 of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 4 to the Consolidated Financial Statements, effective
January 1, 1999, the Company changed its method of accounting for pre-production
and start-up activities in accordance with new accounting pronouncements.
PricewaterhouseCoopers LLP
Buffalo, New York
March 24, 2000
-F2-
<PAGE> 22
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
($000'S OMITTED EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 794
Accounts receivable 2,807
Inventories 6,168
Prepaid income taxes 766
Deferred income taxes 1,443
Other 1,296
--------
Total current assets 13,274
Property, plant and equipment, net 7,128
Other assets 613
--------
$ 21,015
========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 444
Demand loan 450
Accounts payable 1,146
Accrued employee compensation and benefit costs 826
Other accrued liabilities 305
Total current liabilities 3,171
--------
Long-term debt 6,488
Deferred income taxes 518
Other non-current liability 227
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,614,506 shares 523
Capital in excess of par value 13,358
Retained earnings 411
Accumulated other comprehensive income (24)
--------
14,268
Employee stock ownership trust commitment (2,640)
Treasury stock, at cost 209,018 shares (1,017)
--------
Total shareholders' equity 10,611
--------
$ 21,015
========
</TABLE>
See notes to consolidated financial statements
-F3-
<PAGE> 23
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($000'S OMITTED EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
-------- --------
<S> <C> <C>
Net revenues $ 16,165 $ 17,571
Costs and expenses:
Cost of goods sold 12,149 11,983
Selling, general and administrative 3,230 3,188
Restructuring charge 854 0
Interest 344 312
Depreciation and amortization 671 632
-------- --------
17,248 16,115
-------- --------
Income (loss) before income taxes (benefit)
and cumulative change in accounting principle (1,083) 1,456
Income taxes (benefit) (401) 597
-------- --------
Income (loss) before cumulative change
in accounting principle (682) 859
Cumulative effect of a change in accounting principle,
net of taxes (benefit) (1,727) 0
-------- --------
Net income (loss) $ (2,409) $ 859
======== ========
INCOME (LOSS) PER SHARE
BASIC
Income (loss) per share before cumulative effect of a
change in accounting principle $ (0.38) $ 0.49
Cumulative effect per share of a change in accounting principle (0.95) 0.00
-------- --------
Net income (loss) per share $ (1.33) $ 0.49
======== ========
DILUTED
Income (loss) per share before cumulative effect of a change
in accounting principle $ (0.38) $ 0.48
Cumulative effect per share of a change in accounting principle (0.95) 0.00
-------- --------
Net income (loss) per share $ (1.33) $ 0.48
======== ========
</TABLE>
See notes to consolidated financial statements
-F4-
<PAGE> 24
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000'S OMITTED)
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
------- -------
<S> <C> <C>
Cash flows related to operating activities:
Net income (loss) $(2,409) $ 859
Adjustments to reconcile net income to net
cash provided by operating activities -
Cumulative effect of change in accounting principle 2,740 0
Depreciation and amortization 921 632
Deferred income taxes (892) 74
Tax benefit from stock options 34 55
Change in assets and liabilities -
Accounts receivable (609) 4
Inventories 76 (956)
Prepaid income taxes (751) 23
Other current assets 80 10
Other assets 17 15
Accounts payable 256 (140)
Accrued employee compensation & benefit costs (104) 121
Other accrued liabilities 122 (76)
Employee stock ownership trust payment 101 101
------- -------
Net cash provided by (used in) operating activities (418) 722
------- -------
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment (841) (471)
------- -------
Net cash used in investing activities (841) (471)
------- -------
Cash flows related to financing activities:
Increase in demand loan 950 250
Payments on demand loan (500) (450)
Acquisition of long-term debt 1,000 0
Principal payments on long-term debt (461) (250)
Issuance of common stock 0 23
Net cash proceeds from exercise of stock options 55 0
------- -------
Net cash provided by (used in) financing activities 1,044 (427)
------- -------
Net decrease in cash (215) (176)
Cash at beginning of period 1,009 1,185
------- -------
Cash at end of period $ 794 $ 1,009
======= =======
Supplemental disclosures:
Income taxes paid $ 207 $ 451
Interest paid $ 334 $ 314
</TABLE>
See notes to consolidated financial statements
-F5-
<PAGE> 25
SERVOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
The principal accounting policies of Servotronics, Inc. (the Company) and
subsidiaries are as follows:
Principles of consolidation
The consolidated financial statements include the accounts of
Servotronics, Inc. and its wholly-owned subsidiaries.
Cash and cash equivalents
The Company considers cash and cash equivalents to include all cash
accounts and short-term investments purchased with a maturity of three
months or less.
Revenue recognition
The Company incurred costs for certain contracts which are long term.
These contracts are accounted for under the percentage of completion
method (cost-to-cost) which recognizes revenue as the work progresses
towards completion. Revenues on the remaining contracts are recognized
when the terms of purchase orders are met.
Included in other current assets is $875,000 of unbilled revenues which
represents revenue earned under the percentage of completion method
(cost-to-cost) not yet billable under the terms of the contracts.
Inventories
Inventories are stated generally at the lower of standard cost, which
approximates actual cost (first-in, first-out), or market.
-F6-
<PAGE> 26
Property, plant and equipment
Property, plant and equipment is carried at cost; expenditures for new
facilities and equipment and expenditures which substantially increase
the useful lives of existing plant and equipment are capitalized;
expenditures for maintenance and repairs are charged directly to cost or
expenses as incurred. Upon retirement or disposal of properties, the
related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is included in income.
Depreciation is provided on the basis of estimated useful lives of
depreciable properties, primarily by the straight-line method for
financial statement purposes and by accelerated methods for tax purposes.
Depreciation expense includes the amortization of capital lease assets.
The estimated useful lives of depreciable properties are generally as
follows:
<TABLE>
<S> <C>
Buildings and improvements 5-39 years
Machinery and equipment 5-15 years
Tooling 3-5 years
</TABLE>
Income taxes
The Company and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns.
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
operating loss carryforwards and temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Employee stock ownership plan
Contributions to the employee stock ownership plan are determined
annually by the Company according to plan formula.
-F7-
<PAGE> 27
Use of estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. Restructuring Charges
In the fourth quarter of 1999, the Company recorded restructuring charges
of $854,000 in connection with the discontinuance of various product
lines of the CPG to restructure the overall business' strategic plan and
to redirect the Company's efforts to target "niche" and core-products.
The $854,000 includes write-downs of capital assets related to the
discontinued product lines of $418,000, product line rationalizations
including write offs of inventory related to the discontinued product
lines of $336,000, and $100,000 exiting costs of discontinued product
line contracts and related expenses.
3. Inventories
<TABLE>
<CAPTION>
December 31, 1999
-----------------
($000's omitted)
<S> <C>
Raw materials and common parts $ 949
Work-in-process 5,197
Finished goods 258
----------
6,404
Less common parts expected to be used
after one year (236)
----------
$ 6,168
==========
</TABLE>
4. Changes In Accounting Principles
On January 1, 1999, the Company elected early adoption of Emerging Issues
Task Force ("EITF") 99-5, "Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements". EITF 99-5 states that development and
pre-production costs for products sold under long-term supply
arrangements be expensed as incurred. On January 1, 1999, as required by
the Accounting Standards Executive Committee, the Company also adopted
the Statement of Position No. 98-5 "Reporting on the Cost of Start-Up
Activities" (SoP 98-5). As a result of the early adoption of EITF 99-5
and adoption of SoP 98-5, the Company wrote off $1,727,000 of costs which
were appropriately capitalized in prior years. These charges were
recorded net of taxes of $1,013,000 as a cumulative effect of a change in
accounting principle in the December 31, 1999 Consolidated
-F8-
<PAGE> 28
Statement of Income. Further, as a result of early adoption, costs
incurred for development and pre-production during 1999 were expensed and
reflected in 1999 as cost of goods sold.
As a result of the above-mentioned early adoption of EITF 99-5, the
Company was required to restate the previously issued quarterly financial
statements to give effect of the adoption of EITF 99-5 as of January 1,
1999.
The restated quarterly financial data are as follows:
<TABLE>
<CAPTION>
March 31 June 30 September 30
-------- ------- ------------
($000's omitted)
<S> <C> <C> <C>
Net Sales $ 3,591 $4,614 $3,862
Costs and expenses:
Cost of goods sold 2,570 3,279 2,755
Selling, general and administrative 696 873 799
Interest 67 92 90
Depreciation and amortization 157 156 157
------- ------ ------
3,490 4,400 3,801
------- ------ ------
Income (loss) before income taxes and cumulative
change in accounting principle 101 214 61
Income tax provision 40 86 24
------- ------ ------
Income (loss) before cumulative effect of a change
in accounting principle 61 128 37
Cumulative effect of a change in accounting principle (1,727) 0 0
------- ------ ------
Net income (loss) $(1,666) $ 128 $ 37
======= ====== ======
</TABLE>
5. Property, plant and equipment
<TABLE>
<CAPTION>
December 31, 1999
-----------------
($000's omitted)
<S> <C>
Land $ 11
Buildings and improvements 6,170
Machinery, equipment and tooling 9,036
--------
15,217
Less accumulated depreciation (8,089)
$ 7,128
========
</TABLE>
-F9-
<PAGE> 29
6. Long-term debt
<TABLE>
<CAPTION>
December 31, 1999
-----------------
($000's omitted)
<S> <C>
Industrial Development Revenue Bonds; secured by a letter of credit from
a bank with interest payable monthly
at a floating rate (5.10% at December 31, 1999) $ 5,000
Term Loan; payable to a financial institution with interest
on $393,000 at LIBOR plus 2% (7.88% at December 31, 1999) and
interest on the remaining $500,000 at a current rate of 5.86%;
quarterly principal payments of $35,714 through February 1, 2006 893
Various other secured term notes payable to government agencies 1,039
-------
6,932
Less current portion (444)
-------
$ 6,488
=======
</TABLE>
Industrial Development Revenue Bonds were issued by a government agency
to finance the construction of the Company's new headquarters/Advanced
Technology facility. Annual sinking fund payments of $170,000 commence
December 1, 2000 and continue through 2013, with a final payment of
$2,620,000 due December 1, 2014. The Company has agreed to reimburse the
issuer of the letter of credit if there are draws on that letter of
credit. The Company pays the letter of credit bank an annual fee of 1% of
the amount secured thereby and pays the remarketing agent for the bonds
an annual fee of .25% of the principal amount outstanding. The Company's
interest under the facility capital lease has been pledged to secure its
obligations to the government agency, the bank and the bondholders.
On February 26, 1999, the Company received a $1,000,000 loan
from a financial institution payable in equal quarterly installments,
maturing in 2006. The proceeds were used to pay off the unsecured term
note as disclosed above and to finance purchases of equipment and working
capital. The loan is collateralized by any and all equipment purchased
with the proceeds of the term loan. The letter of credit reimbursement
agreement, the unsecured term note agreement and the secured term notes
contain, among other things, covenants relative to maintenance of working
capital and tangible net worth and restrictions on capital expenditures,
leases and additional borrowings.
-F10-
<PAGE> 30
Principal maturities of long-term debt are as follows: 2001 - $393,000;
2002 - $548,000; 2003 - $378,000, 2004 - $463,000, 2005 and thereafter
$4,706,000.
The Company also has a $1,000,000 line of credit on which there was
$450,000 outstanding at December 31, 1999.
7. Employee benefit plans
Employee stock ownership plan (ESOP)
Under the Company's ESOP adopted in 1985, participating employees are
awarded shares of the Company's common stock based upon salary levels and
minimum service requirements. Upon inception of the ESOP, the Company
borrowed $2,000,000 from a bank and lent the proceeds to the trust
established under the ESOP to purchase shares of the Company's common
stock. The Company's loan to the trust is at an interest rate
approximating the prime rate and is repayable to the Company over a
40-year term ending in December 2024. During 1987 and 1988, the Company
loaned an additional $1,942,000 to the trust under terms similar to the
Company's original loan. Each year the Company makes contributions to the
trust which the plan's trustees use to repay the principal and interest
due the Company under the trust loan agreement. Shares held by the trust
are allocated in the aggregate to participating employees in proportion
to the amount of the loan repayment made by the trust to the Company.
Since inception of the ESOP, approximately 318,000 shares have been
allocated, exclusive of shares distributed to ESOP participants. At
December 31, 1999 and 1998, approximately 563,000 and 594,000 shares,
respectively, purchased by the ESOP remain unallocated.
Related compensation expense associated with the Company's ESOP, which is
equal to the principal reduction on the loans receivable from the trust,
amounted to $101,000 in 1999 and 1998. Included as a reduction to
shareholders' equity is the employee stock ownership trust commitment
which represents the remaining indebtedness of the trust to the Company.
Employees are entitled to vote allocated shares and the ESOP trustees are
entitled to vote unallocated shares and those allocated shares not voted
by the employees.
Defined benefit plan
A Consumer Products division subsidiary of the Company maintains a
noncontributory defined benefit pension plan covering substantially all
its employees. Plan benefits are based on stated amounts for each year of
service; funding is in accordance with statutory requirements. Pension
cost of $29,000 and $28,000 was recognized in 1999 and 1998,
respectively, and was calculated
-F11-
<PAGE> 31
using a weighted-average discount rate of 7.5% and 6.5%, respectively,
and weighted-average expected rate of return on plan assets of 8.0% for
both years. The projected benefit obligation under the plan at December
31, 1999 was $89,000, net of $171,000 of plan assets at fair value.
Deferred compensation program
The Company maintains a deferred compensation program designed to
achieve, among other things, benefit parity for an officer of the
Company. During 1999 and 1998, no amount was accrued or expensed under
this program. In 1999, $195,000 was paid from the amount previously
accrued and expensed in prior periods which leaves a balance of $225,000
accrued in the December 31, 1999 consolidated balance sheet.
8. Income taxes
The provision (benefit) for income taxes included in the consolidated
statement of income consists of the following:
<TABLE>
<CAPTION>
1999 1998
------- ----
($000's omitted)
Current:
<S> <C> <C>
Federal income tax (benefit) $ (543) $450
State income tax 21 73
------- ----
(522) 523
Deferred:
Federal income tax (benefit) (683) 62
State income tax (benefit) (209) 12
------- ----
(892) 74
------- ----
(1,414) 597
Tax benefit allocated to cumulative effect of a
change in accounting principle (see Note 4) 1,013 0
------- ----
$ (401) $597
======= ====
</TABLE>
The provision for income taxes does not include the tax benefit of
$34,000 and $55,000 for 1999 and 1998, respectively, associated with the
exercise of stock options which have been credited to capital in excess
of par value.
-F12-
<PAGE> 32
The reconciliation of the difference between the Company's effective tax
rate based upon the total income tax provision (benefit) and the federal
statutory income tax rate is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory rate 34% 34%
Increase resulting from:
State income taxes (less federal effect) 3% 5%
Other --% 2 %
-- --
37% 41%
== ==
</TABLE>
At December 31, 1999, the deferred tax assets (liabilities) were
comprised of the following:
<TABLE>
<CAPTION>
($000's omitted)
<S> <C>
Inventory $ 956
Accrued vacation 163
State net operating losses 79
Accrued deferred compensation 76
Other 41
-------
Total deferred tax assets 1,315
Property, plant and equipment (345)
Other liabilities (29)
-------
Total deferred tax liabilities (374)
-------
Net deferred tax asset $ 941
=======
</TABLE>
Realization of the net deferred tax asset is dependent upon generating
sufficient taxable income over the periods in which the temporary
differences are anticipated to reverse. Although realization is not
assured, management believes it is more likely than not that the net
deferred tax asset will be realized. The amount of net deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
At December 31, 1999, the Company has a New York State net operating loss
carryforward of approximately $1,000,000 that begins to expire in 2019.
The Company also has a State of Pennsylvania net operating loss
carryforward of approximately $900,000 that begins to expire in 2006.
-F13-
<PAGE> 33
9. Common shareholders' equity
<TABLE>
<CAPTION>
Common stock
------------ Accumulated
Number Capital in other
of shares excess of Retained Treasury Comprehensive comprehensive
issued Amount par value earnings ESOP stock income income
------ ------ --------- -------- ---- ----- ------ ------
($000's omitted)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December
31, 1997 2,614,506 $523 $13,269 $ 2,104 ($2,842) ($1,240) --
Comprehensive income
Net income -- -- -- $ 859 -- -- $ 859 --
Other comprehensive
income,
net of tax -- -- -- -- -- -- -- --
Minimum pension
liability
adjustment -- -- -- -- -- -- (43) (43)
-------
Other comprehensive
income -- -- -- -- -- -- (43) --
-------
Comprehensive income -- -- -- -- -- -- $ 816 --
-------
Issuance of common stock -- -- -- (59) -- -- --
Compensation expense -- -- -- -- 101 -- --
Treasury stock -- -- -- -- -- 84 --
Exercise of stock
options -- -- 55 -- -- -- --
--------- ---- ------- ------- ------- ------- ----
Balance December
31, 1998 2,614,506 $523 $13,324 $ 2,904 ($2,741) ($1,156) ($43)
Comprehensive income
Net loss -- -- -- $(2,409) -- -- $(2,409) --
Other comprehensive income,
net of tax -- -- -- -- -- -- -- --
Minimum pension
liability
adjustment -- -- -- -- -- -- 19 19
-------
Other comprehensive
income -- -- -- -- -- -- 19 --
-------
Comprehensive income -- -- -- -- -- -- $(2,390) --
=======
Issuance of common stock -- -- -- (84) -- -- --
Compensation expense -- -- -- -- 101 -- --
Treasury stock -- -- -- -- -- 139 --
Exercise of stock
options -- -- 34 -- -- -- --
--------- ---- ------- ------- ------- ------- ----
Balance December
31, 1999 2,614,506 $523 $13,358 $ 411 ($2,640) ($1,017) ($24)
========= ==== ======= ======= ======= ======= ====
</TABLE>
-F14-
<PAGE> 34
Earnings per share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding during the period. Diluted
earnings per share is computed by dividing net earnings by the weighted
average number of shares outstanding during the period plus the number of
shares of common stock that would be issued assuming all contingently
issuable shares having a dilutive effect on earnings per share were
outstanding for the period.
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Income (loss) including restructuring charge and before
cumulative effect of a change in accounting principle $ (682) $ 859
Cumulative effect of a change in
accounting principle (1,727) --
--------- ---------
Net income (loss) $ (2,409) $ 859
========= =========
Weighted average common shares
outstanding (basic) 1,809 1,742
Incremental shares from assumed
conversions of stock options 5 30
Weighted average common
shares outstanding (diluted) 1,814 1,772
BASIC
Income (loss) per share including a 1999 restructuring charge of $854,000 pretax
or ($0.28) after tax per share and before
cumulative effect of a change in accounting principle $ (0.38) $ 0.49
Cumulative effect per share of a change in accounting principle (0.95) 0.00
--------- ---------
Net income (loss) per share $ (1.33) $ 0.49
========= =========
DILUTED
Income (loss) per share including a 1999 restructuring charge of $854,000 pretax
or ($0.28) after tax per share and before
cumulative effect of a change in accounting principle $ (0.38) $ 0.48
Cumulative effect per share of a change in accounting principle (0.95) 0.00
--------- ---------
Net income (loss) per share $ (1.33) $ 0.48
========= ---------
</TABLE>
Comprehensive income
The minimum pension liability adjustment of $24,000, net of tax of
$16,000, is the only component of other comprehensive income for 1999.
-F15-
<PAGE> 35
Stock options
Under the Servotronics, Inc. 1989 Employees Stock Option Plan (the Option
Plan) and other separate agreements authorized by the Board of Directors,
the Company has granted non-qualified options to its Directors and
Officers. The Company applies APB Opinion No. 25 and related
interpretations in accounting for the Option Plan and the separate option
agreements. Accordingly, no compensation expense has been charged to
earnings in 1999 or prior years as stock options granted have an exercise
price equal to the market price on the date of grant. At December 31,
1999, 3,200 shares of common stock were available under the Option Plan.
Options granted under the Option Plan have durations of ten years.
A summary of the status of options granted under all employee plans is
presented below:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise
Outstanding Price
----------- -----
<S> <C> <C>
Outstanding as of December 31, 1997 92,729 3.08
Granted in 1998 93,000 8.50
Exercised in 1998 (25,186) 2.32
Forfeited in 1998 -- --
Outstanding as of December 31, 1998 160,543 6.34
Granted in 1999 -- --
Exercised in 1999 (37,778) 2.32
Forfeited in 1999 -- --
Outstanding as of December 31, 1999 122,765 7.48
</TABLE>
The following tables summarize information about options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
Average
Remaining
Exercise Number contractual Options
Prices ($) Outstanding Life Exercisable
---------------------------------------------------------------------------
<S> <C> <C> <C>
2.07 12,593 1 years 12,593
5.95 17,172 1 years 17,172
8.50 93,000 8 years 62,500
------ ------
Total 122,765 92,265
======= ======
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). If the compensation
-F16-
<PAGE> 36
cost for these plans had been determined based on the Black-Scholes
calculated values at the grant dates for awards consistent with the
method prescribed by FAS 123, the pro forma effects on the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Net income (loss):
As reported (2,409,000) 859,000
Pro forma (2,497,000) 706,000
Earnings per common share:
As reported - basic (1.33) .49
As reported - diluted (1.33) .48
Pro forma - basic (1.30) .41
Pro forma - diluted (1.30) .40
</TABLE>
No options were granted in 1999. The Black-Scholes calculated estimated
value of the options granted in 1998 was $5.48. The assumptions used to
calculate this value include a risk-free interest rate of 5.63%, an
expected term of 8 years, and an annual standard deviation (volatility)
factor of 53%. The Black-Scholes option pricing model was developed for
use in estimating values of traded options that have no vesting
restrictions and are fully transferable. In addition, option pricing
models require the use of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock options are
restricted and have characteristics significantly different from those of
traded options, and because changes in the subjective assumptions can
materially affect the calculated estimated values, in the Company's
opinion the existing models do not necessarily provide a reliable measure
of the value of the Company's stock options. The estimated value
calculated by the Black-Scholes methodology is hypothetical and does not
represent an actual tangible Company expense or an actual tangible
monetary transfer to the optionee. Further, for the reasons stated above
(among others) and especially because of the volatility factor used in
the Black-Scholes calculations for the Company's 1998 options, the
derived estimated value may be, in the Company's opinion, substantially
higher than the value which may be realized in an arms-length transaction
under the above stated and existing conditions.
-F17-
<PAGE> 37
Shareholders' rights plan
During 1992, the Company's Board of Directors adopted a shareholders'
rights plan (the "Rights Plan") and simultaneously declared a dividend of
one Right for each outstanding share of the Company's common stock
outstanding at August 28, 1992. The Rights do not become exercisable
until the earlier of (i) the date of the Company's public announcement
that a person or affiliated group other than Dr. Nicholas D. Trbovich or
the ESOP trust (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 25% or more of the Company's
common stock (excluding shares held by the ESOP trust) or (ii) ten
business days following the commencement of a tender offer that would
result in a person or affiliated group becoming an Acquiring Person.
The exercise price of a Right has been established at $30.00. Once
exercisable, each Right would entitle the holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred
Stock. In the event that any person becomes an Acquiring Person, each
Right would entitle any holder other than the Acquiring Person to
purchase common stock or other securities of the Company having a value
equal to three times the exercise price. The Board of Directors has the
discretion in such event to exchange two shares of common stock or two
one-hundredths of a share of preferred for each Right held by any holder
other than the Acquiring Person.
10. Commitments
The Company leases certain equipment pursuant to operating lease
arrangements. Total rental expense in 1999 and 1998 and future minimum
payments under such leases are not significant.
11. Litigation
There are no legal proceedings which are material to the Company
currently pending by or against the Company other than ordinary routine
litigation incidental to the business which is not expected to materially
adversely affect the business or earnings of the Company.
12. Business segments
The Company operates in two business segments, Advanced Technology
Products and Consumer Products. The Company's reportable segments are
strategic business units that offer different products and services. The
segments are separate corporations and are managed separately. Operations
in Advanced Technology Products involve the design, manufacture, and
marketing of servo-control components for government and commercial
industrial applications. Consumer Products operations involve the design,
manufacture and marketing of a variety of cutlery products for use by
consumers and government agencies. The Company derives substantially all
of its sales revenue from domestic customers.
-F18-
<PAGE> 38
Information regarding the Company's operations in these segments is summarized
as follows:
<TABLE>
<CAPTION>
Advanced
Year ended Technology Consumer
December 31, 1999 Products Products Consolidated
----------------- -------- -------- ------------
($000's omitted)
<S> <C> <C> <C>
Revenues from unaffiliated customers $ 9,800 $ 6,365 $ 16,165
============ ========= =============
Restructuring charge $ (854) $ (854)
=========
Profit $ 1,194 $ 25 1,219
============ =========
Depreciation expense $ (395) $ (276) (671)
============= =========
Interest expense (344)
General corporate expense (433)
-------------
Income (loss) including a restructuring charge
and before income taxes and cumulative effect
of a change in accounting principle $ (1,083)
=============
Cumulative effect of a change in accounting
principle, net of tax $ (1,727)
=============
Identifiable assets $ 14,190 $ 5,134 $ 19,324
============ ========= =============
Capital expenditures $ 586 $ 255 $ 841
============ ========= =============
</TABLE>
<TABLE>
<CAPTION>
Advanced
Year ended Technology Consumer
December 31, 1998 Products Products Consolidated
----------------- -------- -------- ------------
($000's omitted)
<S> <C> <C> <C>
Revenues from unaffiliated customers $ 10,972* $ 6,599 $ 17,571
============ ========= =============
Profit $ 2,327** $ 282 $ 2,609
============ =========
Depreciation expense $ (352) $(280) (632)
============ =========
Interest expense (312)
Gross receipts on settlement of disputes $ 210 210
============
General corporate expense (419)
-------------
Income before income taxes $ 1,456
=============
Identifiable assets $ 14,572 $ 5,698 $ 20,270
============ ========= =============
Capital expenditures $ 200 $ 271 $ 471
============ ========= =============
</TABLE>
*Includes $210,000 of gross receipts on the settlement of disputes.
**Exclude $210,000 of gross receipts on the settlement of disputes
-F19-
<PAGE> 39
The Company engages in a significant amount of business with the United
States Government through sales to its prime contractors and otherwise.
Such contracts by the Advanced Technology segment accounted for
revenues of approximately $2,940,000 in 1999 and $3,828,000 in 1998.
Similar contracts by the Consumer Products segment accounted for
revenues of approximately $467,000 in 1999 and $325,000 in 1998. Sales
of advanced technology products to one prime contractor, including
various divisions and subsidiaries of a common parent company, amounted
to approximately 17% and 14% of total revenues in 1999 and 1998,
respectively. Sales to another customer amounted to approximately
19% of total revenues in 1999 and 21% of total 1998 revenues
respectively. No other single customer represented more than 10% of the
Company's revenues in any of these years.
-F20-
<PAGE> 1
PAGE 1 OF 31 EXHIBIT 4.1(B)
SECOND AMENDED AND RESTATED
TERM LOAN AGREEMENT
THIS AGREEMENT, made the 26th day of February, 1999, by and between
FLEET NATIONAL BANK, successor in interest to FLEET BANK OF NEW YORK, having an
office and place of business at 10 Fountain Plaza, Buffalo, New York
(hereinafter called "Bank") and SERVOTRONICS, INC., a corporation organized and
existing under the laws of the State of Delaware, and having its principal
office and place of business at 1110 Maple Road, Elma, New York 14059
(hereinafter called "Borrower").
W I T N E S S E T H:
WHEREAS, the parties have entered into a Term Loan Agreement dated
October 4, 1993 (the "Existing Loan Agreement") pertaining to a term loan in the
original principal amount of $964,285.00 and having a current principal balance
of approximately $206,630.17 (the "Existing Loan"); and
WHEREAS, the Existing Loan was evidenced by Borrower's Promissory Note
dated October 4, 1993 in the principal amount of $964,285.00; and
WHEREAS, the parties desire to amend and restate the Existing Loan
Agreement in its entirety by the substitution and replacement thereof by this
Second Amended and Restated Term Loan Agreement to provide for, among other
things, an additional loan to the Borrower from the Bank and to refinance the
Existing Loan as provided in this Second Amended and Restated Term Loan
Agreement.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS. The following terms shall have the following meanings in
this Agreement:
1.1. "ACCOUNTING TERMS" shall mean all accounting terms not
specifically defined in this Agreement and shall be construed in accordance with
generally accepted accounting principles consistent with those applied in the
preparation of the financial statements referred to in Section 4.6.
1.2. "BORROWER DOCUMENTS" shall have the meaning ascribed to such term
in Section 3.1(i) hereof.
1.3. "BUSINESS DAY" means a day on which commercial banks are not
authorized or required to close in New York, New York; provided further that in
the context of calculation of the amount or due date of a payment obligation
which is calculated by reference to any LIBOR Based Rate, Business Day means a
day on which commercial banks are not authorized or required to close in both
New York and London.
<PAGE> 2
Page 2 of 31 EXHIBIT 4.1(B)
1.4. "CONSOLIDATED SUBSIDIES" means Subsidiaries having accounts
consolidated with the accounts of Borrower in the Borrower's consolidated
financial statements prepared in accordance with GAAP.
1.5. "COST OF FUNDS" means the per annum rate of interest which Bank
is required to pay, or is offering to pay, for wholesale liabilities, adjusted
for reserve requirements and such other requirements as may be imposed by
federal, state or local government and regulatory agencies, as determined by
Fleet Treasury Group.
1.6. "CURRENT ASSETS" shall include those assets of Borrower and its
consolidated subsidiaries classified as current in accordance with generally
accepted accounting principles.
1.7. "CURRENT LIABILITIES" shall include those liabilities of Borrower
and its consolidated subsidiaries classified as current in accordance with
generally accepted accounting principles with adequate provisions for all
accrued liabilities, including, without limitation, all federal and state taxes
except those taxes for which offsetting carry forward net operating losses of
the Borrower are available and those classified as deferred in accordance with
generally accepted accounting principles.
1.8. "DEBT SERVICE COVERAGE RATIO" shall refer to the sum of
Borrower's and Borrower's consolidated subsidiaries, net profits, depreciation,
interest expense and non-cash charges for such period, compared to the sum of
Borrower's and Borrower's consolidated subsidiaries' current maturities of
long-term debt including leases that are capitalized, interest expense and
capital expenditures not funded by long-term debt owing to Bank or incurred
pursuant to and under the IDA Bond Issue and Related Financing, for such period.
1.9. "DEFAULT INTEREST RATE" means the Stated Prime Rate, as the same
may change from time to time, plus four percent (4%) per annum, provided,
however, that if any portion of the principal of the Term Notes bears interest
calculated by reference to a LIBOR Based Rate at the time of maturity or
acceleration, such principal shall bear interest at four percent (4%) over such
rate until the end of the LIBOR Period then in effect and shall thereafter bear
interest at the Stated Prime Rate plus four percent (4%) until paid.
1.10. "ESOP" shall refer to the Servotronics, Inc. Employee Stock
Ownership Plan (the "Plan") executed May 15, 1985, effective as of January 1,
1985, as amended, which is a stock bonus plan qualified under Section 401(a) of
the Internal Revenue Code of 1954 (the "Code"), as amended, and an employee
stock ownership plan under Section 4975(e)(7) of the Code and Section 407(d)(6)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended.
1.11. "EVENT OF DEFAULT" means the occurrence of any of the events set
forth in Section 6.1 hereof, including the giving of notice and the lapse of
time as specified in Section 6.1.
<PAGE> 3
Page 3 of 31 EXHIBIT 4.1(B)
1.12. "FIXED RATE" means the Cost of Funds on the date that the Linked
Deposit Program shall become effective for the Term Loans plus one-half of one
percent (1/2 of 1%) per year (computed on the basis of thE Cost of Funds plus
two and one half percent per year reduced by two percent (2%) per year pursuant
to the Linked Deposit Program).
1.13. "FIXED RATE TERM" means the two-year period during which the
Linked Deposit Program shall be in effect in respect of the Term Loans, which
period is anticipated to commence on February 26, 1999.
1.14. "FIXED RATE TRANCHE" means that portion of the principal amount
of the Term Loans outstanding under Term Note B which bears interest at the
Fixed Rate.
1.15. "GAAP" means generally accepted accounting principals in the
United States of America.
1.16. "IDA BOND ISSUE AND RELATED FINANCING" means the Erie County
Industrial Development Agency Industrial Development Revenue Bonds (1994
Servotronics, Inc. Project) together with related financing assisted by the
Regional Economic Development Program and Industrial Access Program in the State
of New York and all other financing assisted by governmental authorities and
related to such Project.
1.17. "LIBOR" means, as applicable to the LIBOR Tranche, the rate per
annum (rounded upward, if necessary, to the nearest 1/32 of one percent) as
determined on the basis of the offered rates for deposits in U.S. dollars, for a
period of time comparable to the corresponding LIBOR Period which appears on the
Telerate page 3750 as of 11:00 a.m. London time on the day that is two London
Banking Days preceding the first day of such LIBOR Period; provided, however, if
the rate described above does not appear on the Telerate System on any
applicable interest determination date, the LIBOR rate shall be the rate
(rounded upwards as described on the Reuters Page "LIBO" (or such other page as
may replace the LIBO Page on that service for the purpose of displaying such
rates), as of 11:00 a.m. (London Time), on the day that is two (2) London
Banking Days prior to the beginning of such LIBOR Period. "Banking Day" shall
mean, in respect of any city, any date on which commercial banks are open for
business in that city.
If both the Telerate and Reuters system are unavailable, then the rate for that
date will be determined on the basis of the offered rates for deposits in U.S.
dollars for a period of time comparable to such LIBOR Period which are offered
by four major banks in the London interbank market at approximately 11:00 a.m.
London time, on the day that is two (2) London Banking Days preceding the first
day of such LIBOR Period as selected by the Calculation Agent. The principal
London office of each of the four major London banks will be requested to
provide a quotation of its U.S. dollar deposit offered rate. If at least two
such quotations are provided, the rate for that date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S.
<PAGE> 4
Page 4 of 31 EXHIBIT 4.1(B)
dollars to leading European banks for a period of time comparable to
such LIBOR Period offered by major banks in New York City at approximately 11:00
a.m. New York City time, on the day that its two London Banking Days preceding
the first day of such LIBOR Period. In the event that Bank is unable to obtain
any such quotation as provided above, it will be deemed that LIBOR pursuant to a
LIBOR Period cannot be determined and the outstanding principal amount of the
Term Loans shall bear interest at the Stated Prime Rate commencing on the day on
which any current LIBOR Period or Fixed Rate Term (as applicable) then in effect
shall expire until the Bank using commercially reasonable efforts is able to
obtain such a quotation as provided above.
In the event that the Board of Governors of the Federal Reserve System shall
impose a Reserve Percentage with respect to LIBOR deposits of Bank then for any
period during which such Reserve Percentage shall apply, LIBOR shall be equal to
the amount determined above divided by an amount equal to 1 minus the Reserve
Percentage.
1.18. "LIBOR BASED RATE" means LIBOR plus two percent (2%).
1.19. "LIBOR PERIOD" means a period of time having a duration of 1, 2,
3, 6 or 12 months as selected by the Borrower in respect of each LIBOR Tranche,
provided that each LIBOR Period selected must terminate on or before the date on
which the final payment is due to the Bank under the corresponding Term Note.
1.20. "LIBOR TRANCHE" means that portion of the principal amount of
debt evidenced by the Term Notes for which interest is computed on a LIBOR Based
Rate for a LIBOR Period.
1.21. "LINKED DEPOSIT PROGRAM" means the New York State Excelsior
Linked Deposit Program whereby interest on loans for specified borrowers is
reduced in consideration for deposits maintained with the Bank by the State of
New York.
1.22. "LIABILITIES" shall have the meaning usually given to that word
in accordance with generally accepted accounting principles, and shall refer to
the total liabilities of Borrower and its consolidated subsidiaries.
1.23. "NET WORKING CAPITAL" shall refer to the excess of Current
Assets over Current Liabilities as those terms are defined in Sections 1.4 and
1.5.
1.24. "OBLIGATIONS" means all debts, liabilities and obligations of
Borrower to Bank now existing or hereafter arising or created (including but not
limited to all Obligations of Borrower under this Agreement and the Term Note),
without limitation as to amount, and including without limitation all debts,
liabilities and obligations which are direct or indirect, absolute or
contingent, and any sums which Bank receives in payment of Obligations and is
obligated by a Bankruptcy Court or other legal authority to repay and does so
repay.
1.25. "PERMITTED ENCUMBRANCES" means:
<PAGE> 5
Page 5 of 31 EXHIBIT 4.1(B)
(a) liens imposed by law for taxes that are not yet due or are being
contested by Borrower in good faith and by appropriate proceedings;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and
other like Liens imposed by law, arising in the ordinary course of business
and securing obligations that are not overdue by more than 30 days or are
being contested by Borrower in good faith and by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of
business;
(e) easements, zoning restrictions, rights-of-way and similar encumbrances
on real property imposed by law or arising in the ordinary course of
business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the
ordinary conduct of business of the Borrower or any Consolidated
Subsidiary; and
(f) security interests granted to Bank and security interests granted as
security for the payment of purchase money indebtedness permitted by
Sections 5.1 and 5.5 hereof.
1.26. "RESERVE PERCENTAGE" means, with respect to a LIBOR Based Rate
and a LIBOR Period, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such LIBOR Period under Regulation D of the Board of Governors of the
Federal Reserve Board by member banks of the Federal Reserve System in New York
City with deposits exceeding $1,000,000,000 against "Eurocurrency Liabilities"
(as such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by such member banks by reason of any regulatory change against
(i) any category of liabilities which includes deposits by reference to which
the LIBOR Based Rate for a LIBOR Tranche is to be determined or (ii) any
category of extensions of credit or other assets which include LIBOR Rate
Tranches.
1.27. "STATED PRIME RATE" means the variable per annum rate of
interest so designated from time to time by the Bank as its prime rate. The
Stated Prime Rate is a reference rate and does not necessarily represent the
lowest or best rate being charged to any customer.
1.28. "SUBSIDIARY" means any corporation, partnership, joint venture,
limited liability company, trust or estate of which (or in which) more than 50%
of (a) the issued and outstanding capital stock having ordinary voting power to
elect a
<PAGE> 6
Page 6 of 31 EXHIBIT 4.1(B)
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
joint venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by Borrower, by Borrower and one or more of its other Subsidiaries or by one or
more of Borrower's other Subsidiaries.
1.29. "TANGIBLE NET WORTH" shall refer to the total stockholders'
equity of Borrower and its consolidated subsidiaries less all of the following:
treasury stock; intangible assets of any kind, including, without limitation,
goodwill, patents and trademarks; and deferred expenses (exclusive of prepaid
real property taxes and insurance premiums), to be determined in accordance with
generally accepted accounting principles.
1.30. "TERM LOANS" means the loans made pursuant to Section 2.1 hereof
and evidenced by the Term Notes.
1.31. "TERM NOTE A" means the Term Note in substantially the form of
Exhibit A hereto; "TERM NOTE B" means the Term Note in substantially the form of
Exhibit B hereto; and "TERM NOTES" means Term Note A and Term Note B,
collectively.
1.32. "YIELD MAINTENANCE FEE" means, in respect of any prepayment of
the Fixed Rate Tranche, whether by acceleration or otherwise, the current rate
on the date of prepayment for United States Treasury securities (bills on a
discounted basis shall be converted to a bond equivalent) with a maturity date
closest to the end of the Fixed Rate Term, shall be subtracted from the Cost of
Funds component of the Fixed Rate. If the result is zero or a negative number,
there shall be no Yield Maintenance Fee. If the result is a positive number,
then the resulting percentage shall be multiplied by the amount of the principal
balance being prepaid. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the Fixed Rate Term. Said amount
shall be reduced to present value calculated by using the number of days
remaining in the Fixed Rate Term and using the above-referenced United States
Treasury security rate. The resulting amount shall be the Yield Maintenance Fee
due to Bank upon prepayment of the Fixed Rate Tranche.
2. TERM LOAN FACILITY
2.1. TERM LOANS. Subject to the terms and conditions of this
Agreement, on the date hereof the Bank shall lend and the Borrower shall borrow
the principal amount of $1,000,000. The Term Loans shall be evidenced by the
Term Notes, each in the original principal amount of $500,000.
<PAGE> 7
Page 7 of 31 EXHIBIT 4.1(B)
2.2. RATES AND PAYMENT OF INTEREST.
(i) The principal amount outstanding from time to time under Term
Note A shall bear interest at the LIBOR Based Rate from the date hereof until
paid in full.
(ii) The principal amount outstanding from time to time under
Term Note B shall bear interest at the LIBOR Based Rate from the date hereof
until paid in full except during the Fixed Rate Term, during which the principal
amount outstanding from time to time under Term Note B shall bear interest at
the Fixed Rate. (That is, the interest rate on the principal amount outstanding
from time to time under Term Loan B shall be at the LIBOR Based Rate before and
after the Fixed Rate Term.)
(iii) All interest accrued on the Term Loan (including both Term
Notes and including interest on the LIBOR Tranche and on the Fixed Rate Tranche)
shall be payable on the first day of each month after the date hereof.
(iv) All interest shall be computed on the basis of a year of 360
days and charged for each day on which principal is outstanding at the close of
business of such day, including any days for which the payment of principal is
extended by reason of Sundays and holidays.
2.3. LIBOR BASED RATE ELECTIONS. Borrower shall give Bank two (2)
Business Days notice prior to electing a LIBOR Base Rate and corresponding LIBOR
Period for any portion of the LIBOR Tranche. If Borrower does not elect a new
LIBOR Period at least two Business Days prior to the expiration of any LIBOR
Period, the interest rate for the LIBOR Tranche may be set by the Bank at the
LIBOR Based Rate for a 1 month LIBOR Period. Not more than one LIBOR Period may
be in effect at one time.
2.4. PAYMENT OF PRINCIPAL. The principal of the Term Loans shall be
payable in twenty-eight substantially equal, consecutive quarterly installments,
commencing May 1, 1999 and continuing on the first day of each August, November,
February and May thereafter as follows: twenty-seven installments in the amount
of $35,714.28 each and a twenty-eighth and final installment due February 1,
2006 in the amount of $35,714.44, at which time all outstanding principal and
accrued interest shall be paid in full. All payments of principal shall be
applied first to the payment of principal outstanding under Term Note A and
then, after payment in full of Term Note A, to the payment of principal
outstanding under Term Note B.
2.5. VOLUNTARY PREPAYMENT OF PRINCIPAL.
(i) Prepayment of the Libor Rate Tranche can be made in whole
(but not in part) at any time at the end of a LIBOR Period.
(ii) Prepayment of the Fixed Rate Tranche can be made in whole or
in part only at the end of the Fixed Rate Term.
<PAGE> 8
Page 8 of 31 EXHIBIT 4.1(B)
(iii) All prepayments of principal shall be applied first to
payment of the principal outstanding under Term Note A and then, after payment
in full of Term Note A, to payment of the principal outstanding under Term Note
B.
2.6. PAYMENTS GENERALLY. All payments shall be made in lawful money of
the United States and in immediately available funds.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER.
3.1. Borrower makes the following representations and warranties to
Bank on the date hereof:
(i) Borrower has full power and authority to enter into this
Agreement, to borrow hereunder, to execute and deliver any related notes,
assignments, mortgages, security agreements, guarantees or other agreements and
documents executed by Borrower in connection with the Obligations (collectively,
the "Borrower Documents"), and to take all other action required of it under
this Agreement, all of which has been duly authorized by all proper and
necessary corporate action, no shareholder action being required.
(ii) To the best of Borrower's knowledge, there are no actions,
suits or proceedings pending or threatened which, if adversely determined, would
materially adversely affect the property, assets, financial condition or
business of Borrower, except as set forth on Schedule 3.1 annexed hereto.
(iii) This Agreement constitutes, and all Borrower Documents when
executed and delivered will constitute, legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms, except to the
extent that enforcement of any such obligations of Borrower may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws of general
application affecting the rights and remedies of creditors generally.
(iv) To the best of Borrower's knowledge, Borrower is not in
violation of any terms of (i) any charter, by-law, mortgage, indenture,
indebtedness or other instrument or agreement, or (ii) any order, writ,
judgment, injunction, decree or demand, or (iii) any statute, rule or
regulation, which violation may materially adversely affect the financial
condition or properties of Borrower; and the execution and delivery of this
Agreement and the Borrower Documents, and the performance thereof is and will be
in compliance with each and all of the foregoing terms and will not result in
any such violation or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of Borrower (except in favor of
the Bank), and there is no such term which shall or may forseeably materially
adversely affect the financial condition, assets, business or operations of
Borrower and its consolidated subsidiaries taken as a whole.
(v) Borrower has furnished the Bank consolidated financial
statements of Borrower and its subsidiaries audited by PricewaterhouseCoopers,
LLP as of December 31, 1997.
<PAGE> 9
Page 9 of 31 EXHIBIT 4.1(B)
3.2. Borrower makes the following representations and warranties to
Bank which shall be deemed to be continuing representations and warranties so
long as any of the Obligations remain unpaid:
(i) Borrower is duly organized, validly existing and in good
standing under the laws of Delaware, the jurisdiction in which it was
incorporated.
(ii) Borrower has the requisite corporate powers to transact the
business in which it is engaged and is duly licensed or qualified and in good
standing in each jurisdiction in which failure to be so licensed or qualified
would materially adversely affect its business or operations.
(iii) Borrower has and will continue to have good and marketable
title to all of its assets (subject to Permitted Encumbrances).
(iv) To the best of Borrower's knowledge, no consent, approval or
authorization of, or registration, declaration or filing with, any governmental
body or authority or other person or entity is required in connection with the
valid execution, delivery or performance of this Agreement or any of the
Borrower Documents (other than the approval of the appropriate New York State
agency required for the Linked Deposit Program, which approval has been
obtained).
(v) Borrower has, to the best of its knowledge, duly filed and
will continue to file all tax returns (or appropriate extensions therefor)
required to be filed in any jurisdiction, if any, including, without limitation,
all federal income tax returns, and has duly paid all taxes shown as being due
thereon and all other taxes, assessments and governmental charges on Borrower's
assets and incomes which are due and payable, excluding any tax, assessment or
charge which Borrower is contesting in good faith and by appropriate
proceedings.
4. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long as
any of the Obligations shall remain unpaid, Borrower:
4.1. Will duly and punctually pay principal of and interest on the
Obligations when due.
4.2. Will have, at the end of each of its fiscal quarters, Net Working
Capital of not less than $5,000,000.00.
4.3. Will have, at the end of each of its fiscal quarters, a Tangible
Net Worth of not less than $5,000,000.00.
4.4. Will have, at the end of each of its fiscal quarters, a ratio of
its Liabilities to Tangible Net Worth of not more than 1.5 to 1.0.
4.5. Will have, for the twelve (12) month period ending on the last
day of any of its fiscal quarters, a Debt Service Coverage Ratio of not less
than 1.0 to 1.0.
<PAGE> 10
Page 10 of 31 EXHIBIT 4.1(B)
4.6. Will furnish to Bank: (i) within forty-five (45) days after the
end of each of its fiscal quarters other than year end, an internally prepared
consolidated and consolidating balance sheet, operating statement and statement
of changes in shareholders' equity (if such changes result from other than
income) of Borrower at and as of the end of such quarter, together with copies
of Borrower's SEC Form 10-Q SB or equivalent filing; (ii) within one hundred
twenty (120) days after the end of each of its fiscal years: a copy of SEC Form
10-K SB or equivalent filing, and consolidated and consolidating financial
statements of Borrower as of the end of each such year audited by
PricewaterhouseCoopers, LLP or any other independent certified public
accountants reasonably satisfactory to Bank; (iii) together with each quarterly
financial statement a certificate of the Chairman or Treasurer of Borrower
certifying, to his best knowledge and belief, that (a) no Event of Default under
the terms of this Agreement has occurred, and (b) no event which would
constitute an Event of Default under this Agreement but for the requirement that
notice be given or time elapse, or both, has occurred or, if any such event has
occurred or then exists, stating the nature thereof and the steps being taken by
Borrower to cure same; and (iv) as soon as they are available, copies of all
proxy statements, annual reports made available to its security holders and
annual reports filed by Borrower with the Securities and Exchange Commission.
4.7. Will promptly pay or cause to be paid all of its taxes,
assessments and other governmental charges prior to the date on which penalties
are attached thereto, establish adequate reserves for the payment of taxes and
assessments and make all required withholding and other tax deposits; provided,
however, that nothing herein contained shall be interpreted to require the
payment of any tax, assessment or charge so long as it is being contested in
good faith by Borrower.
4.8. Will keep (i) all of its property so insurable insured at all
times with responsible insurance carriers against fire, theft and other hazards
in such manner and to the extent that like properties are usually insured by
others operating properties of a similar character in the same general locality;
(ii) adequately insured at all times with responsible insurance carriers against
liability on account of damages to person or property and under all applicable
workers' compensation laws; and will promptly deliver to Bank, upon request,
certificates of insurance of any of those insurance policies required to be
carried by Borrower pursuant hereto.
4.9. Will promptly inform Bank of the commencement of any action,
suit, counterclaim or proceeding against Borrower (i) involving a claim in
excess of $100,000.00, unless such claim is fully covered by insurance (with
deductibility of not more than $25,000.00); (ii) involving a claim which results
in the aggregate of all claims then outstanding and not fully insured to exceed
$100,000.00; (iii) which would materially adversely affect the business of
Borrower; or (iv) which questions the validity of this Agreement or the Term
Notes or any action taken or to be taken pursuant to any of the foregoing.
4.10. Will maintain its corporate existence in good standing and
remain or become duly qualified or licensed and in good standing as a foreign
corporation in
<PAGE> 11
Page 11 of 31 EXHIBIT 4.1(B)
each jurisdiction in which failure to do so would have a material adverse impact
on its business or operations.
4.11. Will promptly notify Bank in writing of (i) any material
adjustment or assessment by any taxing authority as soon as Borrower has
knowledge thereof, except for adjustments or assessments in an amount not
exceeding $100,000.00 being contested by Borrower in good faith, and the results
of any audit done by government officials of any of Borrower's tax returns after
its completion; (ii) the occurrence of any event or the existence of a condition
which constitutes, or which but for a requirement of lapse of time or notice, or
both, would constitute, an Event of Default as defined in this Agreement; or
(iii) any default by Borrower in the performance of any terms or conditions
contained in any mortgage, indenture or instrument relating to borrowed money or
the lease of real or personal property to which Borrower is a party which either
materially adversely affects the financial condition or business of Borrower and
its consolidated subsidiaries taken as a whole or which exceeds $100,000.00 in
outstanding principal amount.
4.12. Will permit any Bank employees or agents designated by Bank at
such times as Bank may reasonably request to visit and inspect any of the
properties, corporate books and financial records of Borrower and to make
extracts from and copies of such books and financial records, except as such
visitation, inspection and the making of extracts and copies may be limited by
government restrictions, the contractual or other restrictions of Borrower's
customers, or the Company's procedures established to protect its confidential
proprietary information (other than its financial information).
4.13. Will maintain its principal accounts with Bank or its successor
and cause Bank to be the major bank of account of Borrower.
4.14. Will use the proceeds of the Term Loans as follows:
(i) refinance the Existing Debt, (ii) purchase equipment to be used in
Borrower's business, and (iii) for proper corporate working capital or
acquisition purposes of Borrower.
4.15. Will grant a first priority, perfected security interest in all
equipment purchased with proceeds of the Term Loans and shall have taken all
steps necessary for such perfection at the later of: (i) the time that Borrower
shall take possession of such equipment; or (ii) within ten days after the
consummation of this Agreement.
5. NEGATIVE COVENANTS. During the term of this Agreement and so long as any
of the Obligations shall remain unpaid, Borrower, without the prior written
consent of Bank, which consent shall not be unreasonably withheld, will not:
5.1. Create, incur, assume or suffer to exist any liability for
borrowed money except for (i) liabilities to Bank; (ii) indebtedness
subordinated to any and all indebtedness of Borrower to Bank; and (iii) other
liabilities for money borrowings and purchase money indebtedness incurred in the
acquisition of additions to fixed assets not exceeding an aggregate principal
amount at any one time outstanding of $1,000,000.00.
<PAGE> 12
Page 12 of 31 EXHIBIT 4.1(B)
5.2. Merge or consolidate with or into any other corporation; acquire
all or substantially all of the capital stock or assets of any other firm or
corporation; convey, lease or sell all or any substantial portion of its
property, assets or business (excluding sales of inventory in the ordinary
course of business) to any other person, firm or corporation; sell and lease
back any of its property assets; or amend its Certificate of Incorporation for
the purpose of altering its capital structure. Borrower may, however, without
violating the foregoing, permit one or more corporations to consolidate with or
merge into it or acquire all or substantially all of the capital stock or assets
of another corporation if Borrower is the surviving, resulting or transferee
corporation, as the case may be, and immediately after such merger,
consolidation or acquisition the Borrower has a Tangible Net Worth at least
equal to that of Borrower immediately prior to such merger, consolidation or
acquisition.
5.3. Enter, as Lessee, into any leases or assume any leases, of real
property or personal property except (i) renewals of Borrower's existing leases;
(ii) replacement leases for property similar to that currently being leased by
Borrower; (iii) additional leases not covered by clause (iv) of this subsection
which, in the aggregate, have lease payments not exceeding $100,000.00 per year;
and (v) leases that are capitalized.
5.4. Loan or otherwise advance funds to any person, firm or
corporation or become a guarantor, surety or otherwise become liable for the
debts or other obligations of any other person, firm or corporation exceeding,
in the aggregate, $50,000.00; provided, however, that this section shall have no
application to:
(i) loans or advances to or guaranties of the debts or other
obligations of a Consolidated Subsidiary or employee stock ownership plan of
Borrower;
(ii) the endorsement of negotiable instruments for the payments
of money deposited in the Borrower's bank account for collection in the ordinary
course of business;
(iii) trade credit extended in the ordinary course of the
Borrower's business;
(iv) advances made in the usual course of business to officers
and employees of the Borrower for: (1) travel and other out-of-pocket expenses
incurred by them on behalf of the Borrower in connection with such business, or
(2) other general purposes not exceeding $100,000.00 in the aggregate; and
(v) investments in money market deposit accounts, prime
commercial paper and certificates of deposit in United States banks (having
assets in excess of $50,000,000.00), obligations of the United States Government
or any agency thereof and obligations guaranteed by the United States
Government.
5.5. Mortgage, pledge or otherwise encumber any of its assets, except
for (i) liens granted to Bank; and (ii) "purchase money security interests" as
defined in Section 9.107 of the New York Uniform Commercial Code.
<PAGE> 13
Page 13 of 31 EXHIBIT 4.1(B)
6. EVENTS OF DEFAULT.
6.1. The occurrence of any one or more of the following events shall
constitute an Event of Default:
(i) Failure by the Borrower to pay when due any installment of
principal of or interest on any of the Obligations and continuation of such
failure for fifteen (15) days after written notice by the Bank to the Borrower
of such failure.
(ii) The making of a general assignment by Borrower for the
benefit of creditors, or the institution by Borrower of any type of bankruptcy,
reorganization or insolvency proceeding under any state or federal law or of any
formal or informal proceeding for the dissolution or liquidation of, settlement
of all creditors' claims against, or winding-up of affairs of, Borrower without
the prior written consent of Bank.
(iii) The appointment of a receiver or trustee for Borrower or
for all or a substantial part of the assets of Borrower; or the institution
against Borrower of any type of bankruptcy; reorganization or insolvency
proceeding under any state or federal law or any proceeding for the liquidation
or the winding-up of the affairs of Borrower, and the failure to have such
appointment vacated, or such proceeding dismissed, within thirty (30) days.
(iv) If the subject matter of any certificate, statement,
representation, warranty or audit heretofore or hereafter furnished by or on
behalf of Borrower (including, without limitation, the representations and
warranties contained herein) shall prove to be untrue or misleading as of the
date made in any material respect in relation to the assets, business, income or
financial condition of Borrower and its consolidated subsidiaries taken as a
whole or to have omitted any substantial contingent or unliquidated liability or
claim against Borrower; or, if on the date of the execution of this Agreement or
on the date any Obligation is incurred hereafter, there shall have been any
materially adverse change in any of the facts disclosed by any such certificate,
statement, representation, warranty or audit in relation to the assets,
business, income or financial condition of Borrower and its consolidated
subsidiaries taken as a whole and such change is not remedied within thirty (30)
days after notice thereof from Bank to Borrower.
(v) Default by Borrower in the performance of any term or
condition of this Agreement not otherwise specifically referred to in this
Section 6, which default is not cured within fifteen (15) days after written
notice thereof from Bank to Borrower.
(vi) Default by Borrower in the payment of or the performance of
the terms of any other indebtedness whether now existing or hereafter arising to
any party other than Bank for borrowed money except where such indebtedness is
being contested by Borrower in good faith or the amount of such indebtedness
does not exceed $100,000.00 in the aggregate.
<PAGE> 14
Page 14 of 31 EXHIBIT 4.1(B)
(vii) If any judgment or judgments in excess of $50,000.00 (other
than any judgment for which Borrower is fully insured with deductibility of not
more than $25,000.00) against Borrower remains unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of forty-five (45) days.
(viii) The occurrence of any Event of Default, which, under the
terms of any of the Borrower Documents or any other loan agreement, note,
indenture, mortgage, security agreement or other agreement evidencing or
securing indebtedness of Borrower to any party other than Bank, creates in Bank
or such other party a right to require immediate payment in full of any of the
Obligations or other indebtedness; provided, however, that this section shall
not apply to defaults under the terms of any loan agreement, note, indenture,
mortgage, security agreement or other agreement evidencing or securing
indebtedness of Borrower to such other party where such default is being
contested by Borrower in good faith or the related indebtedness does not exceed
$100,000.00 in the aggregate.
6.2. Upon the occurrence of any of the Events of Default
enumerated in Section 6.1 hereof and, except with respect to an Event of Default
under subsection (i) of Section 6.1, the continuation of such Event of Default
for a period of fifteen (15) days after receipt of notice of such Event of
Default by Borrower from Bank, all obligations of Bank under this Agreement may
be immediately terminated, and all Obligations not otherwise then due and
payable or payable on demand shall immediately become due and payable, at the
option of Bank. Further, Borrower agrees that it will promptly furnish Bank with
such security as Bank may request and will execute such agreements or documents
deemed necessary by Bank to accomplish same upon the occurrence of an Event of
Default (and, except with respect to an Event of Default under subsection 5.1,
the continuation of such Event of Default for a period of fifteen (15) days
after receipt of notice of such Event of Default by Borrower from Bank) and,
concurrently, a judgment or judgments in excess of $100,000.00 (other than any
judgment for which Borrower is fully insured with deductibility of not more than
$25,000.00) against Borrower remains unpaid, unstayed on appeal, undischarged,
unbonded or undismissed for a period of fifteen (15) days. Borrower agrees that
the foregoing rights and remedies herein expressly specified are cumulative and
not exclusive of any rights or remedies which Bank may or would otherwise have
at law or by any instrument evidencing terms of deposit of any funds or by an
assignment or transfer of collateral or by any other instrument signed or
assented to by Borrower. If by reason of an Event of Default Bank elects to
declare the Term Loans to be immediately due and payable, then any Yield
Maintenance Fee with respect to the Fixed Rate Tranche shall become due and
payable in the same manner as though Borrower had exercised such right of
prepayment.
7. EXPENSES. Borrower shall reimburse Bank promptly for all reasonable
out-of-pocket costs and expenses, including reasonable counsel fees and
disbursements, incurred by Bank in connection with (a) the preparation and
execution of this Agreement, and (b) if Borrower is in default of any of its
obligations hereunder or an Event of Default has occurred and is continuing, the
enforcement of any provision of this Agreement or any of the Borrower Documents.
<PAGE> 15
Page 15 of 31 EXHIBIT 4.1(B)
8. Miscellaneous.
8.1. This Agreement: cannot be amended, supplemented, modified or
terminated orally (or by any course of conduct or usage of trade) and may be
amended only by an agreement in writing duly executed by authorized officers of
the parties hereto.
8.2. No course of dealing and no failure on the part of Bank to
exercise, and no delay by Bank in exercising, any right or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by Bank of
any right or power hereunder preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies herein
expressed are cumulative and not exclusive of any other right or remedy which
Bank may have.
8.3. Any notice or demand to be given hereunder or any notice or
demand under any of the Borrower Documents that does not specify a method of
notice shall be duly given if personally delivered or mailed by registered or
certified mail as follows to each of the parties below and shall be effective on
the date of personal delivery or three Business Days after mailing:
To Bank at: Fleet National Bank
10 Fountain Plaza
Buffalo, New York 14202
ATTN: Gerald A. Lee
Vice President
To Borrower at: Servotronics, Inc.
1110 Maple Road
Elma, New York 14059
ATTN: Lee D. Burns
Treasurer
8.4. This Agreement and the acts and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
State of New York, without regard to principles of conflict of laws.
8.5. If there is any conflict between the terms of this Agreement and
the terms of any of the Term Notes or other Borrower Documents, the terms of
this Agreement shall be deemed to govern and control.
8.6. The Existing Loan Agreement is hereby amended and restated in its
entirety by the substitution and replacement thereof by this Second Amended and
Restated Term Loan Agreement.
8.7. Bank shall have the unrestricted right at any time and from time
to time, and without the consent of or notice to Borrower, to grant to one or
more banks or other financial institutions (each, "Participant") participating
interests in Bank's obligations to lend hereunder and/or any or all of the loans
held by Bank hereunder. In
<PAGE> 16
Page 16 of 31 EXHIBIT 4.1(B)
the event of any such grant by Bank of a participating interest to a
Participant, whether or not upon notice to Borrower, Bank shall remain
responsible for the performance of its obligations hereunder and under the Term
Notes and related documents and Borrower shall continue to deal solely and
directly with Bank in connection with Bank's rights and obligations hereunder.
8.8. Borrower hereby grants to Bank, a lien, security interest and
right of setoff as security for all liabilities and obligations to Bank, whether
now existing or hereafter arising, upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Fleet
Financial Group, Inc., or in transit to any of them. Upon the occurrence and
continuing existence of any Event of Default (which shall not have been cured
within any applicable grace period), Bank may set off the same or any part
thereof and apply the same to any liability or obligation of Borrower under this
Agreement or either of the Term Notes even though unmatured and regardless of
the adequacy of any other collateral securing any such obligation. ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES ANY SUCH OBLIGATION, PRIOR TO EXERCISING ITS
RIGHTS OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE
BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
8.9. All agreements between Borrower and Bank are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to Bank for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however that in the event there is
a change in the law which results in a higher permissible rate of interest, then
this Agreement and the Term Notes shall be governed by such new law as of its
effective date. In this regard, it is expressly agreed that it is the intent of
Borrower and Bank in the execution, delivery and acceptance of this Agreement
and the Term Notes to contract in strict compliance with the laws of the State
of New York from time to time in effect. If, under or from any circumstances
whatsoever, fulfillment of any provision hereof, at the time performance of such
provision shall be due, shall involve transcending the limit of such validity
prescribed by applicable law then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever Bank should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest. This provision shall control every
other provision of all agreements between Borrower and Bank.
8.10. Upon receipt of an affidavit of an officer of Bank as to the
loss, theft, destruction or mutilation of this Agreement, either of the Term
Notes or other Borrower Document, which states, among other things that Bank has
sole ownership of such Term Note or, as applicable, the rights under this
Agreement or other Borrower
<PAGE> 17
Page 17 of 31 EXHIBIT 4.1(B)
Document, which contains an indemnification against claims and associated
expenses of persons making claims with respect to such lost documents, in form
and substance reasonably acceptable to Borrower, and by which Bank agrees to
surrender (without demand for duplicate payment), as applicable, such Term Note,
this Agreement or other Borrower Document upon any recovery thereof, Borrower
will issue, in lieu thereof, a replacement Term Note, Agreement or other
Borrower Document, such replacement Term Note to be in the same principal amount
hereof and otherwise of like tenor.
8.11. All dates hereunder, including dates upon which interest or
principal payments are due, which would otherwise fall on a day that is not a
Business Day shall be deemed adjusted so that the date will be deemed to be the
first following day that is a Business Day.
8.12. Borrower (a) expressly waives any presentment, demand for
payment, notice of dishonor, protest, notice of nonpayment or protest, all other
forms of notice whatsoever except notice required as a prerequisite to default
under the Loan Agreement, and diligence in collection of the Term Notes; (b)
consents that Bank may, from time to time and without notice or demand, extend,
renew or postpone any or all payments and/or release any other person liable for
payment of the Term Notes, without in any way modifying, altering, releasing,
affecting or limiting Borrower's liability; and (c) agrees that Bank, in order
to enforce payment of the Term Notes, shall not be required first to institute
any suit or to exhaust any of its remedies against any other person liable for
payment hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized officer, all as of the day and year first above
written.
FLEET NATIONAL BANK SERVOTRONICS, INC.
By: /S/GERALD A. LEE By: /S/LEE D. BURNS, TREASURER
-------------------------------------- ---------------------------
Gerald A. Lee, Vice President Lee D. Burns, Treasurer
<PAGE> 18
Page 18 of 31 EXHIBIT 4.1(B)
STATE OF NEW YORK )
ss.:
COUNTY OF ERIE )
On this 26th day of February, 1999, before me personally appeared
GERALD A. LEE, to me known, who, being by me duly sworn, did depose and say that
he resides at 68 Thistle Avenue, Town of Tonawanda, New York; that he is a Vice
President of Fleet National Bank, the corporation described in and which
executed the above instrument; that the foregoing instrument was executed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
/S/Pandora W. Mangold
---------------------------------
Notary Public
PANDORA W. MANGOLD
Notary Public, State of New York
Qualified in Erie County
Commission Expires March 30, 2000
STATE OF NEW YORK )
ss.:
COUNTY OF ERIE )
On the 26th day of February, 1999, before me personally came LEE D.
BURNS, to me known, who, being by me duly sworn, did depose and say that he
resides at 72 Brandel Avenue, Lancaster, New York; that he is the Treasurer of
Servotronics, Inc., the corporation described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation, and that (s)he signed his
name thereto by like order.
/S/Pandora W. Mangold
---------------------------------
Notary Public
PANDORA W. MANGOLD
Notary Public, State of New York
Qualified in Erie County
Commission Expires March 30, 2000
<PAGE> 19
Page 19 of 31 EXHIBIT 4.1(B)
Exhibit A
TERM NOTE A
$500,000.00 Buffalo, New York
February 26, 1999
FOR VALUE RECEIVED, Servotronics, Inc. (the "Borrower") promises to pay
to the order of Fleet National Bank (the "Bank"), at its office located at 10
Fountain Plaza, Buffalo, New York 14202, or at such other place or places as may
be designated by the holder of this Note, the principal sum of FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($500,000.00), with interest thereon, until the
principal sum is fully paid, at the rates and at the times provided in the
Second Amended and Restated Term Loan Agreement between the Borrower and the
Bank dated as of February 26, 1999 (the "Loan Agreement").
All terms defined in the Loan Agreement are incorporated herein by
reference and used herein with the same meanings.
This Term Note is the Term Note A described in the Loan Agreement and
is delivered pursuant to and is subject to all of the terms and conditions of,
and entitled to all the benefits of, the Loan Agreement which apply to Term Note
A, including without limitation the events of default set forth in Section 6
therein, the exculpatory clauses in respect of the usury law set forth in
Section 8.10 therein, the set-off provisions of Section 8.8 therein, or the lost
document provision of Section 8.10 therein. The terms of the Loan Agreement
shall apply in the event of an inconsistency between the terms of the Loan
Agreement and this Term Note.
This Term Note may be prepaid in whole or in part only as provided in
the Loan Agreement. Any payment or prepayment hereunder shall be applied first
to unpaid costs of collection and late charges, if any, then to accrued and
unpaid interest and the balance, if any, to principal.
After maturity or acceleration, this Term Note shall bear interest at
the Default Interest Rate set forth in the Loan Agreement until paid in full.
Borrower shall pay a late charge of five percent (5%) of any required
payment of principal or interest on this Term Note which is not received by Bank
within ten (10) days of when such payment is due. The parties agree that this
charge is a fair and reasonable charge for the late payment and shall not be
deemed a penalty.
Borrower authorizes Bank, from time to time, to debit any account that
Borrower may have with Bank, for any payment of principal or interest hereunder
past due for ten (10) days for the amount of such payment of principal or
interest. Exercise of this right shall be optional with Bank and the provisions
of this paragraph shall not be construed
<PAGE> 20
Page 20 of 31 Exhibit 4.1(B)
as releasing Borrower from the obligation to make payments of principal or
interest according to the terms hereof.
In the event that this Term Note should be found not to be a negotiable
instrument, the parties hereto acknowledge and agree that Article 3 of the
Uniform Commercial Code, as now or hereafter in effect in the State of New York,
nevertheless sets forth the respective contracts, warranties, rights and
obligations of Bank and of Borrower and any other person liable for payment
hereof, except to the extent that there can be no holder in due course hereof.
Borrower hereby (a) expressly waives any valuation and appraisement,
presentment, demand for payment, notice of dishonor, protest, notice of
nonpayment or protest, all other forms of notice whatsoever except notice
required as a prerequisite to default under the provisions of the Loan
Agreement, and diligence in collection; (b) consents that Bank may, from time to
time and without notice or demand, (i) extend, rearrange, renew or postpone any
or all payments and/or (ii) release, exchange, add to or substitute all or any
part of any collateral for this Term Note; and (c) agree that Bank, in order to
enforce payment of this Term Note shall not be required first to institute any
suit or to exhaust any of its remedies against Borrower.
In the event that this Term Note is collected by legal action, or
otherwise with the advice of attorneys at law, Borrower hereby agrees to pay all
costs of collection including reasonable attorneys' fees and expenses, whether
of outside counsel or the Bank's in-house counsel, whether or not suit is
brought, and whether incurred in connection with legal advice, collection,
trial, appeal, bankruptcy or other creditors' proceedings.
Bank may accept partial payments or payments marked "payment in full"
or "in satisfaction" or words to similar effect at any time. Acceptance of such
payments shall not affect or vary the duty of Borrower to pay all obligations
when due hereunder, and shall not affect or impair the right of Bank to pursue
all remedies available to it hereunder, or under any of the other agreements
securing or guaranteeing payment hereof.
The remedies of Bank shall be cumulative and concurrent, and may be
pursued singularly, successively or together, at the sole discretion of Bank,
and may be exercised as often as occasion therefor shall arise. No act of
omission or commission of Bank, including specifically any failure to exercise
or forbearance in the exercise of any right, remedy or recourse, shall be deemed
to be a waiver or release of the same, such waiver or release to be effected
only through a written document executed by Bank and then only to the extent
specifically recited therein. A waiver or release with reference to any one
event shall not be construed as continuing or as constituting a course of
dealing, nor shall it be construed as a bar to, or as a waiver or release of,
any subsequent right, remedy or recourse as to a subsequent event.
BORROWER BY EXECUTING THIS TERM NOTE, WAIVES ITS RIGHT TO A TRIAL BY
JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY
<PAGE> 21
Page 21 of 31 EXHIBIT 4.1(B)
STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS TERM NOTE OR TO ANY CREDIT
AGREEMENT OR LOAN DOCUMENT. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK AND
OF ANY FEDERAL COURT, IN EITHER CASE LOCATED IN ERIE COUNTY IN CONNECTION WITH
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS TERM NOTE. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK'S EXTENDING CREDIT TO BORROWER AND
NO WAIVER OF LIMITATION OF BANK'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE
UNLESS IN WRITING AND MANUALLY SIGNED ON BANK'S BEHALF.
Borrower acknowledges that the above paragraph has been expressly
bargained for by Bank as part of the loan evidenced hereby and that, but for
Borrower's agreement, Bank would not have extended the loan for the term and
with the interest rate provided herein.
Bank may at any time pledge all or any portion of its rights under this
Note to any of the twelve (12) Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement
thereof shall release Bank from its obligations under this Note.
Bank shall have the unrestricted right at any time and from time to
time, and without the consent of or notice to Borrower, to grant to one or more
banks or other financial institutions (each, "Participant") participating
interests in Bank's obligations to lend hereunder and/or any or all of the loans
held by Bank hereunder. In the event of any such grant by Bank of a
participating interest to a Participant, whether or not upon notice to Borrower,
Bank shall remain responsible for the performance of its obligations hereunder
and Borrower shall continue to deal solely and directly with Bank in connection
with Bank's rights and obligations hereunder.
All dates hereunder, including dates upon which interest or principal
payments are due, which would otherwise fall on a day that is not a Business Day
shall be deemed adjusted so that the date will be deemed to be the first
following day that is a Business Day.
IN WITNESS WHEREOF, Borrower has executed this Term Note on the day and
year first above written.
SERVOTRONICS, INC.
By: LEE D. BURNS, TREASURER
-----------------------
Lee D. Burns, Treasurer
<PAGE> 22
Page 22 of 31 EXHIBIT 4.1(B)
Exhibit B
TERM NOTE B
(Fixed Rate or LIBOR Based Rate)
$500,000.00 Buffalo, New York
February 26, 1999
FOR VALUE RECEIVED, Servotronics, Inc. (the "Borrower") promises to pay
to the order of Fleet National Bank (the "Bank"), at its office located at 10
Fountain Plaza, Buffalo, New York 14202, or at such other place or places as may
be designated by the holder of this Note, the principal sum of FIVE HUNDRED
THOUSAND AND 00/100 DOLLARS ($500,000.00), with interest thereon, until the
principal sum is fully paid, at the rates and at the times provided in the
Second Amended and Restated Term Loan Agreement between the Borrower and the
Bank dated as of February 26, 1999 (the "Loan Agreement").
All terms defined in the Loan Agreement are incorporated herein by
reference and used herein with the same meanings.
This Term Note is the Term Note B described in the Loan Agreement and
is delivered pursuant to and is subject to all of the terms and conditions of,
and entitled to all the benefits of, the Loan Agreement which apply to Term Note
B, including without limitation the events of default set forth in Section 6
therein, the exculpatory clauses in respect of the usury law set forth in
Section 8.10 therein, the set-off provisions of Section 8.8 therein, or the lost
document provision of Section 8.10 therein. The terms of the Loan Agreement
shall apply in the event of an inconsistency between the terms of the Loan
Agreement and this Term Note.
This Term Note may be prepaid in whole or in part only as provided in
the Loan Agreement. Any payment or prepayment hereunder shall be applied first
to unpaid costs of collection and late charges, if any, then to accrued and
unpaid interest and the balance, if any, to principal.
After maturity or acceleration, this Term Note shall bear interest at
the Default Interest Rate set forth in the Loan Agreement until paid in full.
Borrower shall pay a late charge of five percent (5%) of any required
payment of principal or interest on this Term Note which is not received by Bank
within ten (10) days of when such payment is due. The parties agree that this
charge is a fair and reasonable charge for the late payment and shall not be
deemed a penalty.
Borrower authorizes Bank, from time to time, to debit any account that
Borrower may have with Bank, for any payment of principal or interest hereunder
past due for ten (10) days for the amount of such payment of principal or
interest. Exercise of this right shall be optional with Bank and the provisions
of this paragraph shall not be construed
<PAGE> 23
Page 23 of 31 EXHIBIT 4.1(B)
as releasing Borrower from the obligation to make payments of principal or
interest according to the terms hereof.
In the event that this Term Note should be found not to be a negotiable
instrument, the parties hereto acknowledge and agree that Article 3 of the
Uniform Commercial Code, as now or hereafter in effect in the State of New York,
nevertheless sets forth the respective contracts, warranties, rights and
obligations of Bank and of Borrower and any other person liable for payment
hereof, except to the extent that there can be no holder in due course hereof.
Borrower hereby (a) expressly waives any valuation and appraisement,
presentment, demand for payment, notice of dishonor, protest, notice of
nonpayment or protest, all other forms of notice whatsoever except notice
required as a prerequisite to default under the provisions of the Loan
Agreement, and diligence in collection; (b) consents that Bank may, from time to
time and without notice or demand, (i) extend, rearrange, renew or postpone any
or all payments and/or (ii) release, exchange, add to or substitute all or any
part of any collateral for this Term Note; and (c) agree that Bank, in order to
enforce payment of this Term Note shall not be required first to institute any
suit or to exhaust any of its remedies against Borrower.
In the event that this Term Note is collected by legal action, or
otherwise with the advice of attorneys at law, Borrower hereby agrees to pay all
costs of collection including reasonable attorneys' fees and expenses, whether
of outside counsel or the Bank's in-house counsel, whether or not suit is
brought, and whether incurred in connection with legal advice, collection,
trial, appeal, bankruptcy or other creditors' proceedings.
Bank may accept partial payments or payments marked "payment in full"
or "in satisfaction" or words to similar effect at any time. Acceptance of such
payments shall not affect or vary the duty of Borrower to pay all obligations
when due hereunder, and shall not affect or impair the right of Bank to pursue
all remedies available to it hereunder, or under any of the other agreements
securing or guaranteeing payment hereof.
The remedies of Bank shall be cumulative and concurrent, and may be
pursued singularly, successively or together, at the sole discretion of Bank,
and may be exercised as often as occasion therefor shall arise. No act of
omission or commission of Bank, including specifically any failure to exercise
or forbearance in the exercise of any right, remedy or recourse, shall be deemed
to be a waiver or release of the same, such waiver or release to be effected
only through a written document executed by Bank and then only to the extent
specifically recited therein. A waiver or release with reference to any one
event shall not be construed as continuing or as constituting a course of
dealing, nor shall it be construed as a bar to, or as a waiver or release of,
any subsequent right, remedy or recourse as to a subsequent event.
BORROWER BY EXECUTING THIS TERM NOTE, WAIVES ITS RIGHT TO A TRIAL BY
JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY
<PAGE> 24
Page 24 of 31 EXHIBIT 4.1(B)
STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS TERM NOTE OR TO ANY CREDIT
AGREEMENT OR LOAN DOCUMENT. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE
NONEXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK AND
OF ANY FEDERAL COURT, IN EITHER CASE LOCATED IN ERIE COUNTY IN CONNECTION WITH
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS TERM NOTE. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK'S EXTENDING CREDIT TO BORROWER AND
NO WAIVER OF LIMITATION OF BANK'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE
UNLESS IN WRITING AND MANUALLY SIGNED ON BANK'S BEHALF.
Borrower acknowledges that the above paragraph has been expressly
bargained for by Bank as part of the loan evidenced hereby and that, but for
Borrower's agreement, Bank would not have extended the loan for the term and
with the interest rate provided herein.
Bank may at any time pledge all or any portion of its rights under this
Note to any of the twelve (12) Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement
thereof shall release Bank from its obligations under this Note.
Bank shall have the unrestricted right at any time and from time to
time, and without the consent of or notice to Borrower, to grant to one or more
banks or other financial institutions (each, "Participant") participating
interests in Bank's obligations to lend hereunder and/or any or all of the loans
held by Bank hereunder. In the event of any such grant by Bank of a
participating interest to a Participant, whether or not upon notice to Borrower,
Bank shall remain responsible for the performance of its obligations hereunder
and Borrower shall continue to deal solely and directly with Bank in connection
with Bank's rights and obligations hereunder.
All dates hereunder, including dates upon which interest or principal
payments are due, which would otherwise fall on a day that is not a Business Day
shall be deemed adjusted so that the date will be deemed to be the first
following day that is a Business Day.
IN WITNESS WHEREOF, Borrower has executed this Term Note on the day and
year first above written.
SERVOTRONICS, INC.
By: LEE D. BURNS, TREASURER
-----------------------
Lee D. Burns, Treasurer
<PAGE> 25
Page 25 of 31 EXHIBIT 4.1(B)
SECURITY AGREEMENT
(Goods And Equipment)
THIS AGREEMENT is made between FLEET NATIONAL BANK ("Bank") and
SERVOTRONICS, INC. ("Grantor") with an address of 1110 MAPLE STREET, P.O. BOX
300, ELMA, NEW YORK 14059
1. DEFINITIONS. Unless otherwise indicated in this Agreement, all terms
shall have the same meanings as given to them in the Uniform Commercial Code as
amended from time to time in the State of New York.
(a) "Debtor" means: (CHOOSE AND COMPLETE ONE OF THE FOLLOWING CHOICES FOR
SECTION a)
X Grantor; or
___ _____________________________________________ with an address of:
_________________________________________________________________
(b) "Collateral" means: (CHOOSE AND COMPLETE ONE OF THE FOLLOWING CHOICES
FOR SECTION b)
___ all assets and property, including without limitation all goods,
tangible property, machinery, equipment, furniture, fixtures,
vehicles, parts, leasehold improvements, and any intellectual
property used or useful in connection therewith (including among
others operating systems, patents, licenses, trade secrets,
know-how, franchises, and proprietary and other rights in data,
engineering, technical plans, drawings, information methods,
systems, processes, inventions, formulas, applications,
software, programs, manuals, and technology, and all rights and
interests in any of them), of any kind or nature in which the
Grantor has an interest now or in the future, and which are now
existing or hereafter created or acquired, together with all
additions, replacements, accessions, and proceeds in any form
thereof, including without limitation any items described in the
Schedule attached to this Security Agreement.
X the equipment and items described in the Schedule attached to
___ this Security Agreement which is made a part hereof together
with all additions, replacements, accessions, and proceeds in
any form thereof.
(c) "Liabilities" means all [Rider 1(c)] Among others, the Liabilities
include all sums expended by the Bank for protection of its interests
such as payments made for taxes and insurance and expenses of
collection.
2. SECURITY INTEREST. The Grantor hereby grants to the Bank a security
interest in the Collateral to secure the payment and performance of the
Liabilities. This security interest is specifically intend to be a continuing
interest and shall cover Collateral in which the Grantor acquires an interest
after the date of this Agreement [Rider 2] as well as Collateral in which
Grantor now has an interest. This security interest shall continue until
terminated as described in this Agreement. The Bank shall have the right to
apply the Collateral and any proceeds therefrom to all or any part of the
Liabilities as and in the order the Bank may elect, whether such Liabilities are
otherwise secured and whether due or not.
3. LOCATIONS OF GRANTOR AND COLLATERAL. The principal office of the Grantor
is at the address shown in the preamble to this Agreement. All locations at
which the Collateral will be kept or at which the Grantor does business are
indicated on the Schedule attached to and made a part of this Agreement. The
Grantor will not change the locations at which any of the Collateral kept [Rider
3] will notify the Bank immediately of any new or changed locations at which any
of the Collateral is kept or the Grantor does business, and of any change in the
name of the Grantor.
The Collateral will remain personal property and will not be affixed to
real estate without the prior consent of the Bank. If any of the Collateral is
or will be a fixture, Grantor will provide legal descriptions and the names of
record owners of the premises to which the Collateral will be affixed sufficient
for perfection of the security interests of the Bank. The Grantor will provide
disclaimers of interest and removal agreements, in form satisfactory to the
Bank, signed by all parties other than Grantor having an interest in premises at
which any Collateral is located.
4. FIRST LIEN. Except for the security interest granted hereby, and any
other interest to which the Bank has consented in writing, Grantor is the owner
of the Collateral free from all liens, encumbrances, and security interests.
Grantor will not sell or transfer the Collateral or any interest therein,
(including, without limitation, a security interest) without the prior written
consent of the Bank. Grantor will defend the same against the claims and demands
of all persons, and will cause the immediate removal and termination of any
levy, execution, judgment or other lien, or similar claim of third persons to
the Collateral.
<PAGE> 26
Page 26 of 31 EXHIBIT 4.1(B)
5. PERFECTION OF SECURITY INTEREST. Grantor will execute and deliver to
Bank such financing statements, security agreements, assignments, and other
papers, as Bank may at any time or from time to time reasonably request. If the
Collateral is a motor vehicle required to be titled under applicable law,
Grantor warrants that Bank's security interest will be recorded on the title
certificates covering the Collateral and will deliver such certificates or other
evidence of ownership to Bank as the Bank requests. Grantor hereby appoints Bank
as its attorney in fact to execute and deliver notices of lien, financing
statements, and any other documents, notices, and agreements necessary for the
perfection of the Bank's security interests in the Collateral. Grantor agrees to
pay the costs of filing or perfection of the Bank's security interests, searches
of the public records, and releases or assignments of the Bank's interests.
6. MAINTENANCE. Grantor will keep the Collateral in good order and repair
except for normal wear and tear in the ordinary course of business. Grantor will
not use the same in violation of law or any policy of insurance thereon. Bank,
or its nominee, may inspect the Collateral at any reasonable time, wherever
located.
7. TAXES. Grantor will pay promptly, when due, all taxes and assessments
upon the Collateral or its use or operation, or upon this Agreement. [Rider 7]
8. INSURANCE. Grantor at all times will keep the Collateral insured in such
amounts, with such insurance companies chosen by Grantor, and against such
risks, all as are satisfactory to the Bank. In any event and without specific
request by Bank, Grantor will insure the Collateral against FIRE, including
so-called extended coverage, theft and, in the case of any motor vehicle,
collision. All insurance policies shall name the Bank as loss payee, to include
a Lender Loss Payable Clause, and shall provide for losses covered thereby to be
payable to Bank and Grantor as their respective interests may appear. The
endorsements on any insurance policy shall be in a form satisfactory to the Bank
and all policies of insurance shall provide for not less than ten (10) days'
prior notice of cancellation to the Bank. Grantor will deliver certificates and
policies evidencing required insurance to the Bank upon its request and in any
event at least annually. After any Event of Default hereunder, the Bank may, but
need not (i) cancel, in accordance with applicable law, any insurance contract
covering the Collateral or its ownership or operation, (ii) demand and receive
any return premiums, unearned premium refunds and dividends payable in respect
thereof (the Grantor hereby irrevocably designating, constituting and appointing
the Bank as its true and lawful agent so to do), and (iii) apply any and all
sums received by the Bank as a result of such cancellation, after deducting
therefrom any and all expenses incident thereto, toward payment of the
Liabilities. Grantor will notify insurer and Bank in the event of any loss,
damage or other casualty affecting the Collateral. Grantor hereby assigns to
Bank, any and all monies which may become due and payable under any policy
insuring the Collateral, directs any such insurance company to make payments
directly to Bank, and authorizes Bank to apply such monies in payment on account
of the Liabilities, whether or not due, and to remit any surplus to Grantor.
Grantor hereby irrevocably appoints Bank as its attorney in fact, with full
power of substitution, to (i) make and adjust claims, (ii) receive all proceeds
and payments, including the return of unearned premiums, (iii) execute proofs of
claim, (iv) endorse drafts and other instruments for die payment of money, (v)
execute releases, (vi) negotiate settlements, (vii) cancel any insurance
referred to in this contract, and (viii) do all other things necessary and
required to effect a settlement under or to realize the benefits of any
insurance policy.
9. PROTECTION OF BANK'S INTEREST. Seven or more days after the day the Bank
mails the Grantor notice, upon failure of the grantor to (i) remove liens or
interests prohibited by Section 4 of this Agreement, (ii) comply with
obligations to maintain Collateral pursuant to Section 6 of this Agreement (iii)
pay taxes or assessments as required by Section 7 of this Agreement, or (iv)
provide evidence satisfactory to the Bank of insurance as required by Section 8
of this Agreement, the Bank in its discretion may discharge any such liens or
interests, repair or take other reasonable steps to protect the value of
Collateral, pay taxes or assessments, and obtain insurance coverage on the
Collateral. Bank also may pay any costs of perfection, searches, releases, or
assignments pursuant to Section 5 of this Agreement. Grantor agrees to reimburse
Bank on demand for any and all expenditures so made, and until paid the amount
thereof also shall he part of the Liabilities secured by the Collateral. Bank
shall have no obligation to Grantor or Debtor to make any such expenditures I
shall the making thereof relieve any default hereunder.
10. DEFAULT. The following events or conditions shall be an "Event of
Default" under this Agreement: (a) any default with respect to any of the
Liabilities, (b) any failure to comply with any [Rider 10] Agreement, [Rider
10A] loss, theft, material damage or destruction of the Collateral, or (e)
material or reasonably projected material decline in the value a of the
Collateral. These Events of Default are not intended to affect in any way any
Liability payable on demand and shall not prejudice the Bank's rights to demand
payment of any such Liabilities at any time.
11. REMEDIES. Upon the occurrence of an Event of Default, the Bank may
declare all of the Liabilities to be immediately due and payable and Bank shall
have the rights and remedies of a secured party under the Uniform Commercial
Code of the State of New York as amended from time to time in any jurisdiction
where enforcement of this Agreement is sought in addition to all other rights
and remedies at law or in equity. Among other remedies, the Bank may take
immediate possession of the Collateral and for that purpose Bank may, so far as
Grantor can give authority therefor, enter upon any premises on which the
Collateral or any part thereof may be situated and secure or remove the same
therefrom. Upon request of the Bank, Grantor will assemble and make the
Collateral available to the Bank at a reasonable place and time designated by
the Bank. Grantor's failure to take possession of any Collateral at any time and
place reasonably specified by the Bank in writing to the Grantor shall
constitute an abandonment of such property. Grantor and Debtor agree that notice
of the time and place of public sale of any of the Collateral or of the time
after which any private sale thereof is to be made or of other disposition of
the Collateral shall he deemed reasonable notice seven days after such notice is
deposited in the mail or otherwise delivered to Grantor and Debtor at the
addresses shown in the preamble and section I of this Agreement respectively.
<PAGE> 27
Page 27 of 31 EXHIBIT 4.1(B)
The rights of the Bank are cumulative, and the Bank may
enforce its rights under this Agreement irrespective of any other collateral,
guaranty, right, or remedy it may have. The exercise of all or a part of its
rights or remedies hereunder shall not prevent the Bank from exercising at the
same or any other time any other right or remedy with respect to the
Liabilities. The Grantor authorizes the Bank in its sole discretion to direct
the order or manner of the disposition of the Collateral.
From the proceeds realized from the Collateral the Bank shall be entitled
to retain all sums secured hereby as well as its reasonable expenses of
collection including without limitation those of retaking, holding,
safeguarding, accounting for , preparing for sale, selling, and reasonable
attorneys' fees and legal expenses. If the proceeds realized form the Collateral
are not sufficient to defray said expenses and to satisfy the balance due on the
Liabilities, the Grantor shall remain liable for such expenses and Debtor shall
remain liable for such expenses and any deficiency with respect to the
Liabilities. Any payments or proceeds from realization on the Collateral may be
applied to the Liabilities in whatever order or manner the Bank elects.
Rider 12
12. ADDITIONAL SECURITY/SETOFF. Borrower and any Guarantor hereby grant to Bank,
a lien, security interest and right of setoff as security for all liabilities
and obligations to Bank, whether now or existing or hereafter arising, upon and
against all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping or control of Bank or any entity under control
of Fleet Financial Group, Inc., or in transit to any of them. [Rider 12] Bank
may set off the same or any part thereof and apply the same to any liability or
obligation of Borrower and any Guarantor even though unmatured and regardless of
the adequacy of any other collateral securing the Loan. ANY AND ALL RIGHTS TO
REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY
GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. The rights
of the Bank under this Agreement are in addition to, and not exclusive of, any
other rights it may have with respect to such deposits, sums, securities, or
other property under other agreements or applicable principles of law. Tile Bank
shall have no duty to take steps to preserve rights against prior parties as to
such securities or other property.
13. CONTINUING AGREEMENT/TERMINATION. This is a continuing Agreement, and
no notice of the creation or existence of' the Liabilities, renewal, extension
or modification thereof need be given to Grantor. This security interest shall
[Rider 13].
14. NO WAIVER. Grantor agrees that no representation, promise or agreement
made by the Bank or by any officer or employee of the Bank at, prior or
subsequent to the execution and delivery of this Agreement shall modify, alter,
limit or otherwise abridge the rights and remedies of the Bank hereunder unless
agreed by the Bank in writing. None of the rights and remedies of the Bank
hereunder shall be modified, altered, limited or otherwise abridged or waived by
any representation, promise or agreement hereafter made or by any course of
conduct hereafter pursued by the Bank. [Rider 14] No delay or omission on the
part of Bank in exercising any right hereunder shall operate as a waiver of such
right or of any other right under this Agreement, and waiver of any right shall
not be deemed waiver of any other right unless expressly agreed by the Bank in
writing.
15. JOINT AND SEVERAL LIABILITY. If there are more than one Grantor
hereunder, their representations, warranties, liabilities and obligations
hereunder shall be joint and several.
16. LAWS/WAIVER OF JURY TRIAL. The validity, construction and performance
of this Agreement shall be governed by the laws of' the State of New York.
Grantor consents to jurisdiction and service of process, which may be effected
by certified mail, in the courts of the State of New York and in the courts of
the United States \having jurisdiction hereof. BORROWER AND BANK MUTUALLY HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THE NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION
HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR BANK TO ACCEPT THE NOTE AND MAKE THE LOAN.
17. PARTIES IN INTEREST. All terms and provisions of this Agreement shall
inure to the benefit of and be binding upon and be enforceable by the respective
heirs, executors, legal representatives, successors, and assigns of the parties
hereto.
18. SEVERABILITY. Any partial invalidity of' the provisions of' this
Agreement shall not invalidate the remaining portions hereof or thereof.
19. MISCELLANEOUS. Grantor hereby expressly waives demand, presentment,
protest and notice of dishonor on any and all of the Liabilities.
<PAGE> 28
Page 28 of 31 EXHIBIT 4.1(B)
Grantor: Grantor: SERVOTRONICS, INC.
By: By:
/S/LEE D. BURNS
------------------------ ---------------------------
Title: Title:TREASURER
--------------------- ---------------------------
Date: Date:2-26-99
--------------------- ---------------------------
I/We acknowledge receipt of a copy of this Security Agreement and agree
with the terms thereof insofar as it is applicable to me/us.
Debtor:
By:
------------------------
Title:
---------------------
Date:
----------------------
WARNING: IT IS A CRIMINAL OFFENSE IN NEW
YORK STATE FOR A DEBTOR TO KNOWINGLY
SELL OR OTHERWISE DISPOSE OF COLLATERAL
IN CONTRAVENTION OF THE TERMS OF A
SECURITY AGREEMENT
SCHEDULE A TO GOODS AND EQUIPMENT SECURITY AGREEMENT
I. This Security Agreement applies to the following specific items of
Collateral:
Two Fadal CNC machining centers VNIC 4020
Tooling
One Hardinge CNC Lathe Conquest T42SP
Tooling
One Hansvedt Wire EDM machine
Tooling
One Bridgeport EZ Path CNC milling machine
One Hardinge Precision Tool Room Lathe
II. All of the locations at which the Collateral is located or the Grantor
maintains a place of business are listed below. If any of the Collateral is a
fixture, the record owner of the location at which the Collateral is kept is
indicated.
Address County Record Owner
1110 Maple Street Erie Grantor
Elma, NY 14059
<PAGE> 29
Page 29 of 31 EXHIBIT 4.1(B)
RIDERS TO SECURITY AGREEMENT
BETWEEN
FLEET NATIONAL BANK
AND
SERVOTRONICS, INC.
Rider 1(c): Liabilities of Grantor upon the Term Notes ("Term
Notes") as defined in Section 1.31 of the Term Loan Agreement
between Grantor and Bank dated February 26, 1999 ("Loan
Agreement").
Rider 2: to the extent provided under Section 4.15 of the Loan
Agreement
Rider 3: except upon the notification given in the next sentence.
Grantor
Rider 7: other than a tax or assessment which Grantor is contesting in
good faith.
Rider 8: Bank will indemnify Grantor for any loss sustained by Grantor
by reason of Bank's cancellation of insurance on collateral
without Grantor's specific consent or, at Bank's option,
will offset its indemnification liability to Grantor under
this sentence against Liabilities of Grantor and pay to
Grantor any excess of its indemnification liability to
Grantor over Grantor's Liabilities. The power of attorney
granted under the following sentence with respect to clause
(vii) does not constitute a consent by Grantor under the
preceding sentence and does not avoid Bank's indemnification
liability under the preceding sentence.
Rider 10: material term of this
Rider 10 A: (c) material
Rider 12: Upon the occurrence and continuing existence of any Event of
Default (which shall not have been cured within any
applicable grace period),
Rider 13: terminate upon payment in full of all Liabilities.
Rider 14: unless agreed by the Bank in writing.
<PAGE> 30
Page 30 of 31 EXHIBIT 4.1(B)
<TABLE>
<CAPTION>
UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC-1
<S> <C> <C>
This FINANCING STATEMENT is presented to a Filing No. of Additional
Officer for filing pursuant to the Uniform Sheets Presented: 3. |_| The Debtor is a transmitting
Commercial Code. utility.
- ------------------------------------------------------------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and Address(es): 2. Secured Party(ies) Name(s) and 4. For Filing Officer: Date, Time, No.
Address(es) Filing Office
Servotronics, Inc.
1110 Maple Road Fleet National Bank
Elma, New York 14059 10 Fountain Plaza
Buffalo, New York 14202
- ------------------------------------------------------------------------------------------------------------------------------------
5. This Financing Statement covers the following 6. Assignee(s) of Secured Party and 7. |_|The described crops are growing
types Address(es) or to be grown on:*
(or items) of property: |_|The described goods are or are
to be affixed to:*
The equipment and items described in Schedule A |_|The lumber to be cut or minerals
annexed hereto, together with all additions, or the like (including oil and
replacements, accessions and proceeds in any form gas is on:*
thereof. *(Describe Real Estate Below)
|_| Products of the Collateral are also covered.
- ------------------------------------------------------------------------------------------------------------------------------------
8. Describe Real Estate Here: |_| This statement is to be indexed 9. Name of a Record Owner
in the Real Estate Records:
- ------------------------------------------------------------------------------------------------------------------------------------
No. & Street Town or City County Section Block Lot
- ------------------------------------------------------------------------------------------------------------------------------------
10. This statement is filed without the debtor's signature to perfect a security interest in collateral
(check appropriate box)
|_| under a security agreement signed by debtor authorizing secured party to file this statement, or
|_| which is proceeds of the original collateral described above in which a security interest was perfected, or
|_| acquired after a change of name, identity or corporate structure of the debtor, or
|_| as to which the filing has lapsed, or already subject to a security interest in another jurisdiction:
|_|when the collateral was brought into the state, or |_| when the debtor's location was changed to this state.
SERVOTRONICS, INC. FLEET NATIONAL BANK
By _____________________________________________ By__________________________________________________
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
</TABLE>
STATE OF NEW YORK
<PAGE> 31
Page 31 of 31 EXHIBIT 4.1(B)
SCHEDULE A
TO
UCC-1 FINANCING STATEMENT
SERVOTRONICS, INC. AS (THE "DEBTOR")
and
FLEET NATIONAL BANK (THE "SECURED PARTY")
ITEM 5. FURTHER DESCRIPTION OF COLLATERAL:
Two Fadal CNC machining centers VNIC 4020
Tooling
One Hardinge CNC Lathe Conquest T42SP
Tooling
One Hansvedt Wire EDM machine
Tooling
One Bridgeport EZ Path CNC milling machine
One Hardinge Precision Tool Room Lathe
<PAGE> 1
EXHIBIT 4.1(C)
FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED
TERM LOAN AGREEMENT
This First Amendment ("First Amendment"), dated as of December 17, 1999
is made by and between SERVOTRONICS, INC. ("Borrower"), a Delaware corporation
having its principal office at 1110 Maple Street, P.O. Box 300, Elma, New York
14059 and FLEET NATIONAL BANK, a national banking association and successor to
Fleet Bank, with an office at Fleet Bank Building, Ten Fountain Plaza, Buffalo,
New York 14202 ("Bank").
STATEMENT OF THE PREMISES
Borrower and Bank have previously entered into a Second Amended and
Restated Term Loan Agreement dated February 26, 1999 (as amended from time to
time, the "Loan Agreement"). Borrower and Bank have agreed to amend certain
financial covenants in the Loan Agreement and make certain other changes, all
upon the terms and conditions set forth herein.
STATEMENT OF CONSIDERATION
Accordingly, in consideration of the premises and under the authority
of Section 5-1103 of the New York General Obligations Law, Borrower and Bank
agree as follows:
AGREEMENT
1. AMENDMENT. Effective upon the satisfaction of all conditions
specified in Section 3 hereof, the Loan Agreement is hereby amended as follows:
A. The following subsection (vi) is hereby added at the end of
Section 3.2 of the Loan Agreement:
(vi) Borrower has reviewed the "Year 2000 Risk" (that is the
risk that computer applications used by Borrower and/or it suppliers, vendors
and customers may be unable to recognize and perform without error
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999) and represents that, to the best of its knowledge after such
review, it is taking such action as may be necessary to ensure that the Year
2000 Risk will not materially adversely affect its business operations and/or
financial condition. Notwithstanding the provisions of this Section, the
Borrower gives no representation with respect to suppliers, vendors or customers
not controlled by the Borrower except that it has made a reasonable effort to
obtain assurances as to Year 2000 Risk from entities with whom the Borrower has
material business relationships, and the Borrower has received from such
entities no reports advising of a Year 2000 Risk materially adversely affecting
the Borrower's business operations and/or financial condition.
B. Sections 4.2, 4.3, 4.4 and 4.5 of the Loan Agreement are
hereby amended and restated in their entirety to read as follows:
<PAGE> 2
EXHIBIT 4.1(c)
Page 2 of 7
4.2 Will maintain, (i) as of December 31, 1999, Net Working
Capital of not less than $7,500,000 and (ii) as at the end of each fiscal
quarter thereafter, Net Working Capital of not less than $7,500,000, increasing
each fiscal year, commencing December 31, 2000, by two percent (2%) of the
amount used on the previous December 31 for purposes of testing this covenant
(e.g. for the quarters ending March 31, 2000, June 30, 2000 and September 30,
2000, not less than $7,500,000; for the quarter ending December 31, 2000, not
less than $7,650,000; for the quarters ending March 31, 2001, June 30, 2001 and
September 30, 2001, not less than $7,650,000; for the quarter ending December
31, 2001, not less than $7,803,000, etc.). If the effect of any change in GAAP
would cause a violation of the covenant set forth in this Section 4.2 on any
testing date during the term of this Agreement and such covenant would not be
violated if such change in GAAP were disregarded in making the calculations set
forth in this Section, then such covenant shall not be deemed violated as of the
applicable testing date.
4.3 Will maintain, (i) as of December 31, 1999, a Tangible Net
Worth of not less than $9,000,000 and (ii) as of the end of each fiscal quarter
thereafter, Tangible Net Worth of not less than $9,000,000, increasing each
fiscal year, commencing December 31, 2000, by two percent (2%) of the amount
used on the previous December 31 for purposes of testing this covenant (e.g. for
the quarters ending March 31, 2000, June 30, 2000 and September 30, 2000, not
less than $9,000,000; for the quarter ending December 31, 2000, not less than
$9,180,000; for the quarters ending March 31, 2001, June 30, 2001 and September
30, 2001, not less than $9,180,000; for the quarter ending December 31, 2001,
not less than $9,363,600, etc.). If the effect of any change in GAAP would cause
a violation of the covenant set forth in this Section 4.3 on any testing date
during the term of this Agreement and such covenant would not be violated if
such change in GAAP were disregarded in making the calculations set forth in
this Section, then such covenant shall not be deemed violated as of the
applicable testing date.
4.4 Will maintain, at the end of each of its fiscal quarters
for the four quarters then ended, a ratio of its Liabilities to Tangible Net
Worth of not more than 1.5 to 1.0.
4.5 Will have a Debt Service Coverage Ratio of not less than
1.0 to 1.0, for the four quarters then ended, as of the end of each fiscal
quarter.
C. The following new Section 4.16 is added to the Loan
Agreement immediately following Section 4.15:
4.16 Borrower will be Year 2000 Compliant by January 1, 2000.
For purposes of this Section, "Year 2000 Compliant" means, with regard to
Borrower and/or its suppliers, vendors and customers (subject, however, to the
last sentence of Section 3.2(vi)), that all software, embedded microchips, and
other processing capabilities utilized by, and material to the business
operations or financial condition of, such entity are able to interpret and
manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates on and
after January 1, 2000.
D. The following language is hereby added at the end of
Section 8.7 of the Credit Agreement as part of such Section:
Bank may furnish any information concerning Borrower in its
possession from time to time to prospective Participants, provided that, if any
information is provided which is not publicly available (it being understood
that "publicly available" shall include non-confidential filings made by the
Company with the Securities and Exchange Commission which shall have become
available to the public and shall exclude information which has become publicly
available in violation of the provisions of this Section) Bank shall require any
such prospective Participant to agree in writing (a true copy of which shall be
furnished to Borrower) to maintain the confidentiality of all such information
which is not publicly available and the Borrower shall be identified in that
written agreement as a beneficiary of that agreement with the right to enforce
it.
<PAGE> 3
EXHIBIT 4.1(c)
Page 3 of 7
2. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties to Bank which shall be deemed to be continuing
representations and warranties so long as any obligations, including
indebtedness of Borrower to Bank arising under the Loan Agreement or any note
delivered pursuant thereto remain unpaid:
A. AUTHORIZATION. Borrower has full power and authority to
borrow hereunder and to execute, deliver and perform this First Amendment and
any documents delivered in connection with it and all other related documents
and transactions, all of which have been duly authorized by all proper and
necessary corporate action. The execution and delivery of this First Amendment
by Borrower will not violate the provisions of, or cause a default under,
Borrower's Certificate of Incorporation or By-Laws or any agreement to which the
Borrower is a party or by which it or its assets are bound.
B. BINDING EFFECT. This First Amendment has been duly executed
and delivered by Borrower and constitutes the legal, valid and binding
obligation of Borrower enforceable in accordance with its terms.
C. CONSENTS; GOVERNMENTAL APPROVALS. No consent, approval or
authorization of, or registration, declaration or filing with, any governmental
body or authority or any other party is required in connection with the valid
execution, delivery or performance of this First Amendment or any other document
executed and delivered therewith or in connection with any other transactions
contemplated hereby.
D. NO EVENTS OF DEFAULT. There is, on the date hereof, no
event or condition which constitutes an Event of Default under any of the Loan
Documents or which, with notice and/or the passage of time, would constitute an
Event of Default.
E. NO MATERIAL MISSTATEMENTS. Neither this First Amendment nor
any document delivered to Bank by or on behalf of Borrower to induce Bank to
enter into this First Amendment contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein or
therein not misleading in light of the circumstances in which they were made.
3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall become
effective when and only when Bank shall have received counterparts of this First
Amendment executed by Borrower and Bank and the following conditions shall have
been fulfilled:
A. DOCUMENTS. All instruments, certificates and agreements to
be furnished to the Bank hereunder shall be of such form and content as the Bank
shall reasonably require, and the Borrower shall furnish such consents,
authorizations and other instruments and agreements as the Bank may reasonably
deem necessary to effectuate the intent of this First Amendment.
B. OPINION OF COUNSEL. Counsel to Borrower shall have
delivered to the Bank an opinion in form and substance satisfactory to the Bank.
<PAGE> 4
EXHIBIT 4.1(c)
Page 4 of 7
C. AUTHORIZATION. The Borrower shall have taken appropriate
corporate action to authorize, and the Borrower's Board of Directors shall have
adopted resolutions authorizing the execution and delivery of this First
Amendment and the taking of all action called for by this First Amendment, and
the Borrower shall have furnished to Bank certified copies of all such corporate
action and Board resolutions and such other certified corporate documents as the
Bank may request.
D. COSTS AND EXPENSES. Borrower shall have complied with
Section 5 of this First Amendment.
E. ACKNOWLEDGMENT. G. N. Metals Products, Inc., The Ontario
Knife Company and Queen Cutlery Company, Inc. shall each have delivered to Bank
an Acknowledgment in form and substance satisfactory to Bank and such additional
documents as Bank or its counsel may reasonably require and all documents,
instruments and other legal matters in connection with this First Amendment
shall be satisfactory in form and substance to Bank and its counsel.
4. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS.
A. Upon the effectiveness hereof, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like
import, and each reference in the Loan Documents to the Loan Agreement shall
mean and be a reference to the Loan Agreement as amended by this First
Amendment.
B. The Loan Agreement, as amended by this First Amendment,
represents the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof. This First Amendment supersedes all
prior negotiations and any course of dealing between the parties with respect to
the subject matter hereof. This First Amendment shall be binding upon Borrower
and its successors and assigns, and shall inure to the benefit of, and be
enforceable by, Bank and each of its successors and assigns. The Loan Agreement,
as amended hereby, is in full force and effect and, as so amended, is hereby
ratified and reaffirmed in its entirety. The Borrower acknowledges and agrees
that the Loan Agreement (as amended by this First Amendment) and each other
Borrower Document, as defined in the Loan Agreement, to which Borrower is a
party is in full force and effect, that its obligations thereunder and under
this First Amendment are its legal valid and binding obligations enforceable
against it in accordance with the terms thereof and hereof, and it has no
defense, whether legal or equitable, setoff or counterclaim to the payment and
performance of such obligations.
C. The execution, delivery and effectiveness of this First
Amendment shall not operate as a waiver of any right, power or remedy of Bank
under the Loan Agreement, nor constitute a waiver of any provision of the Loan
Agreement.
5. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and
expenses of Bank in connection with the preparation, negotiation,
administration, execution and delivery of this First Amendment and the other
documents related hereto, including the reasonable fees, charges and
disbursements of counsel for Bank.
<PAGE> 5
EXHIBIT 4.1(c)
Page 5 of 7
6. GOVERNING LAW. Pursuant to Section 5-1401 of the New York General
Obligations Law, the laws of the State of New York shall govern the validity,
construction, enforcement and interpretation of this First Amendment in whole
without regard to any rules of conflicts-of-laws that would require the
application of the laws of any jurisdiction other than the State of New York.
7. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not limit or otherwise affect
the meanings of this First Amendment or be used to construe its provisions.
8. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall constitute one and the same First Amendment, regardless of
whether or not the execution by all parties shall appear on any single
counterpart. Delivery of an executed counterpart of a signature page to this
First Amendment by telecopier shall be effective as delivery of a manually
executed counterpart of this First Amendment.
<PAGE> 6
EXHIBIT 4.1(c)
Page 6 of 7
IN WITNESS WHEREOF, the parties hereto have each caused a counterpart
of this First Amendment to be executed by their respective representatives
thereunto duly authorized, as of the date first above written.
SERVOTRONICS, INC.
By: /S/LEE D. BURNS, TREASURER
----------------------------
Lee D. Burns
Treasurer and Chief Financial
Officer
FLEET NATIONAL BANK
By: /S/GERALD A. LEE
--------------------
Gerald A. Lee
Vice President
STATE OF NEW YORK )
: SS.:
COUNTY OF ERIE )
On the 17th day of December in the year 1999 before me personally came
Lee D. Burns to me known, who, being by me duly sworn, did depose and say that
he resides in Lancaster, New York; that he is the Treasurer and Chief Financial
Officer of Servotronics, Inc., the corporation described in and which executed
the above instrument; and that he signed his name thereto by order of the board
of directors of said corporation.
/S/Pandora W. Mangold
--------------------------------------------
Notary Public
PANDORA W. MANGOLD
Notary Public, State of New York
Qualified in Erie County
Commission Expires March 30, 2000
<PAGE> 7
EXHIBIT 4.1(c)
Page 7 of 7
STATE OF NEW YORK )
: SS.:
COUNTY OF ERIE )
On this 17th day of December, 1999 before me personally came Gerald A.
Lee to me known, who, being by me duly sworn, did depose and say that he resides
in Tonawanda, New York; that he is a Vice President of Fleet National Bank, the
banking association described in and which executed the above instrument; and
that he signed his name thereto by order of the board of directors of said
association.
/S/Martha M. Anderson
----------------------------------
Notary Public
MARTHA M. ANDERSON
Notary Public, State of New York
No.02PO4930661
Qualified in Erie County
Certificate Filed in Erie County
Commission Expires April 18, 2000
<PAGE> 1
EXHIBIT 4.2(B)
FIRST AMENDMENT AND EXTENSION
TO
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
This First Amendment and Extension ("First Amendment"), dated and
effective as of December 17, 1999 (the "Replacement Date") is made by and
between SERVOTRONICS, INC. ("Servo") and TSV ELMA, INC. formerly known as TSV,
Inc. ("TSV"), Delaware corporations having their principal offices at 1110 Maple
Street, P.O. Box 300, Elma, New York 14059 (Servo and TSV are sometimes
collectively and severally referred to herein as the "Company") and FLEET
NATIONAL BANK, a national banking association and successor to Fleet Bank, with
an office at Fleet Bank Building, Ten Fountain Plaza, Buffalo, New York 14202
("Bank").
STATEMENT OF THE PREMISES
The Company and Fleet Bank have previously entered into a Letter of
Credit and Reimbursement Agreement dated as of December 1, 1994 (the
"Reimbursement Agreement"); and
The Erie County Industrial Development Agency (the "Agency") issued its
Industrial Development Revenue Bonds (1994 Servotronics, Inc. Project) in the
aggregate principal amount of $5,000,000 (the "Bonds") for the purpose of
assisting in financing the Project, as defined in the Reimbursement Agreement;
and
WHEREAS, the Bank issued its irrevocable Letter of Credit (the
"Original Letter of Credit") to facilitate the issuance and sale of the Bonds,
all in accordance with the terms and conditions of the Reimbursement Agreement;
and
WHEREAS, the Original Letter of Credit will expire on December 21, 1999
and the Company has requested that Bank renew and extend the Original Letter of
Credit for a five-year period; and
WHEREAS, Bank has agreed to renew and extend such Original Letter of
Credit, provided that the Company agrees to the modification of certain
financial covenants in the Reimbursement Agreement and certain other changes to
the Reimbursement Agreement and the Company has agreed thereto, all upon the
terms and conditions set forth herein.
STATEMENT OF CONSIDERATION
Accordingly, in consideration of the premises and under the authority
of Section 5-1103 of the New York General Obligations Law, the Company and Bank
agree as follows:
AGREEMENT
1. AMENDMENT. Effective upon the satisfaction of all conditions
specified in Section 4 hereof, the Reimbursement Agreement is hereby amended as
follows:
<PAGE> 2
Page 2 of 10 EXHIBIT 4.2(B)
A. The first recital of the Reimbursement Agreement is hereby
amended and restated to read in its entirety as follows:
WHEREAS, the Company has applied to the Erie County Industrial
Development Agency (the "Agency") to issue its Industrial Development Revenue
Bonds (1994 Servotronics, Inc. Project) in the aggregate principal amount of
$5,000,000 for the purpose of assisting in financing the project described below
and paying certain costs incidental thereto; and
B. Section 1.01 of the Reimbursement Agreement is hereby
amended by amended and restating the following definitions in their entirety to
read as follows:
"BANK" shall mean Fleet National Bank, a national banking
corporation having an office at 10 Fountain Plaza, Buffalo, New York 14202.
"LETTER OF CREDIT" means the irrevocable transferable direct
pay letter of credit in the form of Exhibit A to this Agreement, dated the
Closing Date, issued by the Bank in favor of the Trustee, and any replacement,
amendment or extension thereof.
C. Section 3.02 of the Reimbursement Agreement is hereby
amended and restated in its entirety to read as follows:
3.02 LETTER OF CREDIT FEE. On December 22, 1994 and on each
March 22, June 22, September 22 and December 22 thereafter (or, if any such day
is not a Business Day, the immediate succeeding Business Day) so long as any
credit remains available to the Trustee under the Letter of Credit, the Company
shall pay to the Bank a Letter of Credit fee equal to one percent ( 1%) per
annum of the sum of (a) the principal amount of all Outstanding Bonds on such
date and (b) if such date falls within a Variable Interest Rate Period, an
amount equal to 60 days' accrued interest on the principal amount of all
Outstanding Bonds on such date computed assuming an interest rate of twelve
percent (12%) per annum, or, if such date falls within a Fixed Interest Rate
Period, an amount equal to 210 days' accrued interest on the principal amount of
all Outstanding Bonds on such date computed at the Fixed Interest Rate. There
shall be no reduction or refund of any portion of such Letter of Credit fee in
the event the Letter of Credit expires or is drawn upon, reduced, terminated or
otherwise modified after the date such Letter of Credit fee is computed in
advance for each three month period. In the event any fees payable under the
terms hereof are not paid on or before the date the same are due and payable,
the payment of such fees shall be accompanied by interest thereon, at a rate
equal to two percent (2%) per annum in excess of the Stated Prime Rate from time
to time, from the date such payment becomes due until paid in full.
D. The following new Section 10.13 is added to the
Reimbursement Agreement immediately following Section 10.12:
10.13 The Company has reviewed the "Year 2000 Risk" (that is
the risk that computer applications used by the Company and/or it suppliers,
vendors and customers may be unable to recognize and perform without error
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999) and represents that, to the best of its knowledge after such
review, it is taking such action as may be necessary to ensure that the Year
2000 Risk will not materially adversely affect its business operations and/or
financial condition. Notwithstanding the provisions of this Section or Section
11.15, the Company gives no representation with respect to suppliers, vendors or
customers not controlled by the Company except that it has made a reasonable
effort to obtain assurances as to Year 2000 Risk from entities with whom the
Company has material business relationships, and the Company has received from
such entities no reports advising of a Year 2000 Risk materially adversely
affecting the Company's business operations and/or financial condition.
<PAGE> 3
Page 3 of 10 EXHIBIT 4.2(B)
E. Section 11.02 of the Reimbursement Agreement is hereby
amended and restated to read in its entirety as follows:
11.02 NET WORKING CAPITAL. Will maintain, (i) as of December
31, 1999, Net Working Capital of not less than $7,500,000 and (ii) as at the end
of each fiscal quarter thereafter, Net Working Capital of not less than
$7,500,000, increasing each fiscal year, commencing December 31, 2000, by two
percent (2%) of the amount used on the previous December 31 for purposes of
testing this covenant (e.g. for the quarters ending March 31, 2000, June 30,
2000 and September 30, 2000, not less than $7,500,000; for the quarter ending
December 31, 2000, not less than $7,650,000; for the quarters ending March 31,
2001, June 30, 2001 and September 30, 2001, not less than $7,650,000; for the
quarter ending December 31, 2001, not less than $7,803,000, etc.). If the effect
of any change in Generally Accepted Accounting Principles would cause a
violation of the covenant set forth in this Section 11.02 on any testing date
during the term of this Agreement and such covenant would not be violated if
such change in Generally Accepted Accounting Principles were disregarded in
making the calculations set forth in this Section, then such covenant shall not
be deemed violated as of the applicable testing date.
F. Section 11.03 of the Reimbursement Agreement is hereby
amended and restated to read in its entirety as follows:
11.03 TANGIBLE NET WORTH. Will maintain, (i) as of December
31, 1999, a Tangible Net Worth of not less than $9,000,000 and (ii) as of the
end of each fiscal quarter thereafter, Tangible Net Worth of not less than
$9,000,000, increasing each fiscal year, commencing December 31, 2000, by two
percent (2%) of the amount used on the previous December 31 for purposes of
testing this covenant (e.g. for the quarters ending March 31, 2000, June 30,
2000 and September 30, 2000, not less than $9,000,000; for the quarter ending
December 31, 2000, not less than $9,180,000; for the quarters ending March 31,
2001, June 30, 2001 and September 30, 2001, not less than $9,180,000; for the
quarter ending December 31, 2001, not less than $9,363,600, etc.). If the effect
of any change in Generally Accepted Accounting Principles would cause a
violation of the covenant set forth in this Section 11.03 on any testing date
during the term of this Agreement and such covenant would not be violated if
such change in Generally Accepted Accounting Principles were disregarded in
making the calculations set forth in this Section, then such covenant shall not
be deemed violated as of the applicable testing date.
G. Section 11.04 of the Reimbursement Agreement is hereby
amended and restated to read in its entirety as follows:
11.04 DEBT TO WORTH. Will maintain, at the end of each of its
fiscal quarters for the four quarters then ended, a ratio of its Liabilities to
Tangible Net Worth of not more than 1.5 to 1.0.
H. Section 11.05 of the Reimbursement Agreement is hereby
amended and restated to read in its entirety as follows:
11.05 DEBT SERVICE COVERAGE RATIO. Will have a Debt Service
Coverage Ratio of not less than 1.0 to 1.0, for the four quarters then ended, as
of the end of each fiscal quarter.
I. The following new Section 11.15 is added to the
Reimbursement Agreement immediately following Section 11.14:
11.15 The Company will be Year 2000 Compliant by January 1,
2000. For purposes of this Section, "Year 2000 Compliant" means, with regard to
the Company and/or its suppliers, vendors and customers (subject, however, to
the last sentence of Section 10.13), that all software, embedded microchips, and
other processing capabilities utilized by, and material to the business
operations or financial condition of, such entity are able to interpret and
manipulate data on and involving all calendar dates correctly and without
causing any abnormal ending scenario, including in relation to dates on and
after January 1, 2000.
<PAGE> 4
Page 4 of 10 EXHIBIT 4.2(B)
J. The following new Sections 14.12 through 14.15 are added to
the Reimbursement Agreement immediately following Section 14.11:
14.12 PARTICIPATION. Bank shall have the unrestricted right at
any time and from time to time, and without the consent of or notice to the
Company or any guarantor, to grant to one or more banks or other financial
institutions other than securities brokers, dealers and investment bankers
(each, a "Participant") participating interests in Bank's obligations hereunder
and/or any or all of the Reimbursement obligations held by Bank hereunder. In
the event of any such grant by Bank of a participating interest to a
Participant, whether or not upon notice to the Company, Bank shall remain
responsible for the performance of its obligations hereunder and the Company
shall continue to deal solely and directly with Bank in connection with Bank's
rights and obligations hereunder. Bank may furnish any information concerning
the Company in its possession from time to time to prospective Participants,
provided that, if any information is provided which is not publicly available
(it being understood that "publicly available" shall include non-confidential
filings made by the Company with the Securities and Exchange Commission which
shall have become available to the public and shall exclude information which
has become publicly available in violation of the provisions of this Section)
Bank shall require any such prospective Participant to agree in writing (a true
copy of which shall be furnished to the Company) to maintain the confidentiality
of all such information which is not publicly available and the Company shall be
identified in that written agreement as a beneficiary of that agreement with the
right to enforce it.
14.13 SETOFF. The Company and any guarantor hereby grant to
Bank, a lien, security interest and right of setoff as security for all
liabilities and obligations to Bank, whether now existing or hereafter arising,
upon and against all deposits, credits, collateral and property, now or
hereafter in the possession, custody, safekeeping or control of Bank or any
entity under the control of Fleet Financial Group, Inc., or in transit to any of
them. Upon the occurrence and continuing existence of any Event of Default
(which shall not have been cured within any applicable grace period), Bank may
set off the same or any part thereof and apply the same to any liability or
obligation of the Company and any guarantor even though unmatured and regardless
of the adequacy of any other collateral securing any Loan. ANY AND ALL RIGHTS TO
REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES ANY LOAN, PRIOR TO EXERCISING ITS RIGHTS OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE COMPANY OR ANY
GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
14.14 MAXIMUM INTEREST RATE. All agreements between the
Company and any guarantors and Bank are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of acceleration of maturity
of the indebtedness evidenced hereby or otherwise, shall the amount paid or
agreed to be paid to Bank for the use or the forbearance of the indebtedness
evidenced by this Agreement or any other Financing Document exceed the maximum
permissible under applicable law. As used herein, the term "applicable law"
shall mean the law in effect as of the date hereof provided, however that in the
event there is a change in the law which results in a higher permissible rate of
interest, then this Agreement, or such other Financing Documents, as the case
may be, shall be governed by such new law as of its effective date. In this
regard, it is expressly agreed that it is the intent of the Company and Bank in
the execution, delivery and acceptance of this Agreement to contract in strict
compliance with the laws of the State of New York from time to time in effect.
If, under or from any circumstances whatsoever, fulfillment of any provision
hereof or of any of the Financing Documents at the time performance of such
provision shall be due, shall involve transcending the limit of such validity
prescribed by applicable law then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
any circumstances whatsoever Bank should ever receive as interest an amount
which would exceed the highest lawful rate, such amount which would be excessive
interest
<PAGE> 5
Page 5 of 10 EXHIBIT 4.2(B)
shall be applied to the reduction of the principal obligations evidenced by this
Agreement or such other Financing Documents, as the case may be and not to the
payment of interest. This provision shall control every other provision of all
agreements between the Company, any guarantors and Bank.
14.15 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of
an officer of Bank as to the loss, theft, destruction or mutilation of this
Reimbursement Agreement or any Financing Document delivered hereunder, which
states, among other things that Bank has sole ownership of such document or, as
applicable, the rights thereunder, which contains an indemnification against
claims and associated expenses of persons making claims with respect to such
lost document, in form and substance reasonably acceptable to the Company, and
by which Bank agrees to surrender (without demand for duplicate payment), as
applicable, such Reimbursement Agreement or other Financing Document upon any
recovery thereof, the Company will issue, in lieu thereof, a replacement
Reimbursement Agreement, note or other security document in the same principal
amount thereof and otherwise of like tenor.
K. Effective on the Replacement Date, Exhibit A of the
Reimbursement Agreement is hereby amended by the attachment thereto of the
amendment attached hereto as Exhibit A.
2. EXTENSIONS. Effective as of the Replacement Date, the Letter of
Credit is extended for an additional five-year period which extension shall be
effected by the issuance of an amendment to letter of credit in the form
attached to this Amendment and Extension as Exhibit A.
3. REPRESENTATIONS AND WARRANTIES. The Company makes the following
representations and warranties to Bank which shall be deemed to be continuing
representations and warranties so long as any obligations, including
indebtedness of the Company to Bank arising under the Reimbursement Agreement or
any note delivered pursuant thereto remain unpaid:
A. AUTHORIZATION. The Company has full power and authority to
borrow hereunder and to execute, deliver and perform this First Amendment and
any documents delivered in connection with it and all other related documents
and transactions, all of which have been duly authorized by all proper and
necessary corporate action. The execution and delivery of this First Amendment
by the Company will not violate the provisions of, or cause a default under, the
Company's Certificate of Incorporation or By-Laws or any agreement to which the
Company is a party or by which it or its assets are bound.
B. BINDING EFFECT. This First Amendment has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable in accordance with its terms.
C. CONSENTS; GOVERNMENTAL APPROVALS. No consent, approval or
authorization of, or registration, declaration or filing with, any governmental
body or authority or any other party is required in connection with the valid
execution, delivery or performance of this First Amendment or any other document
executed and delivered therewith or in connection with any other transactions
contemplated hereby.
<PAGE> 6
Page 6 of 10 EXHIBIT 4.2(B)
D. NO EVENTS OF DEFAULT. There is, on the date hereof, no
event or condition which constitutes an Event of Default under any of the Loan
Documents or which, with notice and/or the passage of time, would constitute an
Event of Default.
E. NO MATERIAL MISSTATEMENTS. Neither this First Amendment nor
any document delivered to Bank by or on behalf of the Company to induce Bank to
enter into this First Amendment contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements herein or
therein not misleading in light of the circumstances in which they were made.
4. CONDITIONS OF EFFECTIVENESS. This First Amendment shall become
effective when and only when Bank shall have received counterparts of this First
Amendment executed by the Company and Bank and the following conditions shall
have been fulfilled:
A. DOCUMENTS. All instruments, certificates and agreements to
be furnished to the Bank hereunder shall be of such form and content as the Bank
shall reasonably require, and the Company shall furnish such consents,
authorizations and other instruments and agreements as the Bank may reasonably
deem necessary to effectuate the intent of this First Amendment.
B. OPINION OF COUNSEL. Counsel to the Company shall have
delivered to the Bank an opinion in form and substance satisfactory to the Bank.
C. AUTHORIZATION. The Company shall have taken appropriate
corporate action to authorize, and the Company's Board of Directors shall have
adopted resolutions authorizing the execution and delivery of this First
Amendment and the taking of all action called for by this First Amendment, and
the Company shall have furnished to Bank certified copies of all such corporate
action and Board resolutions and such other certified corporate documents as the
Bank may request.
D. COSTS AND EXPENSES. The Company shall have complied with
Section 6 of this First Amendment.
E. ACKNOWLEDGMENT. G. N. Metals Products, Inc., The Ontario
Knife Company and Queen Cutlery Company, Inc. shall each have delivered to Bank
an Acknowledgment in form and substance satisfactory to Bank and such additional
documents as Bank or its counsel may reasonably require and all documents,
instruments and other legal matters in connection with this First Amendment
shall be satisfactory in form and substance to Bank and its counsel.
5. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS.
A. Upon the effectiveness hereof, each reference in the
Reimbursement Agreement to "this Agreement," "hereunder," "hereof," "herein," or
words of like import, and each reference in the Loan Documents to the
Reimbursement Agreement shall mean and be a reference to the Reimbursement
Agreement as amended by this First Amendment.
<PAGE> 7
Page 7 of 10 EXHIBIT 4.2(B)
B. The Reimbursement Agreement, as amended by this First
Amendment, represents the entire understanding and agreement between the parties
hereto with respect to the subject matter hereof. This First Amendment
supersedes all prior negotiations and any course of dealing between the parties
with respect to the subject matter hereof. This First Amendment shall be binding
upon the Company and its successors and assigns, and shall inure to the benefit
of, and be enforceable by, Bank and each of its successors and assigns. The
Reimbursement Agreement, as amended hereby, is in full force and effect and, as
so amended, is hereby ratified and reaffirmed in its entirety. The Company
acknowledges and agrees that the Reimbursement Agreement (as amended by this
First Amendment), the Collateral Lease Assignment, the Pledge Agreement, the
Agency Mortgage and all other Financing Documents to which the Company is a
party are in full force and effect, that the Company's obligations thereunder
and under this First Amendment are its legal valid and binding obligations
enforceable against it in accordance with the terms thereof and hereof, and it
has no defense, whether legal or equitable, setoff or counterclaim to the
payment and performance of such obligations.
C. The execution, delivery and effectiveness of this First
Amendment shall not operate as a waiver of any right, power or remedy of Bank
under the Reimbursement Agreement, nor constitute a waiver of any provision of
the Reimbursement Agreement.
6. COSTS AND EXPENSES. The Company agrees to pay on demand all costs
and expenses of Bank in connection with the preparation, negotiation,
administration, execution and delivery of this First Amendment and the other
documents related hereto, including the reasonable fees, charges and
disbursements of counsel for Bank.
7. GOVERNING LAW. Pursuant to Section 5-1401 of the New York General
Obligations Law, the laws of the State of New York shall govern the validity,
construction, enforcement and interpretation of this First Amendment in whole
without regard to any rules of conflicts-of-laws that would require the
application of the laws of any jurisdiction other than the State of New York.
8. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not limit or otherwise affect
the meanings of this First Amendment or be used to construe its provisions.
9. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by the different parties hereto on separate
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall constitute one and the same First Amendment, regardless of
whether or not the execution by all parties shall appear on any single
counterpart. Delivery of an executed counterpart of a signature page to this
First Amendment by telecopier shall be effective as delivery of a manually
executed counterpart of this First Amendment.
<PAGE> 8
Page 8 of 10 EXHIBIT 4.2(B)
IN WITNESS WHEREOF, the parties hereto have each caused a counterpart
of this First Amendment to be executed by their respective representatives
thereunto duly authorized, as of the date first above written.
SERVOTRONICS, INC.
By: /S/LEE D. BURNS, TREASURER
--------------------------
Lee D. Burns
Treasurer and Chief Financial
Officer
TSV ELMA, INC.
By: /S/LEE D. BURNS, TREASURER
--------------------------
Lee D. Burns
Treasurer and Chief Financial
Officer
FLEET NATIONAL BANK
By: /S/GERALD A. LEE
--------------------------
Gerald A. Lee
Vice President
<PAGE> 9
Page 9 of 10 EXHIBIT 4.2(B)
STATE OF NEW YORK )
: SS.:
COUNTY OF ERIE )
On the 17th day of December in the year 1999 before me personally came
Lee D. Burns to me known, who, being by me duly sworn, did depose and say that
he resides in Lancaster, New York; that he is the Treasurer and Chief Financial
Officer of Servotronics, Inc., the corporation described in and which executed
the above instrument; and that he signed his name thereto by order of the board
of directors of said corporation.
/S/Pandora W. Mangold
---------------------------------
Notary Public
PANDORA W. MANGOLD
Notary Public, State of New York
Qualified in Erie County
Commission Expires March 30, 2000
STATE OF NEW YORK )
: SS.:
COUNTY OF ERIE )
On the 17th day of December in the year 1999 before me personally came
Lee D. Burns to me known, who, being by me duly sworn, did depose and say that
he resides in Lancaster, New York; that he is the Treasurer of TSV ELMA, Inc.,
the corporation described in and which executed the above instrument; and that
he signed his name thereto by order of the board of directors of said
corporation.
/S/Pandora W. Mangold
---------------------------------
Notary Public
PANDORA W. MANGOLD
Notary Public, State of New York
Qualified in Erie County
Commission Expires March 30, 2000
<PAGE> 10
Page 10 of 10 EXHIBIT 4.2(B)
STATE OF NEW YORK )
: SS.:
COUNTY OF ERIE )
On this 17th day of December, 1999 before me personally came Gerald A.
Lee to me known, who, being by me duly sworn, did depose and say that he resides
in Tonawanda, New York; that he is a Vice President of Fleet National Bank, the
banking association described in and which executed the above instrument; and
that he signed his name thereto by order of the board of directors of said
association.
/S/Martha M. Anderson
---------------------------------
Notary Public
MARTHA M. ANDERSON
Notary Public, State of New York
No.02PO4930661
Qualified in Erie County
Certificate Filed in Erie County
Commission Expires April 18, 2000
<PAGE> 1
EXHIBIT 10(A)(2)
SERVOTRONICS, INC. AND SUBSIDIARIES
APRIL 28, 1999
DR. NICHOLAS D. TRBOVICH
1110 MAPLE STREET
ELMA, NY 14059
DEAR DR. TRBOVICH:
YOU AND SERVOTRONICS, INC. (THE "COMPANY") ARE PARTIES TO AN EMPLOYMENT
AGREEMENT, AS AMENDED AND RESTATED ON AUGUST 8, 1986 AND AS SUBSEQUENTLY AMENDED
AS OF OCTOBER 1, 1986, OCTOBER 1, 1987, JULY 20, 1988, OCTOBER 1, 1988, OCTOBER
1, 1989, MAY 1, 1990, MAY 1, 1991, MAY 1, 1992, MAY 1, 1993, MARCH 28, 1994, MAY
1, 1994, MAY 1, 1995, MAY 1, 1996, MAY 1, 1997, MARCH 9, 1998, MAY 1, 1998 AND
OCTOBER 6, 1998 (THE "AGREEMENT"), PURSUANT TO WHICH YOU ARE EMPLOYED BY THE
COMPANY.
THIS WILL CONFIRM YOUR AGREEMENT AND THAT OF THE COMPANY (PURSUANT TO A
RESOLUTION OF THE BOARD OF DIRECTORS PASSED AT A MEETING HELD ON APRIL 28, 1999)
TO AMEND PARAGRAPH 1 OF THE AGREEMENT TO DELETE "SEPTEMBER 30, 2003" AND INSERT
IN ITS PLACE "SEPTEMBER 30, 2004".
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ALL OF THE OTHER TERMS AND CONDITIONS OF
THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
IF THE FOREGOING MEETS WITH YOUR APPROVAL AND YOU ARE WILLING TO BECOME BOUND
HEREBY, WILL YOU PLEASE SIGN AND RETURN TO THE UNDERSIGNED THE ENCLOSED COPY OF
THIS LETTER.
VERY TRULY YOURS,
SERVOTRONICS, INC.
/S/LEE D. BURNS
LEE D. BURNS,
TREASURER/SECRETARY
ACCEPTED AND AGREED
/S/ DR. NICHOLAS D. TRBOVICH
- ----------------------------
DR. NICHOLAS D. TRBOVICH
<PAGE> 1
EXHIBIT 10(A)(3)
SERVOTRONICS, INC. AND SUBSIDIARIES
AS OF MAY 1, 1999
DR. NICHOLAS D. TRBOVICH
1110 MAPLE STREET
ELMA, NY 14059
DEAR DR. TRBOVICH:
YOU AND SERVOTRONICS, INC. (THE "COMPANY") ARE PARTIES TO AN EMPLOYMENT
AGREEMENT, AS AMENDED AND RESTATED ON AUGUST 8, 1986 AND AS SUBSEQUENTLY AMENDED
AS OF OCTOBER 1, 1986, OCTOBER 1, 1987, JULY 20, 1988, OCTOBER 1, 1988, OCTOBER
1, 1989, MAY 1, 1990, MAY 1, 1991, MAY 1, 1992, MAY 1, 1993, MARCH 28, 1994, MAY
1, 1994, MAY 1, 1995, MAY 1, 1996, MAY 1, 1997, MARCH 9, 1998, MAY 1, 1998,
OCTOBER 6, 1998 AND APRIL 28, 1999 (THE "AGREEMENT"), PURSUANT TO WHICH YOU ARE
EMPLOYED BY THE COMPANY.
THIS WILL CONFIRM YOUR AGREEMENT AND THAT OF THE COMPANY (PURSUANT TO A
RESOLUTION OF THE BOARD OF DIRECTORS PASSED AT A MEETING HELD ON JUNE 29, 1999)
TO AMEND PARAGRAPH 3 OF THE AGREEMENT TO DELETE "$310,000.00" AND INSERT IN ITS
PLACE "$325,000.00".
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ALL OF THE OTHER TERMS AND CONDITIONS OF
THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
IF THE FOREGOING MEETS WITH YOUR APPROVAL AND YOU ARE WILLING TO BECOME BOUND
HEREBY, WILL YOU PLEASE SIGN AND RETURN TO THE UNDERSIGNED THE ENCLOSED COPY OF
THIS LETTER.
VERY TRULY YOURS,
SERVOTRONICS, INC.
/S/LEE D. BURNS
LEE D. BURNS,
TREASURER/SECRETARY
ACCEPTED AND AGREED
/S/ DR. NICHOLAS D. TRBOVICH
- ----------------------------
DR. NICHOLAS D. TRBOVICH
<PAGE> 1
EXHIBIT 21
SERVOTRONICS, INC.
SUBSIDIARIES OF
REGISTRANT
NAME AND ADDRESS OF EACH MEMBER EMPLOYER ID NO.
Servotronics, Inc. 16-0837866
P.O. Box 300
Elma, New York 14225-0300
Ontario Knife Company 16-0578540
26 Empire Street
Franklinville, New York 14737
Queen Cutlery Company 25-0743840
507 Chestnut Street
Titusville, Pennsylvania 16354
G.N. Metal Products, Inc. 16-0964682
P.O. Box 300
Elma, New York 14225-0300
SVT Management, Inc. 16-1037766
P.O. Box 300
Elma, New York 14225-0300
MRO Corporation 16-1230799
P.O. Box 300
Elma, New York 14225-0300
TSV ELMA, Inc. 16-1415699
P.O. Box 300
Elma, New York 14225-0300
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089140
<NAME> SERVOTRONICS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 794
<SECURITIES> 0
<RECEIVABLES> 2,807
<ALLOWANCES> 0
<INVENTORY> 6,168
<CURRENT-ASSETS> 13,274
<PP&E> 7,128
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,015
<CURRENT-LIABILITIES> 3,171
<BONDS> 6,488
0
0
<COMMON> 523
<OTHER-SE> 10,611
<TOTAL-LIABILITY-AND-EQUITY> 21,015
<SALES> 16,165
<TOTAL-REVENUES> 16,165
<CGS> 12,149
<TOTAL-COSTS> 17,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> (1,083)
<INCOME-TAX> (401)
<INCOME-CONTINUING> (682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,727)
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