U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________________________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission file number: 0 - 5460
____________________________________________________
STOCKER & YALE, INC.
(Name of small business issuer in its charter)
Massachusetts 04-2114473
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
32 Hampshire Road
Salem, New Hampshire 03079
(Address of principal executive offices) (Zip Code)
(603) 893-8778
(Issuer's telephone number)
_____________________________________________________
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.
_X_ Yes ___ No
As of May 1, 1996 there were 1,712,914.6 shares of the issuer's common
stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes_____No _X_
<PAGE>
PART I FINANCIAL STATEMENTS
Item 1.1 CONSOLIDATED BALANCE SHEETS
STOCKER & YALE, INC.
ASSETS March December
31, 1996 31,1995
(unaudited) (audited)
CURRENT ASSETS
Cash 13,269 22,033
Accounts Receivable 2,203,730 1,897,943
Prepaid Taxes 323,963 323,963
Inventory 3,939,452 3,836,653
Prepaid Expenses 130,111 159,013
Total Current 6,610,525 6,239,605
PROPERTY, PLANT & EQUIPMENT, NET 3,282,514 3,365,949
NOTE RECEIVABLE 1,000,000 1,000,000
GOODWILL, NET 8,933,117 9,005,729
DEBT ISSUANCE COSTS, NET 137,475 169,687
19,963,631 19,780,970
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt 296,479 266,358
Mortgage note payable 1,500,000 1,500,000
Subordinated notes payable 1,000,000 1,000,000
Accounts payable 2,009,755 1,527,468
Short-term lease obligation 45,224 58,560
Accrued expenses
Income taxes 72,503 265,918
Other 501,373 475,136
Total Current Liabilities 5,425,334 5,093,440
LONG TERM DEBT 4,098,223 4,163,273
OTHER LONG TERM LIABILITIES 684,479 684,479
DEFERRED INCOME TAXES 1,215,280 1,285,280
11,156,472 11,423,316
STOCKHOLDER'S EQUITY
Common stock, .001 par value
Authorized -2,400,000
Issued and Outstanding -1,712,914 1,713 1,713
Paid in capital 6,845,685 6,845,685
Retained Earnings 1,692,917 1,777,100
Total Stockholder's Equity 8,540,315 8,624,498
19,780,970 19,963,631
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PART I FINANCIAL STATEMENTS
Item 1.2 CONSOLIDATED STATEMENTS OF OPERATIONS
STOCKER & YALE, INC.
March 31, March 31,
1996 1995
(unaudited) (unaudited)
NET SALES 3,101,126 3,288,818
COST OF SALES 1,945,159 2,025,899
Gross profit 1,064,967 1,262,919
SELLING EXPENSES 421,371 444,101
GENERAL AND ADMINISTRATIVE EXPENSES 511,005 477,147
RESEARCH & DEVELOPMENT EXPENSES 71,405 74,716
Operating income 61,186 266,955
INTEREST EXPENSE 152,169 154,423
Income (loss) before income tax
provision (90,983) 112,532
INCOME TAX PROVISION (BENEFIT) (6,800) 72,200
Net income (loss) (84,183) 40,332
EARNINGS (LOSS) PER SHARE (0.05) 0.03
WEIGHTED AVERAGE COMMON SHARES 1,712,914 1,567,645
AND EQUIVALENTS
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PART I FINANCIAL STATEMENTS
Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
STOCKER & YALE, INC.
Three months ended
March 31, March 31,
1996 1995
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (84,183) 40,332
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 250,685 276,304
Other changes in assets and liabilities -
Accounts receivable, net (305,787) (11,705)
Inventories (102,799) (281,145)
Prepaid expenses 28,902 (1,876)
Accounts payable 482,287 228,607
Accrued expenses 26,237 (52,269)
Accrued and refundable taxes (193,415) (61,104)
Net cash provided by
operating activities 101,927 137,144
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (62,427) (47,115)
Net cash used for
investing activities (62,427) (47,115)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 0 194,000
Proceeds from Short Term Note 0 200,000
Proceeds from Term Loan 0 2,767,000
Proceeds from Line of Credit 0 2,766,357
Proceeds from Subordinated Notes payable 0 1,000,000
Payments of bank debt (29,520) (6,771,061)
Payments on capital lease (18,744) (11,554)
Deferred financing cost 0 (154,244)
Net cash used for
financing activities (48,264) (9,502)
NET INCREASE (DECREASE) IN CASH (8,764) 80,527
CASH, BEGINNING OF PERIOD 22,033 8,344
CASH, END OF PERIOD 13,269 88,871
<PAGE>
PART I. FINANCIAL STATEMENTS
Item 1.4 Notes to Financial Statements
The interim consolidated financial statements presented have been prepared by
Stocker & Yale, Inc. (the "Company") without audit and, in the opinion of the
management, reflect all adjustments of a normal recurring nature necessary
for a fair statement of (a) the results of operations for the three months
periods ended March 31, 1996 and March 31, 1995, (b) the financial position
at March 31, 1996, and (c) the cash flows for the three month periods ended
March 31, 1996 and March 31, 1995. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of December 31, 1995, has been
derived from the consolidated financial statements that have been audited by
the Company's independent public accountants. The consolidated financial
statements and notes are condensed as permitted by Form 10-QSB and do not
contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes
included herein should be read in conjunction with the financial statements
and notes included in the Company's Form 10-SB Registration Statement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING RESULTS
This Quarterly Report on Form 10-QSB contains 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. The Company's actual results
could differ materially from those set forth in the forward-looking
statements.
Results of Operations
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 31, 1995.
Fiscal Quarters Ended March 31, 1996 and 1995
Revenues declined $278,692 from $3,288,818 in the quarter ended March 31,
1995 to $3,010,126 in the quarter ended March 31, 1996. The decline was due
primarily to reduced sales of the Company's electronic ballasts, which
declined $271,510 from $409,152 in the quarter ended March 31, 1995 to
$137,642 in the equivalent period in the current year. First quarter 1995
ballast sales were extraordinarily high, representing 40% of the Company's
total 1995 annual ballast sales of $1,026,896, and resulted from increased
demand for the Company's ballasts due to a temporary lack of supply from
other ballast manufacturers. During the first quarter of 1996, the Company
also experienced slower than expected sales from its printer and recorder
lines due to inventory overstock positions with major customers and, although
lighting product unit sales volume was higher than projected, a planned price
increase was delayed in implementation until the second quarter, resulting in
lower than planned revenues and gross profit.
Gross Profit declined from $1,262,919 in the first quarter of 1995 to
$1,064,967 in the first quarter of 1996, primarily due to reduced cost
absorption associated with lower revenues. Operating costs increased less
than 1%, from $995,964 to $1,003,786, and interest expense decreased from
$154,423 to $152,169 in the comparable periods.
The Company provided an effective tax benefit of 7% for the three months
ended March 31, 1996 compared with an effective tax provision of 64% for the
three months ended March 31, 1995. The change in the effective tax rates is
primarily due to non-deductible amortization.
Liquidity and Capital Resources
The Company finances its operations primarily through third party credit
facilities and cash from operations. Net cash provided by operations was
$101,927 for the quarter ended March 31, 1996 and $137,144 for the quarter
ended March 31, 1995.
The Company's primary third party financing relationship is with Fleet
National Bank of Massachusetts, N.A. (the "Bank"). The Initial Credit
Agreement between the Company and the Bank, dated March 6, 1995, provided
for a Short Term Loan due August 1, 1995 , a Revolving Line of Credit Loan
(the "Revolving Loan") due March 31, 1998, and a Long Term Loan due March 1,
2001. At March 31, 1995, the total amount borrowed under the Credit
Agreement was $5,641,452. At March 31, 1996, there was a total of $4,181,762
borrowed under the agreement. The Short Term Loan was paid as agreed in
August, 1995. The Revolving Loan and the Long Term Loan bear interest at the
Bank's base rate plus 1/2%. At March 31, 1996 the Company had $254,731
additional available for borrowing under Revolving Loan as compared to
$211,630 additional available at March 31, 1995.
Under the terms of the Credit Agreement, the Company is required to comply
with a number of financial covenants including minimum equity, debt service
coverage ratios, debt to equity ratios and minimum net income tests. The
Company has informed the Bank that as of March 31, 1996, the Company was not
in compliance with the covenants for minimum net income and minimum equity,
due primarily to lower than expected revenues in the quarter, as discussed in
"Results of Operations." The Company and the Bank have engaged in
discussions regarding the waiver of such non-compliance. The Company
believes that it will be able to resolve this matter with the Bank in a
prompt and mutually satisfactory manner and that the ultimate outcome of this
matter will not have a materially adverse effect on the results of operations
or the financial position of the Company.
Company expenditures for capital equipment were $62,427 in the first quarter
of 1996 as compared to $47,115 in the same period of 1995.
The Subordinated Notes Payable of $1,000,000, which matured on May 6, 1996,
were refinanced by a new issue of Subordinated Notes totaling $1,350,000.
The new notes mature on May 1, 2001, bear interest at 7.25% and are
convertible into shares of the Company's common stock at a price of $7.375
per share. Additional proceeds will be used for general corporate purposes.
The Mortgage Note Payable of $1,500,000 will mature on September 1, 1996.
The Company intends to refinance this note with a conventional mortgage prior
to the maturity date. The Company's ability to refinance such Mortgage Note
Payable may be affected by various factors including, without limitation, (i)
the Company's results of operations and (ii) general economic conditions.
There can bee no assurance that the Company will be able to refinance the
Mortgage Note Payable or that any such refinancing will be on terms
substantially similar to, or as favorable as, the terms of the Mortgage Note.
The Company believes that its available financial resources are adequate to
meet its foreseeable working capital, debt service and capital expenditure
requirements.
PART II
ITEM 5. OTHER INFORMATION
On May 7, 1996 the Company announced that it has requested the de-listing of
its Common Stock from the Vancouver Stock Exchange, effective with the close
of business on May 10, 1996. The Company will maintain the listing of its
Common Stock on the Nasdaq SmallCap Stock Market.
ITEM 6. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) The following is a complete list of Exhibits filed as part of this Form
10-QSB :
Exhibit
Number Description
4.1 * Subordinated Note Purchase Agreement and Form of Note
10.1 * 1996 Profit Sharing Plan
27.1 ** Financial Data Schedule
_______
* filed herewith
** filed electronically only
(b) There were no reports filed on Form 8-K
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
Stocker & Yale, Inc.
___________________________
May 15, 1996 /s/James Bickman
___________________________ __________________________
James Bickman, President
May 15, 1996 /s/ Susan Hojer Sundell
___________________________ __________________________
Susan Hojer Sundell,
Vice President-Finance and Treasurer
NO. __
THIS NOTE IS ONE OF A SERIES OF NOTES
OF THE COMPANY (HEREINAFTER REFERRED TO AS THE
"NOTES") LIMITED TO AN AGGREGATE PRINCIPAL AMOUNT
NOT TO EXCEED $3,000,000 ISSUED UNDER AND PURSUANT TO THE
TERMS OF A CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
DATED AS OF MAY 1, 1996
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS.
THIS NOTE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT AND SUCH STATE SECURITIES LAWS.
TRANSFERABILITY OF THIS NOTE IS FURTHER LIMITED BY THE PROVISIONS OF
A CERTAIN CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
DATED MAY 1, 1996, BETWEEN STOCKER & YALE, INC. AND THE PURCHASER
NAMED THEREIN AND COPIES OF SAID AGREEMENT WILL BE FURNISHED AT
NO CHARGE UPON WRITTEN REQUEST AND ARE AVAILABLE FOR INSPECTION
AT THE OFFICE OF STOCKER & YALE, INC.
STOCKER & YALE, INC.
7.25% CONVERTIBLE SUBORDINATED NOTE
DUE ON MAY 1, 2001
$________ May 3, 1996
FOR VALUE RECEIVED, Stocker & Yale, Inc., a Massachusetts corporation
(the "Company"), hereby promises to pay to the order of
__________________________ ____________________ ("Holder"), or its registered
assigns, the principal sum of $________, in lawful currency of the United States
of America with interest thereon, from and after the date hereof, on the amount
of principal from time to time outstanding at the rate of interest set forth
below and subject to the following terms and conditions:
1. Payments of Interest and Principal. From the date of this
Note, interest shall accrue on the outstanding principal balance hereof at the
rate of 7.25% per annum, payable
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quarterly in arrears, on the first day of August, November, February and May in
each year commencing August 1, 1996 and at maturity. Until maturity or prior
prepayment in full, interest only shall be paid. The principal sum of this Note
shall be due and payable on May 1, 2001, subject to the limitations set forth
below. Rights under this Note are subject to certain limitations set forth below
regarding subordination to Senior Debt.
2. Convertible Subordinated Note Purchase Agreement. This Note is one
of a Series of Notes of the Company limited to an aggregate principal amount not
to exceed $3,000,000 issued under and pursuant to the terms of a Convertible
Subordinated Note Purchase Agreement dated as of May 1, 1996 between the Company
and the Purchaser named therein (the "Agreement"), to which Agreement reference
is hereby made for a more complete statement of the respective rights, duties
and immunities thereunder of the Company and the holders of Notes issued
pursuant thereto. All terms used in this Note which are defined in the Agreement
and are not otherwise defined herein shall have the meaning assigned to them in
the Agreement.
3. Subordination to Senior Debt. The Company covenants and agrees, and
each Holder, for itself and for any subsequent Holder of a Note, by its
acceptance hereof, covenants and agrees that the payment of principal and
interest hereunder is hereby expressly subordinated, to the extent and in the
manner hereinafter set forth, in right of payment to the prior payment or
satisfaction in full of all Senior Debt, as defined below.
Notwithstanding the foregoing, the Company shall be permitted to pay
and the Holder shall be permitted to receive (a) any regularly scheduled payment
of interest on this Note and (b) cash payments not to exceed $100.00 in lieu of
the issue of fractional shares upon conversion of this Note, unless an event of
default has occurred and is continuing under the Senior Debt or an event has
occurred and is continuing or a condition exists, which with notice or lapse of
time or both would constitute an event of default under the Senior Debt or any
of which would be created by such payment, but excluding any default under
Senior Debt which might arise solely from failure to pay the subordinated
indebtedness represented by this Note at maturity, ("Senior Debt Default").
Notwithstanding any such suspension of any payment, interest shall continue to
accrue on the outstanding principal balance of this Note at the rate provided
herein until payment in full.
The Holder shall not demand, assert, collect or enforce this Note or
any part thereof except (a) in each such case as necessary, so long as no Senior
Debt Default is then continuing, to collect any sums expressly permitted to be
paid by the Company as provided above or (b) to the extent (but only to such
extent) that the commencement of a legal action may be required to toll the
running of any applicable statute of limitation. Subject to the foregoing, if a
Senior Debt Default is then continuing or would be created thereby, the Holder
shall not demand, assert, collect or enforce this Note or any part thereof
against the Company. Until the Senior Debt has been finally paid in full in
cash, the Holder shall have no right of
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subrogation, reimbursement, restitution, contribution or indemnity whatsoever
from any assets of the Company. The Holder will not demand or accept any
collateral for the Note.
At any meeting of creditors of the Company or in the event of any case
or proceeding, voluntary or involuntary, for the distribution, division or
application of all or part of the assets of the Company or the proceeds thereof,
whether such case or proceeding be for the liquidation, dissolution or winding
up of the Company or its business, a receivership, insolvency or bankruptcy case
or proceeding, an assignment for the benefit of creditors or a proceeding by or
against the Company for relief under the United States Bankruptcy Code or any
other bankruptcy, reorganization or insolvency law or any other law relating to
the relief of debtors, readjustment of indebtedness, reorganization,
arrangement, composition or extension or marshalling of assets or otherwise, the
Senior Lender, as defined below, is hereby irrevocably authorized at any such
meeting or in any such proceeding to receive or collect for the benefit of the
holders of Senior Debt any cash or other assets of the Company distributed,
divided or applied by way of dividend or payment, or any securities issued on
account of this Note and apply such cash to, or to hold such other assets or
securities as collateral for, the Senior Debt and to apply to the Senior Debt
any cash proceeds of any realization upon such other assets or securities that
the Senior Lender in its discretion so elects until all of the Senior Debt shall
have been paid in full in cash, rendering to the Holder any surplus to which the
Holder is then entitled.
At any such meeting of creditors or in the event of any such case or
proceeding, the Senior Lender shall have the sole right to vote and otherwise
act with respect to the Note (including, without limitation, the right to vote
to accept or reject any plan of partial or complete liquidation, reorganization,
arrangement, composition or extension).
As used herein,
"Senior Debt" shall mean all indebtedness, liabilities and
obligations of the Company for money borrowed from banks or other
financial institutions whether now outstanding or hereafter created or
incurred, including without limitation all obligations of the Company to
Fleet National Bank (successor by merger to Fleet National Bank of
Massachusetts, formerly known as Shawmut Bank, N.A.), direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, including without limitation all principal, interest,
fees, costs, enforcement expenses (including legal fees and
disbursements), collateral protection expenses and other reimbursement
or indemnity obligations created or evidenced by the Credit Agreement
between the Company and Shawmut Bank, N.A. dated as of March 6, 1995, as
amended, any prior, concurrent, or subsequent notes, instruments or
agreements of indebtedness, liabilities or obligations of any type or
form whatsoever relating thereto in favor of Fleet National Bank, and
any amendment, renewal, extension, increase or refinancing provided by
any lending institution or
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institutions of any indebtedness, liabilities and obligations of the
types referred to above and Senior Debt shall expressly include any and
all interest accruing or out of pocket costs or expenses incurred by the
Senior Lender after the date of any filing by or against the Company of
any petition under the United States Bankruptcy Code or any other
bankruptcy, insolvency or reorganization act.
"Senior Lender" shall mean Fleet National Bank, as well as any
successor thereof, or a representative designated by the holders of more
than 50% in principal amount of Senior Debt.
In the event that any payment of principal or interest or other payment
or distribution of assets of the Company shall be received by the Holder hereof
after the Holder shall have received notice of a Senior Debt Default and in
violation of the subordination provisions of this Note, such payment or
distribution shall be held in trust by the Holder hereof for the holder of the
Senior Debt, not commingled with any other assets of the Holder and promptly
paid over to the holder of the Senior Debt by the Holder hereof in the identical
form received with such endorsement as the Senior Lender may require.
Nothing contained herein is intended to or shall impair or affect the
relative rights of the Holder of this Note and creditors of the Company other
than the holder of Senior Debt, nor shall anything herein impair, as between the
Company and the Holder of this Note, the obligation of the Company, which is
unconditional and absolute, to pay the principal and interest on this Note in
accordance with its terms, nor shall anything herein prevent the Holder of this
Note from exercising all remedies otherwise permitted by applicable law upon its
declaration of a default in accordance with the provisions hereof and, subject
to the rights, if any, under these subordination provisions of the holders of
Senior Debt.
Nothing contained herein is intended to or shall impair or affect the
unilateral right of the Company and any holder of Senior Debt to establish or
vary the terms of their lending relationship and nothing contained herein shall
be construed as requiring the consent or approval of, or notice to, the Holder
hereof in connection therewith.
4. Conversion. Subject to and upon compliance with the provisions of the
Agreement, the Holder of this Note is entitled, at its option, at any time on or
before the close of business on May 1, 2001, or in case this Note or a portion
hereof is called for redemption, then in respect of this Note or such portion
hereof until and including, but (unless the Company defaults in making the
payment due upon redemption) not after, the close of business on the fifth
Business Day preceding the Redemption Date, to convert this Note (or any portion
of the principal amount hereof which is $50,000 or a higher integral multiple of
$25,000), at the principal amount hereof, or of such portion, into fully paid
and nonassessable shares (calculated as to each conversion to the nearest 1/100
of the share) of Common Stock of the Company at a conversion price equal to
$7.375 aggregate principal amount of Notes for each share of Common Stock (or at
the current adjusted conversion
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price if an adjustment has been made as provided in the Agreement) by surrender
of this Note, duly endorsed or assigned to the Company or in blank, to the
Company at its office or agency in Salem, New Hampshire or at any other office
or agency maintained by the Company for such purposes, accompanied by written
notice to the Company that the Holder hereof elects to convert this Note, or if
less than the entire principal amount hereof is to be converted, the portion
hereof to be converted. The Company's delivery to the Holder of the fixed number
of shares of Common Stock of the Company (and any cash in lieu of a fractional
share of such Common Stock) into which the Note is convertible shall be deemed
to satisfy the Company's obligation to pay the principal amount of the Note and
all accrued interest that has not previously been paid. The Common Stock of the
Company so delivered shall be treated as issued first in payment of accrued
interest and then in payment of principal. Thus, accrued interest shall be
treated as paid rather than cancelled, extinguished or forfeited. No fractions
of shares or scrip representing fractions of shares will be issued on
conversion, but instead of any fractional interest the Company shall pay a cash
adjustment as provided in the Agreement. The conversion price is subject to
adjustment as provided in the Agreement.
5. Redemption. Provided that the closing price of the Common Shares has
been at least 150% of the then Conversion Price for at least 20 Trading Days
within a period of 30 consecutive Trading Days prior to the notice of
redemption, the Notes are subject to redemption as a whole or from time to time
in part, at the election of the Company at any time on or after May 1, 1998,
upon not less than 20 nor more than 60 days' notice by mail, at the following
Redemption Prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning May 1 of the years indicated,
Redemption
Year Price
1998 106%
1999 104%
2000 102%
together in the case of any such redemption with accrued interest to the
Redemption Date.
In the event of redemption or conversion of this Note in part only, a
new Note or Notes for the unredeemed or unconverted portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
6. Events of Default. If one or more of the following Events of
Default are to occur and be continuing:
(a) The Company fails to pay any amount due hereunder when
due, but only to the extent that such payment is permitted by the terms
hereof, and in the case of a
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permitted payment, such failure continues for a period of ten (10) days
following the due date thereof; or
(b) The occurrence of an event of default as defined in
the Agreement between the Company and acceleration of the Notes as
provided therein;
then, the Holder of this Note, by written notice to the Company may declare the
principal amount of this Note immediately due and payable and, upon such a
declaration, the maturity of this Note will accelerate and it will become due
and payable, provided, however, that should Holder in any such Event declare
this Note due and payable and accelerate the Company's obligations hereunder,
any sums otherwise payable to or collectible by Holder shall nonetheless
continue to be subject to the subordination provisions hereof and shall be held
for the benefit of the holders of the Senior Debt pursuant to the subordination
provisions hereof.
7. Status of Registered Holder. The Company may treat the
registered Holder of this Note as the absolute owner of this Note for the
purpose of making payments of principal or interest and for all other purposes.
8. Notices. Any notice required or contemplated by this Note shall be
deemed sufficiently given if sent by registered or certified mail or by prepaid
overnight delivery to the Company at its principal office or to the registered
Holder at the Holder's address shown on the books of the Company or at such
other address as the registered Holder may designate in a notice for that
purpose and shall be deemed to have been given on the date such notice is
received.
9. No Waiver; Remedies. No failure to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof nor shall it
preclude any other or further exercise thereof. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10. Modification; Termination. Neither this Note nor any term of
this Note may be modified, waived, discharged, or terminated orally. This Note,
and any terms of this Note may be modified, waived, discharged or terminated
only with the written consent of the Holder, the Company and the Senior Lender.
11. Headings. The headings in this Note are solely for convenience of
reference and will not affect its interpretation.
12. Governing Law. This Note shall be governed by and construed
in accordance with the internal substantive laws of the Commonwealth of
Massachusetts applicable to agreements made and to be performed in that state.
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13. Seal. This Note shall have the effect of an instrument
executed under seal.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
an officer duly authorized as of the day and year above written.
STOCKER & YALE, INC.
By: _________________________________
Susan A. Sundell
Vice President, Finance and Treasurer
278186.c1
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STOCKER & YALE, INC.
32 Hampshire Road
Salem, New Hampshire 03079
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
7.25% CONVERTIBLE SUBORDINATED NOTES DUE MAY 1, 2001
May 1, 1996
To the Purchaser identified on
the signature page hereto
Gentlemen:
Stocker & Yale, Inc. a Massachusetts corporation with a principal place
of business at 32 Hampshire Road, Salem, New Hampshire 03079 (the "Company"),
agrees with you as follows (terms used below not otherwise defined in the text
are defined at Section 10 below):
SECTION 1. DESCRIPTION OF THE FINANCING AND NOTES
1.1 Authorization of Convertible Subordinated Notes. The Company has
authorized the issue of its 7.25% Convertible Subordinated Notes dated as of the
Closing Date, defined below, in the aggregate principal amount not to exceed
U.S. $3,000,000 in substantially the form of Exhibit A attached hereto (herein
the "Notes" and each a "Note"), due May 1, 2001 ("Maturity Date"), to bear
interest from the Closing Date at the rate of 7.25% payable quarterly in arrears
on the first day of August, November, February and May in each year, commencing
August 1, 1996 and at maturity.
1.2 Purchase and Sale of Notes. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of the
Company contained herein, you agree to purchase from the Company and the Company
agrees to sell to you, at the Closing, defined below, Notes in the principal
amount set opposite your name on Exhibit B attached hereto at purchase prices
set forth opposite your name on Exhibit B. In connection with the issue of the
Notes the Company has executed and delivered, agreements identical in
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all respects hereto with other purchasers of Notes in the initial closing named
on Exhibit B and may execute and deliver in a second Closing agreements
identical in all respects hereto with additional purchasers of Notes named on a
supplement to Exhibit B (such initial or additional purchasers referred to as
collectively the "Purchasers" or individually "Purchaser"); however the
transactions with you and such other Purchasers shall be considered separate
transactions. Notes shall bear the same interest rate regardless of whether
issued in the initial Closing or the second Closing but Notes issued in the
second Closing may have a different Conversion Price from Notes issued at the
initial Closing, dependent on changes in the market price for the Company's
Common Stock between the initial and the second Closing.
1.3 Closing. The initial closing (a "Closing") of the purchase and sale
of Notes contemplated by this Agreement shall take place on May 3, 1996 and a
second Closing may take place on or before May 30, 1996 or at such other time as
shall be mutually agreeable to the additional Purchasers and the Company (the
"Closing Date"). At the Closing, the Company shall deliver to you the Note to be
purchased by you made payable to you or your nominee (of which you should notify
the Company not less than two (2) business days prior to the Closing), against
payment of the purchase price therefor by certified or bank cashier's checks or
by wire transfer in immediately available funds. At the Closing, the Company
shall deliver to you a favorable opinion of its counsel Messrs. Goodwin, Procter
& Hoar LLP of Boston, Massachusetts relating to the authorization, issuance and
delivery of the Notes, and the Common Stock issuable on conversion of the Notes.
1.4 Registrar, Paying Agent and Conversion Agent. The Company shall
maintain at Salem, New Hampshire or such other location as may be designated by
the Company an office or agency where Notes may be presented for registration of
transfer or for exchange ("Registrar"), an office or agency where Notes may be
presented for payment ("Paying Agent") and an office or agency where Notes may
be presented for conversion ("Conversion Agent"). The Company shall initially
act as Registrar, Paying Agent and Conversion Agent. The Company may enter into
an appropriate agency agreement with any third-party Registrar, Co-Registrar,
Paying Agent or Conversion Agent (each, an "Agent") which agreement shall
implement the provisions of this Agreement that relate to such Agent. The
Company shall notify the each Holder of the name and address of any such Agent
prior to such Agent's engagement.
1.5 Paying Agent to Hold Money in Trust. Each Paying Agent shall hold
in trust for the benefit of Noteholders, without interest, all money held by the
Paying Agent for the payment of principal of or interest on the Notes. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money and
hold it as a separate trust fund for the benefit of the Noteholders.
1.6 Transfer and Exchange. When Notes are presented to the Registrar or
a co-Registrar with a request to register the transfer of such Notes or to
exchange such Notes for an equal principal amount of Notes of like kind in other
authorized denominations, the Registrar or co-Registrar shall register the
transfer or make the exchange if its requirements
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for such transactions are met; provided, however, that any Note presented or
surrendered for registration of transfer or exchange shall be duly endorsed and
accompanied by a written instruction of transfer in form satisfactory to the
Registrar duly executed by the Holder thereof or his attorney duly authorized in
writing. No service charge shall be made for any registration of transfer or
exchange, but the Company, require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith.
1.7 Replacement Notes. If a mutilated Note is surrendered to the
Company or if the Holder of a Note claims that the Note has been lost, destroyed
or wrongfully taken, the Company shall execute and deliver a replacement Note of
like kind if the Company's requirements are met. The Company may require an
indemnity bond, sufficient in the judgment of the Company, to protect the
Company, or any Agent from any loss which any of them may suffer if a Note is
replaced. The Company may charge such Holder for its expenses in replacing a
Note. Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Agreement.
SECTION 2. SUBORDINATION
2.1 Notes Subordinated to Senior Debt. The Company, for itself and its
successors, and each Holder, by its acceptance of the Notes, agrees, that the
payment of the principal of and interest on the Notes is subordinated in right
of payment, to the extent and in the manner provided in the Note, to the prior
payment in full of all Senior Debt.
This Section 2 shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Debt, and such provisions are made for the benefit of the holders of Senior
Debt, and such holders are made obligees hereunder and they and/or each of them
may enforce such provisions.
2.2 Certain Conversions Not Deemed Payment.
For purposes of this Section 2 only, (i) the issuance and a delivery of
Common Stock upon conversion of Notes shall not be deemed to constitute a
payment or distribution on account of the principal of (or premium, if any) or
interest on Notes or on account of the purchase or other acquisition of Notes,
and (ii) the payment of cash upon conversion of a Note shall be deemed to
constitute payment on account of the principal of such Note.
SECTION 3. REDEMPTION
3.1 Optional Redemption. If the Company elects, and is permitted, to
redeem Notes pursuant to Paragraph 5 of the Notes, it shall give notice to the
Purchaser or subsequent holder ("Holder") of the date fixed for such redemption
(the "Redemption Date") and the principal amount of Notes to be redeemed at
least 20 but not more than 60 days before the Redemption Date, as more fully set
forth below.
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3.2 Selection of Notes to be Redeemed. If less than all of the Notes
are to be redeemed, the Company shall select the Notes to be redeemed pro rata,
by lot or by such manner as the Company considers fair and appropriate (and in
such manner as complies with applicable legal and stock exchange requirements,
if any).
Notes and portions of them selected shall be in amounts of $50,000 or
higher integral multiples of $25,000. Notes in denominations of $50,000 may be
redeemed only in whole.
If any Note selected for partial redemption is converted in part before
the partial redemption is effected, the converted portion of such Note shall be
deemed (so far as may be) to be the portion selected for redemption. Notes which
have been converted during a selection of Notes to be redeemed shall be treated
as outstanding for the purpose of such selection.
3.3 Notice of Redemption to Holders. At least 20 days but not more than
60 days before a Redemption Date, the Company shall mail a notice of redemption
to each Holder of Notes to be redeemed. The notice shall identify the Notes to
be redeemed (including the serial numbers thereof in the event less than all of
the Notes are to be redeemed) and shall state:
(1) the redemption price as set forth in the Note and
the amount of accrued interest to be paid;
(2) the Redemption Date;
(3) the Conversion Price;
(4) the name and address of the Paying Agent and
Conversion Agent;
(5) that Notes called for redemption may be converted at any
time before the close of the fifth Business Day preceding the
Redemption Date, the Conversion Price then in effect, and the place or
places where the Notes may be surrendered for conversion;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on
and after the Redemption Date and that the only remaining right of the
Holders of such Notes is to receive payment of the Redemption Price
plus accrued and unpaid interest to the Redemption Date upon surrender
to the Paying Agent of the Notes redeemed;
(7) that Notes called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price; and
(8) if any Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that, after
the Redemption Date and upon
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surrender of such Note, a new Note or Notes in aggregate principal
amount equal to the unredeemed portion thereof will be issued.
3.4 Effect of Notice of Redemption. Once notice of redemption is
mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender to the Paying Agent, such Notes
called for redemption shall be paid at the Redemption Price, plus accrued and
unpaid interest to the Redemption Date.
3.5 Deposit of Redemption Price.
Not less than one Business Day prior to the Redemption Date, the
Company or its designee shall deposit with the Paying Agent in immediately
available U.S. Legal Tender money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date which have been surrendered
for conversion. The Paying Agent shall return to the Company any money not
required for that purpose, after payment of its fees and expenses and after any
other assurances it may reasonably require have been obtained. If any Note
called for redemption is converted, any money deposited with any Paying Agent or
so segregated and held in trust for the redemption of such Note shall (subject
to any right of the Holder of such Note to receive interest) be paid promptly to
the Company or, if then held by the Company, shall be discharged from such
trust.
If the Company complies with the preceding paragraph, interest on the
Notes to be redeemed will cease to accrue on the applicable Redemption Date,
whether or not such Notes are presented for payment. If any Note called for
redemption shall not be so paid upon surrender for redemption, interest will be
paid, from the Redemption Date until such Redemption Price is paid, on the
unpaid principal of and on any interest not paid on such unpaid principal, in
each case, at the rate provided in the Notes.
3.6 Notes Redeemed in Part. Upon surrender of a Note that is to be
redeemed in part, the Company shall execute and deliver to the Holder a new Note
of like kind equal in principal amount to the unredeemed portion of the Note
surrendered.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser that:
4.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and is qualified to do business as a foreign
corporation in the states of New Hampshire and Michigan and in each jurisdiction
where failure to so qualify would have a material adverse effect upon the
business of the Company. The Company has all requisite corporate power and
authority to own its property, to carry on its business as presently
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conducted and to carry out the transactions contemplated hereby.
4.2 Validity and Authorization. This Agreement is, and the Notes, when
delivered will be, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the judicial exercise of
equitable remedies. The execution, delivery and performance of this Agreement
and the Notes have been duly authorized by all necessary corporate or other
action of the Company.
4.3 Capitalization. The authorized and issued capital stock of the
Company is as set forth in Exhibit C attached hereto. Except as set forth in
said Exhibit, all of the presently outstanding shares of capital stock of the
Company are fully paid and nonassessable. The Company has authorized and
reserved 410,000 shares of its Common Stock for issuance upon conversion of the
Notes, and the shares issued upon such issuance will be, when duly paid for
according to their terms, validly authorized, issued and outstanding, fully paid
and nonassessable. Except as provided above or in said Exhibit, the Company has
issued no other shares of its Common Stock and there are no outstanding
warrants, options or other rights to purchase or acquire any of such shares.
There are no preemptive rights with respect to the issuance or sale of the
Company's Common Stock.
4.4 Financial Statements. The Purchaser has been furnished the audited
consolidated financial statement of the Company for the fiscal year ended
December 31, 1995, which statement is complete and correct in all material
respects, and fairly presents the financial position of the Company on a
consolidated basis on the date of such statements and the results of their
operations on the applicable basis for the periods covered thereby and has been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and prior periods.
4.5 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the latest balance sheet included in the
financial statements referred to in paragraph 4.4, and except for liabilities
arising in the ordinary course of its business since the date of said balance
sheet, the Company does not have any material accrued or contingent liability
arising out of any transactions or state of facts existing prior to the date
hereof.
4.6 Effect of Transactions. The execution, delivery or performance of
this Agreement and the agreements and transactions contemplated hereby will not
conflict with or result in any default under any contract, obligation,
commitment, charter provision, by-law or corporate restriction of the Company or
the creation of any lien, charge or encumbrance of any nature upon any of the
properties or assets of the Company except pursuant to this Agreement. The
transactions contemplated hereby will not result in a violation of any statute
or regulation of any federal, state or local government or agency.
4.7 Litigation. There is no litigation, suit, claim, or
governmental investigation pending or, to its knowledge, threatened against the
Company which if adversely determined
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would have a material adverse effect on the Company.
SECTION 5. COVENANTS
5.1 Payment of Notes. The Company shall pay the principal of, premium
(if any) and interest on the Notes on the dates and in the manner provided in
the Notes and the Redemption Price as and when due, in accordance with the terms
of the Notes and this Agreement.
5.2 SEC Reports.
(a) The Company shall furnish each Holder no later than it is
required to file with the SEC, copies of the quarterly and annual reports and of
the information, documents, and other reports (or copies of such portions of any
of the foregoing as the SEC may by rules and regulations prescribe) which the
Company may be required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act. If the Company is not subject to the requirements of Sections
13 or 15(d) of the Exchange Act, the Company shall furnish each Holder, no later
than it would have been required to file with SEC, financial statements,
including any notes thereto (and, in the case of a fiscal year end, an auditors'
report relating to such annual financial statements issued by an accounting firm
of nationally recognized reputation) and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," information, documents or
other reports comparable to that which the Company would have been required to
include in such quarterly or annual reports, as the case may be, if the Company
was subject to the requirements of such Sections 13 or 15(d) of the Exchange
Act.
(b) As long as the Notes remain outstanding, the Company shall
cause its annual reports to stockholders (no later than it is required to file
with the SEC copies of each such annual report) and any quarterly or other
financial reports furnished by it to stockholders pursuant to the Exchange Act
to be mailed to the Holders at their addresses appearing in the register of
Notes maintained by the Registrar. If the Company is not required to furnish
annual or quarterly reports to its stockholders pursuant to the Exchange Act,
the Company shall cause its financial statements referred to in Section 5.2(a)
above, including any notes thereto (and, in the case of a fiscal year end, an
auditors' report relating to such annual financial statements issued by an
accounting firm of nationally recognized reputation) and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," to be
so mailed to the Holders within 90 days after the end of each of the Company's
fiscal years and within 45 days after the end of each of the first three fiscal
quarters of each fiscal year.
5.3 Conduct of Business; Compliance with Laws. The Company will keep in
full force and effect its corporate existence and all material rights, licenses,
patents, copyrights, trademarks, trade names and franchises now held by it and
useful in its business and comply with all applicable laws and regulations in
the conduct of its business.
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5.4 Property Insurance. The Company will keep its insurable properties
insured by financially sound and reputable insurers against the perils of
liability, casualty, fire and extended coverage in amounts of coverage at least
equal to those customarily maintained by companies in the same or similar
businesses. The Company will also maintain with such insurers insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for corporations engaged in the same or a similar
business.
5.5 Maintenance of Properties. The Company will maintain all properties
used or useful in the conduct of its business in good repair, working order and
condition as necessary to permit such business to be properly and advantageously
conducted.
SECTION 6. PURCHASER REPRESENTATION AND RESALE RESTRICTIONS
6.1 Purchaser Representations and Covenants. By acceptance of a Note
(collectively with any shares of Common Stock issued upon conversion of the
Notes, the "Securities"), each Purchaser hereby represents and warrants to the
Company as follows:
(a) The Purchaser is acquiring the Securities as a principal for
purposes of investment only and not with a view toward resale or
distribution.
(b) The Purchaser represents that he or she is a sophisticated investor
and has such knowledge and experience that he or she is capable of
evaluating the risks and merits relating to an investment in the
Company and that he or she will be able to bear the loss of any
economic risk or loss. The Purchaser will have adequate means for
providing for his or her current needs and personal contingencies after
investing in the Securities.
(c) The Purchaser, if it is a corporation or other entity, acknowledges
that it, through the officer(s) and/or director(s) and/or other
employees responsible for making an investment decision with regard to
this purchase, has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative risks
and merits of this investment, and further acknowledges that the
representations and warranties contained in this Section 6 are true and
accurate with respect to it.
(d) The Purchaser, on his own behalf and, if applicable, on
behalf of any others for whom he is purchasing, understands and
acknowledges the following:
(i) the Securities have not been and, except as expressly set
forth in Section 9, will not be registered under the
Securities Act, and are subject to the restrictions on
transfer provided in the Agreement and under applicable laws,
rules and regulations; and
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(ii) the Securities may not be offered, sold, resold or
otherwise transferred except pursuant to an effective
registration statement or an applicable exemption from
registration under the Securities Act.
(e) The Purchaser hereby agrees to execute and deliver to the Company a
United States Internal Revenue Service Form W-9 and all such other
documents as may be necessary to comply with United States tax law.
(f) The Purchaser acknowledges that any delivery of information
relating to the Company and the Securities prior to the determination
by the Company of the suitability of the Purchaser as a Holder and
acceptance of this Agreement by the Company shall not constitute an
offer of Securities until such determination of suitability shall be
made.
6.2 Resale Restrictions. The Securities have not been registered under
the Securities Act and may not be offered, sold, resold or otherwise transferred
except pursuant to an effective registration statement under the Securities Act
or pursuant to an applicable exemption from registration under the Securities
Act. As a condition to any transfer, the Company may require an opinion of
counsel in form and substance satisfactory to the Company.
6.3 Restrictive Legends. Each Security shall be stamped or
otherwise imprinted with a legend in substantially the following form:
THIS SECURITY [AND THE SHARES THAT MAY BE ACQUIRED
UPON THE CONVERSION HEREOF] HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS SECURITY [AND ANY SUCH SHARES] MAY NOT
BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND SUCH STATE SECURITIES LAWS. TRANSFERABILITY OF
THIS SECURITY [AND SUCH SHARES] IS FURTHER LIMITED BY THE
PROVISIONS OF A CERTAIN CONVERTIBLE SUBORDINATED SECURITY
PURCHASE AGREEMENT DATED MAY 1, 1996, BETWEEN STOCKER & YALE,
INC. AND THE PURCHASER NAMED THEREIN AND COPIES OF SAID
AGREEMENT WILL BE FURNISHED AT NO CHARGE UPON WRITTEN REQUEST
AND ARE AVAILABLE FOR INSPECTION AT THE OFFICE OF STOCKER &
YALE, INC.
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SECTION 7. DEFAULT
7.1 Events of Default. If and whenever any of the following
events or actions (herein "Events of Default") shall occur, namely:
(a) If the Company shall default in the payment of
any installment of interest on any Note for more than 10 days after the
same shall have become due and payable; or
(b) If the Company shall default in the performance
of or compliance with any provisions of this Agreement or of any
certificate, document or instrument delivered to the Purchaser in
connection with the transactions contemplated by this Agreement, and
such default shall not have been remedied within thirty (30) days after
the occurrence thereof; or
(c) If any representation or warranty made or given
by the Company in this Agreement or in any certificate, document or
instrument furnished to the Purchaser in connection with the
transactions contemplated by this Agreement shall prove to have been
false or incorrect in any material respect as of the date made; or
(d) If the Company, shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to pay
its debts as they become due, or shall file a voluntary petition in
bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall
file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, dissolution or similar relief
under any present or future statute, law or regulation, or shall file
any answer admitting the material allegations of a petition filed
against the Company in any such proceeding, or shall seek or consent to
or acquiesce in the appointment of any trustee, receiver or liquidator
of the Company or of all or any substantial part of the properties of
the Company, or the Company or its directors or majority stockholders
shall take any action looking to the dissolution or liquidation or
suspension of the business of the Company; or
(e) If within sixty (60) days after the commencement
of any proceeding against the Company seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any present or future statute, law or regulation,
such proceeding shall not have been dismissed, or if, within sixty (60)
days after the appointment without the consent or acquiescence of the
Company of any trustee, receiver or liquidator of the Company or of all
or any substantial part of the properties of the Company, such
appointment shall not have been vacated; or
7.2 Remedies upon Default. If any Event of Default under Section 7.1(b)
or (c) shall occur the holders of at least 51% of the outstanding principal
amount of all Notes may by written notice to the Company declare the principal
amount of the Notes to be due and
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payable. The Note shall automatically become immediately due and payable upon
the occurrence of an event of Default under Sections 7.1(d) and 7.1(e). Upon the
occurrence of an Event of Default under Section 7.1(a), the Holder of any Note
may declare the principal amount of such Note to be due and payable. Subject to
the foregoing and subject to the subordination provisions in the Note,
thereafter, the Holder of any such accelerated Note may proceed to protect and
enforce its rights under this Agreement and the Note by a suit in equity, action
at law or other appropriate proceeding whether for the specific performance of
any agreement contained herein or in the Note or for an injunction against a
violation of any of the terms or provisions hereof or thereof, or in aid of the
exercise of any power granted hereby or thereby or at law; provided, however,
than any sums otherwise payable to or collectible by the Holder shall be subject
to the subordination provisions of the Note and be held for the benefit of
holders of Senior Debt as provided in the Note. No course of dealing or delay on
the part of any such Holder in exercising any right shall operate as a waiver
thereof or otherwise prejudice the rights of such Holder and no consent or
waiver shall extend beyond the particular case and purpose involved. No remedy
conferred hereby or by the Notes shall be exclusive of any other remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise.
7.3 Waiver of Past Defaults. The Holder or Holders of at least a
majority of the aggregate principal amount of the outstanding Notes by notice to
the Company may waive on behalf of Holders of all the Notes an existing Event of
Default and its consequences, except a Default in the payment of interest on any
Note as specified in Section 7.1(a). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Agreement; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 8. CONVERSION OF NOTES
8.1 Right to Convert. Subject to and upon compliance with the
provisions of this Section 8, a Holder shall have the right, at its option, at
any time on or before the Maturity Date (except that, with respect to any Note
or portion of a Note which shall be called for redemption, such right shall
terminate at the close of business on the fifth Business Day preceding the date
fixed for redemption of such Note or portion of a Note unless the Company shall
default in payment due upon redemption thereof) to convert the principal amount
of any Note or any portion of such principal amount which is $50,000 or higher
integral multiple of $25,000, into that number of fully paid and non-assessable
shares (calculated as to each conversion to the nearest 1/100 of a share) of
Common Stock (as such shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for conversion by
the Conversion Price (as defined in Section 8.4 hereof) then in effect, by
surrender of the Note so to be converted in whole or in part in the manner
provided in Section 8.2. A Holder is not entitled to any rights of a holder of
Common Stock until such Holder has converted such Notes.
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8.2 Exercise of Conversion Privilege; Issuance of Common Stock on
Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege, the Holder shall surrender such Note to the Conversion
Agent, and shall give written notice of conversion in the form provided on
Exhibit D hereto (or such other notice which is acceptable to the Company) to
the Company at such office or agency that the holder elects to convert such Note
or the portion thereof specified in said notice. Such notice shall also state
the name or names (with address) in which the certificates for shares of Common
Stock which shall be issuable on such conversion shall be issued, and shall be
accompanied by transfer taxes, if required pursuant to Section 8.8. Each Note
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such Note, be duly endorsed
by, or be accompanied by instruments of transfer in form satisfactory to the
Company duly executed by, the holder or his duly authorized attorney.
As promptly as practicable after the surrender of such Note and the
receipt of such notice and funds, if any, as aforesaid, the Company shall issue
and shall deliver at such office or agency to such Holder, or on his written
order, a certificate or certificates for the number of full shares of Common
Stock issuable upon the conversion of such Note or portion thereof in accordance
with the provisions of this Section 8 and a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 8.3. In case any Note of a denomination
greater than $50,000 shall be surrendered for partial conversion, the Company
shall execute and deliver to or upon the written order of the Holder of the Note
so surrendered, without charge to him, a new Note or Notes in authorized
denomination in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.
Each conversion shall be deemed to have been effected on the date on
which such Note shall have been surrendered and such notice shall have been
received by the Company, as aforesaid, and the person in whose name any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become on said date the holder of record
of the shares of Common Stock represented thereby; provided, however, that if
any such surrender is made on a date when the stock transfer books of the
Company shall be closed, the person in whose name the certificates are to be
issued shall become the record holder thereof for all purposes on the next
succeeding day on which such stock transfer books are open, but such conversion
shall be at the Conversion Price in effect on the date upon which such Note
shall have been surrendered.
8.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon
conversion of Notes. If more than one Note shall be surrendered for conversion
at one time by the same holder, the number of full shares which shall be
issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered. If any fractional share of stock would be
issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment therefor in cash at the current market value thereof. The market
value of a share of Common Stock shall be the average of
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the last reported sales prices for the twenty consecutive Trading Days
immediately preceding the day on which the Notes (or specified portions thereof)
are deemed to have been converted.
8.4 Conversion Price. The Conversion Price shall be as
specified in the form of Note set forth in Exhibit A hereto, subject to
adjustment as provided in this Section 8.
8.5 Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time by the Company as follows:
(a) In case the Company shall (i) declare a dividend, or make
a distribution, in shares of its Common Stock, on any shares of its
Capital Stock, (ii) subdivide or reclassify its outstanding Common
Stock into a greater number of shares, (iii) combine its outstanding
Common Stock into a smaller number of shares, (iv) make a distribution
on its Common Stock in shares of its Capital Stock other than Common
Stock or (v) issue by reclassification of its Common Stock shares of
its Capital Stock, the conversion privilege and the Conversion Price in
effect immediately prior thereto shall be adjusted so that the holder
of any Note thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other Capital Stock of
the Company which he would have owned or have been entitled to receive
after the happening of any of the events described above had such Note
been converted immediately prior to the happening of such event. An
adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective
date in the case of subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above
shall occur. In the event such dividend, issue or distribution is not
so made, the conversion privilege and the Conversion Price then in
effect shall be readjusted to the conversion privilege and the
Conversion Price which would then be in effect if such dividend, issue
or distribution had not been declared or made.
(b) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this Section 8.5(b) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(c) Anything in this Section 8.5 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Conversion Price, in addition to those required by this Section
8.5, as it in its discretion shall determine to be advisable in order
that any stock dividends, subdivision of shares, distribution of rights
to purchase stock or securities, or a distribution of securities
convertible into or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
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(d) Whenever the Conversion Price is adjusted, as herein
provided, the Company shall promptly file with any Conversion Agent an
Officers' Certificate setting forth the Conversion Price after such
adjustment and setting forth in reasonable detail the facts requiring
such adjustment. Promptly after delivery of such certificate, the
Company shall prepare a notice of such adjustment of the Conversion
Price setting forth the adjusted Conversion Price and the date on which
such adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Note at his
last address appearing on the Note register maintained by the
Registrar.
(e) In any case in which this Section 8.5 provides that an
adjustment shall become effective immediately after a record date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the Holder of any Note converted after such record date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii) paying
to such Holder any amount in cash in lieu of any fraction pursuant to
Section 8.3.
8.6 Effect of Reclassification, Consolidation, Merger or Sale. If any
of the following events occur, namely (i) any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of the Notes (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Company with another corporation shall be
effected as a result of which holders of Common Stock issuable upon conversion
of the Notes shall be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for such Common Stock or
(iii) any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation, then the Company or such
successor or purchasing corporation, as the case may be, shall execute a
supplemental agreement providing that each Note shall be convertible into the
kind and amount of shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of a number of shares of Common Stock
issuable upon conversion of such Notes immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
supplemental agreement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
8. The Company shall cause notice of the execution of such supplemental
agreement to be mailed to each Holder at his address appearing on the Note
register maintained by the Registrar. If securities deliverable upon conversion
of Notes as provided above, are themselves convertible into the securities of an
affiliate of the formed surviving transferee corporation, the issuer shall join
in the supplemental agreement which shall so apply.
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If this Section 8.6 applies with respect to a transaction, Section 8.5
shall not apply with respect to that transaction.
The above provisions of this Section shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
8.7 Voluntary Adjustment. The Company at any time may decrease the
Conversion Price, temporarily or otherwise, but in no event shall such decrease
result in a Conversion Price less than the par value of the Common Stock at the
time such decrease is made.
Whenever the Conversion Price is decreased pursuant to this Section
8.7, the Company shall mail to the Holders a notice of the decrease. The Company
shall mail the notice at least 15 days before the date the decreased Conversion
Price takes effect. The notice shall state the decreased Conversion Price and
the period it will be in effect.
8.8 Taxes on Shares Issued. The issue of stock certificates upon
conversion of Notes shall be made without charge to the converting Noteholder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the Holder of
any Note converted, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
8.9 Reservation of Shares; Shares to be Fully Paid; Compliance with
Governmental Requirements; Listing of Common Stock. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued shares, or out of shares held in its treasury,
sufficient shares to provide for the conversion in full of all Notes from time
to time as such Notes are presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Notes, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted Conversion Price. In no event, however, shall shares of Common Stock be
issued at below par value.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and nonassessable
by the Company and free from all taxes, liens and charges with respect to the
issue thereof.
8.10 Notice to Holders Prior to Certain Actions.
In case:
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(1) the Company shall declare a dividend (or any
other distribution) on its Common Stock, subdivide or reclassify its
outstanding Common Stock into a greater number of shares or combine its
outstanding Common Stock into a smaller number of shares; or
(2) the Company shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of Capital Stock of any class or other securities;
or
(3) the Company shall effect any reclassification or
change of the Common Stock of the Company (other than a subdivision or
combination of its outstanding Common Stock, or a change in par value,
or from par value to no par value, or from no par value to par value)
or, of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or
of the sale or transfer of all or substantially all of the assets of
the Company; or
(4) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
the Company shall cause notice of such proposed action or event to be mailed to
each Holder at his address appearing on the Note register maintained by the
Registrar, as promptly as possible but in any event at least 20 days prior to
the record date or expected effective date. In any event, such notice shall
specify the record date for the purpose of and the date any such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up or other event is expected to commence or become
effective. Failure to give such notice, or any defect therein, shall not affect
the legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation, winding-up or
termination.
SECTION 9. REGISTRATION RIGHTS.
9.1 "Piggy-Back" Registration Rights. If at any time or times after the
Closing Date, the Company shall determine or be required to register any shares
of its Common Stock for sale under the Securities Act (whether in connection
with a public offering of securities by the Company, a public offering of
securities by stockholders of the Company, or both, but not in connection with a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the SEC under the
Securities Act is applicable), the Company will promptly give written notice
thereof to the Holders. In connection with any such registration, if within 20
days after the receipt of such notice one or more Holders, request the inclusion
of some of all of the Registrable Securities (but not any other shares) held by
them in such registration, the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which such
Holders
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request to be registered in a writing delivered to the Company within 20 days
after the notice given by the Company; provided however, that in the case of the
first two such registrations, the Company may limit the number of Registrable
Securities to be included in such registration to 50% of the total number of
Registrable Securities. "Registrable Securities" means the Common Stock issued
or issuable upon conversion of the Notes; provided, however, that any such
Common Stock shall cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared effective and
such Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) such Registrable Securities become eligible for
sale pursuant to any provision of 144 (or any similar provision then in force)
under the Securities Act or (iii) such Common Stock cease to be outstanding.
In the case of the registration of shares of Common Stock by the
Company in connection with an underwritten public offering, (i) the Company
shall not be required to include any Registrable Securities in such underwriting
unless the Holders thereof accept the terms of the underwriting as agreed upon
between the Company and the underwriter or underwriters selected by it, and (ii)
if the underwriter(s) determines that marketing factors require a limitation on
the number of Registrable Securities to be offered, the Company shall not be
required to register Registrable Securities of the Holders in excess of the
amount, which the principal underwriter of such underwritten offering shall
reasonably and in good faith agree to include in such offering in excess of any
amount to be registered for the Company, and in the event of any such
limitation, the number of Registrable Securities of any Holder requesting
inclusion in such registration shall be based pro rata the relative holdings of
Registrable Securities of all Holders requesting such registration.
All expenses relating to the registration and offering of Registrable
Securities pursuant to this Section 9.1 shall be borne by the Company, except
that the Holders shall bear underwriting and selling commissions attributable to
their Registrable Securities being registered and any transfer taxes on shares
being sold by such Holders.
9.2 Required Registration. If on any one occasion not later than the
second anniversary of the Closing Date Holders of a majority in interest of the
Notes and Registrable Securities shall notify the Company in writing that they
intend to offer or cause to be offered for public sale all or any portion of
their Registrable Securities, the Company will notify all of the Holders of such
notification. Upon the written request of any such Holder delivered to the
Company within 20 days after receipt from the Company of such notification, the
Company will either (i) elect to make a primary offering, in which case the
rights of such Holders shall be as set forth in Section 9.1 above (except that
the Company shall not be permitted to limit the number of shares which may be
registered by any Holder except as the Holders may otherwise consent in their
sole discretion, provided that any such limitation shall be effected on a pro
rata basis based on the relative ownership of Common Stock of such requesting
Holders), or (ii) use its best efforts to cause such of the Registrable
Securities as may be requested by any Holders (including the Holder or Holders
giving the initial notice of intent to register) to be registered under the
Securities Act in accordance with the terms of this
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Section 9.2. All expenses of such registrations and offerings (other than
underwriting and selling commissions attributable to the Registrable Securities)
in connection with any registration pursuant to this Section 9.2 shall be borne
by the Company. The Company may postpone the filing of any registration
statement required under this Section 9.2 for a reasonable period of time, not
to exceed 60 days during any twelve-month period, if the Company has been
advised by legal counsel that such filing would require a special audit or the
disclosure of a material impending transaction or other matter and the Company
determines reasonably and in good faith that such disclosure would have a
material adverse effect on the Company. The Company shall not be required to
cause a registration statement requested pursuant to this Section 9.2 to become
effective prior to 90 days following the effective date of a registration
statement initiated by the Company, if the request for registration has been
received by the Company subsequent to the giving of written notice by the
Company, made in good faith, to the Holders to the effect that the Company is
commencing to prepare a company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly.
9.3 Further Obligations of the Company. Whenever under the preceding
Sections 9.1 and 9.2 the Company is required to register any Registrable
Securities, it agrees that it shall also do the following:
(a) Use its best efforts (with due regard to the management of the
ongoing business of the Company) to diligently prepare and file with the SEC a
registration statement and such amendments and supplements to said registration
statement and the prospectus used in connection therewith as may be necessary to
keep said registration statement effective and to comply with the provisions of
the Securities Act with respect to the sale of securities covered by said
registration statement for the lesser of (i) 90 days or (ii) the period
necessary to complete the proposed public offering;
(b) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of its or his Registrable Securities;
(c) Enter into any reasonable underwriting agreement required by
the proposed underwriter for the selling Holders, if any;
(d) Use its best efforts to register or qualify the securities covered
by said registration statement under the securities or "blue-sky" laws of such
jurisdictions as any selling Holders may reasonably request, provided that the
Company shall not be required to register or qualify the securities in any
jurisdictions which require it to qualify to do business or subject itself to
general service of process therein;
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(e) Immediately notify each selling Holder, at any time when a
prospectus relating to its or his Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment of
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus willing not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(f) Cause all such Registrable Securities to be listed on each
securities exchange or quoted in each quotation system on which similar
securities issued by the Company are then listed or quoted.
9.4 Indemnification and Contribution.
(a) Incident to any registration statement referred to this
Section 9, and subject to applicable law, the Company will indemnify and hold
harmless each underwriter, each Holder of Registrable Securities (including its
respective directors, officers, employees and agents) so registered, and each
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, expenses and liabilities, joint or several (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
(including any related preliminary or definitive prospectus, or any amendment or
supplement to such registration statement or prospectus), (ii) any omission or
alleged omission to state in such document a material fact required to be stated
in it or necessary to make the statements in it not misleading, or (iii) any
violation by the Company of the Securities Act, any state securities or "blue
sky" laws or any rule or regulation thereunder in connection with such
registration, provided, however, that the Company will not be liable to the
extent that such loss, claim, damage, expense or liability arises from and is
based on (A) an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information furnished in
writing to the Company by such underwriter, Holder or controlling person
expressly for use in such registration statement or (B) any preliminary
prospectus, to the extent that any such loss, claim, damage or liability results
solely from an untrue statement of a material fact contained in, or the omission
of a material fact from, such preliminary prospectus which untrue statement or
omission was corrected in the final prospectus.
With respect to any such untrue statement or omission or alleged untrue
statement or omission in the information furnished in writing to the Company by
such Holder expressly for use in such registration statement, such Holder will
indemnify and hold harmless each
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underwriter, the Company (including its directors, officers, employees and
agents), each other Holder of Registrable Securities (including its respective
directors, officers, employees and agents) so registered, and each person who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise to the
same extent provided in the immediately preceding sentence.
(b) If the indemnification provided for in Section 9.4(a) above for any
reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
9.4, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
selling Holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
selling Holders and the underwriters shall be deemed to be in the same
respective proportions as the net proceeds from the offering (before deducting
expenses) received by the Company and the selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the selling Holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the selling Holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, the Holders, and
the underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9.4(b) were determined by pro rata or per capita
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person found guilty of fraudulent misrepresentation (within the meaning of
Section 9(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(c) The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in this Section 9.4
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. The
indemnification and contribution provided for in this Section 9.4 will remain in
full force
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and effect regardless of any investigation made by or on behalf of the
indemnified parties or any officer, director, employee, agent or controlling
person of the indemnified parties.
9.5 Restrictions on Sale. In the event of an underwritten public
offering for the account of the Company, upon the written request (the "Lock-up
Request") of the managing underwriter (or underwriters) of such offering, each
Holder agrees not to effect any public sale or distribution of any securities
similar to those being registered in such offering (other than pursuant to such
offering), including, without limitation, through sales of securities pursuant
to a registration statement filed pursuant to Section 9.1 or 9.2, during the 14
days prior to, and during the 180-day period beginning on the effective date of
the registration statement relating to such underwritten public offering (the
"Lock-up Period"); provided, however, that the Holders shall not be required to
comply with such Lock-up Request unless the Company simultaneously demands
analogous restrictions on sale and uses all reasonable efforts to obtain from
all other persons who are contractually bound with the Company to comply with
such Lock-up Requests and from the Company's directors. In the event of the
delivery of a Lockup Request, the time periods for which a resale registration
statement is required to be kept effective pursuant to Section 9.3 hereof shall
be extended by the number of days during the Lock-up Period.
SECTION 10. DEFINITIONS
"Affiliate" means, with respect to any referenced Person, (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total outstanding
Voting Stock of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total outstanding Voting Stock (or in the case of a
Person which is not a corporation, 10% or more of the equity interest) directly
or indirectly through one or more intermediaries is beneficially owned or held
by such referenced Person, or a Subsidiary of such referenced Person. When used
herein without reference to any Person, Affiliate means an Affiliate of the
Company. For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power, alone or together with others, to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-Registrar.
"Agreement" means this convertible Subordinated Note Purchase
Agreement, as amended from time to time.
"Business Day" means a day that is not a Legal Holiday.
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"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of corporate stock of such Person, including each class of common stock and
preferred stock and any rights (other than debt securities convertible into
capital stock), warrants or options exchangeable for or convertible into such
capital stock.
"Closing" - see Section 1.3.
"Closing Date" - see Section 1.3.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company authorized at the date of this Agreement and stock of any other
class into which such presently authorized Common Stock, $.001 par value per
share, may be changed.
"Company" means Stocker & Yale, Inc., a Massachusetts corporation.
"Conversion Agent" - see Section 1.4.
"Conversion Price" - see Section 8.4.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Event of Default" - see Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder, each as amended from time to time.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America at the time such principles are being applied
pursuant to this Agreement.
"Holder" or "Noteholder" means the person in whose name a Note is
registered on the Registrar's books.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Legal Holiday" means with respect to a particular place of payment a
Saturday or Sunday or a day on which banking institutions at such place are not
required to be closed.
"Lock-up Period - see Section 9.5.
"Lock-up Request" - see Section 9.5.
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"Maturity Date" means May 1, 2001.
"Notes" means the 7.25% Convertible Subordinated Notes due May 1, 2001.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer, the Treasurer, the Secretary, the Clerk
or the Controller of the Company.
"Officers' Certificate" means a certificate signed by any two Officers
of the Company.
"Paying Agent" - see Section 1.4.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or political subdivision, agency or instrumentality
thereof or other entity or organization of any kind.
"Purchaser" - see Section 1.2.
"Redemption Date," - see Section 3.1.
"Redemption Price," when used with respect to any Note to be redeemed,
means the price fixed for such redemption pursuant to this Agreement as set
forth in such Note.
"Registrable Notes" - see Section 9.1.
"Registrar" - see Section 1.4.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, each as amended from time to time.
"Securities" - see Section 6.1.
"Senior Debt" shall have the meaning provided in the Note.
"Subsidiary" means (i) a corporation a majority of whose capital stock
with voting power, under ordinary circumstances, to elect directors is, at the
time, directly or indirectly, owned by the Company, by a Subsidiary or
Subsidiaries of the Company (as the case may be) or by the Company (as the case
may be) and a Subsidiary or Subsidiaries of the Company (as the case may be) or
(ii) any other Person (other than a corporation) in which the Company, one or
more Subsidiaries of the Company (as the case may be), or the Company (as the
case may be) and one or more of its Subsidiaries (as the case may be), directly
or indirectly, at the
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date of determination thereof, has at least a majority ownership interest. When
used herein without reference to any Person, "Subsidiary" means a subsidiary of
the Company.
"Trading Days" with respect to Common Stock means (i) if the Common
Stock is listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business or (ii) if
the Common Stock is quoted on the NASDAQ National Market System or any similar
system of automated dissemination of quotations of securities prices, days on
which trades may be made on such system.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to vote for the election of directors, managers or trustees of any
Persons (irrespective of whether or not at the time stock of any class or
classes will have or might have, voting power by the reason of the happening of
any contingency).
SECTION 11. MISCELLANEOUS
11.1 Survival of Representations. The representations, warranties,
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery thereof
and of the Notes and all statements contained in any certificate or other
document delivered by the Company hereunder or in connection herewith shall be
deemed to constitute representations and warranties made by the Company herein.
11.2 Place of Payment. The Company will pay the interest and premium on
and any prepayments of principal of the Notes without any presentment thereof
and without notation of such payment being made thereon, notwithstanding any
contrary provisions of this Agreement or the Notes, by check duly mailed to the
Holder at the address shown at the beginning of this Agreement or in accordance
with any unrevoked written direction from the Holder to the Company. Each Holder
agrees that, prior to the sale or transfer of any Note, such Holder shall either
(i) surrender said Note to the Company in exchange for a new Note in the
principal amount equal to the unpaid balance of principal of the Note
surrendered and otherwise having the same terms and provisions of the Note
surrendered or (ii) make a notation on said Note of the extent to which payment
has been made on account of the principal thereof and furnish the Company with a
certificate stating that such notation has been made. Each Holder further agrees
to promptly notify the Company of the name and address of any transferee of any
Notes issued to such Holder, if such transferee is known to such Holder.
11.3 Amendments and Waivers. Changes in or additions to this
Agreement or the Notes may be made or compliance with any term, covenant,
agreement, condition or provision
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set forth herein or therein may be omitted or waived (either generally or in a
particular instance and either retroactively or prospectively), or
representatives to act on behalf of the holders of all of the Notes may be
designated, upon written consent of the Company and the holders of at least 51%
of the face amount of Notes, respectively, then outstanding; provided, however,
that no change shall be made in the Subordination provisions of the Note without
the consent of the holder of Senior Debt; and provided further the Holder will
not accept, hold or demand collateral for the Note; and provided further that no
change, addition, omission or waiver which causes any change in or extension of
the time of payment of the principal amount of, or the reduction of the
principal amount of, or reduction of the rate of interest on, or the extension
of the time of payment of interest on, any Note, or causes any change in the
subordination provisions applicable to any Note, shall be made without the
written consent of the holder of such Note.
11.4 Governing Law. This Agreement and the Notes shall be deemed a
contract made under the laws of The Commonwealth of Massachusetts and together
with the rights and obligations of the parties hereunder, shall be construed
under and governed by the laws of such state.
11.5 Notices. All notices, requests, consents and demands shall be in
writing and shall be mailed, postage prepaid, to the Company or to the Holder at
their respective addresses first above written or to such other address as may
be furnished in writing to the other party hereto.
11.6 Binding Effect. This Agreement be binding upon, and inure to
the benefit of the Company and the Purchaser and their respective successors
and assigns.
11.7 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
11.8 Effect of Headings. The section and paragraph headings herein
are for convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF this Agreement has been executed as a sealed
instrument as of May 1, 1996 by the duly authorized representatives of the
Company.
STOCKER & YALE, INC.
Corporate Seal
By ______________________________
ATTEST:
25
<PAGE>
Clerk
CONFIRMED AND ACCEPTED:
_______________________________
Purchaser
273791.c7
26
EXHIBIT 10.1
STOCKER & YALE 1996 PROFIT SHARING PLAN
1. Stocker & Yale, Inc. will distribute a percentage of 1996 Earnings Before
Interest and Tax ("EBIT") to a group of its employees.
2. EBIT will be calculated according to Generally Accepted Accounting
Principles for each of the two U.S operating divisions as consolidated and
presented in the audited Financial Statements for the Year Ending December
31, 1996.
3. All employees who work a regularly scheduled work week and who are employed
by the Company at December 31, 1996 will be eligible to participate in the
plan, with the following exceptions: (a) temporary employees, and (b)
Executive Officers and Directors of the Company.
4. A Profit Sharing Pool will be created for each of the operating divisions
based on the following formulae:
Stilson / DieDraulic Division 4% of EBIT
Salem Division 10% of EBIT
5. Distribution will be made as soon as possible after the receipt of audited
financial statements, but in no case later than April 30, 1996. No profit
sharing distributions will be made to individuals who are not employed by
the Company as of the distribution date.
6. An amount equal to a minimum of 80% of the Profit Sharing Pool for each
division will be distributed to individual participants on the basis of
1996 W-2 income. [ Individual Distribution = (a) 80% of (b) the Profit
Sharing Pool for his/her division, multiplied by (c) an individual's W-2
income, divided by (d) the amount equal to the sum of W-2 income for all
individuals qualified to participate and receive distributions under the
plan. ]
The remainder of up to 20% of the Profit Sharing Pool for each division
will be distributed to employees on the basis of merit at the discretion of
senior management.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL
STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<PERIOD-TYPE> 3-MOS 12-MOS
<CASH> 13,269 22,033
<SECURITIES> 0 0
<RECEIVABLES> 3,203,730 2,897,943
<ALLOWANCES> 0 0
<INVENTORY> 3,939,452 3,836,653
<CURRENT-ASSETS> 6,610,525 6,239,605
<PP&E> 3,282,514 3,365,949
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 19,963,631 19,780,970
<CURRENT-LIABILITIES> 5,425,334 5,093,440
<BONDS> 0 0
<COMMON> 0 0
0 0
1,713 1,713
<OTHER-SE> 8,538,602 8,622,785
<TOTAL-LIABILITY-AND-EQUITY> 19,963,631 19,780,970
<SALES> 3,101,126 3,288,818
<TOTAL-REVENUES> 3,101,126 3,288,818
<CGS> 1,945,159 2,025,899
<TOTAL-COSTS> 1,945,159 2,025,899
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 152,169 154,423
<INCOME-PRETAX> (90,983) 112,532
<INCOME-TAX> (6,800) 72,200
<INCOME-CONTINUING> (84,183) 40,332
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (84,183) 40,332
<EPS-PRIMARY> (0.05) 0.03
<EPS-DILUTED> (0.05) 0.03
</TABLE>
