As filed with the Securities and Exchange Commission on August 22, 1996
Registration Statement No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------
STOCKER & YALE, INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 3815 04-2114473
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
-------------------------------
32 Hampshire Road
Salem, New Hampshire 03079
(603) 893-8778
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive office)
-------------------------------
Mark W. Blodgett
Chairman and Chief Executive Officer
Stocker & Yale
32 Hampshire Road
Salem, New Hampshire 03079
(603) 893-8778
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------------
Copies to:
Stuart M. Cable, Esq.
Goodwin, Procter & Hoar llp
Exchange Place
Boston, Massachusetts 02109
(617) 570-1000
-------------------------------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement
becomes effective.
-------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is filed to register additional securities for post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, please check
the following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed
Title of Each Proposed Maximum Amount of
Class of Amount Maximum Aggregate Registration
Securities to Be to Be Offering Offering Fee
Registered Registered Price (1) Per Share Price
Common Stock, $0.001
par value.............. 750,000 $5.25 $3,937,500 $1,360
================================================================================
-------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933, as amended.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
================================================================================
<PAGE>
Subject to Completion, dated August 22, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
750,000 Shares
[Logo]
STOCKER & YALE, INC.
Common Stock
($0.001 par value)
-------------------
All of the 750,000 shares (the "Shares") of common stock, par value
$0.001 per share (the "Common Stock") of Stocker & Yale, Inc. ("Stocker & Yale"
or the "Company") are being offered (the "Offering") by the Company. The Shares
offered hereby are being offered at market prices then prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. The Shares offered hereby may be offered and sold to different
purchasers at different times. The Company may sell Shares offered hereby
through one or more selling agents, and may also sell Shares directly to
purchasers. See "Plan of Distribution."
The Common Stock is listed on the Nasdaq SmallCap Market under the
symbol "STKR." On August 15, 1996, the last sale price for the Common Stock
reported by the Nasdaq SmallCap Market was $5.25 per share. See "MARKET FOR
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS." The Company intends to apply for
the listing of the Shares offered hereby on the Nasdaq SmallCap Market.
See "PLAN OF
DISTRIBUTION."
See "RISK FACTORS" on page 6 for a discussion of certain factors that
should be considered in connection with an investment in the Shares offered
hereby.
The Company expects to use the net proceeds of the Offering to provide
funds for (i) certain capital expenditure requirements relating to the
development of a fiber optic illumination product line and (ii) capital, capital
expenditures, possible acquisitions and general corporate purposes. See "USE OF
PROCEEDS."
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Public Commissions(1) Proceeds to Company(2)
Per Share........ $ $ $
Total Minimum.... $ $ $
Total Maximum.... $ $ $
================================================================================
(1) In the event that Shares offered hereby are sold through any selling
agent, the Company may agree to indemnify the selling agent against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Plan of Distribution."
(2) Before deducting estimated offering expenses payable by the Company of
$__________.
-------------------------------
The Shares are being offered on a best efforts basis by the Company and
may be offered with the assistance of one or more selling agent. There is a
minimum required purchase of 5,000 Shares per purchaser. There is no arrangement
to place the funds received in this Offering in escrow, trust or other similar
arrangement. The date of the termination of this Offering is October __, 1996.
-------------------------------
August __, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is currently subject to the informational reporting
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Commission's following Regional Offices: Northwestern Atrium
Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60604 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, and such
electronic versions are available to the public at the Commission's World Wide
Web Site, http://www.sec.gov. The Common Stock of the Company is traded on the
Nasdaq SmallCap Market.
The Company has filed with the Commission a Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration
Statement, certain parts of which are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the securities covered hereby,
reference is made to the Registration Statement and to the exhibits thereto
filed as a part thereof.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "RISK FACTORS." Investors
should carefully consider the information set forth under "RISK FACTORS" prior
to making a decision to purchase Shares in the Offering.
The Company
Stocker & Yale, Inc. ("Stocker & Yale" or the "Company") is a
diversified manufacturing company engaged predominantly in the production of
industrial fluorescent lighting products, thermal printers and recorders, and
machine tool components. The Company operates in two company-owned facilities in
Salem, New Hampshire and Fraser, Michigan. See "BUSINESS."
For over 50 years, the Company's Stilson/Die-Draulics Division ("SDD
Division"), located in Fraser, Michigan, has manufactured a wide range of
machine tool components and material handling accessories which are used
extensively in the construction and maintenance of assembly and conveying
machinery. The SDD Division's customers are primarily in the automotive,
appliance and packaging industries. SDD Division products are sold to over 5,000
customers both directly and through 45 worldwide distributors. See
"BUSINESS--Current Operations" and "BUSINESS--Product Lines."
The Company's Salem Division, located in Salem, New Hampshire, produces
a broad array of inspection and measurement instruments and accessories,
including industrial lighting products, chart recorders and thermal printers,
and military watches and compasses. Lighting products represent the Company's
fastest growing product line and are primarily sold in conjunction with
microscopes and machine vision inspection systems. Since its founding, Stocker &
Yale has been at the forefront of the design and development of industrial
fluorescent lighting products and has been an innovator in this industry. The
Company's products are used by a variety of participants in the semiconductor,
computer assembly, laboratory, and robotics fields. The Company's lighting
products are sold worldwide through a network of 125 microscope dealers and
machine vision integrators. Under the "MFE" brand name, the Company also
manufactures a range of thermal printer and recorder products for the test and
measurement market. Further, Stocker & Yale has been a long-standing
manufacturer and distributor of compasses and supplier of military watches to
the U.S. Government, foreign governments, and the U.S. and foreign civilian
market. Management intends to broaden the retail distribution of such compasses
and watches in accordance with the Company's plan to further reduce its
dependence on sales to the U.S. Government. See "BUSINESS--Current Operations"
and "BUSINESS--Product Lines."
During its 50 year history, the Company has built a loyal customer base
and has developed brand names that are well-recognized within its customers'
industries. Over the past five years, the Company's product and market diversity
have enabled the Company to generate cash flow sufficient to substantially
reduce debt and fund product research and development. The Company's long-term
goal is to position the Salem Division as a single source for customers' diverse
industrial lighting requirements, offering an expanded line of lighting products
which will include fluorescent, fiber optic and halogen lighting. As part of
this goal, the Company intends to utilize a portion of the net proceeds of this
Offering to develop and market a line of fiber optic products to complement the
Company's fluorescent lighting product line. Management believes that the fiber
optics product line represents a logical extension of the Company's current
lighting product line, and its planned entry into the fiber optics product line
was largely prompted by demand from existing customers for such products.
Further, management believes that the development of this product line will
enable the Company to improve the utilization of space and production capacity
at its Salem facility and to take advantage of the Company's years of experience
in the development and distribution of lighting products. Management anticipates
that the fiber optic business will be housed in the existing Salem facility.
Management's goal is to increase its market share in both the machine vision and
microscopy markets. The Company's market research
3
<PAGE>
suggests that by offering a more extensive line of lighting products, the
Company may benefit from customer preference for a single source to fulfill all
their lighting requirements. See "BUSINESS--Strategy."
Over the last four years, management has focused on strengthening the
Company's balance sheet and has achieved a significant reduction in the
Company's long-term debt. More recently, management has focused on operational
matters. In September 1995, the Company moved its headquarters to a larger, more
efficient facility in New Hampshire which will better accommodate any future
expansion. The Company is now in the process of building up its engineering team
in order to accelerate product development. The Company has reorganized its
sales department to increase the frequency of customer contact and to
accommodate the Company's growing emphasis on its lighting business. While,
historically, the Company has used proceeds from equity and debt financings to
reduce both the size and cost of its outstanding indebtedness, management
anticipates that proceeds from the Offering will augment the Company's free cash
flow available for investment in its core operations. See "BUSINESS--Strategy"
and "USE OF PROCEEDS."
Stocker & Yale is located at 32 Hampshire Road, Salem, New Hampshire
03079, and its telephone number is (603) 893-8778.
The Offering
Common Stock
offered by
the Company ........................... 750,000 shares
Common Stock to
be outstanding
after the Offering .................... 2,462,914 shares (1)
Use of Proceeds
by the Company......................... To provide (i) approximately $1.5
million for the expansion of
industrial lighting businesses through
introduction of fiber optic
illumination products; and (ii) funds
for working capital, capital
expenditures, possible acquisitions
and general corporate purposes. See
"USE OF PROCEEDS."
NASDAQ SmallCap Market symbol.......... STKR
-------------------
(1) Based on the number of shares outstanding as of August 1, 1996, excludes, in
the aggregate, 419,491 shares of Common Stock issuable upon exercise of
options granted (i) in connection with the Merger (as defined below), (ii)
pursuant to the Company's Amended and Restated 1994 Stock Option Plan, (iii)
pursuant to the Company's 1996 Stock Option and Incentive Plan, (iv) outside
of either plan, and (v) shares of Common Stock issuable upon the conversion
of certain convertible debt issued by the Company. As of August 1, 1996 the
weighted average exercise price of such options and such convertible debt
was $6.66 per share. See "RISK FACTORS--Dilution."
Risk Factors
Prospective purchasers of Common Stock in the Offering should consider
carefully the matters set forth under caption "RISK FACTORS," on page 6, as well
as the other information set forth in this Prospectus.
Plan of Distribution
The Company may sell the Shares through agents or dealers, directly to one
or more individual, institutional or other purchasers or through any combination
of these methods of sale. The distribution of the Shares may be effected in one
or more transactions at market prices then prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices. There
is a minimum required purchase of 5,000 Shares per purchaser. There is no
arrangement to place the funds received in this Offering in escrow, trust or
similar arrangement. The date of the termination of this Offering is October __,
1996. See "PLAN OF DISTRIBUTION."
4
<PAGE>
Summary Selected Consolidated Financial Information
The summary consolidated financial data of the Company have been derived
from the Company's interim financial statements, which have been prepared by the
Company without audit, and from the Company's audited financial statements for
the fiscal year ended December 31, 1995. The summary consolidated financial data
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," with the interim 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.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
1991 1992 1993 1994 1995 1995 1996
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales...................... $ 12,889 $ 10,993 $ 10,224 $ 11,179 $ 13,005 $ 6,447 $ 5,576
Gross Profit................... 4,765 4,532 3,868 4,108 4,619 2,437 1,997
Operating Income .............. 1,484 1,109 654 534 582 443 65
Interest Expense, net.......... (1,782) (1,449) (1,292) (755) (662) (334) (300)
Extraordinary Items............ - - - 3,594 - - -
Net Income (loss).............. (399) (418) (455) 3,337 (310) 6 (199)
Balance Sheet Data
(at end of period):
Total Assets................... $ 20,204 $ 19,467 $ 19,904 $ 19,047 $ 19,781 $ 19,687 $ 19,361
Total Debt(1).................. 16,123 16,013 14,853 6,745 6,930(2) 6,253 6,823(2)
Stockholders' Equity........... 1,411 1,243 1,140 8,158 8,624 8,941 8,426
Other Data:
Depreciation and
Amortization................. $ 875 $ 951 $ 1,177 $ 1,118 $ 976 $ 556 $ 487
Capital Expenditures........... 559 179 109 57 2,032 74 110
</TABLE>
- -------------------
(1) Total debt consists of current portion of long term debt, long term lease
obligation, long term debt to senior lender, mortgage note and subordinated
notes payable.
(2) Total debt does not take into consideration offset of a $1.0 million note
receivable which is included in total assets. After giving effect to the
note receivable, the Company's total debt would be $5.93 million at December
31, 1995 and $5.82 million at June 30, 1996, and the Company's total assets
would be $18.78 million and $18.36 million at the equivalent periods. The
offset is not appropriate for financial reporting purposes because of timing
differences between the maturity of the note receivable and the maturities
of the debt.
5
<PAGE>
RISK FACTORS
The following risk factors should be carefully considered in addition to
the other information contained in this Prospectus before purchasing the Shares
offered hereby.
Competition
The Company operates in a highly competitive marketplace. The Company
believes that participants in its respective markets compete primarily on the
basis of product characteristics (such as design, style and functional
performance), product quality, service, brand name recognition and price. Some
of the Company's competitors have greater financial and other resources than the
Company, and the Company's cash flow from operations could be adversely affected
by competitors' new product innovations and pricing changes made by the Company
in response to competition from existing or new competitors. The level of
competition in the markets in which the Company operates can have a substantial
detrimental effect on the prices that the Company can charge for its products
and, consequently, can adversely impact the Company's revenues and
profitability. The Company's future results will depend in part on the Company's
ability to enhance its existing products and introduce new products. New product
introductions can be unsuccessful, and successful product introductions can be
displaced by product innovations subsequently introduced or imitated by
competitors. As a result of these and other factors, there can be no assurance
that the Company will successfully maintain its market position. See
"BUSINESS--Competition and Competitive Position."
Dependence on Technology
Certain of the Company's product lines, especially those sold under the
"MFE" brand name, compete in a market characterized by on-going technological
development. The success of these products depends, in part, on the Company's
ability to adapt its products to technological changes in the industry. In
addition, the Company has limited resources to allocate among its research and
development efforts, and the amount, if any, allocated to any one product line
may not be sufficient to enable the Company to preserve any competitive
advantages which the Company's products may have or to compete with
technological developments by the Company's competitors. There can be no
assurance that the technology used in the Company's products has not been or
will not be superseded by technological innovations. See "BUSINESS--Product
Lines" and "BUSINESS--Patents and Trademarks."
New Business Initiatives
From time to time, the Company considers entering into new lines of
business. Presently, the Company intends to expand its line of lighting products
to include a complete line of fiber optics products. There can be no assurance
that the Company will enter into any new lines of business or that, if
undertaken, such initiatives will not adversely affect the Company's results of
operations. In addition, the entry into new product lines would be likely to
involve the risks ordinarily attendant to the implementation of new business
initiatives including, without limitation, the incurrence of start-up costs, and
competition with other manufacturers and distributors which may have greater
experience, expertise and resources with respect to such products than the
Company. See "BUSINESS--Strategy" and "USE OF PROCEEDS."
Uncertainties of Acquisition Strategy
From time to time, the Company evaluates and considers potential
acquisitions of business or assets to complement or expand its product lines or
business. No assurance can be given that suitable acquisition candidates can be
acquired on acceptable terms or that future acquisitions, if completed, will be
successful. Future acquisitions by the Company could result in the incurrence of
debt, the potentially dilutive issuance of equity securities and the incurrence
of contingent liabilities and amortization expenses related to goodwill and
other intangible assets, which could materially adversely affect the Company's
business, operating results and financial condition. The success of any
completed acquisition will depend on the Company's ability to integrate
effectively the acquired business or assets into the Company. The process of
integrating acquired business or assets may involve numerous risks, including
difficulties in the assimilation of operations and products, the diversion of
Management's attention from other business concerns, risks of entering markets
in which the
6
<PAGE>
Company has limited or no direct prior experience and the potential loss of key
employees of the acquired businesses. The Company has no present understandings,
commitments or agreements with respect to any acquisition. See
"BUSINESS--Strategy."
History of Losses; Uncertainty of Future Profitability.
The Company has experienced operating losses (before extraordinary
items) during recent fiscal years. The Company may continue to experience
operating losses over the foreseeable future. The amount of net losses the
Company may incur and the time required by the Company and its ability, if any,
to reach or sustain profitability are uncertain. See "SELECTED CONSOLIDATED
FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
Potential Fluctuations in Quarterly Results
Given the long sales cycle in some of the Company's market sectors and
customers' political and budgetary conditions, revenue can vary substantially on
a monthly and quarterly basis. Accordingly, the timing and delivery requirements
of customers' orders, particularly in the case of U.S. Government contracts, may
have a material effect on the Company's operations and financial results during
any reporting period. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS."
Risks Associated with Goodwill
Goodwill associated with the acquisition of the Company on June 14, 1989
is being amortized over forty years in the amount of approximately $269,000 per
year. At June 30, 1996, the balance of goodwill remaining to be amortized was
$8,860,506. This amortization of goodwill is not deductible for tax purposes,
resulting in income tax provisions that are higher than the statutory rates. It
is likely that for the foreseeable future the Company's operating results will
be adversely impacted by such goodwill amortization and comparatively high
effective tax rates. If an impairment in the carrying value of the Company's
goodwill should occur, the Company would reduce the carrying amount to its fair
market value and record the amount of that reduction as a charge to the
Company's income. Due to the lengthy remaining amortization period, there can be
no assurance that such a reduction in realizable value will not occur. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Risks Associated with International Operations
The Company established S & Y Hong Kong Ltd. in March 1995 for purposes
of distributing and selling certain of its products throughout Southeast Asia.
As a result, the Company is subject to risks associated with operating in a
foreign country, including fluctuations in foreign currency exchange rates,
imposition of limitations on conversion of foreign currencies into dollars or
remittance of dividends and other payments by foreign subsidiaries, imposition
or increase of withholding and other taxes on remittances and other payments on
foreign subsidiaries, hyperinflation and imposition or increase of investment
and other restrictions by foreign governments. Although such risks have not had
a material adverse effect on the Company, no assurances can be given that such
risks will not have a material adverse effect on the business, results of
operations and financial condition of the Company in the future. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "BUSINESS."
Dependence on Key Personnel
The Company is highly dependent on its senior and middle management. The
loss of key management personnel or an inability to attract and retain
sufficient numbers of qualified management personnel could materially and
adversely affect the Company's business, results of operations and financial
condition. See "MANAGEMENT."
7
<PAGE>
Risks Associated with Environmental Matters
The Company's operations are subject to federal, state, and local laws
and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes.
While the Company believes it is in material compliance with those laws and
regulations, there can be no assurance that the Company will not incur
significant costs to remediate violations thereof or to comply with changes in
existing laws and regulations (or the enforcement thereof). Such costs could
have a material adverse effect on the Company's business, results of operations,
and financial condition. See "BUSINESS --Compliance with Environmental Laws."
Unpredictability of Patent Protection and Other Intellectual Property
While the Company has been issued patents with respect to certain of its
products, there can be no assurance that others will not independently develop
similar or superior products or technologies, duplicate any of the Company's
designs, processes or other intellectual property or design around any processes
or designs on which the Company has or may obtain patents. In addition, it is
possible that third parties may have or acquire licenses for other technology or
designs that the Company may use or desire to use. As a result, the Company may
need to acquire licenses to use such technology or designs of third parties.
There can be no assurance that any such license would be made available to the
Company on acceptable terms, if at all. The Company also relies on trade secrets
and proprietary information that it seeks to protect. There can be no assurance
that the Company will be successful in protecting such trade secrets or
proprietary information against unauthorized use by others or disclosure by
persons who have access to them, such as employees of the Company. See
"BUSINESS--Patents and Trademarks."
Possible Volatility of Stock Price
The market price of the Company's Common Stock may be subject to
significant fluctuation in response to variations in quarterly operating results
and other factors, such as announcements of product innovations by the Company
or its competitors or other events. Moreover, the stock market has in recent
years experienced significant price and volume fluctuations. These fluctuations
often have been unrelated to the operating performance of the specific companies
whose stocks are traded. Broad market fluctuations, as well as economic
conditions generally and in the industries in which the Company competes
specifically, may adversely affect the market price of the Company's Common
Stock.
Potential Impact of Shares Eligible for Future Sale
Sales of substantial amounts of Common Stock in the public market
following the offering could have an adverse effect on the market price of the
Common Stock. In addition to the 750,000 Shares offered hereby, previously
issued and outstanding shares of Common Stock are currently eligible for sale
subject to the provisions of applicable securities laws. The Company issued
options to purchase shares of Common Stock in connection with the merger (the
"Merger") of the Company with Brower Exploration, Inc., a Wyoming corporation
("Brower"), which options are currently eligible for exercise. The Company has
also granted options to purchase 133,440 shares of Common Stock pursuant to its
Amended and Restated 1994 Stock Option Plan and options to purchase 42,000
shares of Common Stock outside of any plan, all of which are eligible for resale
subject to the provisions of Rule 701 under the Securities Act. In addition, the
Company intends to file a registration statement covering the shares of Common
Stock reserved for issuance under the Company's 1996 Stock Option and Incentive
Plan and, accordingly, such shares issued under the 1996 Stock Option and
Incentive Plan will be eligible for sale in the public market, subject, with
respect to affiliates of the Company, to compliance with applicable Rule 144
limitations. Finally, the Company has issued certain subordinated notes
convertible, at the option of the holder, into 183,051 shares of Common Stock,
which, upon conversion, would be eligible for sale subject to the provisions of
Rule 144.
8
<PAGE>
Immediate and Substantial Dilution.
Purchasers of the shares of Common Stock will incur an immediate and
substantial dilution in the net tangible book value of the Common Stock of $4.01
per share, at an assumed public offering price of $5.25 per share. See
"DILUTION."
Control by Certain Stockholders
Upon completion of the Offering, the executive officers and directors of
the Company will collectively own or control 32.8% of the Company's Common
Stock. Accordingly, these persons will have the ability to control the Company's
Board of Directors and, therefore, the business, policies, and affairs of the
Company. Furthermore, such control could preclude any unsolicited acquisition of
the Company and, consequently, adversely affect the market price of the Common
Stock. See "SECURITY OWNERSHIP."
USE OF PROCEEDS
Because there is no minimum for the number of Shares of Common Stock
offered hereby and because the Company intends to sell the Shares at market
prices then prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices, the Company cannot determine the net
proceeds from the sale of the Shares offered hereby. However, the net proceeds
from the sale of the 750,000 Shares offered by the Company in the Offering,
assuming all of the Shares offered hereby are sold in the Offering and assuming
a price per share to the public of $5.25 and after deducting commissions and
offering expenses payable by the Company, will be approximately $3,650,000. The
Company expects to use the net proceeds of the Offering to provide funds for (i)
certain capital expenditure requirements relating to the development of its
fiber optic illumination product line to complement its existing industrial
fluorescent lighting products and (ii) working capital, capital expenditures,
possible acquisitions and general corporate purposes. The Company intends to
make capital expenditures of approximately $1.5 million in connection with the
initial development of a fiber optic illumination product line. However,
management may adjust this capital expenditure and product development program
in response to market and general economic factors, among other considerations.
The Company has no present understandings, commitments or agreements with
respect to any possible acquisition. No assurance can be given that the Company
will be able to sell all 750,000 shares of Common Stock offered hereby. If the
net proceeds from the sale of all or a portion of such Shares is less than $1.5
million, the Company may be required to seek additional funds through equity or
debt financings to fund its initiative to develop a fiber optic illumination
product line and its other business activities. In the event that less than all
of the Shares offered hereby are sold, the Company's priority is to use such net
proceeds to fund anticipated capital expenditures relating to the initial
development of a fiber optic illumination product line.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Since January 29, 1996, the Company's Common Stock has been listed and
traded on the Nasdaq SmallCap Market (the "Nasdaq SmallCap") under the symbol
"STKR." From May 11, 1994 until December 28, 1995, the Company's Common Stock
was listed and traded on the Senior Board of the Vancouver Stock Exchange (the
"VSE") under the symbol "SYI." On December 28, 1995, the Company consummated a
one-for-five reverse stock split (the "Reverse Stock Split") and in connection
therewith became listed and traded on the VSE under the symbol "SYL." On May 10,
1996, the Company delisted its Common Stock from the VSE. Accordingly, from
January 29, 1996 to May 10, 1996, the Company's Common Stock was listed and
traded on both the Nasdaq SmallCap and the VSE. Presently, the Common Stock is
listed and traded on the Nasdaq SmallCap.
On May 11, 1994, the Company consummated its initial public offering
(the "Initial Public Offering") of Common Stock and began trading on the VSE.
The offering price in the Company's Initial Public Offering (after giving effect
to the Reverse Stock Split) was $7.25 per share when converted to U.S. dollars
at the exchange rate for Canadian dollars in effect on such date.
9
<PAGE>
Market Information
Set forth below are the high and low bids for each of the nine fiscal
quarters since the Company's Initial
Public Offering as indicated:
High(1) Low(1)
Quarter ended June 30, 1994 $8.00 $5.76
Quarter ended September 31, 1994 $7.26 $5.21
Quarter ended December 31, 1994 $7.45 $4.75
Quarter ended March 31, 1995 $5.35 $3.85
Quarter ended June 30, 1995 $5.30 $3.65
Quarter ended September 30, 1995 $5.80 $4.10
Quarter ended December 31, 1995 $5.50 $3.15
Quarter ended March 31, 1996 $6.25 $4.50
Quarter ended June 30, 1996 $6.25 $5.25
(1) Each of the amounts set forth below for periods ending on or prior to
December 31, 1995 is based on the exchange rate in effect for Canadian
dollars on the date of the high and low bids.
The Company had 1,712,914.6 shares of Common Stock issued and
outstanding as of August 1, 1996. As of August 1, 1996, there were outstanding
options to purchase approximately 419,491 shares of Common Stock.
Holders
As of March 12, 1996, there were approximately 1,317 stockholders of
record of the Company's common stock.
DIVIDEND POLICY
The Company presently is restricted from payment of dividends under the
terms of its senior credit facility, and therefore, the Company does not expect
to declare or pay any dividends in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company and general
business conditions.
DILUTION
The net tangible book value (deficit) of the Company as of June 30, 1996
was $(593,658) or $(0.35) per share of Common Stock. "Net tangible book value
(deficit) per share" represents the tangible assets of the Company less
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of the 750,000 shares of Common Stock
offered hereby (assuming a public offering price of $5.25 per share) and the
application of the estimated net proceeds therefrom of $3,650,000, the pro forma
net tangible book value of the Company as of June 30, 1996 would have been
approximately $3,050,000 or $1.24 per share. This represents an immediate
increase in net tangible book value of $1.59 per share of Common Stock to
existing Shareholders and an immediate dilution of $4.01 per share to new
investors. "Dilution per share" represents the difference between the price per
share to be paid by new investors for the shares of Common Stock issued in the
Offerings and the pro forma net tangible book value per share as of June 30,
1996. The following table illustrates the dilution per share as described above:
10
<PAGE>
Assumed public offering price per share............. $5.25
Net tangible book value (deficit) per share
before the Offering............................ $(0.35)
Increase in net tangible book value per share
attributable to the Offering(1)................ $1.59
Pro forma net tangible book per share value after
the Offering..................................... $1.24
Dilution per share to new investors................. $4.01
- --------------
(1) Assuming the sale of all of the 750,000 Shares offered hereby at an
assumed public offering price of
$5.25 per share.
11
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company as of June 30, 1996 and as adjusted to give effect to the sale of
750,000 shares of Common Stock in the Offering and assuming an Offering price of
$5.25 per share and the application of the net proceeds as set forth under "USE
OF PROCEEDS." This table should be read in conjunction with the "SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital
Resources" and the financial statements of the Company, including notes thereto,
included elsewhere in this Prospectus.
June 30, 1996
As
Historical Adjusted(1)
(Dollars in thousands,
except per share data)
Cash and cash equivalents........................... $ 26 $ 3,676
Current portion of long-term debt................... 312 312
Mortgage Note....................................... 1,500 1,500
Long-term debt:
Revolving credit facility........................ $ 2,333 $ 2,333
Term loan........................................ 1,256 1,256
Subordinated convertible debenture............... 1,350 1,350
Total long-term debt.......................... 4,939 4,939
Stockholders' equity:
Common Stock, par value $0.001, 2,400,000
authorized and 1,712,914.6 shares issued and
outstanding; 10,000,000 authorized and
2,462,914.6 shares issued and outstanding as
adjusted(2)(3)
Paid-in capital.................................. $ 6,848 $10,498
Retained earnings................................ 1,578 1,578
Total stockholders' equity.................... 8,426 12,076
Total capitalization................................ 15,177 18,827
- ------------------
(1) Assumes that all of the Shares offered hereby are sold in the Offering and
assumes a per share price to the public of $5.25. See "USE OF PROCEEDS."
(2) Common Stock adjusted for: (a) the increase in the number of shares
authorized for issuance to 10,000,000 and (b) the increase in the number of
shares issued for the Shares issued in the Offering and assuming that
750,000 shares are sold in the Offering.
12
<PAGE>
(3) Excludes 419,491 shares of Common Stock which were subject to outstanding
stock options (i) issued in connection with the Merger, (ii) granted
pursuant to the Company's Amended and Restated 1994 Stock Option Plan,
(iii) pursuant to the Company's 1996 Stock Option and Incentive Plan and
(iv) granted outside of either plan, and (v) issuable upon the conversion
of certain convertible debt issued by the Company. As of August 1, 1996,
the weighted average exercise price of such options and such convertible
debt was $6.66 per share.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements of the Company, including notes thereto, appearing
elsewhere in this Prospectus.
Overview
There have been many changes in the Company, its business and its
financial condition over the past two years. As a result of certain cutbacks in
defense spending during recent years, the Company experienced a dramatic
reduction in U.S. Government contract business after the completion of its last
lensatic compass contract in late 1992. The Company's management formulated a
strategy to transition the Company's primary business away from government
contract dependence and toward other aspects of the business. Manpower was
reduced to save costs, and other resources were reallocated to strengthen
manufacturing, selling and design of non-government products. Research and
development staff and equipment were increased to improve product development
cycle time. Simultaneously, domestic and foreign marketing and sales efforts
were increased.
Management also developed a plan to strengthen the financial condition
and capital structure of the Company. The going private transaction in 1989
resulted in very high debt ($19 million) and interest expense (initially over $2
million per year) which absorbed all of the Company's working capital. As a
result of certain repurchases of its then-outstanding debt and equity securities
and the Initial Public Offering of the Company's Common Stock, the Company
experienced a 54% reduction of long-term debt and an increase of over 700% in
stockholder's equity from $1,139,500 at December 31, 1993 to $8,157,937 at
December 31, 1994.
In the first six months of 1995, the Company completed additional
private placements for gross proceeds of $700,000, and refinanced its senior
credit facility which was scheduled to mature in June 1995. The new credit
facility provides a total amount available at $8 million with varying maturities
beginning in August 1995 and extending until March 2000, and includes a $4
million revolving line of credit (subject to available collateral and collateral
limits) of which the Company had approximately $2.3 million outstanding as of
June 30, 1996. In September 1995, the Company acquired a new manufacturing
facility and sold its existing facility in Beverly, Massachusetts. The Company
headquarters and one operating division were relocated to an approximately
80,000 square foot building in Salem, New Hampshire. The Company believes that
this relocation will reduce operating costs, facilitate future growth and
improve manufacturing efficiency in the long-term.
In connection with the partial prepayment of the term loan portion of
the Company's indebtedness to the Bank and the release of the mortgage granted
to the Bank with respect to the Company's former headquarters in Beverly,
Massachusetts, the Company issued to Beverly Hospital Corporation ("BHC") a
promissory note (the "BHC Note") in an initial principal amount of $1,500,000.
The Company owns its Salem, New Hampshire facility subject to a mortgage granted
by the Company to BHC to secure the obligations of the Company under the BHC
Note.
The Company had no material commitments for capital expenditures as of
the close of the fiscal year ended December 31, 1995. During the first six
months of 1996, the Company's expenditure for capital equipment totaled
$110,073.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Revenues declined $871,228 from $6,447,452 in the six months ended June
30, 1995 to $5,576,224 in the six months ended June 30, 1996. Approximately 65%
of the sales drop was experienced in the Company's thermal printer and recorder
business, which declined $569,283 from $1,295,392 in the six months ended June
30, 1995 to $726,109 in the equivalent period in the current year, largely due
to the Company's original equipment manufacturer ("OEM") customers experiencing
economy-related lower volumes and inventory overstocks in 1996 and to the fact
that in 1995 sales benefited from final deliveries against a large order from a
single customer. The remainder of the revenue decline is largely attributable to
reduced sales of the Company's electronic ballasts which declined $404,637 to
$260,073 in the first half of 1996 from $664,710 in
14
<PAGE>
the first half of 1995. Reduced sales in this product line resulted from the
Company's decision to withdraw from this market, which has become increasingly
commodity price-driven, to focus on sales of higher margin products. Primarily
as a result of this redirection, sales of industrial task lighting products
increased 22% from $1,000,464 in the six months ended June 30, 1995 to
$1,221,068 in the six months ended June 30, 1996.
Gross Profit declined from $2,436,601 in the first half of 1995 to
$1,996,772 in the first half of 1996, primarily due to reduced cost absorption
associated with lower revenues. Operating costs decreased from $1,993,757 to
$1,931,456, and interest expense decreased from $334,288 to $300,140 in the
comparable periods. The difference between the effective tax rates is primarily
due to non-deductible amortization.
On May 3,1996, the Company refinanced $1,000,000 of 13.5% subordinated
notes which were to mature on May 6, 1996, with $1,350,000 of 7.25% convertible
subordinated notes which will mature on May 1, 2001. The convertible
subordinated notes may be converted, at any time at the option of the holder,
into shares of Common Stock at a conversion price of $7.375 per share, subject
to certain adjustments.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The 1995 operating results were significantly impacted by nonrecurring
expenses totaling approximately $359,000 associated with the sale and relocation
of the Company's headquarters and the registration of the Company's common stock
under the Securities Exchange Act of 1934. On September 1, 1995, the Company
completed the sale of its Beverly, Massachusetts facility and simultaneous
purchase of new headquarters in Salem New Hampshire. The transactions resulted
in a loss for financial reporting purposes of $282,565, and for tax purposes
were structured as a like-kind exchange and an installment sale. The Beverly
property was sold for a total of $2.2 million, $1,200,000 cash and a $1,000,000
note from the buyer which is secured by a letter of credit. The Company reduced
its Term Loan by $1,100,000 in order to release the mortgage granted to the Bank
with respect to the Beverly property. The Salem facility was financed by a
$1,500,000 note which is payable on or before September 1, 1996. The note bears
interest at Prime Rate plus 2% through February, 1996, Prime Rate plus 3% from
March 1 through May 31, 1996, and Prime Rate Plus 4% thereafter; interest is
payable monthly in arrears. The Company intends to refinance this note prior to
its date of maturity. The Company also recorded operating expenses of $56,616
relating to the physical relocation and approximately $20,000 of professional
fees relating to the registration of the Company's common stock under the
Securities Exchange Act of 1934. Management notes that without the effect of
these nonrecurring expenses, the Company would have recorded a pretax loss of
approximately $3,000.
Net revenues increased 16% to $13 million in 1995, from $11.2 million in
1994, due primarily to improved sales of industrial lighting products and
increased sales to the United States government. Industrial lighting sales were
$3.1 million in 1995 as compared with $2.1 million in 1994, reflecting increased
demand for electronic ballasts in the first quarter of 1995 as well as a general
increase in volume across the lighting product line. Sales to the U. S.
government increased from $0.3 million in 1994 to $1.5 million in 1995, with
most of the increase attributable to a contract for borescopes totaling $338,776
and to shipments totaling $538,942 which were made against a contract for
navigator's watches, and the balance coming from increased demand for the U.S.
Army watch under a requirements contract with the General Services
Administration.
Operating income increased from $533,528 in 1994 to $582,263 in 1995,
and constituted 4.8% and 4.5% of revenue in such periods, respectively. Gross
Profit increased from $4.1 million in 1994 to $4.6 million in 1995, although as
a percentage of revenues gross profit decreased from 36.8% in 1994 to 35.5% in
1995, reflecting the increase in revenues in relatively low margin products,
specifically the increased sales of electronic ballasts which are a commodity
item. Operating costs increased from $3,574,832 in 1994 to $4,036,242 in 1995,
but declined as a percentage of revenue from 32% in 1994 to 31% in 1995.
Net income decreased from $3,336,606 in 1994 to a loss of $309,939 in
1995, reflecting the absence in 1995 of an extraordinary gain of $3,594,200
recorded in 1994. The 1994 extraordinary item was related to the discharge of
certain indebtedness.
15
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
During 1994 the Company accomplished significant restructuring of its
debt by means of its Initial Public Offering in May and a private placement of
stock in November, which netted combined proceeds of $3,665,000. The Initial
Public Offering enabled the Company to repurchase subordinated notes and
associated accrued interest totaling $7.4 million at a cost of $2.5 million.
This transaction substantially reduced Company debt and interest expense,
increased equity, and resulted in a gain, net of taxes and expenses, of $3.5
million, which is recorded as an extraordinary credit in accordance with
Generally Accepted Accounting Principles.
Revenues increased 9.3% to $11.2 million in 1994, from $10.2 million in
1993, due primarily to improved sales of the Company's SDD Division's machine
components and accessories product lines. SDD Division revenues increased 20%
from $3.8 million in 1993 to $4.6 million in 1994, as a result of improved
general economic conditions in the U.S. industrial sector and intensified
marketing efforts with customers and sales representatives. Changes in net sales
in 1994 and 1993 were substantially volume-driven. There were no significant
increases or decreases in product pricing from 1993 to 1994.
Operating expenses increased from $3,213,571 in 1993 to $3,574,832 in
1994, primarily reflecting increased personnel costs associated with higher
revenues, including the addition of a President at the SDD Division and the
revitalization of incentive compensation programs. The percentage of operating
costs to total revenues remained relatively flat at 31.4% in 1993 and 31.9% in
1994.
In spite of increasing interest rates, interest expenses decreased by
42%, from $1,292,300 in 1993 to $754,868 in 1994. The decrease reflects the
reduction by 54.8% of the Company's debt from $14,783,503 in 1993 to $6,679,156
in 1994. The debt reduction was achieved primarily through the repurchase of the
subordinated notes and also through systematic reductions of the Company's bank
debt. Before the extraordinary credit, the Company decreased its net loss by 43%
to $257,594 in 1994 from $454,735 in 1993. The improvement was due primarily to
reduced interest expense.
Effects of Inflation
In recent years, inflation has been modest and has not had a material
impact upon the results of the Company's operations.
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
$249,140 in 1995 and $376,590 in 1994. Cash used for financing activities in the
same years was $936,563 and $57,190 respectively, reflecting in 1995 the
purchase of the new Company headquarters and the sale of the previous facility.
Net cash provided by operations was $286,800 for the six months ended June 30,
1996, compared to $6,266 for the same period in 1995.
In May 1996, the Company refinanced its $1,000,000 in 13.5% Subordinated
Notes due May 6, 1996 through proceeds realized from the issuance of $1,350,000
in 7.25% Convertible Subordinated Notes due May 1, 2001 (the "Notes"). The Notes
may be converted at any time, at the option of the holder, into shares of Common
Stock at a conversion price of $7.375 per share, subject to adjustment as
provided in the Convertible Subordinated Note Purchase Agreement (the "Purchase
Agreement"). Excess proceeds above those amounts used to refinance the 13.5%
Subordinated Notes were used for general working capital purposes, including the
costs of the issue. Payment of principal and interest on the Convertible
Subordinated Notes are subordinated to all existing and future indebtedness of
the Company to banks and financial institutions. The Notes are unsecured and are
redeemable at the option of the Company at any time after May 1, 1998, under a
formula specified in the Purchase Agreement.
The Company's primary third party financing relationship is with Fleet
National Bank (the "Bank"). The initial Credit Agreement (the "Initial Credit
Agreement") included provisions for revolving loans due March 31, 1998 (the
"Revolving Loans"), a long-term loan due March 1, 2000 (the "Term Loan"), and a
short-term loan due August 1, 1995 (the "Short-Term Loan"), in an aggregate
principal amount of $6,967,000. The Initial
16
<PAGE>
Credit Agreement has been amended by that certain Waiver and Amendment No. 1 to
the Credit Agreement, dated as of August 16, 1995 (the "First Amendment"); by
that certain Consent under, and Second Amendment to, Credit Agreement and
Amendment to Term Note, dated as of August 25, 1995 (the "Second Amendment");
Waiver and Amendment No. 3 to the Credit Agreement, dated as of March 15, 1996
(the "Third Amendment"); and by Waiver and Amendment No. 4 to the Credit
Agreement, dated as of August 13, 1996 (the "Fourth Amendment"). The Initial
Credit Agreement, as amended by the First Amendment, the Second Amendment, the
Third Amendment and the Fourth Amendment is herein referred to as the "Credit
Agreement." The Short Term Loan was paid as agreed in August, 1995. As of June
30, 1996, $2,332,665 and $1,417,505 were outstanding under the Revolving Loans
and the Term Loan, respectively. As of June 30, 1996, the interest rate on both
the Revolving Loans and the Term Loan was 8.75%. As of such date, $163,190 was
available for borrowing under the Revolving Loan.
The Loans under the Credit Agreement bear interest at rates that may be
adjusted from time to time as follows: (a) in the case of Revolving Loans, at a
rate equal to the Bank's base rate plus 1/2% or, at the election of the Company,
the London Inter-Bank Offered Rate ("LIBOR") plus a margin ranging from 2 3/4%
to 2% depending on the Company's net worth; (b) in the case of the Term Loan, at
a rate equal to the Bank's base rate plus 1/2% or, at the election of the
Company, LIBOR plus a margin of 2 3/4%, or (c) in the case of the Short-Term
Loan, at the Bank's base rate plus 2%. Under certain circumstances, the Company
may request that a portion of the Revolving Loans and/or of the Term Loan may
bear interest for a period of not less than one year at a rate of interest
determined by the Bank to be the equivalent fixed-rate yield to the Bank of its
base rate plus 1/2%. In connection with the Second Amendment and the releases of
the Bank's mortgage on the Company's former headquarters in Beverly,
Massachusetts, the Company made a partial prepayment of the Term Loan in an
amount of $1,100,000.
In accordance with the Credit Agreement, the outstanding principal of
the Term Loan is to be repaid in sixty installments as follows: (i) five
consecutive monthly installments of $23,059.00 until and including August 1995,
(ii) fifty-four consecutive monthly installments of $13,420 thereafter and (iii)
one final payment of the unpaid principal of the Term Loan on March 1, 2000.
Assuming that there are no further prepayments of principal of the Term Loan, a
final principal payment in the amount of $817,386 will be due and payable on
March 1, 2000. Interest on the outstanding principal amount of the Term Loan is
payable monthly in arrears and upon the payment of the Term Loan in full.
Except as described in this paragraph, the Term Loan may be prepaid, in
whole or in part, at any time or from time to time without premium or penalty.
In the event that a fixed interest rate has become applicable to any of the
Revolving Loans or the Term Loan and the Bank receives any principal payment
with respect to such loan on any date other than the last day of the interest
period applicable to such loan, the Company shall pay the Bank the amount
required to compensate the Bank for any losses, costs or expenses it may have
incurred and may reasonably incur as a result of such payment.
Under the terms of the Credit Agreement, the Company is required to
comply with a number of covenants including minimum equity, debt to equity
ratios, and minimum net income tests. As a result of delays in government
contracts and a slowdown in the automotive sector, the Company did not meet the
minimum net income test for the second quarter of 1995. On August 16, 1995, a
waiver of this covenant was granted by the Bank and the Initial Credit Agreement
was amended to reduce income minimums for the remainder of 1995. At December 31,
1995, the Company did not meet covenants for minimum net income, minimum debt
service coverage ratio and maximum capital expenditures, primarily due to the
loss on the sale of real estate and the capital purchase of the Company's new
property and renovations to that facility. On March 15, 1996, the Bank granted
waivers of these covenants as of December 31, 1995 for period then ended, and
the Initial Credit Agreement was amended to establish new minimum equity, debt
service coverage ratios, minimum net income and maximum capital expenditure
covenants for 1996. At March 31, 1996, the Company was not in compliance with
the minimum net income and minimum equity covenants, and on June 30, 1996 the
Company was not in compliance with the minimum net income covenant.
Noncompliance resulted from the operating losses associated with lower than
anticipated revenues. On May 24, 1996 the Bank granted waivers of the minimum
net income and minimum equity covenants as of March 31, 1996 for the period then
ended, and on July 31, 1996, the Bank granted a waiver of the net income
covenant as of June 30, 1996 for the period then ended. On August 13, 1996, the
Credit Agreement was amended to establish new minimum equity and maximum net
17
<PAGE>
loss covenants for the remaining two quarters of 1996 and to set quarterly
frequency and limits on the debt service coverage ratio covenant through
maturity.
In connection with the partial prepayment of the term loan portion of
the Company's indebtedness to the Bank and the release of the mortgage granted
to the Bank with respect to the Company's former headquarters in Beverly,
Massachusetts, the Company issued to BHC the BHC Note in an initial principal
amount of $1,500,000. The Company's indebtedness evidenced by the BHC Note bears
interest at an annual rate that will be adjusted as follows: (a) from September
1, 1995 to February 28, 1996, at a rate equal to the rate of interest announced
from time to time by Fleet Bank of Massachusetts, N.A., as its "prime" or "base"
rate (the "Fleet Prime Rate") plus 2%; (b) from March 1, 1996 to May 31, 1996,
at an annual rate equal to the Fleet Prime Rate plus 3%; and (c) from June 1,
1996 and thereafter, at an annual rate equal to the Fleet Prime Rate plus 4%.
Interest on the unpaid principal balance outstanding under the BHC Note is
payable monthly in arrears. All principal outstanding under the BHC Note,
together with any accrued, unpaid interest thereon, is due and payable on
September 1, 1996. In accordance with the terms of the BHC Note, the Company may
prepay amounts outstanding thereunder, in whole or in part, at any time without
penalty or premium. It is the intention of the Company to refinance the BHC Note
at maturity through conventional mortgage sources.
Historically, the Company has not required major expenditures for
capital equipment. In 1994, 1993 and 1992, purchases of fixed assets totaled
$57,190, $109,077 and $178,781 respectively, which were primarily purchases of
computer hardware and software. In 1995 capital expenditures totaled $2,032,025,
$1,824,728 of which related to the purchase, renovation and furnishing of the
Company's new headquarters building in Salem, New Hampshire, and $108,000 was
for the purchase of a new CNC machining center for the SDD Division. During the
six months ended June 30, 1996, the Company's purchases of fixed assets totaled
approximately $110,000.
The Company believes that its available financial resources are adequate
to meet its foreseeable working capital, debt service and capital expenditure
requirements.
Inventory Obsolescence
The potential for inventory obsolescence of older products as the
Company develops new products is not significant. With the exception of the
Company's fluorescent light dimming systems and electronic ballasts which were
new product lines in 1993, the Company's product offerings have remained
substantially the same for twenty years, with new enhancements introduced
periodically. Enhanced versions of old products are not introduced to the market
until the old components being replaced in the new configurations are
appropriately reduced. New product additions to existing lines are generally
designed to accommodate new and different applications, have features that are
quite different from existing products, and do not impact the demand for other,
older products.
Foreign Currency Fluctuations
Foreign currency fluctuations have had a minor impact on the Company's
results of operations. Specifically, the Company has Swiss Franc contracts to
purchase watches at an agreed fixed cost and corresponding contracts with the
General Services Administration to sell those watches at a fixed price. For
1995, currency exchange rate fluctuations totaled $40,730 over anticipated costs
of $530,449. For the first six months of 1996, currency exchange rate
fluctuations have totaled $15,817 under anticipated costs of $333,440.
18
<PAGE>
BUSINESS
General Background
Stocker & Yale, Inc. (the "Company") was incorporated on March 27, 1951
under the laws of the Commonwealth of Massachusetts. The Company became a public
company in the United States in 1962, with its shares listed for trading on the
National Association of Securities Dealers Automated Quotation System, as it was
then known, and was taken private in June, 1989 by Messrs. Mark W. Blodgett and
James Bickman (both senior officers of the Company).
On May 11, 1994, the Company merged with Brower which was publicly
traded on the VSE. In connection with the Merger, the Company was the surviving
corporation. Immediately prior to the Merger, the Company conducted a split of
its common stock, pursuant to which each share of the Company's common stock
then outstanding was converted into 11.129701 shares of the Company's Common
Stock. In connection with the Merger, each share of Brower common stock issued
and outstanding was converted into 0.2 shares of Common Stock of the Company.
Concurrently with the Merger, the Company offered 2,000,000 shares (400,000
shares after giving effect to the Reverse Stock Split) of its Common Stock in
its Initial Public Offering and obtained an authorization to list its Common
Stock on the VSE. Additionally, in private placements occurring concurrently
with the Initial Public Offering, the Company sold 363,757 shares (72,751 shares
after giving effect to the Reverse Stock Split) of Common Stock to U.S.
investors. Upon completion of the Merger, the Initial Public Offering and
concurrent private placements, the former Brower stockholders held a 21.9%
interest in the Company. In transactions occurring subsequent to the Initial
Public Offering, the Company has sold approximately 1,698,656 shares (339,731
shares after giving effect to the Reverse Stock Split) of Common Stock in
certain private placements. On December 28, 1995, the Company consummated the
Reverse Stock Split which resulted in a reduction of the authorized number of
shares of Common Stock from 12,000,000 shares to 2,400,000 shares, and a
reduction in the number of issued and outstanding shares of Common Stock from
8,564,573 shares to 1,712,614.6 shares.
As of June 30, 1996, the authorized capital stock of the Company was
2,400,000 shares of Common Stock of which 1,712,914 shares were issued and
outstanding. In conjunction with this offering, the Company has scheduled a
stockholders' meeting for September 17, 1996, for the purpose of amending the
Company's Articles of Organization to increase the number of shares authorized
for issuance from 2,400,000 shares of Common Stock to 10,000,000 shares of
Common Stock. As of June 30, 1996, 419,491 shares of Common Stock have been
reserved for issuance upon the exercise of outstanding options to purchase
Common Stock and upon conversion of certain convertible indebtedness of the
Company. The Company listed its Common Stock on the Nasdaq SmallCap on January
29, 1996 under the trading symbol "STKR". As of May 10, 1996, the Company's
Common Stock was de-listed from the Vancouver Stock Exchange.
Current Operations
The Company is a diversified manufacturing company engaged predominantly
in the production of industrial fluorescent lighting products, thermal printers
and recorders, and machine tool components. The Company operates in two
company-owned facilities in Salem, New Hampshire and Fraser, Michigan.
For over 50 years, the SDD Division located in Fraser, Michigan, has
manufactured a wide range of machine tool components and material handling
accessories which are used extensively in the construction and maintenance of
assembly and conveying machinery. The SDD Division's customers are primarily in
the automotive, appliance and packaging industries. SDD Division products are
sold to over 5,000 customers both directly and through 45 worldwide
distributors. See "--Product Lines."
The Company's Salem Division, located in Salem, New Hampshire, produces
a broad array of inspection and measurement instruments and accessories,
including industrial lighting products, chart recorders and thermal printers,
and military watches and compasses. Lighting products represent the Company's
fastest growing product line and are primarily sold in conjunction with
microscopes and machine vision inspection systems. Since its founding, Stocker &
Yale has been at the forefront of the design and development of industrial
fluorescent lighting products and has been an innovator in this industry. The
Company's products
19
<PAGE>
are used by a variety of participants in the semiconductor, computer assembly,
laboratory, and robotics fields. The Company's lighting products are sold
worldwide through a network of 125 microscope dealers and machine vision
integrators. Under the "MFE" brand name, the Company also manufactures a range
of thermal printer and recorder products for the test and measurement market.
Further, Stocker & Yale has been a long-standing manufacturer and distributor of
compasses and supplier of military watches to the U.S. Government, foreign
governments, and the U.S. and foreign civilian market. Management intends to
broaden the retail distribution of such compasses and watches in accordance with
the Company's plan to further reduce its dependence on sales to the U.S.
Government. See "--Product Lines."
The Company has two subsidiaries: Stocker and Yale Foreign Sales
Corporation, a U.S. Virgin Islands corporation which is a wholly owned
subsidiary of the Company, and Stocker & Yale Hong Kong Ltd., a Hong Kong
corporation formed in March, 1995, which is a 95% owned subsidiary of the
Company.
Strategy
Over the last four years, management has focused on strengthening the
Company's balance sheet and has achieved a significant reduction in the
Company's long-term debt. More recently, management has focused on operational
matters. In September 1995, the Company moved its headquarters to a larger, more
efficient facility in New Hampshire which will better accommodate any future
expansion. The Company is now in the process of building up its engineering team
in order to accelerate product development. The Company has reorganized its
sales department to increase the frequency of customer contact and to
accommodate the Company's growing emphasis on its lighting business. The Company
intends to use a portion of the net proceeds of the Offering to make capital
expenditures in connection with a new business initiative to develop a fiber
optic illumination product line. In addition, management anticipates that a
portion of the net proceeds from the Offering will augment the Company's free
cash flow available for investment in its core operations. See "USE OF
PROCEEDS."
Measurement and Inspection Instruments and Accessories. The Company's
long-term goal is to position the Salem Division as a single source for
customers' diverse industrial lighting requirements, including fluorescent,
fiber optic and halogen lighting. As part of the Company's plan to achieve this
goal, the Company intends to utilize a portion of the net proceeds of this
Offering to develop and market a line of fiber optic products to complement the
Company's fluorescent lighting product line. Management's strategy for the
development of such products anticipates the expansion of its engineering staff
for the purpose of the internal development of such products and recognizes that
the acquisition of businesses or assets to complement or expand its product
lines may be appropriate.
The Company's market research suggests that by offering a more extensive
line of lighting products, the Company may benefit from customer preference for
a single source to fulfill all their lighting requirements. In addition,
management believes that the fiber optics product line represents a logical
extension of the Company's current lighting product line, and its planned entry
into the fiber optics product line was largely prompted by demand from existing
customers for such products. Management believes that the development of this
product line will result in increased production efficiencies and will take
advantage of the Company's years of experience in the development and
distribution of lighting products.
Further, Stocker & Yale has been a long-standing manufacturer and
distributor of compasses and supplier of military watches to the U.S.
Government, foreign governments, and the U.S. and foreign civilian market.
Management intends to broaden the retail distribution of such compasses and
watches in accordance with the Company's plan to further reduce its dependence
on sales to the U.S. Government.
Machine Tool Components and Accessories. The Company's goal is to
increase its market share in the machine tool components and accessories market,
which is fragmented between numerous companies offering specialized products.
Part of the Company's plan for increasing market share is to acquire a product
line or a business that offers its own specialized product that may be related
to or complement the Stilson or Die-Draulics product lines. The Company has no
present understandings, commitments or agreements with respect to any
acquisition. In addition to its efforts to identify possible strategic
acquisitions, the Company has initiated a plan to emphasize its capability to
modify its products to meet customer specifications.
20
<PAGE>
Product Lines
The Company manufactures (i) machine tool components and accessories for
the automotive and related industries at its SDD Division and (ii) measurement
and inspection instruments and accessories including industrial lighting
products, and military compasses and watches chart recorders, and thermal
printers, at its Salem Division .
Machine Tool Components and Accessories
The SDD Division manufactures a wide range of machine tool components
and accessories. "Stilson" brand name material handling products and machine
tool accessories have had market acceptance and brand-name recognition for 50
years. Similarly, "Die-Draulics" brand name die pressure control equipment and
systems have had market acceptance and brand-name recognition for more than 40
years.
The Company's goal is to expand the business of the SDD Division through
new product development and strategic acquisitions of complementary product
lines. The SDD Division develops new products on an on-going basis and updates
or customizes its existing products for its customers. As a result, management
believes that the level of success of any single new SDD Division product or
modification thereto will not materially affect the results of operations of the
SDD Division. The Company has no present understandings, commitments or
agreements with respect to any acquisition.
Products. The SDD Division designs and manufactures machine tool
components for clamping, indexing, holding, handling, locating, positioning and
actuating under its Stilson brand name. Stilson products include roto-clamps
(which combine linear and rotary motion for the clamping and indexing of moving
parts), wedge lock actuators (mechanical devices used to position, lock and pull
cores or inserts in plastic molds), and other accessories used by machine tool
manufacturers. Most Stilson machine tool accessories are sold to participants in
the automotive, appliance and other industries directly and through
manufacturer's representatives and distributors. Material handling components
are used for conveying, rolling, stopping, handling, holding, positioning,
protecting and aligning virtually any type of product. The SDD Division's
material handling products include conveyor rolls, bumpers, vacuum handling
systems (which use regulated shop air to generate the vacuum), and other
accessories. These material handling accessories are sold to participants in the
automotive, packaging and other industries through manufacturers'
representatives and distributors. Die-Draulics brand-name equipment and systems
are used in independent and captive stamping operations producing automotive
parts, appliance parts, metal furniture, housewares and hardware.
Sales and Distribution. The SDD Division's products are sold to over
5,000 customers, both directly and through an extensive network of distributors
throughout North America. The Company works with approximately 40 manufacturers'
representatives in the marketing of the Stilson product line and with
approximately 20 manufacturers' representatives in the marketing of the
Die-Draulics product line. The SDD Division also markets its products through
print ads in industry journals, direct marketing, new product releases, trade
shows, and through distribution of sales literature. All sales leads from
advertising are tracked on computer and allocated to sales representatives for
follow-up. The Company's sales representatives are extensively trained on the
Company's products and their uses. Each representative works to meet an annual
sales target and is compensated accordingly, with commissions ranging from 10%
to 20% of gross sales.
Competition and Competitive Position. The market for machine components
and accessories is mature, with a number of small companies competing within the
industry as described below. The Company's strategy for the SDD Division has
been to develop product acceptance primarily by offering a complete product
line, technical applications assistance, quality service, and competitive
prices. Further, certain products of the SDD Division may be modified to meet
specific customer applications in a timely manner.
The SDD Division competes with a variety of companies (many of which are
larger and have greater resources than the Company) in designing and
distributing its products. These products are sold primarily to participants in
the automotive industry and secondarily to participants in the home appliance,
leisure time products, building materials and packaging equipment industries. No
single customer represents more than 3% of sales of the products of the SDD
Division. The Company believes that its competitive strengths in the
21
<PAGE>
machine tool components and accessories products markets include: (i) the
Company's products constitute a complete line; (ii) the Company has developed a
reputation for designing, manufacturing and delivering a quality product; (iii)
the Company has trademark and patent protection on a number of these products;
(iv) the Company can adapt its products to the specific requirements of its
customers; and (v) the Company has an extensive network of manufacturers'
representatives. Since the machine tool components and accessories market is
fragmented between numerous competitors, none of which dominate the market, the
Company has adopted a strategy to increase its share of this market through
increased selling efforts and the introduction of new, related products. There
can be no assurances that this strategy will be successfully implemented or
effective in increasing in light of the fragmented and competitive nature of
this market.
With the exception of the manufacture of rubber rolls and vacuum cups in
which the Company believes that it has only four important competitors, the
market for material handling accessories is extremely competitive. However, the
Company believes that the strengths of the SDD Division enhance its competitive
position.
The Company competes with four other manufacturers in the production of
pressure control systems of nitrogen gas design. Although the Company does not
possess the resources of some of its competitors, management believes that its
proprietary design and its ability to adapt its pressure control systems to the
special needs of its customers is an important factor in the marketing of its
products.
The Company's objective in the short-term is to continue and to expand
its existing research and development efforts within the machine components and
accessories divisions, in order to develop new products and improve its existing
line of products. The general industry can be characterized as mature. As a
result, new product development and product line acquisitions are important
factors in the Company's growth strategy for the SDD Division's sales.
Measurement and Inspection Instruments and Accessories
The Company manufactures a variety of measurement and inspection
instruments and accessories, including industrial lighting products, military
compasses and watches, recorders and thermal printers.
Measuring and inspection instruments and accessories represented
approximately 67% of total Company sales in 1995, and approximately 59% in 1994.
The Division's contribution to sales and cash flow historically has been
considerably higher, but has been affected in recent years by a significant
decline in U.S. Government defense spending and through direct reductions in
military compass and watch contract awards to the Company. Sales to the U.S.
Government as a percentage of total Company sales have declined from 27% in 1990
to 11% in 1995.
The Company has significantly increased its research and development
efforts to develop new products to offset the above mentioned decrease in
military sales. In the summer of 1993, the Company introduced a line of
electronic ballasts and patented fluorescent dimming systems for the machine
vision industry, based on technology developed by Company engineers. The
fluorescent dimming technology has helped in significantly increasing the
Company's customer base since introduction. However, the dimmers are typically
packaged with the Company's ballasts, and in recent years, ballast prices have
been negatively impacted by a significant increase in production capacity within
the industry. As a result, ballasts have generated a gross profit margin below
that which is acceptable to management. Accordingly, the Company decided in
early 1996 to de-emphasize the sale of dimmers packaged with ballasts but
continued to utilize the Company's patented dimming technology in its machine
vision lighting products. This decision negatively impacted revenue for the
first six months of 1996.
New product development is currently focused on introducing a line of
fiber optic illumination products to complement the Company's line of industrial
fluorescent lighting products. Specifically, it is the Company's intention to
sell illuminators, ring lights and standard and custom lengths of glass fiber to
existing and new customers within the machine vision and microscopy industries.
The Company believes that these product lines have positive growth prospects
because, in part, the Company's customers in the machine vision and microscopy
industries, both domestic and foreign, have requested alternatives to
fluorescent lighting.
22
<PAGE>
Management believes that the fiber optics product line represents a logical
extension of the Company's current lighting product line, and its planned entry
into the fiber optics product line was largely prompted by demand from existing
customers for such products. The Company's market research suggests that by
offering more extensive product lines, the Company may benefit from customer
preference for a single source to fulfill all their lighting requirements.
Proceeds from the Offering will be used partially to fund certain
capital expenditures and to provide working capital sufficient to enter the
fiber optic illumination business. Initially, the Company plans to purchase bulk
fiber and to rely on certain private label products as it enhances its core
manufacturing base and develops the capacity to manufacture and assemble
products internally.
Products. The Company manufactures a wide variety of lighting and
optical measuring instruments. Industrial lighting products represent the
Company's fastest growing product segment having increased 25% in the six months
of 1996 and 48% in 1995. Lighting products include circular and linear
fluorescent illuminators for microscopes and machine vision inspection
applications. In addition, the Company manufactures, illuminated magnifiers for
use in bench assembly operations by OEM and others to mount as light sources on
machinery, and machine tool analyzers that are used to inspect the cutting
geometry of drills, taps and other cutting tools at one setting. These products
are generally sold directly to industrial users, distributors and OEM that
incorporate them into their own products. The Company's lighting products are
sold both directly and through a worldwide network of 125 microscope dealers and
machine vision integrators.
The Company sources and distributes watches which are manufactured to
U.S. military specifications. Stocker & Yale is the only U.S. company qualified
as a supplier of watches to the U.S. armed services. In February, 1996, the
Company won a four year "requirements" contract which stipulates that the
Company will be the sole provider of all U.S. General Services Administration
requirements for certain military watches. Further, the Company manufactures and
distributes a variety of compasses, including lensatic compasses (a
self-luminous and induction-damped compass which enables the viewer to take
readings and make sightings), wrist compasses (a self-luminous one-inch
compass), and plastic compasses (a liquid filled compass which performs tasks
similar to the lensatic compass). Since 1979, the Company has manufactured over
one million compasses for the U.S. Army and foreign armed forces.
The Company manufactures a variety of oscillographic and thermal
recorders and printers under the MFE brand name. These recorders and printers
are manufactured as OEM modules and end user models for diverse field,
industrial and laboratory uses, as well as for medical applications such as
bedside monitors and defibrillators. Under the MFE brand name, the Company also
manufactures a line of galvanometers that are used for positioning applications.
In 1991, the Company acquired the assets of Memodyne Products and consolidated
its operations into the Salem Division. Following this acquisition, the Company
began developing and manufacturing a broad range of thermal printers for the
test and kiosk (customer self-service equipment such as automated teller
machines) markets. In September 1993, the Company introduced a thermal printer
targeted at the test and measurement OEM market.
Sales and Distribution
Salem Division products are sold to over 10,000 customers, primarily in
North America, Europe and the Pacific Rim. The Division sells directly and also
works with a group of approximately 125 microscope dealers in selling industrial
fluorescent lighting products and with approximately 10 manufacturer's
representatives in selling MFE brand products. Salem Division products are also
marketed through advertising in trade journals, distribution of sales
literature, and participation in trade shows.
Competition and Competitive Position
The Company competes with a number of large and small firms in the
design and manufacture of its measurement and inspection instruments and
accessories. Some competitors have greater resources than the Company, and as a
result, may have a competitive advantage in the research and development of new
products, sales and distribution and in other business areas. Although the
Company does not consider that any one factor
23
<PAGE>
gives it an edge over its competitors, it believes that it has an established
reputation in the field for satisfying specific customer requirements.
Stocker & Yale has been designing, manufacturing and selling industrial
fluorescent lighting products since the Company was established almost fifty
years ago by two engineers who recognized the need for reliable specialized
lighting for industrial applications. Since its founding, the Company has
developed and marketed a wide variety of industrial fluorescent lighting
products, many of which are still offered and sold to new and repeat customers.
In the industrial fluorescent lighting market, the Company has two primary
competitors, Microlite ("Microlite") and Techni-Quip Corp. ("Techni-Quip").
Microlite was founded by a former employee of the Company and markets a product
similar to the Company's circular fluorescent microscope illuminator.
Techni-Quip offers industrial fluorescent lighting as part of its product line
but its lighing product line is limited and represents a small percentage of
Techni-Quip's total business. The Company believes that its primary market
advantages are its long history of providing specialized products to meet
customers' illumination needs and its broad line of industrial fluorescent
lighting products.
The chart recorder and thermal printer market is dominated by companies
that are larger and offer more advanced technology than the Salem Division.
Recognizing that it lacks the resources to compete directly against larger
companies, such as Gould, Inc., and General Scanning, Inc., the Company focuses
on the value-oriented segment of the market and customers with low volume
specialized applications.
In bidding for contracts to manufacture compasses and military-type
mechanical watches and related products for the U.S. Army, the Company competes
against only a limited number of firms. However, as a result of reduced spending
by the United States Government, the Company expects to obtain fewer contracts
from the United States armed forces. The Company believes that its competitive
position in obtaining contracts from the U.S. armed forces depends, in part, on
its ability to limit production costs and to offer the lowest bids, while still
earning an acceptable profit. Over the past several years, the Company has
increased its marketing efforts to develop the civilian market for compasses and
military-type watches by emphasizing the Company's "authentic" U.S. Army watch.
Backlog
The Company maintains an inventory of standard materials and components
and generally manufactures standard product configurations within one to five
days after receipt of a customer order. Although such rapid response is, and
historically has been, a selling advantage for the Company, some orders are
placed for future delivery. At August 1, 1996, the Company had a backlog of
orders for future delivery of approximately $1.2 million.
Raw Materials
The raw materials and components used in the Company's products are
purchased from a number of different suppliers and are generally available from
several sources.
Dependence on One or a Few Major Customers
The Company's customer base consists of more than 8,000 customers in
various industries worldwide. The Company's largest single customer is the
United States Government to which the Company has been a contract supplier of
watches and compasses for many years. Sales to the United States Government were
approximately 11% of the Company's total sales in 1995, and approximately 15% of
the Company's total sales for the six months ended June 30, 1996.
Patents and Trademarks
The Company holds patents in the United States and has filed additional
patent applications in the United States, Europe and Japan. The Company's
patents include compact limited rotation motors and fundamental technological
devices and methodologies used to achieve low-cost fluorescent light dimming.
The Company believes that patents are an effective way of protecting its
competitive technological advantages, and considers
24
<PAGE>
its patents to be a strong deterrent against unauthorized manufacture, use and
sale of its products and key product attributes. There can be no assurance,
however, that a patent will be issued with respect to the patent applications or
whether the Company's patents will provide meaningful protection for the
Company.
The Company also relies upon trade secret protection for its
confidential and proprietary information. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to and use or disclose the Company's
trade secrets or that the Company can meaningfully protect its trade secrets.
The Company holds rights in certain trademarks to protect its brand name
recognition in various markets. Because of the Company's long history and
reputation for designing and manufacturing high quality products, trademark
protection enhances the Company's position in the market.
Although the Company believes that its products and other proprietary
rights do not infringe the proprietary rights of third parties, there can be no
guarantee that infringement claims will not be asserted against the Company in
the future or that any such claims will not require the Company to enter into
royalty arrangements or result in costly litigation.
Research and Development
Research and development expenditures for the Company were $220,290 in
1995, $226,498 in 1994 and $248,830 in 1993. Research and development
expenditures for the Company were $144,762 for the six months ended June 30,
1996.
Compliance with Environmental Laws
The Company is subject to evolving Federal, state and local
environmental laws and regulations. Compliance with such laws and regulations in
the past had no material effect on the capital expenditures, earnings or
competitive position of the Company. The Company believes that it complies in
all material respects with existing environmental laws and regulations
applicable to it. However, the Company's Salem, New Hampshire headquarters are
currently the subject of environmental testing and monitoring relating to soil
and groundwater contamination which occurred under prior ownership. The Company
believes that the costs of any required remediation will be covered by an
environmental indemnity obtained from the seller, John Hancock Mutual Life
Insurance Company. Compliance with environmental laws and regulations in the
future may require additional capital expenditures and the Company expects that
in the foreseeable future such capital expenditures will be financed by cash
flow from operations.
Employees
As of June 30, 1996, the Company employed approximately 98 persons, 92
of whom were full-time employees. No employees of the Company are unionized and
relations with employees are satisfactory.
Properties
The Company currently conducts its business at two company-owned
facilities. In September 1995, the Company relocated its headquarters, which
includes the Company's manufacturing and distribution center for the Salem
Division to a 79,120 square foot facility located in Salem, New Hampshire. The
machine tool components and materials handling accessories product lines are
manufactured and sold from a 25,800 square foot facility in Fraser, Michigan.
The Company's Michigan facility is owned by the Company and subject to a
mortgage granted by the Company to the Bank to secure the obligations of the
Company under the Credit Agreement, as well as security interests in
substantially all of the Company's assets. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources."
25
<PAGE>
The Company's facilities are generally operated on the basis of one
shift per day, five days per week. Management considers the facilities to be in
generally good condition, to be adequately maintained and insured, and
sufficient to satisfy its needs for the foreseeable future.
Legal Proceedings
No material legal proceedings to which the Company is a party or to
which its property is subject are pending and no such proceedings are known by
the Company to be contemplated. No legal actions are pending or, to the
knowledge of the Company, contemplated, nor are there any judgments entered
against any officer or director of the Company in connection with any matter
involving the Company or its business.
[Remainder of page left blank intentionally.]
26
<PAGE>
MANAGEMENT
Directors and Executive Officers
The members of the Company's Board of Directors serve one year terms and
are elected each year by the stockholders at the Company's annual meeting. The
directors and executive officers of the Company are as follows:
Name Age Position
Mark W. Blodgett 39 Chairman of the Board of Directors and
Chief Executive
Officer
James Bickman 79 President, Salem Division and Director
Susan A. H. Sundell 46 Senior Vice President of Finance and
Treasurer
Alex W. Blodgett 38 President, SDD Division and Director
Clifford L. Abbey 50 Director
Robert G. Atkinson 55 Director
Hubert R. Marleau 51 Director
John M. Nelson 63 Director
Mark W. Blodgett purchased the majority of the common shares of the
Company in 1989 and since then he has maintained overall responsibility for
daily operations and strategic planning. Prior to joining the Company in 1989,
Mr. Blodgett worked for a private merchant bank (1988-1989); was a corporate
vice president at Drexel Burnham Lambert, Inc. in New York (1980-1988); and was
a merger and acquisition associate for European American Bank in New York
(1979-1980). Mr. Blodgett is actively involved in the Young Presidents
Organization. Mr. Blodgett graduated with an M.A. Honors in Economics from the
University of St. Andrews in Scotland. Mark Blodgett is the brother of Alex W.
Blodgett, a Director of the Company and President of the SDD Division.
James Bickman presently serves as President of the Company's Salem
Division. Mr. Bickman has been a Director of the Company since 1961, and joined
as its President and Chief Executive Officer in 1964. Mr. Bickman has an
extensive background in manufacturing and engineering, and has been responsible
for the growth of the Company over the past thirty years from a small
manufacturer of optical metrology instruments. Prior to joining the Company, Mr.
Bickman was a co-founder and operator of a successful engineering sales and
manufacturing business. Mr. Bickman graduated from Clark University with a major
in Chemistry and studied metallurgy at MIT.
Susan A. H. Sundell is Senior Vice President of Finance and Treasurer of
the Company, and is responsible for all aspects of financial management,
including accounting and treasury functions, corporate compliance and human
resources. Ms. Sundell advanced to Vice President in 1992 from the former MFE
Division, where she served in a variety of positions including Operations
Manager and Controller. Ms. Sundell joined MFE in 1981 prior to its acquisition
by the Company. Prior to joining the Company, Ms. Sundell held various finance
and information systems responsibilities with a number of companies in the
manufacturing, high tech, and banking industries. Ms. Sundell holds a Bachelor
of Science, magna cum laude, from Franklin Pierce College.
Alex W. Blodgett joined the Company in February 1994 as President of the
Company's SDD Division, and was elected Director in June 1994. From January 1993
until December 1993, he was Vice President of
27
<PAGE>
Corporate Development for Brassie Golf Corporation, a corporation engaged
primarily in the development of golf courses, and a partner with Pacificbridge
Investments, a real estate development firm. From April 1986 until November
1991, he was a partner with Gordon Capital Corporation, a private investment
bank. Alex W. Blodgett is the brother of Mark W. Blodgett.
Clifford L. Abbey is the Chief Executive Officer and principal
shareholder of Agnelli Jeans, a manufacturer and distributor of designer jeans.
Mr. Abbey has an established reputation as a successful entrepreneur, having
founded, operated and ultimately sold a number of small and middle-market
businesses. Mr. Abbey has been a Director of the Company since 1994.
Robert G. Atkinson is the founder and Chairman of BridgeBank Partners, a
Canada-based merchant bank formed in 1991 to make equity investments in
expansion stage middle-market companies. Prior to forming BridgeBank Partners,
Mr. Atkinson was a director of Gordon Capital Corporation, a private investment
bank, from October 1991 to June 1992, and President and Chief Executive Officer
of Loewen Ondaatje McCutcheon Inc., a leading Canadian investment dealer
specializing in financing emerging growth companies, from 1987 to 1991. Mr.
Atkinson is currently a director of a number of public companies and graduated
with a Bachelor of Commerce from the University of British Columbia. Mr.
Atkinson has been a Director of the Company since 1994.
Hubert R. Marleau has been Chairman and Chief Executive Officer of
Marleau, Lemire Inc. since April 1989. Prior to April 1989, he was Senior
Executive Vice President, a director and a member of the Executive Committee of
Levesque Beaubien Geoffrion Inc., a securities dealer. Mr. Marleau has been a
Director of the Company since 1994.
John M. Nelson has served as the Chairman of the Board of Wyman-Gordon,
Inc., a manufacturer in the defense and related industries, since 1991. Prior to
that time, Mr. Nelson served for many years in a series of executive positions
with Norton Company, a manufacturer of abrasives and ceramics based in
Worcester, Massachusetts, and was Norton Company's Chairman and Chief Executive
Officer from 1988 to 1990, and its President and Chief Operating Officer from
1986 to 1988. Mr. Nelson is also a Director of Browne & Sharpe Manufacturing
Company, Cambridge Biotechnology, Inc., and TSI Corporation. Mr. Nelson has been
a Director since February 1995.
Key Employees
Dale Depas is Vice President-Sales and Engineering for the SDD
Divisions. Application-specific design is an integral part of the selling effort
at the SDD Division, due to the technical nature of the products. Mr. Depas
joined Die-Draulics 32 years ago, prior to its acquisition by the Company.
William J. Michaud is Vice President-Sales and Marketing, responsible
for all sales and marketing operations, excluding the SDD Division. Mr. Michaud
has an extensive sales and marketing background through his previous positions:
Director of Sales, Sopha Medical Systems; Regional Vice President of
Sales/Marketing, General Electric Medical Systems; Divisional Sales Manager,
Johnson Healthcare Division; and District Sales Manager, Procter and Gamble
Distributing Company. Mr. Michaud graduated dean's list from The College of
Business Administration at the University of Maine.
Delores J. Perelli is General Manager of the Company's SDD Division and
is responsible for the production, purchasing, accounting and personnel of the
Company's Michigan operations. Ms. Perelli joined the Company 29 years ago,
prior to the acquisition of Stilson by the Company.
John E. Powers is Vice President-Operations for the Company's Salem
facility, responsible for purchasing, materials management, customer service and
repairs, as well as for all phases of production. He also oversees the
introduction of new products and changes to the production floor. Mr. Powers has
been with the Company for 15 years, previously serving as Production Supervisor
and as Production Manager for the MFE Division. Mr. Powers holds a Bachelor's
degree from Keene State College.
28
<PAGE>
Kenneth A. Ribeiro is Vice President-Engineering, responsible for both
product development projects and existing product line support. Mr. Ribeiro has
18 years of design experience in the areas of electronics, optics, acoustics,
thermodynamics and pneumatics. Further, he has in-depth experience in both
hardware and software. Prior employment includes American Optical Corporation,
Merrimack Laboratories Inc., Ion Track Instruments, Inc., and Kaye Instruments,
Inc. Mr. Ribeiro holds a BS in Electrical Engineering and an MS in
Electro-optics from Northeastern University in Boston, Mass.
Doreen Shane is Vice President-Management Information Services and
responsible for overseeing all of the management information systems functions
of the Company, including systems analysis, design, development and training.
From 1985 to 1991, Ms. Shane held various management positions with Memodyne
Corporation, a manufacturer of thermal printers which the Company acquired in
1991. Ms. Shane holds a BSBA from Merrimack College.
Family Relationships
Mark W. Blodgett, Chairman of the Board of Directors and Chief Executive
Officer of the Company, is the brother of Alex W. Blodgett, President of the SDD
Division and a Director of the Company.
Executive Compensation
Summary Compensation Table
The table below sets forth summary compensation information for the last
three completed fiscal years ended December 31, 1995, 1994 and 1993, with
respect to those of the Company's Executive Officers who received total salary
and bonus in excess of $100,000 for the fiscal year
ended December 31, 1995.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Restricted Securities
Name & Principal Salary Other Annual Stock Underlying All Other
Position Year (1) Bonus Compensation Awards Options Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Mark W. Blodgett 1995 $255,954 - - - - -
Chairman and Chief 1994 $258,391 - - - 42,524 -
Executive Officer 1993 $161,803 - - - - -
Alex W. Blodgett 1995 $108,440 - - - 11,000 1,158
President, SDD Division 1994 91,479 - - - 4,000 -
and Director 1993 none (2)
</TABLE>
- --------------------
(1) Salary includes amounts, if any, deferred pursuant to the Company's
401(k) Plan.
(2) Alex W. Blodgett became an employee of the Company on January 1, 1994.
Option Grants in Last Fiscal Year
The following table sets forth information as to stock options granted
in the last fiscal year to the individuals listed in the Summary Compensation
Table.
Number of % of Total
Securities Options Granted Exercise or
Underlying to Employees Base Price Expiration
Name Options in Fiscal Year ($/share) Date
Mark W. Blodgett -- -- --
Alex W. Blodgett 11,000 3.9% April 1, 2006
29
<PAGE>
Director Compensation
Directors are not compensated by the Company in cash for their services
in their capacity as directors. Under the Company's Amended and Restated 1994
Stock Option Plan (the "1994 Plan"), at the time of his or her first election to
the Board of Directors, each newly elected Director receives a grant of options
to purchase 4,000 shares of Common Stock at the fair market value of the Common
Stock on the date of the grant. The options granted to Directors pursuant to the
Plan are intended to be non-qualified options for federal income tax purposes.
Unless earlier terminated, all options granted pursuant to the plan vest on the
date which is two years after the grant of such options. In addition, on January
13, 1995, the Company granted to each Director who is not an employee of the
Company an option to purchase 3,000 shares of Common Stock which grant was made
outside the provisions of the Plan. This grant to outside Directors included the
grant of an option to purchase 3,000 shares of Common Stock to John M. Nelson
who was not then affiliated with the Company, subject to his subsequent election
to the Board. Mr. Nelson was elected to the Board on February 27, 1995.
On May 7, 1996, the Company's stockholders approved the 1996 Stock
Option and Incentive Plan (the "1996 Plan") which among other items, specified
as to how independent Directors will be compensated. The 1996 Plan provides for
automatic grant of non-qualified options to independent Directors. Each
independent director will be granted an option to purchase 4,000 shares after
his election to the Board. Each independent director who is serving as a
Director of the Company after each annual meeting will automatically be granted
an option to purchase 2,000 shares of Common Stock. The exercise price of each
such non-qualified option is the fair market value of the Common Stock on the
date of the grant. Such non-qualified option may not be exercised before the
second anniversary of the date of grant.
Employment Contracts and Termination of Employment
The Company has no plan or arrangement with respect to compensation of
its executive officers which would be payable upon the resignation, retirement
or any other termination of any executive officer's employment with the Company
or its subsidiaries or in connection with a change of control of the Company or
any subsidiary of the Company or a change in the executive officer's
responsibilities following a change in control. However, options to purchase
shares of Common Stock granted under the 1994 Plan and the 1996 Plan become
fully vested upon a change of control as defined in the 1994 Stock Option Plan.
In addition, certain options granted to outside Directors of the Company vest
upon such a change of control. There are no employment contracts between the
Company and any of the named executive officers.
30
<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding Common Stock as of June 30,
1996 by (i) each person or entity who is known by the Company to beneficially
own 5% or more of the Company's voting stock, (ii) each of the executive
officers named in the Summary Compensation Table, (iii) each of the Company's
directors and (iv) all of the Company's directors and executive officers as a
group.
Before Offering After Offering
Number of Percentage Number of Percentage
Shares of Beneficially Shares of Beneficially
Name and Address Common Stock Owned Common Stock Owned
Mark W. Blodgett(1)(2) 667,838(1) 40.0% 667,838(1) 27.1%
James Bickman(1) 92,748.2 5.4% 92,748.2 3.8%
Trainer Wortham & Co.
845 Third Avenue
6th Floor
New York NY 10022 103,652.8 6.1% 103,652.8 4.2%
Hoover Capital
Management, Inc.
50 Congress Street
Boston MA 02109 387,564 22.6% 387,564 15.7%
Alex W. Blodgett(1) 40,100 2.3% 40,100 1.6%
Hubert R. Marleau(1) 2,400 * 2,400 *
John M. Nelson(1) 5,000 * 5,000 *
Clifford L. Abbey(1) 100 * 100 *
Robert G. Atkinson(1) - - - -
All officers
and directors
as a group
(8 persons) 808,756 47.2% 808,756 32.8%
- -------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) The address for the named party is c/o Stocker & Yale, Inc., 32
Hampshire Road, Salem, New Hampshire 03079.
(2) 621,930.86 shares owned directly; 45,907.2 shares owned indirectly
through the Blodgett Family Trust, of which Mark W. Blodgett is a Trustee.
31
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October, 1994, the Company sold an aggregate of 164,880 shares of
Common Stock in a private placement. The price per share in such transaction was
the then-current market price of approximately $6.22 and the aggregate
consideration paid for such shares was $1,025,000. In this private placement, a
trust for the benefit of Mark W. Blodgett and certain members of his family
acquired 20,107.2 shares (after adjusting for the Reverse Stock Split) at a
price per share of approximately $6.22 and an aggregate price of $125,000. These
shares were sold to, and acquired by, such trust on the same terms and subject
to the same conditions as contemporaneous sales to third parties.
In March 1995, the Company paid a total of $61,642.13 to Marleau, Lemire
Securities for commissions, expenses and legal fees relating to the issuance of
certain subordinated notes. Mr. Hubert R. Marleau is Chairman of the Board and
Chief Executive Officer of Marleau, Lemire, Inc.
In 1995, Mark Blodgett personally guaranteed certain indebtedness of the
Company. The Company's Board of Directors determined that such guaranty had a
value to the Company of $125,000. In consideration of such guaranty, in June
1995 the Company issued 25,533.2 shares to Mr. Blodgett. The shares issued to
Mr. Blodgett in this transaction had an aggregate fair market value, at the
then-current market price of $4.90, of $125,000.
In June 1995, the Company sold an aggregate of 107,527 shares of Common
Stock in a private palcement. The price per share in such transaction was the
then-current market price of $4.65, and the aggregate consideration paid for
such shares was $500,000. In this private palcement, Mark W. Blodgett acquired
21,505.4 shares of Common Stock at a price of $4.65 per share and at an
aggregate price of $100,000. These shares were sold to, and acquired by Mr.
Blodgett on the same terms and subject to the same conditions as contemporaneous
sales to third parties.
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
The voting securities of the Company consist of its Common Stock with
$.001 par value. As of June 30, 1996, there were 1,712,914.6 shares of Common
Stock issued and outstanding, with 2,400,000 shares authorized. In conjunction
with the Offering, the Company has scheduled a stockholders' meeting for
September 17, 1996 for purposes of amending the Company's Amended and Restated
Articles of Organization to increase the number of shares of Common Stock
authorized for issuance from 2,400,000 shares of Common Stock to 10,000,000
shares of Common Stock.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Accordingly, holders
of a majority of the shares of Common Stock entitled to vote in any election of
Directors of the Company may elect all of the Directors standing for election.
Holders of Common Stock will be entitled to receive ratably any dividends if, as
and when declared by the Board of Directors and upon dissolution, liquidation or
winding up of the Company, whether voluntary or involuntary, or any other
distribution of assets of the Company among its shareholders for the purpose of
winding up its affairs and to receive the remaining property and assets of the
Company legally available for distribution to holders of Common Stock. Holders
of Common Stock have no cumulative voting rights nor any preemptive,
subscription, redemption or conversion rights. All outstanding shares of Common
Stock are validly issued, fully paid and non-assessable.
Certain Anti-Takeover Provisions under Massachusetts Law
In general, Massachusetts General Laws Chapter 110D, entitled
"Regulation of Control Share Acquisitions," an anti-takeover statute, provides
that any stockholder of a corporation subject to this statute who acquired 20%
or more of the outstanding voting stock of a corporation may not vote such stock
unless the stockholders of the corporation so authorize. Certain provisions of
Massachusetts General Laws, Chapter 156B
32
<PAGE>
(the "Massachusetts Business Corporation Law") would make more difficult or
could discourage a proxy contest or the acquisition of control by a holder of a
substantial block of the Company's stock or the removal of the incumbent Board
of Directors. These provisions could also have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders. In addition, because certain provisions of the
Massachusetts Business Corporation Law are designed to discourage accumulations
of large blocks of a corporation's stock by purchasers whose objective is to
have such stock repurchased by such corporation at a premium, such provisions
could tend to reduce the temporary fluctuations in the market price of such
corporation's stock which are caused by such accumulations. Accordingly,
stockholders could be deprived of certain opportunities to sell their stock at a
temporarily higher market price. Reference is made to the full text of the
foregoing statutes, the Company's Amended and Restated Articles of Organization
and the Company's Amended and Restated By-Laws for their entire terms, and the
partial summary contained in this document is not intended to be complete.
Elimination of Monetary Liability for Officers and Directors
The Company's Amended and Restated Articles of Organization also
incorporate certain provisions permitted under the Massachusetts General Laws
relating to the liability of Directors. The provisions eliminate a Director's
liability for monetary damages for a breach of fiduciary duty except in
circumstances involving certain wrongful acts, such as the breach of a
Director's duty of loyalty or acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law or authorization of
distributions in violation of the Amended and Restated Articles of Organization
or of loans to officers or Directors of the Company or any transaction from
which the Director derived personal benefit. These provisions do not eliminate a
Director's duty of care. Moreover, the provisions do not apply to claims against
a Director for violations of certain laws, including federal securities laws.
The Company's Amended and Restated Articles of Organization and Amended and
Restated By-Laws also contain provisions to indemnify Directors, officers,
employees or other agents to the fullest extent permitted by the Massachusetts
General Laws. The Company believes that these provisions will assist the Company
in attracting or retaining qualified individuals to serve as Directors or
officers.
Indemnification of Officers and Directors
The Company's Amended and Restated Articles of Organization also contain
provisions to indemnify its Directors, officers, employees or other agents to
the fullest extent permitted by the Massachusetts General Laws. These provisions
may have the practical effect in certain cases of eliminating the ability of the
stockholders to collect monetary damages from Directors. The Company believes
that these provisions will assist the Company in attracting or retaining
qualified individuals to serve as Directors or officers.
Section 67 of Chapter 156B of the Massachusetts General Laws provides a
statutory framework covering indemnification of directors, officers and
employees against liabilities and expenses arising out of legal proceedings
brought against them by reason of their status or service as directors or
officers. In addition, Article V of the Company's Amended and Restated By-Laws
provides for indemnification of directors, officers and employees of the
Company. Section 67 and the Company's Amended and Restated By-Laws generally
provide that a director, officer or employee of the Company shall be indemnified
by the Company for all expenses and liabilities of legal proceedings brought
against him/her by reason of his/her status or service as a director, officer or
employee unless the director, officer or employee is adjudged not to have acted
in good faith in the reasonable belief that his/her action was in the best
interest of the Company or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such plan. The Company's Amended and Restated
Articles of Organization also incorporate certain provisions permitted under the
Massachusetts General Laws relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, including gross negligence, except in circumstances involving
certain wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law or authorization of distributions in violation of the
Company's Amended and Restated Articles of Organization or of loans to officers
or directors of the Company or any transaction from which the director derived
improper personal benefit. These provisions do not eliminate a director's duty
of care. Moreover, the
33
<PAGE>
provisions do not apply to claims against a director for violations of certain
laws, including federal securities laws.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock of the Company is
Montreal Trust Company at its principal office in Montreal, Quebec, Canada.
PLAN OF DISTRIBUTION
The Company may sell the Shares through agents or dealers, directly to
one or more individual, institutional or other purchasers or through any
combination of these methods of sale. The distribution of the Shares may be
effected in one or more transactions, at market prices then prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. There is a minimum required purchase of 5,000 Shares per
purchaser. There is no arrangement to place the funds received in this Offering
in escrow, trust or similar arrangement. The date of the termination of this
Offering is October __, 1996.
In the event that the Company sells any of the Shares through a selling
agent, it is currently contemplated that any selling agent would be retained on
a "best efforts" basis pursuant to the terms of a selling agent agreement,
entered into prior to the sale of any Shares sold through such selling agent,
which limits the agent's obligations to using its best efforts to place the
Shares as agent for the Company. Although the Company has not entered into a
selling agent agreement with any party as of the date hereof, any such agreement
may provide for the reimbursement by the Company of certain costs and expenses
incurred by or on behalf of the agent in connection with the performance of its
obligations, and the payment of compensation to such agent, in the form of
discounts, concessions or commissions.
Agents and dealers that participate in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act, and
any discounts or commissions they receive from the Company, and any profit on
the resale of the Shares they realize may be deemed to be underwriting discounts
and commissions under the Securities Act. In addition, any selling agent
agreement may contain provisions in which the Company agrees to indemnify the
agent against certain liabilities, which may include liabilities under the
Securities Act, or requires the Company to contribute to payments the agent may
be required to make in respect thereof.
The Company intends to apply for the listing of the Shares offered
hereby on the Nasdaq SmallCap.
Agents or dealers may engage in transactions with, or perform services
for, the Company in the ordinary course of business.
In order to comply with the securities laws of certain states, if
applicable, the Shares offered hereby will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states, Shares may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares offered hereby may not
simultaneously engage in market making activities with respect to the Common
Stock for a period of two business days prior to the commencement of such
distribution.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
Common Stock offered hereby will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts.
34
<PAGE>
EXPERTS
The financial statements and schedules of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their report, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form SB-2 (including all amendments thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the Securities and Exchange Commission (the
"Commission"), this Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statements and exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any agreement or other document referred to are
not necessarily complete. With respect to each such agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in all respects by such reference.
Copies of the Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549 and at the following regional offices of the
Commission: Seven World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the public reference section of the Commission at its
Washington address upon payment of fees prescribed by the Commission. In
addition, the Company is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system, and such electronic versions are
available to the public at the Commission's World Wide Web Site,
http://www.sec.gov.
The Company is currently subject to the informational reporting
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Commission's following Regional Offices: Northwestern Atrium
Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60604 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Company intends to continue to furnish its stockholders with annual
reports containing financial statements audited by the Company's independent
accountants and quarterly reports for the first three fiscal quarters of each
fiscal year containing unaudited interim financial information.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 ............................... F-2
Consolidated Statements of Operations
for the three months ended June 30, 1996
and 1995 and the six months ended
June 30, 1996 and 1995 ............................................ F-3
Consolidated Statements of Cash Flows for
the six months ended June 30, 1996
and 1995 .......................................................... F-4
Notes to Financial Statements ....................................... F-5
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND DECEMBER 31, 1994
TOGETHER WITH AUDITORS' REPORT
Report Of Independent Public Accountants--
Arthur Andersen LLP ............................................... F-6
Consolidated Balance Sheets as of
December 31, 995 and December 31, 1994 ............................ F-7
Consolidated Statements of Operations for
the years ended December 31, 1995
and December 31, 1994 ............................................. F-8
Consolidated Statements of Stockholders'
Investment as of December 31, 1993,
December 31, 1994 and December 31, 1995 ........................... F-9
Consolidated Statements of Cash Flows
for the years ended December 31, 1995
and December 31, 1994 ............................................. F-10
Notes to Consolidated Financial Statements .......................... F-11
F-1
<PAGE>
FINANCIAL STATEMENTS
STOCKER & YALE, INC. AND SUBSIDIARIES
Item 1.1 CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1996 December 31,1995
(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 26,071 $ 22,033
Accounts Receivable 1,693,214 1,897,943
Prepaid Taxes 323,963 323,963
Inventory 3,999,111 3,836,653
Prepaid Expenses 114,886 159,013
Total Current Assets 6,157,245 6,239,605
PROPERTY, PLANT & EQUIPMENT, NET 3,184,221 3,365,949
NOTE RECEIVABLE 1,000,000 1,000,000
GOODWILL, NET 8,860,506 9,005,729
DEBT ISSUANCE COSTS, NET 158,926 169,687
19,360,898 19,780,970
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 311,876 $ 266,358
Mortgage note payable 1,500,000 1,500,000
Subordinated notes payable 0 1,000,000
Accounts payable 1,752,808 1,527,468
Short-term lease obligation 31,401 58,560
Accrued expenses
Income taxes 81,730 265,918
Other 426,326 475,136
Total Current Liabilities 4,104,141 5,093,440
LONG TERM LEASE OBLIGATION 72,094 82,909
LONG TERM DEBT
Subordinated Convertible Notes $ 1,350,000 $ 0
Senior Bank Debt 3,589,130 4,080,364
Total Long Term Debt 4,939,130 4,080,364
OTHER LONG TERM LIABILITIES 684,479 684,479
DEFERRED INCOME TAXES 1,135,280 1,215,280
10,935,124 1,156,472
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 1,578,376 1,777,100
Total Stockholder's Equity 8,425,774 8,624,498
19,360,898 19,780,970
</TABLE>
F-2
<PAGE>
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
Item 1.2 STOCKER & YALE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
<S> <C> <C> <C> <C>
NET SALES $2,566,098 $3,158,634 $5,576,224 $6,447,452
COST OF SALES 1,634,293 1,984,952 3,579,452 4,010,851
Gross profit 931,805 1,173,682 1,996,772 2,436,601
SELLING EXPENSES 409,756 417,977 831,127 862,078
GENERAL AND
ADMINISTRATIVE EXPENSES 444,562 502,429 955,567 979,576
RESEARCH AND
DEVELOPMENT EXPENSES 73,357 77,387 144,762 152,103
Operating income 4,130 175,889 65,316 442,844
INTEREST EXPENSE 147,971 179,865 300,140 334,288
Income (loss)
before income tax provision (143,841) (3,976) (234,824) 108,556
INCOME TAX
PROVISION (BENEFIT) (29,300) 6,600 (36,100) 102,250
Net income (loss) $ (114,541) $ (10,576) $ (198,724) $ 6,306
EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.01) $ (0.12) $ 0.00
WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENTS 1,712,914 1,570,025 1,712,914 1,581,316
</TABLE>
F-3
<PAGE>
FINANCIAL STATEMENTS
STOCKER & YALE, INC. AND SUBSIDIARIES
Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 June 30, 1995
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (198,724) $ 6,306
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 486,784 556,434
Deferred income taxes and other (80,000) (82,377)
Other changes in assets and liabilities -
Accounts receivable, net 204,729 (131,076)
Inventories (162,458) (791,485)
Prepaid expenses 44,127 58,649
Accounts payable 225,340 567,051
Accrued expenses (48,810) (140,692)
Accrued and refundable taxes (184,188) (36,544)
Net cash provided by operating activities 286,800 6,266
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (110,073) (73,618)
Net cash used for investing activities (110,073) (73,618)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 0 776,500
Repayment of Subordinated Note/ Bank Debt (1,000,000) (6,605,827)
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 1,350,000 1,000,000
Repayment of bank debt (445,715) (553,917)
Payments on capital lease (37,974) (23,530)
Deferred financing cost (39,000) (246,744)
Net cash provided by (used for )financing activities (172,689) 79,839
NET INCREASE IN CASH 4,038 12,487
CASH, BEGINNING OF PERIOD 22,033 8,344
CASH, END OF PERIOD $ 26,071 $ 20,831
</TABLE>
F-4
<PAGE>
FINANCIAL STATEMENTS
Item 1.4 Notes to Financial Statements
1. General
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 month and six
month periods ended June 30, 1996 and June 30, 1995, (b) the financial position
at June 30, 1996, and (c) the cash flows for the six month periods ended June
30, 1996 and June 30, 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 Annual report on Form 10-KSB.
2. Debt
The 13.5% 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.
F-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors of
Stocker & Yale, Inc.:
We have audited the accompanying consolidated balance sheets of Stocker & Yale,
Inc. (a Massachusetts corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
investment and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stocker & Yale, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 15, 1996
F-6
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
ASSETS
December 31,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 22,033 $ 8,344
Trade receivables, less reserves
of $54,000 in 1995 and 1994 1,897,943 1,790,268
Prepaid income taxes 323,963 113,923
Inventories 3,836,653 3,307,051
Prepaid expenses 159,013 279,876
----------- -----------
Total current assets 6,239,605 5,499,462
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 3,365,949 4,223,821
----------- -----------
NOTE RECEIVABLE 1,000,000 --
----------- -----------
GOODWILL, NET OF ACCUMULATED AMORTIZATION 9,005,729 9,293,683
----------- -----------
DEBT ISSUANCE COSTS, NET OF ACCUMULATED AMORTIZATION 169,687 29,569
----------- -----------
$19,780,970 $19,046,535
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt $ 266,358 $ 407,531
Mortgage note payable 1,500,000 --
Subordinated notes payable 1,000,000 --
Accounts payable 1,527,468 1,347,612
Short-term lease obligation 58,560 41,779
Accrued expenses--
Income taxes 265,918 89,338
Other 475,136 613,049
----------- -----------
Total current liabilities 5,093,440 2,499,309
----------- -----------
LONG-TERM LEASE OBLIGATION -- 65,591
----------- -----------
LONG-TERM DEBT 4,163,273 6,271,625
----------- -----------
OTHER LONG-TERM LIABILITIES 684,479 597,122
----------- -----------
DEFERRED INCOME TAXES 1,215,280 1,454,951
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common stock, par value $0.001 at
December 31, 1995 and 1994--
Authorized--2,400,000 shares at
December 31, 1995 and 1994
Issued and outstanding--1,712,914 shares
and 1,538,062 shares at December 31, 1995
and 1994, respectively
1,713 1,538
Paid-in capital 6,845,685 6,069,360
Retained earnings 1,777,100 2,087,039
----------- -----------
Total stockholders' investment 8,624,498 8,157,937
----------- -----------
$19,780,970 $19,046,535
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN U.S. DOLLARS)
For the Years Ended
December 31,
1995 1994
NET SALES $ 13,004,675 $ 11,178,685
COST OF SALES 8,386,170 7,070,325
------------ ------------
Gross profit 4,618,505 4,108,360
SELLING EXPENSES 1,703,704 1,569,145
GENERAL AND ADMINISTRATIVE EXPENSES 2,112,248 1,779,189
RESEARCH AND DEVELOPMENT 220,290 226,498
------------ ------------
Operating income 582,263 533,528
LOSS ON SALE OF REAL ESTATE (282,565) --
INTEREST EXPENSE (661,907) (754,868)
------------ ------------
Loss before income tax provision (benefit)
and extraordinary item (362,209) (221,340)
INCOME TAX PROVISION (BENEFIT) (52,270) 36,254
------------ ------------
Loss before extraordinary item (309,939) (257,594)
GAIN ON EXTINGUISHMENT OF DEBT,
NET OF $930,000 IN TAXES -- 3,594,200
------------ ------------
Net income (loss) $ (309,939) $ 3,336,606
============ ============
LOSS PER SHARE BEFORE EXTRAORDINARY ITEM $ (0.19) $ (0.21)
EXTRAORDINARY ITEM -- 3.00
------------ ------------
EARNINGS (LOSS) PER SHARE $ (0.19) $ 2.79
============ ============
WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS 1,660,590 1,197,600
============ ============
The accompanying notes are an integral
part of these consolidated financial statements.
F-8
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
Retained Total
Common Stock Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Investment
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 741,986 $ 742 $ 2,388,325 $(1,249,567) $ 1,139,500
Repurchase of
common stock (141,986) (142) (351,358) -- (351,500)
Shares issued to
acquire Brower 300,431 300 -- -- 300
Sales of common stock 637,631 638 4,032,393 -- 4,033,031
Net income -- -- -- 3,336,606 3,336,606
--------- ------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 1,538,062 1,538 6,069,360 2,087,039 8,157,937
Sales of common stock 174,852 175 776,325 -- 776,500
Net loss -- -- -- (309,939) (309,939)
--------- ------ ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 1,712,914 $1,713 $ 6,845,685 $ 1,777,100 $ 8,624,498
========= ====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-9
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (309,939) $ 3,336,606
Adjustments to reconcile net income (loss)
to net cash provided by operating activities-
Extraordinary gain -- (3,594,200)
Loss on disposal of assets 228,565 --
Depreciation and amortization 975,516 1,117,595
Deferred income taxes (449,711) (594,636)
Other changes in assets and liabilities,
net of effect of extinguishment of debt-
Accounts receivable, net (107,675) (177,977)
Inventories (529,602) 43,890
Prepaid expenses 120,863 (106,952)
Accounts payable 179,856 (185,657)
Other accrued expenses (122,670) 350,101
Accrued taxes 176,580 (11,286)
Other 87,357 199,106
----------- -----------
Net cash provided by operating activities 249,140 376,590
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,032,025) (57,190)
Proceeds from sale of property, plant and equipment 1,095,462 --
----------- -----------
Net cash used for investing activities (936,563) (57,190)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock 664,000 3,681,831
Payments of bank debt (6,679,156) (1,381,018)
Proceeds from bank debt 2,836,708 --
Proceeds from (payment of) subordinated notes 1,000,000 (2,500,000)
Proceeds from mortgage note payable 1,500,000 --
Repayments of term loans (1,482,218) --
Proceeds from term loans 3,075,141 --
Payments on capital lease (48,810) (40,409)
Deferred financing costs (164,553) (76,880)
----------- -----------
Net cash provided by (used for)
financing activities 701,112 (316,476)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,689 2,924
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,344 5,420
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 22,033 $ 8,344
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 681,953 $ 699,703
=========== ===========
Taxes paid $ 110,578 $ 208,540
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Note receivable from the sale of property,
plant and equipment $ 1,000,000 $ --
=========== ===========
The Company issued 300,431 shares of its
common stock to acquire all of the
outstanding shares of Brower
Explorations, Inc. $ -- $ 300
=========== ===========
Issuance of 25,333 shares in consideration of
personal guarantees associated with financing
$ 112,500 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-10
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(IN U.S. DOLLARS)
(1) ORGANIZATION AND RECENT EVENTS
On June 14, 1989, Stocker & Yale, Inc. (the Company) was acquired by
S&Y Acquisition Corp., a privately held corporation. The Company was
merged with and into S&Y Acquisition Corp., with the Company being the
surviving corporation. S&Y Acquisition Corp. financed the acquisition
through the issuance of its common stock, borrowings under a revolving
line of credit, issuance of subordinated notes payable and cash of the
Company.
On May 11, 1994, the Company merged with an existing inactive company,
Brower Explorations, Inc., pursuant to a certain agreement and plan of
merger dated December 29, 1993, with the Company being the surviving
corporation. Simultaneous to this merger, the Company offered 400,000
shares of its stock in a public offering on the Vancouver Stock
Exchange. Additionally, the Company has sold shares to U.S. investors
through various private placements.
The Company utilized the proceeds of the offerings to acquire the
notes, related accrued interest and common stock held by the
subordinated note holders (see Note 7).
(2) OPERATIONS
The Company, incorporated in 1951, designs, manufactures, assembles and
markets a diversified line of products. In its Salem, New Hampshire,
facility, the Company manufactures a variety of optical and measuring
instruments, including microscope illuminators, magnifiers and machine
vision lighting systems, machine tool projectors and tool analyzers,
land navigation compasses and military-type mechanical watches. The
Company sells its compasses and watches to a wide variety of customers
including the U.S. Government. The Company has developed and patented a
line of fluorescent light dimming systems which was introduced to the
market in late 1993.
In its MFE Instruments Division, the Company manufactures a broad range
of oscillographic recorders and thermal printers. These products are
produced for both the original equipment manufacturer and end-user
markets and are used in diverse applications including medical,
laboratory, general industrial and commercial applications.
The Company's Stilson and Die-Draulics divisions manufacture a wide
range of machine tool components, material handling accessories and
pressure control systems at their facility in Fraser, Michigan. These
products are sold to the automotive, electronic, food, pharmaceutical
and appliance industries.
F-11
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(IN U.S. DOLLARS)
(Continued)
(2) OPERATIONS (Continued)
Stocker & Yale Hong Kong Limited was formed in March 1995 as a
95%-owned subsidiary of the Company. This entity was formed to
facilitate distribution of watches and compasses in Southeast Asia. The
operations of this entity are consolidated into the accompanying
financial statements.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP), and all amounts are
presented in U.S. dollars unless denoted otherwise.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of income
and expenses during the reporting periods. Operating results in the
future could vary from the amounts derived from management's estimates
and assumptions.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, Stocker & Yale Foreign Sales Corp.
and Stocker & Yale Hong Kong Limited. All significant intercompany
balances and transactions have been eliminated.
Revenue Recognition
The Company recognizes revenue as products are shipped.
Property, Plant and Equipment
The Company provides for depreciation on a straight-line basis by
charges to expense in amounts estimated to amortize the costs of
property, plant and equipment over their estimated useful lives. Rates
used to compute depreciation are based on the following estimated
useful lives:
Asset Classification Estimated Useful Life
Building and building improvements 25 to 40 Years
Machinery and equipment 5 to 10 Years
Furniture and fixtures 3 to 10 Years
F-12
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment (Continued)
Property, plant and equipment, net, consist of the following:
December 31, 1995
Accumulated Net Book
Cost Depreciation Value
Land $ 446,300 $ -- $ 446,300
Building and
building improvements 2,400,119 296,747 2,103,372
Machinery and equipment 4,213,625 3,629,604 584,021
Furniture and fixtures 629,473 397,217 232,256
---------- ---------- ----------
$7,689,517 $4,323,568 $3,365,949
========== ========== ==========
December 31, 1994
Accumulated Net Book
Cost Depreciation Value
Land $ 822,000 $ -- $ 822,000
Building and
building improvements 2,909,273 536,598 2,372,675
Machinery and equipment 4,100,333 3,258,820 841,513
Furniture and fixtures 486,193 298,560 187,633
---------- ---------- ----------
$8,317,799 $4,093,978 $4,223,821
========== ========== ==========
Total depreciation of property, plant and equipment amounted to
approximately $566,000 and $745,000 for the periods ended December 31,
1995 and 1994, respectively.
Included in machinery and equipment is an asset under capital lease
with fair market value at the inception of the lease of $190,094. This
equipment is being depreciated over the life of the lease, which is
five years.
Goodwill and Debt Issuance Costs
On June 14, 1989, the Company was acquired by S&Y Acquisition Corp., a
privately held corporation. The Company was merged with and into S&Y
Acquisition Corp., with the Company being the surviving corporation.
S&Y Acquisition Corp. financed the acquisition through the issuance of
its common stock, outstanding cash on hand at the time of the
acquisition, borrowings under a revolving line of credit and borrowings
under subordinated notes payable. In addition, a noncontrolling
stockholder converted 41,667 shares of Stocker & Yale, Inc., valued at
$500,000, into 41,667 shares of S&Y Acquisition Corp.
F-13
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Debt Issuance Costs (Continued)
Total consideration paid was approximately $33,413,000 ($33,125,000 in
cash and $288,000 in common stock of the predecessor company) for
assets of approximately $23,899,000 (including approximately
$12,400,000 in cash) and liabilities of approximately $1,235,000,
resulting in $10,749,000 of goodwill.
For financial reporting purposes, the purchase price was allocated to
assets acquired and liabilities assumed based on the estimated fair
market value existing at the date of acquisition, in accordance with
the purchase method of accounting. The excess of purchase price over
fair market value of net assets acquired is reflected in the
accompanying consolidated balance sheets as goodwill. For income tax
purposes, the transaction was treated as an acquisition of stock. As a
result, the tax bases of assets and liabilities carry over from amounts
previously reported for income tax purposes.
On July 19, 1991, the Company purchased a product line for
approximately $370,000. The acquisition was accounted for as a
purchase. The Company valued the inventory and certain fixed assets at
their fair market value of approximately $262,000 and recorded the
remaining purchase price of approximately $108,000 as goodwill.
Intangibles consist of the following:
December 31, 1995
Accumulated Net Book
Cost Amortization Value
Goodwill $10,859,278 $ 1,853,549 $ 9,005,729
Debt issuance costs 277,053 107,366 169,687
December 31, 1994
Accumulated Net Book
Cost Amortization Value
Goodwill $10,856,780 $ 1,563,097 $ 9,293,683
Debt issuance costs 76,880 47,311 29,569
Goodwill associated with the acquisition of the Company on June 14,
1989 is being amortized over 40 years. Goodwill associated with the
acquisition of the product line on July 19, 1991 is being amortized
over five years.
F-14
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Debt Issuance Costs (Continued)
Total amortization of goodwill amounted to approximately $290,000 for
the periods ended December 31, 1995 and 1994.
The Company evaluates the net realizable value of intangible assets on
an ongoing basis relying on a number of factors including operating
results, business plans, budgets and economic projections. In addition,
the Company's evaluation considers nonfinancial data such as market
trends, product development cycles and changes in management's market
emphasis. When an impairment in the carrying value has occurred, it is
the Company's policy to reduce the carrying amount of the impaired
asset to its fair market value.
In connection with the refinancing of its revolving line of credit and
subordinated notes payable, the Company incurred $277,053 in debt
issuance costs, which are being amortized over the respective lives of
the underlying agreements. In conjunction with the refinancing in 1995,
all prior debt issuance costs were written off.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in
the financial statements or tax returns. Deferred tax assets and
liabilities are determined based on the difference between the
financial reporting and tax bases of the assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis)
or market and include materials, labor and overhead.
Earnings (Loss) per Share
Earnings (loss) per share are calculated using the weighted average
number of common shares outstanding, plus the dilutive effect of any
options or warrants outstanding.
All share amounts and per share amounts in the accompanying financial
statements have been adjusted to reflect the 1:5 reverse stock split
which occurred on December 28, 1995.
F-15
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents and Financial Instruments
For purposes of the consolidated statements of cash flows, cash and
cash equivalents consist of highly liquid investments with original
maturities of three months or less.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
The risk is limited due to the relatively large number of customers
composing the Company's customer base and their dispersion across many
industries and geographic areas within the United States, Europe and
Asia.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company to
estimate the fair values of each class of financial instruments:
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate their
fair value.
Note Receivable
The carrying amount of the note receivable approximates its fair
value as of December 31, 1995 using a discounted cash flow analysis
at interest rates currently available for notes with similar risk
characteristics.
Revolving Lines of Credit
The carrying amounts of revolving lines of credit with adjustable
interest rates approximate their fair value since no significant
change in the risk characteristics of the Company have occurred
since inception of the borrowing.
Term Loans and Subordinated Notes Payable
The carrying amounts of term loans with fixed interest rates
approximate their fair value as of December 31, 1995 using a
discounted cash flow analysis at interest rates currently available
for obligations with similar risk characteristics. The carrying
amounts of debt facilities, including subordinated notes and
mortgage note payable with variable interest rates, approximate
their fair value.
F-16
<PAGE>
(4) INCOME TAXES
The components of the income tax provision (benefit) are as follows:
For the Years Ended
December 31,
1995 1994
Current-
Federal $ 260,820 $ 167,717
State 80,526 72,008
---------- ----------
341,346 239,725
---------- ----------
Deferred-
Federal (295,212) (155,471)
State (98,404) (48,000)
---------- ----------
(393,616) (203,471)
---------- ----------
$ (52,270) $ 36,254
========= =========
Deferred income taxes result primarily from timing differences in book
and tax depreciation and the recognition of gains related to the note
receivable.
The following is a reconciliation of the federal income tax provision
(benefit) calculated at the statutory rate of 34% to the recorded
amount:
For the Years
Ended December 31,
1995 1994
Applicable statutory
federal income tax benefit
$(123,151) $(75,256)
State income taxes,
net of federal income tax
benefit
(21,733) 4,328
Goodwill amortization 98,754 98,724
Other, net (6,140) 8,458
--------- -----------
$ (52,270) $ 36,254
========= ========
F-17
<PAGE>
(4) INCOME TAXES (Continued)
The significant items composing the deferred tax asset and liability at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
Current Long-term Current Long-term
<S> <C> <C> <C> <C>
Assets-
Reserves not
currently deductible $223,901 $ -- $102,286 $ --
Other 107,144 -- 52,455 172,572
-------- ----------- -------- -----------
Total assets 331,045 -- 154,741 172,572
-------- ----------- -------- -----------
Liabilities-
Accelerated depreciation
and property-basis
differences
-- (738,655) -- (1,627,523)
Note receivable -- (402,700) -- --
Other (7,082) (73,925) (40,818) --
-------- ----------- -------- -----------
Total liabilities (7,082) (1,215,280) (40,818) (1,627,523)
-------- ----------- -------- -----------
Net assets
(liabilities) $323,963 $(1,215,280) $113,923 $(1,454,951)
======== =========== ======== ===========
</TABLE>
(5) INVENTORIES
Inventories are as follows:
December 31,
1995 1994
Finished goods $ 863,428 $ 881,110
Work-in-process 482,712 476,707
Raw materials 2,490,513 1,949,234
---------- ----------
$3,836,653 $3,307,051
========== ==========
F-18
<PAGE>
(6) NOTE RECEIVABLE
On September 5, 1995, the Company sold its manufacturing facility in
Beverly, Massachusetts, for $1.2 million in cash and a note receivable
of $1 million from the buyer. The note bears interest at 6.32%, payable
monthly in arrears. The terms of the note require interest-only
payments for the first five years, with monthly principal and interest
payments of $19,482 commencing October 1, 2000 through maturity on
September 1, 2005. The note is secured by a letter of credit with a
bank.
(7) DEBT
As of December 31, 1995 and 1994, long-term debt consisted of the
following:
December 31, 1995 1994 Revolving
line of credit, maturing June
30,1995, payable to a bank, with an
interest rate at the bank's prime
lending rate plus 3/4% at December
31, 1994 (9.25%) $ - $6,679,156
Revolving line of credit, maturing
March 31, 1998, payable to a bank,
with an interest rate at the bank's
prime lending rate plus 1/2 % at
December 31, 1995 (9.00%) 2,753,018 --
Revolving line of credit, maturing
April 1996, payable to a Hong Kong
bank, with an interest rate at the
bank's prime lending rate at
December 31, 1995 (8.75%) 83,690 --
Term loan, maturing on March 1,
2000, payable to a bank, with an
interest rate of prime plus 1/2%,
(9.00%) at December 31, 1995 1,488,386 --
Term loan, maturing October 17,
2000, payable to a bank, with an
interest rate at 8.80% 104,537 --
---------- ----------
Less--Current portion of
long-term debt 266,358 407,531
---------- ----------
$4,163,273 $6,271,625
========== ==========
F-19
<PAGE>
(7) DEBT (Continued)
On March 6, 1995, the Company refinanced its revolving line of credit.
The old line of credit was repaid with the proceeds of a revolving line
of credit and two term loans totaling $2.967 million with a different
bank (the Bank) and $1 million of subordinated notes payable.
The revolving line of credit has a maximum credit limit of the lesser
of $4,000,000 or a borrowing base as defined in the Credit Agreement as
a function of the Company's eligible accounts receivable and inventory,
approximately $3,266,000 as of December 31, 1995. The line has a
floating interest rate of 1/2% above the Bank's prime lending rate. The
maximum amount outstanding at any month-end during 1995 was $2,886,250
with a weighted average interest rate of during the year of 9.35%.
One term loan has a five-year term with an original principal amount of
$2,767,000. Principal payments of $23,059 were due monthly, plus
interest at the Bank's prime lending rate plus 1/2%. In conjunction
with the sale of the Beverly facility referred to in Note 6, a
principal payment of $1.1 million was made on this note, at which time
the loan agreement was amended to reduce the monthly principal payment
on this note to $13,420.
The other term loan was short-term in nature. It had an original
principal amount of $200,000 and carried an interest rate of the Bank's
prime lending rate plus 2%. The entire amount was repaid in August
1995.
These loans require the Company to comply with several affirmative and
negative covenants, including certain financial tests and ratios such
as debt service coverage, net income requirements and other items. The
loans are collateralized by substantially all of the Company's assets
and a personal guaranty, to the extent of $1,000,000, by the Chairman
of the Board.
The subordinated notes payable, principal balance of $1,000,000, have a
term of 14 months and have interest rates of 13.5%. Interest payments
are due quarterly, commencing on June 1, 1995. The notes mature on May
6, 1996. Payment of these notes is subordinated to those of the senior
debt discussed above and is personally guaranteed by the Chairman of
the Board. In conjunction with the subordinated notes, the subordinate
noteholders received warrants to purchase 20,000 shares of the
Company's $0.001 par value common stock. These warrants are exercisable
through March 6, 1996 at $7.50 CND per share of common stock, which was
the publicly traded price at the date of the issuance of the warrants.
For financial reporting purposes, the Company has not placed any value
on the warrants.
In exchange for the personal guarantees discussed above, the Chairman
of the Board received 5% of the face amount of the guarantees in common
stock of the Company, which amounted to $112,500.
F-20
<PAGE>
(7) DEBT (Continued)
This amount is included in debt acquisition costs and is being
amortized over the lives of the respective loan and note agreements.
On September 5, 1995, the Company sold its manufacturing facility in
Beverly, Massachusetts, and purchased a manufacturing facility in
Salem, New Hampshire. In conjunction with this purchase, the Company
issued a $1,500,000 mortgage note payable to the buyer of its Beverly,
Massachusetts, facility in exchange for $1,500,000 in cash, which was
utilized to purchase the Salem facility. This note requires monthly
interest payments at rates as follows: prime plus 2% from September 5,
1995 through February 28, 1996, prime plus 3% from March 1, 1996
through May 31, 1996 and prime plus 4% thereafter through maturity on
September 1, 1996.
As of December 31, 1995, the Company was not in compliance with certain
financial covenants set forth in the Credit Agreement, as amended. On
March 15, 1996, the Company obtained a waiver for these events of
noncompliance. In addition to the waiver, the Credit Agreement was
amended such that the Company's cumulative net income for the calendar
periods ended March 31, June 30, September 30, and December 31 must be
greater than zero, $43,000, 75,000 and $158,000, respectively. The
Credit Agreement was also amended to change the certain other covenant
requirements related to debt service coverage and capital expenditures.
On May 11, 1994, the holder of certain subordinated notes agreed to the
repayment in full of the principal amount of, and accrued interest on,
the notes and the repurchase of all of the shares of common stock it
held in the Company, for an aggregate consideration of $2,500,000. The
Company recorded an extraordinary gain of $3,594,200, net of $930,000
in taxes, as a result of the extinguishment of this debt in the
consolidated statement of operations for the year ended December 31,
1994.
F-21
<PAGE>
(8) STOCKHOLDERS' INVESTMENT
On May 11, 1994, the Company changed the par value of its stock from
$.01 to $.001 per share and increased the authorized shares to
2,400,000. The outstanding shares of the Company were converted to the
new shares using a 11.129701-to-1 ratio. Pursuant to the merger
agreement discussed earlier, the 7,510,784 outstanding shares of Brower
Explorations, Inc. (Brower) were converted to, and exchangeable for,
shares of the Company on the basis of 25 shares of Brower stock for one
share of the Company's common stock. In addition, 750,000 outstanding
Brower options were converted to 30,000 options to purchase shares of
the Company's $0.001 par value common stock at $6.25 CND per share.
These options expire on August 26, 1998.
On May 11, 1994, the Company issued 400,000 shares of its $.001 par
value common stock in an initial public offering on the Vancouver Stock
Exchange. Simultaneously, 72,751 shares were sold via a private
placement in the U.S. Net proceeds of these transactions were
approximately $3,065,000. In November 1994, an additional 164,880
shares were sold in another private placement in the U.S. for
approximately $960,000, net of expenses.
During 1995, 149,519 shares were sold via two private placements in the
U.S. Net proceeds of these transactions were approximately $664,000. In
conjunction with the refinancing of the Company's debt in March 1995,
25,333 shares were issued to a principal shareholder in exchange for
certain personal guarantees of the Company's debt.
(9) EMPLOYEE BENEFITS
The Company has noncontributory defined benefit pension plans that
cover a majority of Company employees. The accrued benefit is
determined based on credited service as of the employee's retirement
date. Employees become fully vested after five years.
The Company froze the benefit of the defined benefit pension plan
during August 1993. The Company will report a curtailment gain in
accordance with SFAS No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits, after all benefit payments are made; the Company does not
believe that the curtailment gain will have a material impact on the
financial position or operations of the Company.
F-22
<PAGE>
(9) EMPLOYEE BENEFITS (Continued)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets:
December 31,
1995 1994
Actuarial present value of
benefit obligations-
Accumulated benefit obligation,
including vested benefits of
$354,253 in 1995 and $393,695
in 1994 $(354,253) $(393,695)
========= =========
Projected benefit obligation for
service rendered to date $(354,253) $(393,695)
Plan assets at fair value,
guaranteed investment contract
with an insurance company
393,530 466,357
Unrecognized net gain (11,347) (64,885)
Unrecognized net assets (75,696) (81,175)
--------- ---------
Accrued pension cost $ (47,766) $ (73,398)
========= =========
Net periodic pension cost (benefit)
includes the following components:
For the Years Ended December 31,
1995 1994
Service cost--benefit earned
during the period
$ - $ -
Interest cost on projected
benefit obligation 27,752 30,843
Return on plan assets (29,150) (34,545)
Amortization of intangibles
and other (4,241) (6,478)
-------- -----------
Net periodic pension
cost (benefit) $ (5,639) $(10,180)
======== ==========
The weighted average discount rate and rate of increase in future
compensation used in determining the actuarial present value of the
projected benefit obligation was 8.5% in 1995 and 1994. The expected
long-term rate of return on assets was 8% in 1995 and 1994.
F-23
<PAGE>
(9) EMPLOYEE BENEFITS (Continued)
On January 17, 1994, the Company established the Stocker & Yale 401(k)
Plan (the Plan). Under the Plan, employees are allowed to make pretax
retirement contributions. In addition, the Company may make matching
contributions, not to exceed 100% of the employee contributions, and
profit sharing contributions at its discretion. The Company made no
such contributions for the Plan year ended December 31, 1995 and 1994.
The Company incurred $8,284 and $3,655 in 1995 and 1994, respectively,
to establish and administer the Plan.
During 1994, the Company adopted a Stock Option Plan (the Option Plan)
for the purpose of issuing both Incentive Options and Nonqualified
Options to officers, employees and directors of the Company. Options
may be granted under the Option Plan on such terms and at such prices
as determined by the Board of Directors, except that the options cannot
be granted at less than 100%, or in certain circumstances not less than
110%, of the fair market value of the common stock on the date of the
grant. Each option will be exercisable after the period or periods
specified in the option agreement, but no option may be exercised after
the expiration of 10 years from the date of grant. As of December 31,
1994, the Company had granted 89,040 options at an exercise price of
$7.25. As of December 31, 1995 and 1994, no options were exercisable.
The following is a summary of the Option Plan activity:
Number
of Shares Price Range
Outstanding at December 31, 1994 89,040 $7.25
Granted 50,000 3.70-4.55
Exercised - -
Lapsed (4,600) 7.25
----------- -----------
Outstanding at December 31, 1995 134,440 $3.70-$7.25
=========== ============
F-24
<PAGE>
(10) COMMITMENTS AND CONTINGENCIES
Total rent expense for operating leases charged to operations for the
periods ended December 31, 1995 and 1994 was $34,000 and $43,000,
respectively. Minimum commitments under leases in effect at December
31, 1995 are as follows:
Operating
Capital Leases Leases
1996 $62,265 $20,100
1997 - 11,544
1998 - 6,459
1999 - 2,779
------- -------
Total minimum lease payments 62,265 $40,882
=======
Less--Amount representing interest 3,705
Present value of net minimum
lease payments under
capital lease $58,560
=======
F-25
<PAGE>
(11) SEGMENTED INFORMATION
The Company's operations were conducted primarily within the following
industry segments for the fiscal years ended December 31, 1995 and 1994:
December 31, 1995
Measuring Machine
and Inspection Components
Instruments and Accessories Total
Net sales $ 8,684,411 $4,320,264 $13,004,675
Operating income 10,325 517,938 528,263
Capital expenditures 1,920,967 111,058 2,032,025
Depreciation expense 418,968 146,902 565,870
Amortization expense 266,270 143,376 409,646
Fixed assets, net 2,304,302 1,061,647 3,365,949
Total identifiable assets 12,857,630 6,923,340 19,780,970
December 31, 1994
Measuring Machine
and Inspection Components
Instruments and Accessories Total
Net sales $ 6,616,063 $4,562,622 $11,178,685
Operating income (249,886) 783,414 533,528
Capital expenditures 107,815 785 108,600
Depreciation expense 481,547 263,811 745,358
Amortization expense 241,954 130,283 372,237
Fixed assets, net 3,126,332 1,097,489 4,223,821
Total identifiable assets 12,447,659 6,598,876 19,046,535
Sales to unaffiliated customers in foreign countries represented
approximately 10% and 11% of net sales for fiscal 1995 and 1994,
respectively. The Company's export sales are denominated in U.S.
dollars.
F-26
<PAGE>
[COVER]
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations not contained in this Prospectus, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus does
not constitute an offer of any securities other than those to which it relates
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
---------------------------
TABLE OF CONTENTS
Page
Available Information........................................2
Prospectus Summary...........................................3
Risk Factors.................................................6
Use of Proceeds..............................................9
Market for Common Equity and
Related Stockholder Matters..............................9
Dividend Policy.............................................10
Dilution....................................................10
Capitalization..............................................12
Management's Discussion and Analysis Of
Financial Condition and Results of
Operations..............................................14
Business....................................................19
Management..................................................27
Security Ownership..........................................31
Certain Relationships and Related Transactions..............32
Description of Capital Stock................................32
Plan of Distribution........................................34
Legal Matters...............................................34
Experts.....................................................35
Additional Information......................................35
Until _____________, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
750,000 Shares
[Logo]
Stocker & Yale, Inc.
Common Stock
--------------------------
PROSPECTUS
__________, 1966
--------------------------
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemized statement of all expenses
expected to be incurred in connection with the issuance and distribution of the
securities being registered (all of which are estimated).
All expenses in connection with the registration and distribution of the
securities shall be borne by the Company.
Securities and Exchange Commission
filing fee................................ $1,360
Nasdaq filing fee........................... _____
Legal fees and expenses..................... _____
Accounting fees and expenses................ _____
Blue sky fees and expenses.................. 3,000
Miscellaneous............................... _____
$_____
Item 24. Indemnification of Directors and Officers
Section 67 of Chapter 156B of the Massachusetts General Laws provides a
statutory framework covering indemnification of directors, officers and
employees against liabilities and expenses arising out of legal proceedings
brought against them by reason of their status or service as directors or
officers. In addition, Article V of the Company's Amended and Restated By-Laws
provides for indemnification of directors, officers and employees of the
Company. Section 67 and the Company's Amended and Restated By-Laws generally
provide that a director, officer or employee of the Company shall be indemnified
by the Company for all expenses and liabilities of legal proceedings brought
against him/her by reason of his/her status or service as a director, officer or
employee unless the director, officer or employee is adjudged not to have acted
in good faith in the reasonable belief that his/her action was in the best
interest of the Company or to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such plan. The Company's Amended and Restated
Articles of Organization also incorporate certain provisions permitted under the
Massachusetts General Laws relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, including gross negligence, except in circumstances involving
certain wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law or authorization of distributions in violation of the
Company's Amended and Restated Articles of Organization or of loans to officers
or directors of the Company or any transaction from which the director derived
improper personal benefit. These provisions do not eliminate a director's duty
of care. Moreover, the provisions do not apply to claims against a director for
violations of certain laws, including federal securities laws.
Item 26. Recent Sales of Unregistered Securities
Described below are all transactions in which the Company sold
unregistered securities of the Company within the past three years. Numbers of
shares and per share prices have been adjusted, as required, to reflect the
one-for-five Reverse Stock Split which was consummated on December 28, 1995.
In May 1994, the Company sold an aggregate of 40,000 shares of its
Common Stock in the Initial Public Offering conducted in Canada at a price of
$10.00 CDN per share. The aggregate amount of consideration paid for the shares
of Common Stock sold in the Initial Public Offering was $4,000,000 CDN. The
Company believes that the offer and sale of these shares of Common Stock was
made in reliance on the exemption under Regulation S promulgated pursuant to the
Securities Act as an offer and sale of securities outside of the United States
without registration under the Securities Act.
II-1
<PAGE>
In May 1994, the Company consummated the Merger of Brower with and into
the Company in which merger the Company was the surviving entity. The purpose of
the Merger was to enable the Company to succeed to Brower's status as an entity
listed for trading on the VSE and thereby to cause the Company to have access to
the public capital markets. In connection with the Merger, the issued and
outstanding common stock of Brower was converted into shares of Common Stock at
a conversion ratio of five shares of Brower common stock for one share of Common
Stock (twenty-five shares of Brower common stock for one share of Common Stock
after giving effect to the Reverse Stock Split). As a result, the former holders
of Brower common stock received 300,431.36 shares of Common Stock (after
adjusting for the Reverse Stock Split) in consideration of 1,502,156.8 shares of
Brower common stock. Based on information received from the transfer agent for
Brower's common stock, the Company believes that the aggregate value of the
shares of the Company's Common Stock issued to U.S. residents was less than
$1,000,000 and, accordingly, the Company believes that the issuance and sale of
such shares of Common Stock were made in reliance on the exemption from
registration under Section 4(2) of the Securities Act.
In May 1994, in connection with the Merger, certain options to purchase
up to 750,000 shares of Brower common stock were converted into options to
purchase up to 30,000 shares of Common Stock at an exercise price of $1.25 CDN
per share. The issuance and sale of such securities were made in reliance on the
exemption from registration under Section 4(2) of the Securities Act. In light
of the status of each optionee as a senior executive of Brower, the Company
believes that it has sufficient information to reasonably conclude that each
such purchaser is an "accredited investor." In addition, based on information
received from Brower, the Company believes that the aggregate value of shares of
the Company's Common Stock which may be acquired by U.S. residents upon exercise
of such options was less than $1,000,000.
In May 1994, the Company sold an aggregate of approximately 72,751
shares of its Common Stock to certain parties which are not affiliates of the
Company at a price of approximately $7.56 per share. The aggregate amount of
consideration paid for such shares was $550,000. Based on information received
from Brower, the Company believes that the aggregate value of shares of the
Company's Common Stock acquired by U.S. residents was less than $1,000,000, and
accordingly, the Company believes that the issuance and sale of such shares of
Common Stock were made in reliance on the exemption from registration under
Section 4(2) of the Securities Act.
In October, 1994, the Company sold an aggregate of 164,880 shares of
Common Stock in a private placement. The price per share in such transaction was
the then-current approximately $6.22, and the aggregate consideration paid for
such shares was $1,025,000. In this private
palcement, a trust for the benefit of Mark
W. Blodgett and certain members of his family acquired 20,107.2 shares (after
adjusting for the Reverse Stock Split) at a price per share of approximately
$6.22 and an aggregate price of $125,000. These shares were sold to, and
acquired by, such trust on the same terms and subject to the same conditions as
contemporaneous sales to third parties. Based, in part, on representations made
by the respective purchasers of such shares of Common Stock that such purchaser
is (i) (A) a trust with total assets in excess of $5,000,000 or (B) a
corporation, partnership, Massachusetts or similar business trust or an
organization described in Section 501(c)(3) of the Code, not formed for the
purpose of acquiring such shares, directed by a person who has such experience
in financial matters that such person is capable of evaluating the merits and
risks of owning such securities (any such person, a "Sophisticated Person") or
(ii) a high net worth individual, the Company believes that the issuance and
sale of such shares of Common Stock were made in reliance on the exemption from
registration under Section 4(2) of the Securities Act.
In January 1995, the Company sold an aggregate of 41,791.2 shares of its
Common Stock to certain parties which are not affiliates of the Company at a
price of approximately $4.79 per share. The aggregate amount of consideration
paid for such shares was $200,000. Based, in part, on representations made by
the respective purchasers of such shares of Common Stock that such purchaser is
(i)(A) a trust with total assets in excess of $5,000,000 or (B) a corporation,
Massachusetts partnership or similar business trust or an organization described
in Section 501(c)(3) of the Code, not formed for the purpose of acquiring such
shares, directed by
II-2
<PAGE>
a Sophisticated Person or (ii) a high net worth individual, the Company believes
that the issuance and sale of such shares of Common Stock were made in reliance
on the exemption from registration under Section 4(2) of the Securities Act.
Between April 1994 and April 1995, options to purchase a total of
118,440 shares of Common Stock were issued pursuant to the Company's 1994 Stock
Option Plan (the "Plan") which provides for the granting of either incentive
stock options or non-qualified options to employees, officers, directors and
consultants of the Company. The Company believes that these grants and sales are
deemed to be exempt transactions as sales of an issuer's securities pursuant to
a written plan or contract relating to the compensation of such individuals
under Rule 701 promulgated pursuant to the Securities Act.
In December 1994, the Company's 1994 Employee Stock Bonus Plan (the
"Bonus Plan") purchased a total of 2,400 shares of Common Stock on the VSE and
distributed the acquired shares to certain employees in accordance with the
Bonus Plan. The Bonus Plan provides, among other things, for the granting of
shares of Common Stock to employees of the Company other than the Chairman and
Chief Executive Officer, the President and the President of the Company's SDD
Division. The Company believes that these grants and sales are deemed to be
exempt transactions as sales of an issuer's securities pursuant to a written
plan or contract relating to the compensation of such individuals under Rule 701
promulgated pursuant to the Securities Act.
In January 1995, options to purchase a total of 9,000 shares of Common
Stock at an exercise price of $7.50 CDN per share were granted to the three
Directors of the Company who are not officers or employees of the Company. The
Company believes that the issuance and sale of such securities were made in
reliance on the exemption from registration under Section 4(2) of the Securities
Act.
In light of the status of each of the
option holders as a Director of the Company or a high net worth individual,
management of the Company believes that it obtained sufficient information to
reasonably conclude that each such option holder is either an "accredited
investor" or either alone or with his representative, has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of owning shares of Common Stock.
Contemporaneously with the 1995 grant of options to outside Directors of
the Company, options to purchase a total of 3,000 shares of Common Stock at an
exercise price of $7.50 CDN per share were issued to John M. Nelson who was not
then affiliated with the Company, subject to his subsequent election to the
Board. The issuance and sale of such securities were made in reliance on the
exemption from registration under Section 4(2) of the Securities Act. In light
of the status of such option holder as a high net worth individual, management
of the Company believes it obtained sufficient information to reasonably
conclude that such option holder is either an "accredited investor" or either
alone or with his representative, has such knowledge and experience in financial
business matters that he is capable of evaluating the merits and risks of owning
shares of Common Stock. Mr. Nelson was elected to the Board of Directors on
February 27, 1995.
In March 1995, pursuant to that certain Subordinated Note and Warrant
Purchase Agreement by and between the Company and certain parties which are not
affiliates of the Company, the Company issued its 13.5% Subordinated Notes due
May 6, 1996 (the "1995 Notes"), in an aggregate initial principal amount of
$1,000,000 and its Stock Purchase Warrants expiring March 6, 1996 (the
"Warrants"), upon the exercise of which the Company was obligated to issue, in
the aggregate, up to 20,000 shares of its Common Stock at a price per share of
$7.50 The aggregate consideration paid for the 1995 Notes and the Warrants was
$1,000,000. Based, in part, on representations made by each purchaser of such
securities, the Company believes that the issuance and sale of the Notes and the
Warrants were made in reliance on the exemption from registration under Section
4(2) of the Securities Act. These 1995 Notes were paid in full in May, 1996,
without exercise of the warrants.
In 1995, Mark Blodgett personally guarantied certain indebtedness of the
Company. The Company's Board of Directors determined that such guaranty had a
value to the Company of $125,000. In consideration of such guaranty, in June
1995 the Company issued 25,533.2 shares to Mr.
Blodgett. The shares issued to Mr.
II-3
<PAGE>
Blodgett in this transaction had an aggregate fair market value, at the
then-current market price of $4.90, of $125,000. The Company believes that the
issuance and sale of such shares of Common Stock were made in reliance on the
exemptions under Section 4(2) of the Securities Act. In light of Mr. Blodgett's
status as an officer and Director of the Company and a high net worth
individual, management believes that it has obtained sufficient information to
reasonably conclude that Mr. Blodgett, either alone or with his representative,
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of owning shares of Common Stock.
In June 1995, the Company sold an aggregate of 107,527 shares of Common
Stock in a private palcement. The price per share in such transaction was the
then-current market price of $4.65, and the aggregate consideration paid for
such shares was $500,000. In this private palcement, Mark W. Blodgett acquired
21,505.4 shares of Common Stock at a price of $4.65 per share and at an
aggregate price of $100,000. These shares were sold to, and acquired by Mr.
Blodgett on the same terms and subject to the same conditions as contemporaneous
sales to third parties. The Company believes that the issuance and sale of such
shares of Common Stock to Mr. Blodgett were made in reliance on the exemptions
under Section 4(2) of the Securities Act. In light of Mr. Blodgett's status as
an officer and Director of the Company and a high net worth individual,
management believes that it has obtained sufficient information to reasonably
conclude that Mr. Blodgett, either alone or with his representative, has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of owning shares of Common Stock. Based, in
part, on representations made by the respective purchasers, other than Mr.
Blodgett, of such shares of Common Stock that such purchaser is (i)(A) a trust
with total assets in excess of $5,000,000 or (B) a corporation, Massachusetts
partnership or similar business trust or an organization described in Section
501(c)(3) of the Code, not formed for the purpose of acquiring such shares,
directed by a Sophisticated Person or (ii) a high net worth individual, the
Company believes that the issuance and sale of such shares of Common Stock were
made in reliance on the exemption from registration under Section 4(2) of the
Securities Act.
In December 1995, the Company's 1995 Employee Stock Bonus Plan (the
"1995 Bonus Plan") purchased a total of 2,920 shares of Common Stock on the VSE
and distributed the acquired shares to certain employees in accordance with the
1995 Bonus Plan. The 1995 Bonus Plan provides, among other things, for the
granting of shares of Common Stock to employees of the Company other than the
Chairman and Chief Executive Officer, the President and the President of the
Company's SDD Division. The Company believes that these grants and sales are
deemed to be exempt transactions as sales of an issuer's securities pursuant to
a written plan or contract relating to the compensation of such individuals
under Rule 701 promulgated pursuant to the Securities Act.
In May 1996, pursuant to that certain Convertible Subordinated Note
Purchase Agreement by and between the Company and certain parties which are not
affiliates of the Company, the Company issued its 7.25% Convertible Subordinated
Notes due on May 1, 2001 (the "1996 Notes"), in an aggregate principal amount of
$1,350,000. The aggregate consideration paid for the 1996 Notes was $1,350,000.
Based, in part, on representations made by each purchaser of such securities,
the Company believes that the issuance and sale of the 1996 Notes was made in
reliance on the exemption from registration under section 4(2) of the Securities
Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
3.1 Amended and Restated Articles of Organization of the
Registrant, incorporated by reference to Exhibit 3.1 of
Stocker & Yale's Form 10-SB, as amended, filed on November 2,
1995.
II-4
<PAGE>
3.2 Amended and Restated Bylaws of the Registrant, incorporated by
reference to Exhibit 3.2 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
4.1 Escrow Agreement by and among the Registrant and the parties
named therein, incorporated by reference to Exhibit 4.1 of
Stocker & Yale's Form 10-SB, as amended, filed on November 2,
1995.
4.2 Subordinated Note & Warrant Purchase Agreements, incorporated
by reference to Exhibit 10.7 of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
*5.1 Form of Opinion of Goodwin, Procter & Hoar LLP as to the
legality of Stocker & Yale's shares of Common Stock.
10.1 (a) Credit Agreement, dated as of March 6, 1995, by and between
the Registrant and Shawmut Bank, N.A., incorporated by
reference to Exhibit 10.1(a) of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
10.1 (b) Waiver and Amendment No. 1 to the Credit Agreement, dated as
of August, 16, 1995, incorporated by reference to Exhibit
10.1(b) of Stocker & Yale's Form 10-SB, as amended, filed on
November 2, 1995.
10.1 (c) Consent under, and Second Amendment, to Credit Agreement and
Amendment to Term Note, dated as of August 25, 1995,
incorporated by reference to Exhibit 10.1(c) of Stocker &
Yale's Form 10-SB, as amended, filed on November 2, 1995.
10.1 (d) Waiver and Amendment No. 3 to the Credit Agreement, dated as
of March 15, 1996, incorporated by reference to Exhibit 10.14
of Stocker & Yale's Form 10-KSB for the fiscal year ended
December 31, 1995.
10.1 (e) Waiver of certain provisions of the Credit Agreement dated May
24, 1996, incorporated by reference to Exhibit 10.1 of Stocker
& Yale's Form 10-QSB for the period ended June 30, 1996.
10.1 (f) Waiver of certain provisions of the Credit Agreement dated
July 31, 1996, incorporated by reference to Exhibit 10.2 of
Stocker & Yale's Form 10-QSB for the period ended June 30,
1996.
10.1 (g) Amendment No. 4 to the Credit Agreement, dated August 13,
1996, for the fiscal year ending December 31, 1996,
incorporated by reference to Exhibit 10.3 of Stocker & Yale's
Form 10-QSB for the period ending June 30, 1996.
10.2 Security Agreement, dated March 6, 1995, by and between the
Registrant and Shawmut Bank, N.A., incorporated by reference
to Exhibit 10.2 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.3 Mortgage (Michigan), incorporated by reference to Exhibit 10.3
of Stocker & Yale's Form 10-SB, as amended, filed on November
2, 1995.
10.4 Promissory Note, due September 1, 1996, issued by the
Registrant to Beverly Hospital Corporation, incorporated by
reference to Exhibit 10.4 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.5 Mortgage (New Hampshire), incorporated by reference to Exhibit
10.5 of Stocker & Yale's Form 10-SB, as amended, filed on
November 2, 1995.
II-5
<PAGE>
10.6 Purchase and Sale Agreement, dated as of August 28, 1995, by
and between the Registrant and John Hancock Mutual Life
Insurance Company, incorporated by reference to Exhibit 10.6
of Stocker & Yale's Form 10-SB, as amended, filed on November
2, 1995.
10.7 (a) Form of Convertible Subordinated Note Purchase Agreement by
and between the Registrant and the Purchaser named therein,
incorporated by reference to Exhibit 4.1 of Stocker & Yale's
Form 10-QSB for the period ended March 31, 1996.
10.8 (d) Form of Nonqualified Option Agreement for Outside Directors
under the Amended and Restated 1994 Stock Option Plan,
incorporated by reference to Exhibit 10.8(d) of Stocker &
Yale's Form 10-SB, as amended, filed on November 2, 1995.
10.9 Form of Option Agreement for Outside Directors outside the
Amended and Restated 1994 Stock Option Plan, incorporated by
reference to Exhibit 10.9 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.10 1995 Senior Management Profit Sharing Plan, incorporated by
reference to Exhibit 10.10 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.11 1994 Employee Stock Bonus Plan, incorporated by reference to
Exhibit 10.11 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.12 1995 Employee Stock Bonus Plan, incorporated by reference to
Exhibit 10.12 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.13 (a) 1996 Stock Option and Incentive Plan, incorporated by
reference to Exhibit A of Stocker & Yale's Proxy Statement for
the 1996 Annual Meeting of Stockholders, filed on April 3,
1996.
10.13 (b) Form of Incentive Option Agreement for employees under the
1996 Stock Option and Incentive Plan, incorporated by
reference to Exhibit 10.13(b) of Stocker & Yale's Form 10-KSB,
for the fiscal year ended December 31, 1995.
10.13 (c) Form of Nonqualified Option Agreement for employees under the
Restated 1995 Stock Option Plan, incorporated by reference to
Exhibit 10.13(d) of Stocker & Yale's Form 10-FSB, for the
fiscal year ended December 31, 1995.
21.1 Subsidiaries of the Registrant, incorporated by reference to
Exhibit 21.1 of Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in their
opinion, filed as Exhibit 5.1 hereto).
+23.2 Consent of Arthur Andersen LLP.
+24.1 Power of Attorney (included on signature page of Registration
Statement as filed).
- -----------
* To be filed by amendment.
+ Filed herewith.
II-6
<PAGE>
(b) Financial Statement Schedules
Item 17. Undertakings
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
(the "Securities Act") the Registrant has duly caused this Registration
Statement to be signed on its behalf by
the undersigned, thereunto duly authorized,
in the City of Salem, State of New Hampshire, on this 21st day of August,
1996.
STOCKER & YALE, INC.
By: /s/ Mark W. Blodgett
Mark W. Blodgett
Chairman and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors
of Stocker & Yale, Inc. hereby severally constitute and appoint Mark W. Blodgett
and Alex W. Blodgett, and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement (or any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act), and generally to do all such
things in our names and on own behalf in our capacities as officers and
directors to enable Stocker & Yale, Inc. to comply with the provisions of the
Securities Act of 1933, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Registration Statement and any
and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title
/s/ Mark W. Blodgett Chairman of the Board of August 21, 1996
Mark W. Blodgett Directors and Chief Executive
Officer (Principal Executive
Officer)
/s/ James Bickman President and Director August 21, 1996
James Bickman
/s/ Alex W. Blodgett President of Stilson Division August 21, 1996
Alex W. Blodgett and Director
/s/ Clifford L. Abbey Director August 21, 1996
Clifford L. Abbey
/s/ Robert G. Atkinson Director August 21, 1996
Robert G. Atkinson
/s/ Hubert R. Marleau Director August 21, 1996
Hubert R. Marleau
II-8
<PAGE>
/s/ John M. Nelson Director August 21, 1996
John M. Nelson
/s/ Susan Sundell Senior Vice President of August 21, 1996
Susan Hojer Sundell Finance and Treasurer
(Principal Financial and
Accounting Director)
303796.c7
II-9
<PAGE>
Exhibit Index
Exhibit
Number Description Page No.
3.1 Amended and Restated Articles of Organization
of the Registrant, incorporated by reference to
Exhibit 3.1 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
3.2 Amended and Restated Bylaws of the Registrant,
incorporated by reference to Exhibit 3.2 of
Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
4.1 Escrow Agreement by and among the Registrant
and the parties named therein, incorporated by
reference to Exhibit 4.1 of Stocker & Yale's
Form 10-SB, as amended, filed on November 2,
1995.
4.2 Subordinated Note & Warrant Purchase
Agreements, incorporated by reference to
Exhibit 10.7 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
*5.1 Form of Opinion of Goodwin, Procter & Hoar LLP
as to the legality of Stocker & Yale's shares
of Common Stock.
10.1 (a) Credit Agreement, dated as of March 6, 1995, by
and between the Registrant and Shawmut Bank,
N.A., incorporated by reference to Exhibit
10.1(a) of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.1 (b) Waiver and Amendment No. 1 to the Credit
Agreement, dated as of August, 16, 1995,
incorporated by reference to Exhibit 10.1(b) of
Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
10.1 (c) Consent under, and Second Amendment, to Credit
Agreement and Amendment to Term Note, dated as
of August 25, 1995, incorporated by reference
to Exhibit 10.1(c) of Stocker & Yale's Form
10-SB, as amended, filed on November 2, 1995.
10.1 (d) Waiver and Amendment No. 3 to the Credit
Agreement, dated as of March 15, 1996,
incorporated by reference to Exhibit 10.14 of
Stocker & Yale's Form 10-KSB for the fiscal
year ended December 31, 1995.
10.1 (e) Waiver of certain provisions of the Credit
Agreement dated May 24, 1996, incorporated by
reference to Exhibit 10.1 of Stocker & Yale's
Form 10-QSB for the period ended June 30, 1996.
10.1 (f) Waiver of certain provisions of the Credit
Agreement dated July 31, 1996, incorporated by
reference to Exhibit 10.2 of Stocker & Yale's
Form 10-QSB for the period ended June 30, 1996.
10.1 (g) Amendment No. 4 to the Credit Agreement, dated
August 13, 1996, for the fiscal year ending
December 31, 1996, incorporated by reference to
Exhibit 10.3 of Stocker & Yale's Form 10-QSB
for the period ending June 30, 1996.
10.2 Security Agreement, dated March 6, 1995, by and
between the Registrant and Shawmut Bank, N.A.,
incorporated by reference to Exhibit 10.2 of
Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
<PAGE>
10.3 Mortgage (Michigan), incorporated by reference
to Exhibit 10.3 of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
10.4 Promissory Note, due September 1, 1996, issued
by the Registrant to Beverly Hospital
Corporation, incorporated by reference to
Exhibit 10.4 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.5 Mortgage (New Hampshire), incorporated by
reference to Exhibit 10.5 of Stocker & Yale's
Form 10-SB, as amended, filed on November 2,
1995.
10.6 Purchase and Sale Agreement, dated as of August
28, 1995, by and between the Registrant and
John Hancock Mutual Life Insurance Company,
incorporated by reference to Exhibit 10.6 of
Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
10.7 (a) Form of Convertible Subordinated Note Purchase
Agreement by and between the Registrant and the
Purchaser named therein, incorporated by
reference to Exhibit 4.1 of Stocker & Yale's
Form 10-QSB for the period ended March 31,
1996.
10.8 (d) Form of Nonqualified Option Agreement for
Outside Directors under the Amended and
Restated 1994 Stock Option Plan, incorporated
by reference to Exhibit 10.8(d) of Stocker &
Yale's Form 10-SB, as amended, filed on
November 2, 1995.
10.9 Form of Option Agreement for Outside Directors
outside the Amended and Restated 1994 Stock
Option Plan, incorporated by reference to
Exhibit 10.9 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.10 1995 Senior Management Profit Sharing Plan,
incorporated by reference to Exhibit 10.10 of
Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
10.11 1994 Employee Stock Bonus Plan, incorporated by
reference to Exhibit 10.11 of Stocker & Yale's
Form 10-SB, as amended, filed on November 2,
1995.
10.12 1995 Employee Stock Bonus Plan, incorporated by
reference to Exhibit 10.12 of Stocker & Yale's
Form 10-SB, as amended, filed on November 2,
1995.
10.13 (a) 1996 Stock Option and Incentive Plan,
incorporated by reference to Exhibit A of
Stocker & Yale's Proxy Statement for the 1996
Annual Meeting of Stockholders, filed on April
3, 1996.
10.13 (b) Form of Incentive Option Agreement for
employees under the 1996 Stock Option and
Incentive Plan, incorporated by reference to
Exhibit 10.13(b) of Stocker & Yale's Form
10-KSB, for the fiscal year ended December 31,
1995.
10.13 (c) Form of Nonqualified Option Agreement for
employees under the Restated 1995 Stock Option
Plan, incorporated by reference to Exhibit
10.13(d) of Stocker & Yale's Form 10-FSB, for
the fiscal year ended December 31, 1995.
21.1 Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21.1 of Stocker & Yale's
Form 10-SB, as amended, filed on November 2,
1995.
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in their
opinion, filed as Exhibit 5.1 hereto).
<PAGE>
+23.2 Consent of Arthur Andersen LLP.
+24.1 Power of Attorney (included on signature page
of Registration Statement as filed).
- -----------
* To be filed by amendment.
+ Filed herewith.
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Form SB-2.
/s/ Arthur Andersen LLP
Boston, Massachusetts
August 21, 1996
