U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number: 0 - 5460
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STOCKER & YALE, INC.
(Name of small business issuer in its charter)
Massachusetts 04-2114473
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
32 Hampshire Road
Salem, New Hampshire 03079
(Address of principal executive offices) (Zip Code)
(603) 893-8778
(Issuer's telephone number)
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Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
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Check whether issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to filing such requirements for the past 90 days. X Yes No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-KSB.[ ]
The registrant's revenues for the fiscal year ended December 31, 1996 were
$10,782,078.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 14, 1997 was $9,153,543 based on the price per share of
such stock reported at closing on the Nasdaq SmallCap Market on that date.
As of March 25, 1997 there were 2,567,894.6 shares of the issuer's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
Annual Meeting of Shareholders to be held on May 6, 1997, to be filed with
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended, which is anticipated to be filed within 120 days after the
Registrant's fiscal year ended December 31, 1996, are incorporated by reference
into Items, 9, 10, 11 and 12 of Part III.
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TABLE OF CONTENTS
PART I
page
Item 1. Description of Business........................................... 1
Item 2. Description of Properties......................................... 5
Item 3. Legal Proceedings................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............... 6
PART II
Item 5. Market for Common Equity and Other Stockholder Matters............ 6
Item 6. Management Discussion and Analysis of
Financial Condition and Results of Operations................... 7
Item 7. Financial Statements.............................................. 12
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosures............. 34
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 34
Item 10. Executive Compensation............................................ 34
Item 11. Security Ownership of Certain Beneficial Owners and Management.... 34
Item 12. Certain Relationships and Related Transactions.................... 34
Item 13. Exhibits, List and Reports on Form 8-K............................ 35
Signatures........................................................ 38
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This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" on page 10 of this Form 10-KSB.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
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, 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 Exploration, Inc., a
Wyoming corporation ("Brower"), which was publicly traded on the Vancouver Stock
Exchange (the "VSE"). In connection with the merger (the "Merger"), the Company
was the surviving corporation. Concurrently with the Merger, the Company offered
2,000,000 shares 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 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 certain
private placement transactions occurring in the period between October, 1994 and
June, 1995, the Company sold approximately 1,698,656 shares of Common Stock. On
December 28, 1995, the Company consummated a one-for-five reverse stock split
(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. On September 17, 1996 the Company's
shareholders approved a proposal to amend 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 to 10,000,000 shares. On October
24, 1996, the Company completed a public offering of 850,000 shares of Common
Stock; management, and members of their families and related entities purchased
38,600 shares in this offering. In December, 1996, the Company issued a total of
4,980 shares of Common Stock to 83 of its employees pursuant to the 1996
Employee Stock Bonus Plan.
As of December 31, 1996, the authorized capital stock of the Company was
10,000,000 shares of Common Stock of which 2,567,894.6 shares were issued and
outstanding. As of December 31, 1996, 428,491 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
de-listed its Common Stock from the VSE.
The Company has two subsidiaries: Stocker & 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.
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Business Description
The Company manufactures a variety of measuring and inspection equipment,
including industrial lighting products, thermal printers and recorders, and
military compasses and watches through its Salem Division, and manufactures
machine tool components and accessories for the automotive and related
industries through its Stilson/Die-Draulics Division.
Measuring and inspection instruments 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.
Sales Data. Measuring and inspection instruments and accessories
represented approximately 61% of total Company sales in 1996, and approximately
67% in 1995. Industrial lighting products represent the Company's fastest
growing product segment having increased to approximately 22% of total Company
sales in 1996 from approximately 18% in 1995. Printer and recorder sales were
approximately 19% of total Company sales in 1996, compared to approximately 25%
in 1995. Sales to the U.S. Government as a percentage of total Company sales
have ranged from 27% in 1990 to 3% in 1994, and represented 5% of Company sales
in 1996.
Products. The Salem Division manufactures a wide variety of lighting and
optical measuring instruments. The Company is a leading manufacturer of
fluorescent illumination systems for microscopy and machine vision applications.
Such lighting products include circular and linear fluorescent illuminators. In
late 1996, the Company significantly increased Research and Development efforts
and expects to introduce additional lighting products in 1997, including fiber
optic illumination systems. The Company also manufactures illuminated magnifiers
for use by OEM and others in bench assembly operations when mounted as light
sources on machinery, and machine tool analyzers that are used to inspect the
cutting geometry of drills, taps and other cutting tools. These products are
generally sold directly to industrial users, distributors and OEM that
incorporate them into their own products.
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.
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. The Company also manufactures a line of
galvanometers that are used for positioning applications.
Distribution. Salem Division products are sold to over 8,000 customers,
primarily in North America, Europe and the Pacific Rim. The Salem Division sells
directly and also works with a group of approximately 125 microscope dealers and
machine vision integrators in selling industrial fluorescent lighting products
and with approximately 5 manufacturer's representatives in selling MFE brand
products. No single customer represents more than 10% of segment revenues.
However, sales to various branches of the armed services and various agencies of
the U.S. government, when aggregated, totaled approximately 5% of total Company
revenues in 1996 and 11% in 1995.
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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 gives
it an edge over its competitors, it believes that it has an established
reputation in the field for satisfying specific customer requirements.
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 lighting 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 supply 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 U.S. Army watch.
Machine tool components and accessories product lines
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.
Sales Data. Machine tools and accessories represented approximately 39% of
the total Company sales in 1996, compared to approximately 33% in 1995. Material
handling products, such as conveyor rolls and bumpers, were approximately 17% of
total Company sales in 1996 and approximately 15% of total sales in 1995. Other
products include vacuum handling systems, machine tool components for clamping,
indexing, holding, handling, locating, positioning and actuating, and nitrogen
die control systems. The products are sold to participants in the automotive,
packaging and other industries.
Distribution. The SDD Division's products are sold to over 5,000 customers,
and no one customer or group of customers represented more than 5% of total
revenue in 1996. Although SDD Division products are sold throughout the world,
sales to customers in the U.S. industrial Midwest
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(Ohio, Michigan, Illinois, and Indiana) represented approximately 53% of machine
tool and accessory sales in both 1996 and 1995. 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.
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 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. Historically, the SDD Division has maintained a market
advantage and product acceptance primarily by offering a complete product line,
technical applications assistance and quality service, at a competitive price.
Further, the Company has been able to adapt its products to the specific
requirements of its customers.
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 December 31, 1996, the Company had a backlog of
orders for future delivery of approximately $ 700,000 compared to $1.4 million
of such orders at December 31, 1995. At March 15, 1997 the backlog was $1.5
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 10,000 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 various agencies of the United
States Government were approximately 5% of the Company's total sales in 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 its patents to be a
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.
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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 $424,637 in
1996, $220,290 in 1995, and $226,498 in 1994. The increase in 1996 reflects a
stepped up develop- ment effort, which is 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
design, market and sell illuminators, ring lights and standard and custom
lengths of glass fiber to existing and new customers within the machine vision
and microscopy industries.
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 December 31, 1996, the Company employed approximately 97 persons, 91
of whom were full-time employees. No employees of the Company are unionized and
relations with employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently conducts its business at two Company-owned
facilities. The Company's headquarters and manufacturing and distribution center
for the Salem Division is located at a 79,120 square foot facility 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 Salem facility is owned by the Company subject to a
mortgage granted to Primary Bank, and the Company's Michigan facility is owned
by the Company and subject to a
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mortgage granted by the Company to Fleet Bank to secure the obligations of the
Company under the Company's senior credit facility. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS--Liquidity and
Capital Resources."
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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock was listed and traded on the Senior Board of the
VSE under symbol "SYI." In connection with the Reverse Stock Split, as of
December 28, 1995, the Common Stock became listed and traded in the Senior Board
of the VSE under the symbol "SYL." The Company de-listed its Common Stock from
the VSE effective May 10, 1996. Since January 29, 1996, the Company's Common
Stock has been listed on the Nasdaq SmallCap Stock Market since January 29, 1996
under the symbol "STKR".
The following table sets forth the high and low bids for the last 8
quarters:
High(1) Low(1)
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
Quarter ended September 30, 1996 $6.00 $4.875
Quarter ended December 31, 1996 $6.25 $4.75
(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.
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Holders
As of March 1, 1997, there were approximately 724 shareholders of record of
the Company's Common Stock.
Dividends
The Company presently is restricted from payment of dividends under the
terms of the Credit Agreement (as defined below), 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.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results of
operations and capital resources and liquidity should be read in conjunction
with the Consolidated Financial Statements and related Notes included elsewhere
herein.
Results of Operations
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended
December 31, 1995
Fiscal year 1996 was characterized by a stronger balance sheet and weaker
operating results. Management formulated a plan to focus on and expand its
industrial lighting and machine tool product lines through the acquisition of
complementary business and/or product lines and the development and marketing of
a line of fiber optic illumination products. In order to provide additional
working capital for growth as well as to finance possible acquisitions and new
product development, the Company completed a public offering on October 25, 1996
which generated net proceeds of approximately $3,950,000. As a consequence of
the Company's public offering, the Company increased stockholder's equity
approximately 38% from $8,624,495 at December 31, 1995 to $11,908,952 at
December 31, 1996, and reduced debt approximately 32% from $9,256,713 to
$6,256,713. In addition, in separate transactions which occurred in May and
August of 1996, the Company refinanced $2,500,000 of debt, all which was
classified as current debt in 1995 to $2,784,346 of long term debt and $50,151
of current debt in 1996. The Company reported a net loss of $643,421 for the
year ended December 31, 1996 as compared to a net loss of $309,939 for year
ended December 31, 1995. The loss is largely attributable to (i) decreased
revenues of approximately 17% from 1995 to 1996 and related lower absorption of
costs, (ii) decreased gross margin at the Company's SDD Division and (iii)
increased Research and Development expenses.
Revenues decreased from $13,004,675 to $10,782,078. Approximately 44% of
the revenue decrease was due to reduced sales to the U.S. government, which
declined from $1,534,165 in 1995 to $558,171 in 1996, primarily as a result of
one-time contract sales in 1995 for borescopes and navigator watches. Sales of
electronic ballasts declined from $1,103,401 in 1995 to $297,943 in 1996,
accounting for approximately 36% of the revenue decrease. The reduction in sales
of electronic ballasts 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. Recorder and printer product sales declined
from $2,786,600 in 1995 to $2,034,146 in 1996, representing approximately 34% of
the total revenue decrease. Recorder and printer product sales declined
primarily due to customer decisions to develop their own printers and recorders
and, especially, their own application-specific electronic controllers rather
than adapt generic product for re-sale. Sales of
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the Company's lighting products increased approximately 9% from $2,370,756 in
1995 to $2,583,369 in 1996. Sales of military watches and compasses to the
civilian market increased approximately 37% from $889,489 in 1995 to $1,217,627,
primarily as a result of a contract with a mail order marketing firm and
increased sales in Asia through the Company's Hong Kong subsidiary. Hong Kong
sales increased from $92,309 in 1995 to $272,455 in 1996.
Consolidated gross profit expressed as a percentage of total yearly sales
remained flat at 35.9% of total sales in 1996 compared to 35.5% of sales in
1995. However, due primarily to reduced absorption of overhead costs resulting
from lower revenues, gross profit decreased $846,246 from $4,719,058 in 1995 to
$3,872,812 in 1996. In addition, the SDD Division experienced a decline in gross
profit from 48% of net sales in 1995 to 42% of net sales in 1996. The decrease
in the gross profit at SDD Division was due primarily to increased material
costs incurred as a result of temporary outsourcing of components previously
produced in-house.
Research and development expenditures increased to $424,637 in 1996 from
$220,290 in 1995. The increase in 1996 reflects increased personnel costs for
new product development in the Salem Division, which is focused on introducing a
line of fiber optic illumination products to complement the Company's line of
industrial fluorescent lighting products.
Selling and General and Administrative Expenses remained flat at $3,822,595
in 1996 as compared to $3,869,952 in 1995. Interest Expense decreased
approximately 17% from $661,905 in 1995 to $546,770 in 1996, due primarily to
the paydown of the Company's Revolving Loan subsequent to the public offering in
October, 1996. In addition, 1995 results included a loss on the sale of real
estate relating to the sale of the Company's former headquarters. This
transaction is discussed in greater detail in the comparison of 1995 and 1994
below, and had no equivalent in 1996.
The Company recorded an income tax benefit of $277,892 in 1996 as compared
with a tax benefit of $52,270 in 1995. Varying effective tax rates are due
primarily to non-deductible goodwill amortization.
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, as amended (the "Exchange Act"). 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 was payable on or
before September 1, 1996. The note bore 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 was payable monthly in arrears. The Company
refinanced this note on August 29, 1996. 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 Exchange Act. Management notes that without the effect of
these nonrecurring expenses, the Company would have recorded a pretax loss of
approximately $3,000.
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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 $300,000 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.
Certain Factors Affecting Future Operating Results
Statements, other than historical facts, made herein may constitute
forward-looking statements. Such forward-looking statements are subject to risks
and uncertainties which may cause actual results to differ materially from those
anticipated in such statements. The factors that could cause actual results to
differ materially from anticipated results include, without limitation, the
Company's ability to (i) compete with entities that have greater financial,
technical and marketing resources than the Company, (ii) develop and market new
products in its various business lines, (iii) compete for and obtain certain
U.S. government contracts, or (iv) obtain financing on favorable terms. In
addition, general economic conditions may affect the Company's results.
Liquidity and Capital Resources
The Company historically has financed its operations primarily through
third party credit facilities and cash from operations. Net cash provided by
operations was $115,008 in 1996 and $249,140 in 1995. Cash used for financing
activities in the same years was $196,302 and $936,563 respectively, reflecting
in 1995 the purchase of the new Company headquarters and the sale of the
previous facility. Net cash provided by financing activities increased from
$701,112 in 1995 to $1,303,679 in 1996, which reflects the Company's public
offering in October 1996.
On October 25, 1996 the Company completed a public offering of 850,000
shares of the Company's Common Stock at a price of $5.00 per share, generating
$4,250,000 in gross proceeds. After deducting commissions and offering expenses,
the net proceeds of the offering were approximately $3,951,000. These net
proceeds will be used to provide funds for the development of the Company's
fiber optic illumination product line, for working capital, capital
expenditures, possible acquisitions and general corporate purposes. In order to
reduce interest expense, the Company paid down its revolving line of credit in
November of 1996, retaining the availability, to borrow a total of $2,529,888
under this line of credit as of March 1, 1997.
9
<PAGE>
In May 1996, the Company refinanced its $1,000,000 of 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 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"); by Waiver
and Amendment No. 4 to the Credit Agreement, dated as of August 13, 1996 (the
"Fourth Amendment"); and Waiver and Amendment No.5 to the Credit Agreement,
dated as of March 14, 1997. The Initial Credit Agreement, as amended by the
First Amendment, the Second Amendment, the Third Amendment, the Fourth
Amendment, and the Fifth Amendment is herein referred to as the "Credit
Agreement." The Short Term Loan was paid as agreed in August, 1995. As discussed
above, there were no borrowings outstanding on the Revolving Loan as of December
31, 1996, although the Company retains an availability to borrow against this
Revolving Loan; at December 31, 1995, there was a total of $2,753,018
outstanding under the Revolving Loan. There was a total of $1,336,986
outstanding under the Term Loan as of December 31, 1996 as compared to a total
of $1,488,386 in 1995. As of December 31, 1996, the interest rate on both the
Revolving Loans and the Term Loan was 8.75%.
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; or (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 2Under 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
10
<PAGE>
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. 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
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. As of December 31, 1996 the Company was not in compliance with the
minimum net income and the minimum debt service coverage covenants. On March 14,
1997 the Bank granted waivers of these covenants as of December 31, 1996 and for
the period then ended, set new thresholds for these covenants for the quarterly
reporting periods of 1997, and increased the maximum cash capital expenditure
threshold from $200,000 to $500,000 per year.
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") the
BHC Note in an initial principal amount of $1,500,000. All principal outstanding
under the BHC Note, together with any accrued, unpaid interest thereon, was due
and payable on September 1, 1996.
On August 29, 1996, the Company refinanced the BHC Note by issuing to
Primary Bank the Primary Note due August 29, 2011 in an initial principal amount
of $1,500,000. The Company's indebtedness evidenced by the Primary Note bears
interest at an annual rate of 9.25% per annum until August 29, 1999; and
thereafter, adjusted annually to the Prime Rate plus one percent. The principal
and interest are repayable in 180 equal monthly installments. In accordance with
the terms of the Primary Note, the Company may prepay amounts outstanding
thereunder, in whole or in part, at any time without premium or penalty.
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. Capital
expenditures in 1996 totaled $196,302.
The Company believes that its available financial resources are adequate
to meet its foreseeable working capital, debt service and capital expenditure
requirements.
11
<PAGE>
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
new line of fiber optic lighting products and fluorescent light dimming systems
and electronic ballasts which was a new product line 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
1996, currency exchange rate fluctuations totaled $13,103 under anticipated
costs of $262,462.
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7. Is presented on pages 15 through 35 of
this Form 10-KSB. The index to the Company's Financial Statements is set forth
below:
Page(s)
Report of Independent Public Accountants 13
Consolidated Balance Sheets at December 31, 1996 14
Consolidated Statements of Operations for the
Years Ended December 31, 1996 and 1995 15
Consolidated Statements of Stockholder's Investment
for the Years Ended December 31, 1996 and 1995 16
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996 and 1995 17
Notes to Consolidated Financial Statements 18 - 33
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders 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, 1996 and
1995, 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, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 14, 1997
13
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,244,418 $ 22,033
Trade receivables, less reserves of approximately
$166,000 in 1996 and $54,000 in 1995 1,410,774 1,897,943
Prepaid income taxes 353,668 323,963
Inventories 3,701,019 3,836,653
Prepaid expenses 131,478 159,013
------------- -------------
Total current assets 6,841,357 6,239,605
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET 3,134,717 3,365,949
------------- -------------
NOTE RECEIVABLE 1,000,000 1,000,000
------------- -------------
GOODWILL, NET OF ACCUMULATED AMORTIZATION 8,721,800 9,005,729
------------- -------------
DEBT ISSUANCE COSTS, NET OF ACCUMULATED AMORTIZATION 138,490 169,687
------------- -------------
$ 19,836,364 $ 19,780,970
============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt $ 357,569 $ 266,358
Mortgage note payable - 1,500,000
Subordinated notes payable - 1,000,000
Accounts payable 1,373,121 1,527,468
Accrued expenses 547,654 475,136
Accrued income taxes - 265,918
Short-term lease obligation - 58,560
------------- -------------
Total current liabilities 2,278,344 5,093,440
------------- -------------
LONG-TERM DEBT 4,021,570 4,163,273
------------- -------------
OTHER LONG-TERM LIABILITIES 564,688 684,479
------------- -------------
DEFERRED INCOME TAXES 1,012,685 1,215,280
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common stock, par value $0.001 at
December 31, 1996 and 1995-
Authorized--10,000,000 shares at
December 31, 1996 and 2,400,000 in 1995
Issued and outstanding--2,567,894 shares
and 1,712,914 shares at December 31, 1996
and 1995, respectively 2,568 1,713
Paid-in capital 10,822,705 6,845,685
Retained earnings 1,133,804 1,777,100
------------- -------------
Total stockholders' investment 11,959,077 8,624,498
------------- -------------
$ 19,836,364 $ 19,780,970
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
14
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
1996 1995
NET SALES $ 10,782,078 $ 13,004,675
COST OF SALES 6,909,266 8,386,170
------------- -------------
Gross profit 3,872,812 4,618,505
SELLING EXPENSES 1,749,492 1,703,704
GENERAL AND ADMINISTRATIVE EXPENSES 2,073,101 2,112,248
RESEARCH AND DEVELOPMENT 424,637 220,290
------------- -------------
Operating (loss) income (374,418) 582,263
LOSS ON SALE OF REAL ESTATE - (282,565)
INTEREST EXPENSE (546,770) (661,907)
------------- -------------
Loss before income tax benefit (921,188) (362,209)
INCOME TAX BENEFIT (277,892) (52,270)
------------- -------------
Net loss $ (643,296) $ (309,939)
============= =============
LOSS PER SHARE $ (0.34) $ (0.19)
======= =======
WEIGHTED-AVERAGE COMMON SHARES
AND EQUIVALENTS 1,891,116 1,660,590
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
15
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Total
Common Stock Paid-in Retained Stockholders'
Shares Amount Capital Earnings Investment
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 1,538,062 $ 1,538 $ 6,069,360 $2,087,039 $ 8,157,937
Sale 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
Sale of common stock, net of
issuance cost 850,000 850 3,950,885 - 3,951,735
Issuance of common stock to
employees 4,980 5 26,135 - 26,140
Net loss - - - (643,296) (643,296)
--------- -------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1996 2,567,894 $ 2,568 $10,822,705 $1,133,804 $11,959,077
========= ======== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated inancial statements.
16
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (643,296) $ (309,939)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Loss on disposal of assets - 228,565
Depreciation and amortization 781,664 975,516
Deferred income taxes (232,300) (449,711)
Other changes in assets and liabilities-
Accounts receivable, net 487,169 (107,675)
Inventories 135,634 (529,602)
Prepaid expenses 27,535 120,863
Accounts payable (154,347) 179,856
Accrued expenses 72,518 (122,670)
Accrued taxes (265,918) 176,580
Issuance of common stock to employees 26,140 -
Other long-term liabilities (119,791) 87,357
------------- -------------
Net cash provided by operating activities 115,008 249,140
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (196,302) (2,032,025)
Proceeds from sale of property, plant and equipment - 1,095,462
------------- -------------
Net cash used for investing activities (196,302) (936,563)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 3,951,735 664,000
Payments of bank debt (1,188,587) (6,679,156)
Proceeds from bank debt 41,108 2,836,708
Proceeds from subordinated notes 1,350,000 1,000,000
Proceeds from mortgage note payable - 1,500,000
Repayments of term loans and subordinated notes (2,753,017) (1,482,218)
Proceeds from term loans - 3,075,141
Payments on capital lease (58,560) (48,810)
Deferred financing costs (39,000) (164,553)
------------- -------------
Net cash provided by financing activities 1,303,679 701,112
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,222,385 13,689
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 22,033 8,344
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,244,418 $ 22,033
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 601,776 $ 681,953
=========== ==========
Taxes paid $ 241,691 $ 110,578
=========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Note receivable from the sale of property,
plant and equipment $ - $ 1,000,000
=========== ==========
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.
17
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND OPERATIONS
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.
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. Under the MFE brand name, 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. In 1996, the
Company expanded its product line by marketing and developing fiber-optic
lighting products.
The Company's Stilson and Die-Draulics Division manufactures a wide range
of machine tool components, material handling accessories and pressure
control systems at its facility in Fraser, Michigan. These products are
sold to the automotive, electronic, food, pharmaceutical and appliance
industries.
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 consolidated financial
statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 affect the reported amounts of assets and liabilities and
disclosure 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.
18
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Long-Lived Assets
The Company periodically assesses the realizability of its long-lived
assets in accordance with Statement of Financial Accounting Standards No.
121 (SFAS No. 121), Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of. Based on its review, the Company
does not believe that any material impairment of its long-lived assets has
occurred.
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
19
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment (Continued)
Property, plant and equipment, net, consist of the following:
December 31, 1996
-----------------
Accumulated Net Book
Cost Depreciation Value
Land $ 446,300 $ - $ 446,300
Building and building improvements 2,469,609 371,203 2,098,406
Machinery and equipment 4,140,402 3,835,242 305,160
Furniture and fixtures 828,477 543,626 284,851
---------- ---------- ----------
$7,884,788 $4,750,071 $3,134,717
========== ========== ==========
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
========== ========== ==========
Total depreciation of property, plant and equipment amounted to
approximately $424,000 and $566,000 for the periods ended December 31, 1996
and 1995, respectively.
Goodwill and Debt Issuance Costs
The 1989 acquisition of Stocker & Yale, Inc. by S & Y Acquisition Corp.
resulted in $10,749,000 of goodwill, which is being amortized over 40
years.
Intangibles consist of the following:
December 31, 1996
-----------------
Accumulated Net Book
Cost Amortization Value
Goodwill $10,749,000 $2,027,200 $8,721,800
Debt issuance costs 316,053 177,563 138,490
20
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Debt Issuance Costs (Continued)
December 31, 1995
-----------------
Accumulated Net Book
Cost Amortization Value
Goodwill $10,749,000 $1,743,271 $9,005,729
Debt issuance costs 277,053 107,366 169,687
Amortization of goodwill was approximately $284,000 for the year ended
December 31, 1996 and approximately $290,000 for the year ended
December 31, 1995.
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.
Financing costs related to certain loans have been capitalized and are
being amortized over the life of the related loans. Amortization expense
related to financing cost was approximately $70,000 and $60,000 for the
years ended December 31, 1996 and 1995, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method 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 basis 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.
21
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 consolidated
financial statements have been adjusted to reflect the 1-to-5 reverse stock
split, which occurred on December 28, 1995.
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 Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, current maturities of long-term debt,
accounts payable and long-term debt. The estimated fair value of these
financial instruments approximates their carrying value as of December 31,
1996.
22
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) INCOME TAXES
The components of the income tax (benefit) are as follows:
For the Years Ended
December 31,
1996 1995
Current-
Federal $ - $ 260,820
State - 80,526
--------- ---------
- 341,346
--------- ---------
Deferred-
Federal (216,345) (295,212)
State (61,547) (98,404)
--------- ---------
(277,892) (393,616)
--------- ---------
$(277,892) $ (52,270)
========= =========
The following is a reconciliation of the federal income tax (benefit)
calculated at the statutory rate of 34% to the recorded amount:
For the Years
Ended December 31,
1996 1995
Applicable statutory federal income tax benefit
$(313,204) $(123,151)
State income taxes, net of federal income tax
benefit (55,271) (21,733)
Goodwill amortization 96,560 98,754
Other, net (5,977) (6,140)
---------- ----------
$(277,892) $ (52,270)
========= =========
23
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(3) INCOME TAXES (Continued)
The significant items composing the deferred tax asset and liability at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
Current Long-Term Current Long-Term
<S> <C> <C> <C> <C>
Assets-
Reserves not currently deductible $252,548 $ - $ 223,901 $ -
Other 101,120 - 107,144 -
-------- ------------ ------------ -----------
Total assets 353,668 - 331,045 -
-------- ------------ ------------ -----------
Liabilities-
Accelerated depreciation and
property-basis differences - (746,217) - (738,655)
Note receivable - (402,700) - (402,700)
Other - 136,232 (7,082) (73,925)
-------- ------------ ------------ -----------
Total liabilities - (1,012,685) (7,082) (1,215,280)
-------- ------------ ------------ -----------
Net assets (liabilities) $353,668 $(1,012,685) $ 323,963 $(1,215,280)
======== =========== ============ ===========
(4) INVENTORIES
Inventories are as follows:
December 31,
1996 1995
Finished goods $ 895,672 $ 863,428
Work-in-process 398,433 482,712
Raw materials 2,406,914 2,490,513
------------ -------------
$3,701,019 $ 3,836,653
========== ===========
</TABLE>
24
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(5) 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.
(6) LONG-TERM DEBT
As of December 31, 1996 and 1995, debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
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, 1996 (8.75%) $ - $2,753,018
Revolving line of credit, maturing April 1997, payable to a Hong Kong
bank, with an interest rate at the bank's prime lending rate
as defined (8.25%) at December 31, 1996 124,799 83,690
Mortgage note payable, maturing August 29, 2011, payable to a bank,
with an interest rate of 9.25% as of December 31, 1996 1,484,446 -
Term loan, maturing on March 1, 2000, payable to a bank, with an
interest rate of prime plus 1/2% (8.75%) at December 31, 1996 1,336,986 1,488,386
Convertible subordinated notes payable, maturing on May 1, 2001,
interest payable quarterly in arrears at 7.25% 1,350,000 -
Equipment loan, maturing October 17, 2000, payable to a bank, with
an interest rate at 8.80% 82,908 104,537
---------- ----------
Less--Current portion of long-term debt 357,569 266,358
---------- ----------
$4,021,570 $4,163,273
========== ==========
</TABLE>
25
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) DEBT (Continued)
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, which is
composed of the Company's eligible accounts receivable and inventory,
$2,530,114 at December 31, 1996. The line has a floating interest rate of
1/2% above the bank's prime lending rate. There were no borrowings
outstanding as of December 31, 1996.
The Company has a five-year term loan with the same bank, with an original
principal amount of $2,767,000. The monthly principal payments on this note
are $13,420. The loan has a floating interest rate of 1/2% above the bank's
prime lending rate. The loan matures on March 1, 2000, at which time all
unpaid interest and principal amounts are due in full.
The revolving line of credit and the term loan discussed above 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.
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. 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
one-year $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 mortgage note payable was
paid in full in August of 1996 with proceeds from a new 15 year mortgage
note payable to a bank for $1,500,000. The interest rate on the note is
fixed at 9.25% until August 29, 1999. Thereafter, the interest rate shall
be calculated by the bank on an annual basis, at the Banks prime rate, as
defined, plus one percent (1.00%). The note is secured by the property.
In May of 1996, the Company paid in full the holders of $1,000,000 in
subordinated notes payable with proceeds from the issuance of $1,350,000 in
convertible subordinated notes payable. These new notes pay interest
quarterly in arrears at 7.25% and mature on May 1, 2001. At the option of
the holders, the principal portion of the notes is convertible into shares
of the Company's common stock at a conversion rate of $7.38 per share.
These notes are subordinated to the Company's revolving line of credit and
five-year term loan.
26
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(6) DEBT (Continued)
As of December 31, 1996, the Company was not in compliance with certain
financial covenants set forth in the Credit Agreement of it's revolving
line of credit and five-year term loan, as amended. On March 14, 1997, 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 loss for the calendar period ended March 31 must not exceed
$15,000, and the Company's cumulative net income must June 30, September 30
and December 31 must be greater than $0, $35,000, and $100,000,
respectively. The Credit Agreement was also amended to change the certain
other covenant requirements related to debt service coverage and capital
expenditures.
(7) STOCKHOLDERS' INVESTMENT
On September 17, 1996, the Company amended and restated their articles of
incorporation, whereby common stock authorized for issuance increased from
2,400,000 shares to 10,000,000 shares.
In October of 1996, the Company completed a secondary public offering. A
total of 850,000 shares of the Company's common stock was sold for
$3,951,735, net of issuance costs.
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 stockholder in exchange for
certain personal guarantees of the Company's debt.
(8) EMPLOYEE BENEFITS AND STOCK OPTIONS
The Company has two 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 benefits of the defined benefit pension plans 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.
27
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(8) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations-
Accumulated benefit obligation, including vested benefits of
$407,825 in 1996 and $354,253 in 1995 $(425,760) $(354,253)
========= =========
Projected benefit obligation for service rendered to date $(425,760) $(354,253)
Plan assets at fair value, guaranteed investment contract with an
insurance company 678,377 393,530
Unrecognized net gain (217,733) (11,347)
Unrecognized net assets (45,727) (75,696)
--------- ---------
Accrued pension cost (liability) $ (10,843) $ (47,766)
========== ==========
</TABLE>
Net periodic pension cost (benefit) includes the following components:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1996 1995
<S> <C> <C>
Service cost--benefit earned during the period
$ - $ -
Interest cost on projected benefit obligation 27,853 27,752
Return on plan assets (50,250) (29,150)
Amortization (13,224) (4,241)
---------- ---------
Net periodic pension cost (benefit) $(35,621) $ (5,639)
======== ========
</TABLE>
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 7.0% in 1996 and 8.5% in 1995. The
expected long-term rate of return on assets was 8% in 1996 and 1995.
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 years ended December 31, 1996 and 1995. The Company incurred costs
of $3,661 and $8,284 in 1996 and 1995, respectively, to administer the
Plan.
28
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(8) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
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.
In March of 1996, the Company adopted the 1996 Stock Option and Incentive
Plan for the purpose of issuing both Incentive Options and Nonqualified
Options to officers, employees and directors of the Company. A total of
150,000 shares of common stock were reserved for issuance under this plan.
In December of 1996, the Company awarded 4,980 shares of common stock to
employees through the 1996 Stock Option Plan. Accordingly, the Company has
recognized approximately $26,000 in compensation expense in the
accompanying financial statements. 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, 1996 no options were exercisable.
The following is a summary of the 1996 and 1994 stock 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
Granted 70,000 $5.25-$ 6.00
Exercised - -
Lapsed (1,000) 4.55
------- ------------
Outstanding at December 31, 1996 203,440 $3.70-$ 7.25
======= ============
Exercisable at December 31, 1996 84,440 $7.25
======= =====
Weighted-average option price for all options $5.88
=====
29
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(8) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
In addition to the options listed above, as of December 31, 1996, there are
42,000 options outstanding to nonemployees to purchase shares of the
Company's common stock at prices ranging from $4.30-$5.30 per share. These
options were issued in 1994 and 1995 and expire beginning on August 26,
1998.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based
method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows
an entity to continue to measure compensation costs for those plans using
the method of accounting prescribed by APB Opinion 25. Entities electing to
remain with the accounting in APB Opinion 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the
fair value based method of accounting defined in SFAS No. 123 has been
applied.
The Company has elected to account for its stock-based compensation plan
under APB 25. However, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during 1995 and 1996 using the
Black-Scholes option-pricing model as prescribed by SFAS No. 123, using the
following weighted-average assumptions for grants in 1996 and 1995:
1996 1995
Risk-free interest rate 7.29% 6.67%
Expected dividend yield - -
Expected life 10 Years 10 Years
Expected volatility 50.10% 50.10%
30
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(8) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
The total value of options granted during 1995 and 1996 would be amortized
on a pro forma basis over the vesting period of the options. Options
generally vest equally over two years. Because the SFAS No. 123 method of
accounting has not been applied to options granted prior to January 1,
1995, the resulting pro forma compensation costs may not be representative
of that to be expected in future years. If the Company had accounted for
these plans in accordance with SFAS No. 123, the Company's net income and
net income per share would have decreased as reflected in the following pro
forma amounts:
Year Ended December 31,
1996 1995
Net loss-
As reported $(643,296) $(309,939)
Pro forma (808,071) (359,769)
Net income per share-
As reported (0.34) (0.19)
Pro forma (0.43) (0.22)
Set forth below is a summary of options granted in 1996 and 1995:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------- ----------------------------
Weighted-Average
Outstanding Remaining
Exercise Price Shares at Contractual Weighted-Average Per Share Exercisable Weighted-Average
Range December 31, 1996 Life (Years) Exercise Price Fair Value Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
$3.70-$4.55 52,000 9 Years $4.43 $3.17 - $ -
$5.00-$6.00 79,000 9 Years 5.89 4.16 - -
</TABLE>
31
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(9) COMMITMENTS AND CONTINGENCIES
Total rent expense for operating leases charged to operations for the
periods ended December 31, 1996 and 1995 was $20,100 and $34,000,
respectively. Minimum commitments under leases in effect at December 31,
1996 are as follows:
Operating
Year Leases
1997 $ 12,759
1998 11,064
1999 9,079
Thereafter -
----------
Total minimum lease payments $ 32,902
==========
(10) SEGMENTED INFORMATION
The Company's operations were conducted primarily within the following
industry segments for the fiscal years ended December 31, 1996 and 1995:
December 31, 1996
----------------------------------------------
Measuring Machine
and Inspection Components
Instruments and Accessories Total
Net sales $ 6,694,860 $ 4,087,218 $10,782,078
Operating income (loss) (383,751) 9,333 (374,418
Capital expenditures 172,876 8,249 181,125
Depreciation expense 224,871 204,514 429,385
Amortization expense 211,367 140,911 352,278
Fixed assets, net 2,188,748 945,969 3,134,717
Total identifiable assets 18,284,051 1,552,313 19,836,364
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 64,325 517,938 582,263
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
32
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(Continued)
(10) SEGMENTED INFORMATION (Continued)
Sales to unaffiliated customers in foreign countries represented
approximately 11% and 10% of net sales for fiscal 1996 and 1995,
respectively. The Company's export sales are denominated in U.S. dollars.
33
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information pertaining to directors and executive officers of the Company
is set forth under "Election of Directors" in the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held on May 6, 1997 (the "Proxy
Statement"), and is incorporated herein by reference.
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than 10% of the Company's Common Stock required by this item is set
forth under "Compliance with Section 16(a) of the Exchange Act" in the Company's
Proxy Statement and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is set forth under
"Compensation of Executive Officers and Directors" in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTIAN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to security ownership of management and certain
beneficial owners of Company Common Stock is set forth under "Voting Securities
and Principal Holders Thereof" in the Company's Proxy Statement and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information pertaining to certain relationships and related transactions is
set forth under "Certain Relationships and Related Transactions" in the
Company's Proxy Statement and is incorporated herein by reference.
34
<PAGE>
ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 8-K
(a) The following is a complete list of Exhibits filed as part of this Form
10-KSB.
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
SB-2, Amendment No.1., filed October 11, 1996.
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.
10.1(a) Credit Agreement, dated as of March 6, 1995, by and between the
Company 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.
35
<PAGE>
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.
*10.1(h) Waiver and Amendment No. 5 to the Credit Agreement, dated
March 14, 1997.
10.2 Security Agreement, dated March 6, 1995, by and between the Company
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 Company 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 Company 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 Form of Convertible Subordinated Note Purchase Agreement by and
between the Company and the Purchasers 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(a) Amended and Restated 1994 Stock Option Plan, incorporated by reference
to Exhibit 10.8(a) of Stocker & Yale's Form 10-SB, as amended, filed
on November 2, 1995.
10.8(b) Form of Incentive Option Agreement for employees under the Amended
and Restated 1994 Stock Option Plan, incorporated by reference to
Exhibit 0.8(b) of Stocker & Yale's Form 10-SB, as amended, filed on
November 2, 1995.
10.8(c) Form of Nonqualified Option Agreement for employees under the Amended
and Restated 1994 Stock Option Plan, incorporated by reference to
Exhibit 10.8 (c) of Stocker & Yale's Form10-SB, as amended, filed on
November 2, 1995.
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 Form10-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.
36
<PAGE>
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.
*10.14(a) Promissory Note, due August 29, 2011, issued by the Company to Primary
Bank.
*10.14(b) Mortgage Deed and Security Agreement, dated August 29, 1996, granted
by the Company to Primary Bank.
*10.14(c) Collateral Assignment of Leases and Rents, dated August 29, 1996,
granted by the Company to Primary Bank.
21.1 Subsidiaries of the Company, incorporated by reference to Exhibit 21.1
of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995.
- -----------------------
* Filed herewith
(b) Reports on Form 8-K
A Form 8-K Current Report dated October 25, 1996 was filed on November 8,
1996 reporting the completion of the Company's public offering of 850,000 shares
of Common Stock.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf, thereunto duly authorized.
STOCKER & YALE, INC.
Date: March 25, 1997 By : /s/ Mark W. Blodgett
-------------- --------------------------------
Mark W. Blodgett, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange act of 1934, this
report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the date set forth above.
Signature Title Date
--------- ----- ----
/s/ Mark W. Blodgett Chairman of the Board March 25, 1997
----------------------- of Directors and Chief
Mark W. Blodgett Executive Officer
/s/ James Bickman President and Director March 25, 1997
-------------------------
James Bickman
/s/ Alex W. Blodgett Director and President of March 25, 1997
------------------------- Stilson Division
Alex W. Blodgett
/s/ Clifford Abbey Director March 25, 1997
-------------------------
Clifford Abbey
/s/ John M. Nelson Director March 25, 1997
-------------------------
John M. Nelson
/s/ Susan H. Sundell Senior Vice President-Finance March 25, 1997
------------------------- and Treasurer
Susan H. Sundell
38
Exhbiit 10.1(h)
WAIVER AND AMENDMENT NO. 5
to the
CREDIT AGREEMENT
This WAIVER and AMENDMENT NO. 5 dated as of March 14, 1997 (this "Waiver
and Amendment") to the CREDIT AGREEMENT dated as of March 6, 1995 (as amended,
the "Agreement") between Stocker & Yale, Inc., a Massachusetts corporation (the
"Company"), and Fleet National Bank, successor by merger to Fleet National Bank
of Massachusetts, formerly known as Shawmut Bank, N.A. (the "Bank"). All
capitalized terms used and not defined herein shall have the meanings ascribed
to such terms in the Agreement.
In consideration of the mutual covenants contained herein, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto agree as follows:
Section 1. Waiver. The Bank confirms waiver of the Event of Default that
has resulted from non-compliance with Subsections 6.01(m) and 6.01(n) of the
Agreement. This waiver is effective as of December 30, 1996; provided, however,
that such waiver is effective only for the period ending December 31, 1996.
Section 2. Amendment of Section 1.01 of Agreement. The definition of "DSCR
Measurement Period" is hereby amended to read as follows:
"DSCR Measurement Period"--(i) The fiscal quarter ending March 31, 1997,
(ii) the two-fiscal-quarter period ending June 30, 1997, (iii) the
three-fiscal-quarter period ending September 30, 1997, (iv) the fiscal year
ending December 31, 1997 and (v) thereafter, at the end of each fiscal quarter
commencing with the fiscal quarter ending March 31, 1998, the most recent
four-fiscal-quarter period.
Section 3. Amendment of Section 1.01 of Agreement. The definition of
"Borrowing Base" is hereby amended to read as follows:
"Borrowing Base"--An amount equal to (A) the lesser of
(i) the Committed Revolver Amount or
(ii) (a) 80% of the Net Outstanding Amount of Eligible Receivables from
time to time,
<PAGE>
plus
(b) the lesser of (I) $1,500,000 or (II) 40% of Eligible Inventory
from time to time
less (B) Outstanding Letters of Credit.
Section 4. Amendment of Subsection 6.01(m) of the Agreement. Subsection
6.01(m) of the Agreement is hereby amended to read as follows:
(m) The Company will have a maximum net loss or minimum net gain (each
calculated in the manner of Consolidated Net Income) from operations for each
period commencing January 1, 1997 and ending on the dates shown below as
follows:
<TABLE>
<CAPTION>
Period Ending Maximum Net Loss Minimum Net Gain
<S> <C> <C>
March 31, 1997 $15,000
June 30, 1997 -0- $ -0-
September 30, 1997 35,000
December 31, 1997 100,000
</TABLE>
Section 5. Amendment of Subsection 6.01(n) of the Agreement. Subsection
6.01(n) of the Agreement is hereby amended to read as follows:
(n) The Company will maintain a Consolidated Debt Service Coverage
Ratio (i) for each DSCR Measurement Period ending on or before December 31,
1997, of not less than 1.0 to 1.0 and (ii) for each DSCR Measurement Period
thereafter, of not less than 1.2 to 1.0.
Section 6. Amendment of Subsection 6.01(p) of the Agreement. Subsection
6.01(p) of the Agreement is hereby amended to read as follows:
(p) The Company and its Subsidiaries will not make Consolidated
Capital Expenditures aggregating in excess of $500,000 during any fiscal year.
Section 7. Payment for Waiver and Amendment. The Company agrees to pay to
the Bank a fee of $5,000 plus expenses, including but not limited to reasonable
attorneys' fees, for this Waiver and Amendment No. 5 to the Credit Agreement.
Section 8. Representations and Warranties. The Company represents and
warrants to the Bank as of the effective date of this Waiver and Amendment that
(a) other than the Event of Default described in Section 1 hereof, no Default or
Event of Default has occurred and is continuing or results from the execution
and delivery of this Waiver and Amendment,
-2-
<PAGE>
(b) each of the representations and warranties of the Company in the Agreement
shall be true and correct on the effective date of this Waiver and Amendment,
(c) the liens granted pursuant to the Security Agreement are valid and (d) this
Waiver and Amendment is a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms.
Section 9. Other Provisions Still Effective; No Waiver. Except as amended
by this Waiver and Amendment, all other provisions, terms and conditions of the
Agreement shall continue to be effective. This Waiver and Amendment shall not be
deemed a waiver of any defaults that may exist under the Agreement other than
those described in Section 1 hereof.
Section 10. Counterparts. This Waiver and Amendment may be executed in
counterparts each of which shall constitute an original but all of which, when
taken together, shall constitute but one instrument.
Section 11. Effective Date. This Waiver and Amendment shall become
effective, when signed by all the parties hereto, on the date first above
written.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed by their respective authorized officers, and the
Company has caused its seal to be hereunto affixed and attested by its duly
authorized officer, all as of the day and year first above written.
[SEAL] STOCKER & YALE, INC.
ATTEST By /s/ Susan Sundell
----------------------------------
Its Senior Vice President-Finance
By /s/ James Bickman
-------------------------
Its President FLEET NATIONAL BANK
By /s/ Joseph Becker
---------------------------------
Its Vice President
-3-
Exhibit 10.14(a)
PROMISSORY NOTE
$1,500,000 Milford, New Hampshire
August 29, 1996
FOR VALUE RECEIVED, the undersigned, Stocker & Yale, Inc., a Massachusetts
corporation, with a principal place of business at 32 Hampshire Road, Salem,
Rockingham County, New Hampshire (the "Borrower"), unconditionally promises to
pay to the order of PRIMARY BANK, a New Hampshire bank having its principal
office at 35 Main Street, Peterborough, New Hampshire (the "Bank"), at such
office or other place as the Bank or other holder hereof (the "Holder") may from
time to time direct in writing, in lawful money which, at the time or times of
payment, is the legal tender for public and private debts in the United States
of America, the principal sum of One Million Five Hundred Thousand and NO/100
Dollars ($1,500,000.00), plus interest thereon, in the manner and at the rate
hereinafter set forth.
1. Definitions.
------------
As used herein:
"Business Day" means a day on which banks are open for business in
Peterborough, New Hampshire.
"Default Rate" means the optional rate of interest which the Holder may
charge following the occurrence of an Event of Default and failure by Borrower
to cure within the applicable grace period, if any, and shall equal the contract
rate under this Note plus 3.00 per cent per annum.
"Indebtedness" means the principal sum of $1,500,000.00, or so much thereof
as may be outstanding from time to time, together with interest thereon at the
rate stated herein, and any other amounts which may become due and payable under
this Note or any other Loan Document.
-1-
<PAGE>
"Loan Documents" means this Note, the Mortgage and Security Agreement dated
August 29, 1996 (the "Security Agreement") between the Borrower and the Bank,
the Collateral Assignment of Leases and Rents, and any other instrument or
document evidencing, securing, or otherwise delivered to the Bank in connection
with the obligations hereunder.
2. Interest Rate.
-------------
Interest shall be payable on the loan amount at an initial interest rate of
9.25% (nine and one-quarter percent) per annum until August 29, 1999. On August
29, 1999 and every August 29 thereafter ("Adjustment Date"), the interest rate
shall thereafter be calculated in the following manner: The interest rate will
be adjusted to the Prime Rate as established by the Bank of Boston on the
adjustment date, plus one percent (1.00%).
3. Term; Payments of Principal and Interest.
----------------------------------------
The term of this Note shall be for a period of one hundred eighty (180)
months commencing from the date first above written (the "Term"). During the
Term, Borrower shall make monthly payments of principal and interest commencing
September 29, 1996, and continuing on the same day of each month thereafter (the
"Payment Date"), for one hundred eighty (180) consecutive months. The first
thirty-six (36) monthly payments shall be in the amount of Fifteen Thousand Four
Hundred Thirty-Seven and 90/100 Dollars ($15,437.90) each (based on a 180 month
amortization schedule). Subsequent monthly payments shall be in the amount
necessary to amortize the loan over the stated amortization period in the manner
and with the rate of interest as set forth herein. The final payment shall be in
the amount of the entire unpaid principal balance and any accrued interest.
4. Interest Basis.
--------------
Interest on the outstanding principal balance of the Indebtedness, as set
forth above, shall be calculated for actual days elapsed on the basis of a 365
day year.
5. Method of Payment.
-----------------
All payments of interest and principal hereunder shall be made to the Bank
at the address specified above or such other address as indicated by the Bank or
any other Holder of this Note. Whenever any payment hereunder becomes due on a
day which is not a Business Day, the
-2-
<PAGE>
maturity thereof shall be extended to the next succeeding Business Day and
interest thereon shall accrue at the applicable rate during such extension.
6. Prepayment.
----------
The Borrower shall have the right to prepay the whole or any part of the
outstanding principal balance of the Indebtedness on any date during the Term,
provided that any partial prepayment shall not affect Borrower's obligation to
continue to make the regularly scheduled monthly payments.
7. Collateral.
----------
Payment of the principal and the interest of this Note and all other sums
which may become due and payable hereunder and the performance of all other
obligations set forth hereunder, are secured by and entitled to the benefits of
the Security Agreement and Collateral Assignment of Leases and Rents.
8. Right to Set-Off.
----------------
The Borrower hereby grants the right to set-off and apply from time to time
hereafter and without demand or notice of any nature, all, or any portion, of
deposits, credits and other property, now or hereafter due from the Bank against
the Indebtedness, whether the Collateral (as defined hereinabove) is deemed
adequate or not.
9. Events of Default.
-----------------
Any of the following shall constitute an Event of Default hereunder:
a) The failure of the Borrower to make any payment required under the
terms of this Note within a period of seven (7) days after each
Payment Date; and the expiration of five (5) days after written notice
of such late payment is mailed by Bank to Borrower (Borrower's receipt
or failure to receive such notice shall not be a condition of this
notice requirement) as provided herein, during which period Borrower
shall have the right to cure such default;
b) The occurrence of any Event of Default as specified in any Loan
Document, including, but not limited to, the occurrence of any breach
of the covenants of Borrower under the Mortgage Deed and Security
Agreement dated August 29, 1996, between Holder and Borrower; and the
expiration of ten (10) days after written notice of such late payment
is mailed by Bank to Borrower (Borrowers receipt or failure to receive
such notice shall not be a condition of this notice
-3-
<PAGE>
requirement) as provided herein, during which period Borrower shall have the
right to cure such default;
10. Remedies on Default.
--------------------
Upon the occurrence of any Event of Default and the expiration of any
applicable grace periods (and at the option of any Holder of this Note which may
be exercised immediately or at any time thereafter so long as the Event of
Default continues), all obligations of the Borrower represented and hereby shall
become immediately due and payable without notice or demand and such Holder
shall then have, in any jurisdiction where enforcement thereof is sought, in
addition to all other rights and remedies provided herein or in any other Loan
Document or other instrument given by the Borrower to the Bank to secure this
Note, the rights and remedies of a secured party under the Uniform Commercial
Code as enacted in the State of New Hampshire and (to the extent applicable) all
other rights and remedies available at law or in equity.
11. Default Rate.
-------------
Upon the occurrence of an Event of Default and failure by Borrower to cure
within the applicable grace period, if any, this Note at the Holder's election
shall bear interest at the Default Rate until the default is cured to the
Holder's satisfaction. In any event, the Note shall bear interest at the Default
Rate from and after maturity, whether or not resulting from acceleration.
12. Late Charge.
------------
As to any monthly payment or portion thereof not received by the Holder
within seven (7) days after each Payment Date, the Borrower shall pay an
additional charge of five percent (5%) of the amount of such payment so
delinquent.
13. No Rights of Set-Off by Borrower.
--------------------------------
No payment of principal hereof or interest hereon shall be subject to
set-off, reduction or recoupment by Borrower for any cause whatsoever relating
to or based on dealings between Borrower and the Bank or any subsequent Holder.
-4-
<PAGE>
14. Cost of Collection.
-------------------
Should the Indebtedness or any part thereof be collected by action at law,
or in bankruptcy, receivership or other court proceedings, or should this Note
be placed in the hands of an attorney for collection after default, whether or
not suit is filed hereon Borrower agrees to pay, upon demand by the Holder, in
addition to principal and interest and other sums, if any, due and payable
hereon, court costs and reasonable attorney's fees and other collection charges.
15. Application of Payment.
-----------------------
Every payment hereunder shall be applied first to costs of collection;
second to amounts (other than principal and interest) due hereunder, or under
any other Loan Document; third to interest accrued hereon to the date due; and
the balance, if any, to principal.
16. Waiver of Defenses.
------------------
a) Borrower and every endorser of this Note (other than a person
transferring this Note by endorsement) by becoming such endorser
hereby (i) waives, except at otherwise provided herein, (to the
fullest extent allowed by law) all requirements of diligence in
collection, presentment, notice of non-payment, protest, notice of
protest, suit and all other conditions precedent in connection with
the collection and enforcement of this Note or the realization of any
security for this Note or any guaranty of the Indebtedness, (ii)
waives any right to the benefit of, or to direct the application of
any security for this Note until all the obligations of the Borrower
represented hereby have been paid in full, (iii) waives the right to
require the Holder to proceed against any other person or to pursue
any other remedy before proceeding against him, and (iv) agrees that,
if consented to by Borrower, no renewal or extension of this Note,
including a renewal or extension in which this Note is surrendered,
nor change in the rate of interest payable hereon, nor release,
surrender or substitution of security for, or guaranties of, this note
or the Indebtedness, nor modification or waiver of the terms hereof or
of any instrument referred to herein or any other agreement now or
hereafter directly relating to this Note or the Indebtedness; no delay
in the enforcement of payment of this Note or any security for, or
guaranty of, this Note or the Indebtedness and; whether or not
consented to by Borrower, no delay or omission in exercising any right
of power under this note or any security for, or guaranty of, this
Note or the Indebtedness shall affect Borrower's or such endorser's
liability.
-5-
<PAGE>
b) No delay or omission on the part of the Holder in exercising any
right, privilege or remedy shall impair such right, privilege or
remedy or be construed as a waiver thereof or of any other right,
privilege or remedy. No waiver of any right, privilege or remedy or
any amendment or modification to or extension or renewal of this Note
shall be effective unless made in writing and signed by the Holder.
Under no circumstances shall an effective waiver of any right,
privilege or remedy on any one occasion constitute or be construed as
a bar to the exercise of or a waiver of such right, privilege or
remedy on any future occasion. The acceptance by the Holder of any
payment after any default hereunder shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Holder under this Note.
c) All rights and remedies of the Holder, whether granted herein or
otherwise, shall be cumulative and may be exercised singularly or
concurrently, and the Holder shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party under
the Uniform Commercial Code of New Hampshire. The Holder shall have no
duty as to the collection or protection of the Collateral or of any
income thereon, or as the preservation of any rights pertaining
thereto beyond the safe custody thereof. Surrender of this Note, upon
payment or otherwise, shall not affect the right of the Holder to
retain the Collateral as security for the payment and performance of
any other liability of the undersigned to the Holder.
17. Miscellaneous.
--------------
a) In the event any payment of principal or interest received upon this
Note and paid by the undersigned, or endorser, shall be deemed by
final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or otherwise; then in such
event, to the extent thereof, the obligation of the undersigned, or
endorser shall, jointly and severally, survive as an obligation due
hereunder and shall not be discharged or satisfied by said payment or
payments, or by the return (by the payee or holder hereof) to said
parties of such payment or payments, or of this Note or any
endorsement or the like.
b) Except as otherwise provided herein, notices to be given hereunder
shall be made in the manner and with the effect provided in the
Mortgage and Security Agreement of even date.
-6-
<PAGE>
c) This Note shall be governed by and interpreted in accordance with the
laws of the State of New Hampshire.
d) No part of this Note may be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any change,
waiver, modification or discharge is sought.
e) Paragraph captions are not a party hereof.
f) The invalidity of any of the provisions of this Note, as determined by
a court of competent jurisdiction, shall in no way affect the validity
of any other provision hereof.
Executed under seal on the day and year first above written.
WITNESSED BY: Stocker & Yale, Inc.
/s/
-------------------------
By /s/ Susan Hojer Sundell
---------------------------
Susan Hojer Sundell
Vice President, Finance
-7-
Exhibit 10.14(b)
MORTGAGE DEED AND SECURITY AGREEMENT
Stocker & Yale, Inc. a Massachusetts corporation with a principal place of
business at 32 Hampshire Road, Salem, Rockingham County, New Hampshire 03079
(hereinafter referred to as "MORTGAGOR"), for consideration paid, grants to
PRIMARY BANK, a New Hampshire bank with its principal office and mailing address
at 35 Main Street, Peterborough, Hillsborough County, New Hampshire 03458-0829
(hereinafter referred to as "BANK") with MORTGAGE COVENANTS, to secure the
payment of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 ($1,500,000.00) DOLLARS,
with interest, payable monthly, and to secure the performance of all covenants
and the satisfaction of all conditions herein recited and recited in a certain
(i) Promissory Note of even date herewith signed by MORTGAGOR, payable to BANK,
or order, (the "Note"), and any and all renewals, extensions and modifications
thereof, (ii) Collateral Assignment of Leases and Rents of even date (the
"Assignment"), and (iii) any related documents all of even date; the following
described real property:
32 Hampshire Road, Salem, Rockingham County, New Hampshire 03079.
See Exhibit "A" attached.
Together with all rents and profits therefrom (provided, however, MORTGAGOR
shall be entitled to collect and retain said rents and profits until default)
and all fixtures now or hereafter attached to said premises, including but not
limited to, all portable or sectional buildings, heating apparatus, plumbing,
ranges, doors and windows, furnaces, gas, oil and electric lighting and heating
fixtures, carpets, electric and gas refrigerators, air conditioning apparatus
and other custom or installed items of whatever kind and all appurtenances and
easements, whether acquired by grant or implication (hereinafter "Collateral").
This mortgage is upon the STATUTORY CONDITIONS and upon the conditions
enumerated below, for any breach of which BANK shall have the STATUTORY POWER OF
SALE:
Nevertheless, the conditions of the foregoing mortgage deed are that of
MORTGAGOR shall:
(a) pay to BANK the principal and interest secured by this mortgage;
(b) perform all covenants herein recited and recited in the Note, the
Assignment and all related documents;
(c) keep the property insured for the benefit of BANK in manner and with
companies
-1-
<PAGE>
acceptable to BANK, for a sum not less than the amount of the unpaid
indebtedness under this mortgage;
(d) maintain the property in good condition and not commit or permit any
strip or waste thereof;
(e) pay all taxes now or hereafter assessed upon or against said property
when the same are due; further, in the event Bank so requires, to establish an
escrow account for the payment of real estate taxes upon such terms and
conditions as Bank may reasonably require.
(f) pay and discharge any lien superior to this mortgage whenever arising;
(g) pay to BANK all sums advanced or paid by BANK for or on account of any
insurance and taxes, payments to pay and discharge any lien superior to this
mortgage or any other expenses incident to said property, which sums shall upon
expenditure by BANK, become a part of the mortgage indebtedness;
(h) keep the property in the sole ownership of the MORTGAGOR and not
convey, suffer, or permit ownership of the mortgaged premises or any part
thereof, to become vested in a person other than the MORTGAGOR without the
written consent of BANK (however, nothing contained herein shall prohibit
MORTGAGOR from granting a mortgage subordinate to this mortgage); and
Then this mortgage deed shall be void.
MORTGAGOR covenants that:
(1) BANK may collect a late charge as specified in Note of even date; which
late charge may be added to the mortgage indebtedness and which late charge or
charges MORTGAGOR will pay to BANK on demand;
(2) all payments in discharge of the obligations of MORTGAGOR hereunder
shall be applied in the following order: late charges, interest, taxes,
insurance and principal;
(3) in the event the ownership of the mortgaged premises, or any part
thereof becomes vested in a person other than MORTGAGOR, BANK, may, without
notice to MORTGAGOR, deal with such successor or successors in interest with
reference to this Mortgage and the obligations hereby secured, without, in any
way, vitiating or discharging the liability of MORTGAGOR hereunder, or upon the
obligations hereby secured, and no sale of the mortgaged premises and no
forbearance on the part of BANK and no extension, whether oral or in writing, of
the time for any payments, satisfaction or performance hereunder shall operate
to change the liability of MORTGAGOR herein;
-2-
<PAGE>
(4) upon failure of MORTGAGOR to satisfy any of the conditions of this
Mortgage, BANK is empowered at its option to collect rents from any tenant
occupying the mortgaged premises, and in the event the premises are vacant, to
rent or lease said premises at such rental as BANK deems reasonable and apply to
reduction of the obligations of MORTGAGOR hereunder, all rents thus collected,
less reasonable costs of collection and attorneys' fees; as per the Assignment,
recorded herewith;
(5) upon failure of MORTGAGOR to perform conditions (c), (d), (e) (f) and
(g) above, BANK at its option, may insure the property, pay for maintenance of
the property, pay any taxes or common area charges due on the property and pay
and discharge any lien superior to this mortgage, charging all sums paid
hereunder to MORTGAGOR by addition to the mortgage indebtedness;
(6) in the event of the exercise of power of sale as hereinabove provided,
BANK shall apply the proceeds of any sale thereunder to the payment of the
obligations of MORTGAGOR hereunder, including reasonable attorneys' fees and
expenses of notice and sale, paying any balance to MORTGAGOR;
(7) it will indemnify, hold harmless, and defend the Lender, its officers,
directors, employees and agents (collectively "Indemnitees") against all claims,
demands, losses, liabilities, costs and expenses including attorneys' fees,
imposed upon or accruing against Indemnitees as actual and direct costs of
investigatory or remedial action required by any Government Authority having
jurisdiction or as damages to third persons for person injury or property damage
arising from the existence of any Hazardous Material at the Mortgage Premises,
whether now known or hereafter discovered. As used herein, the terms "Hazardous
Material" shall mean any substance, water or material which has been determined
by any state, federal or local government authority to be capable of posing a
risk of injury to health, safety and property, including, but not limited to,
all of those materials, wastes and substances designated as hazardous or toxic
by the U.S. Environmental Protection Agency, the U.S. Department of Labor, the
U.S. Department of Transportation, and/or any other governmental agency,
federal, state, or local, now or hereafter authorized to regulate materials and
substances in the environment;
And MORTGAGOR does hereby release, discharge and waive all such rights of
-3-
<PAGE>
exemption from attachment and levy or sale on execution, and such other rights
whatsoever in said premises, including Family Homestead, as are reserved or
secured under and by virtue of any of the Laws of the State of New Hampshire, or
any other exemption law.
And the MORTGAGOR, for the consideration aforesaid does hereby waive all
rights of exemption in the aforementioned premises as are provided now or may be
provided to it in the future by virtue of Title 11 of the United States Code
"Bankruptcy," including but not limited to, those exemptions provided by 11
U.S.C. Section 522.
It is the intent of the parties hereto that his instrument shall constitute
a Security Agreement within the meaning of the Uniform Commercial Code as then
in effect (the "Uniform Commercial Code") with respect to all Collateral as
defined herein and that a security interest shall attached thereto for the
benefit of the BANK to secure the indebtedness evidenced by the Note and secured
by this Mortgage, and all other sums and charges which may become due hereunder
or thereunder. MORTGAGOR hereby grants a security interest in the collateral and
hereby authorizes the BANK to file financing and continuation statements with
respect to the Collateral without the signature of MORTGAGOR whenever lawful. In
the event of default under this Mortgage and to the extent permitted by law, the
BANK shall have the option of proceeding as to both real and personal property
in accordance with its rights and remedies in respect of the real property, in
which even the default provisions of the Uniform Commercial Code shall not
apply. The parties agree that in the event the BANK elects to proceed with
respect to the Collateral separately from the real property, five (5) days'
notice of the sale of the Collateral shall be reasonable notice. MORTGAGOR
agrees that, without the written consent of the BANK, MORTGAGOR will not remove
or permit to be removed from the premises or the improvements thereon any of the
Collateral unless the sale is immediately replaced with unencumbered fixtures or
articles of personal property, as the case may be, of a quality and value equal
or superior to those which they replace. All such replacements, renewals and
additions shall become and be immediately subject to the security interest of
this Mortgage and this agreement and be covered thereby. MORTGAGOR shall, from
time to time, on request of the BANK, deliver to the BANK an inventory of the
Collateral in reasonable detail, including an itemization of all items leased to
Mortgagor or subject to conditional bill of sale, security agreement or other
title retention agreement.
Wherever "MORTGAGOR" is used herein it shall include the heirs, executors,
administrators, successors and assigns of the named MORTGAGOR, and if the
context requires "MORTGAGOR," and any pronouns replacing it, shall be construed
as plural, neuter or feminine.
Wherever "BANK" is used herein, it shall include the successors and assigns
of Primary Bank.
NOTICE IS HEREBY GIVEN that for purposes of RSA 479:3 that this mortgage
secures a maximum amount equal to the principal sum of the aforesaid Note, plus
advances, if any, to protect the security of this Mortgage,
-4-
<PAGE>
plus foreclosure costs and expenses, including attorneys' fees, if any, plus any
other costs and expenses authorized by this Mortgage or aforesaid Note.
IN WITNESS WHEREOF, the parties hereto have caused this Mortgage be signed
this 29th day of August, 1996.
Stocker & Yale, Inc.
/s/
- ----------------------------
Witness By /s/ Susan Hojer Sundell
---------------------------
Susan Hojer Sundell
Vice President, Finance
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH August 29, 1996
Personally appeared Susan Hojer Sundell, in her capacity as Vice President,
Finance, of Stocker & Yale, Inc., known to me, or satisfactorily proven, to be
the person whose name is subscribed to the foregoing instrument and acknowledged
that she executed the same for the purposes therein contained on behalf of
Stocker & Yale, Inc.
Before me,
/s/
------------------------------
Justice of the Peace
-5-
<PAGE>
EXHIBIT "A"
A certain parcel of land, with the buildings thereon, situated in Salem,
Rockingham County, State of New Hampshire and Methuen, Essex County,
Commonwealth of Massachusetts, as shown on "Plan of Land in Salem, New Hampshire
for M&D Realty Trust," prepared by Kimball Chase Company, Inc. and dated March
15, 1983, recorded in the Rockingham County Registry of Deeds on Plan Number
___, and more particularly described as follows:
Beginning at the southwesterly corner of the granted premises by the
intersection of Garabedian Drive, a public way, and Hampshire Road, a public
way, at an iron pipe set in the ground on the northerly side of said Hampshire
Road as shown on said plan; thence running S 84 degrees 19' 15" E, 58.24 feet,
along the northerly side of Hampshire Road to an iron pipe set in the ground on
the northerly side of Hampshire Road; thence running S 73 degrees 45' 25" E,
265.76 feet, along the northerly side of Hampshire Road to an iron pipe set in
the ground on the northerly side of Hampshire Road; thence running on an arc
with a radius of 830 feet, chord bearing S 49 degrees 05' 04" E, 219.70 feet
along the northerly side of Hampshire Road to an iron pipe set in the ground at
the intersection of the northerly side of Hampshire Road and the
Massachusetts--New Hampshire boundary line as shown on said plans; thence
running S 58 degrees 35' 27" E, 27.33 feet by the northerly side of Hampshire
Road to the point where the northerly side of Hampshire Road intersects with the
center line of the ditch as shown on said plan; thence turning and running N 11
degrees 28' 00" E, 82.10 feet along the center of the ditch to a point shown on
said plan; thence running N 8 degrees 22' 55" E, 762.90 feet along the center of
the ditch to a point shown on the said plan at the northeasterly corner of the
granted premises; thence turning and running N 81 degrees 27' 22" W, 503.90
feet, along land now or formerly of Construction Industries, Inc. to an iron
pipe set in the ground by a fire hydrant on the easterly side of Garabedian
Drive as shown on said plan; thence running on an arc with a radius of 750 feet,
chord bearing N 34 degrees 50' 33" W, for a distance of 261.32 feet, along the
easterly side of the said Garabedian Drive, to an iron pipe set in the ground on
the easterly side of Garabedian Drive; thence proceeding along the easterly side
of Garabedian Drive, S 27 degrees 44' 05" W, 100.26 feet to a nail set in the
ground on the easterly side of Garabedian Drive; thence proceeding on the arc
with a radius of 700 feet, chord bearing S 33 degrees 47' 47" W, 269.46 feet,
along the easterly side of Garabedian Drive to an iron pipe set in the ground on
the easterly side of Garabedian Drive, thence running along the easterly side of
Garabedian Drive, S 05 degrees 40' 45" W, 80.09 feet to an iron pipe set in the
ground on the easterly side of Garabedian Drive; thence running on an arc with a
radius of 50 feet, chord bearing S 39 degrees 19' 15" E, 78.54 feet to the point
of beginning.
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Exhibit 10.14(c)
COLLATERAL ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT OF LEASES AND RENTS is made as of the 29th day of August
1996, by Stocker & Yale, Inc. a Massachusetts corporation (the "Assignor") to
PRIMARY BANK, a New Hampshire banking corporation (the "Lender"), or to its
order, at its principal office and mailing address of 35 Main Street,
Peterborough, New Hampshire 03458, (the "Assignee").
RECITALS
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A. Concurrently herewith, the Assignor has executed and delivered to the
Assignee its promissory note to Assignee of even date herewith in the face
amount of $1,500,000.00 ("Note"), secured by a Mortgage Deed and Security
Agreement (the "Mortgage") with respect to the real property and improvements of
the Assignor located at 32 Hampshire Road, Salem, Rockingham County, New
Hampshire (the "Mortgaged Premises").
B. As additional security for the Note and the obligations of the Assignor
thereunder, the Assignor has executed and delivered to the Assignee this
Collateral Assignment of Leases and Rents.
NOW, THEREFORE, in consideration of Assignee making the loans evidenced by
the Note, the Assignor, does hereby transfer, assign, deliver and grant a
security interest to the Assignee in all of the right, title and interest of the
Assignor in and to (1) all leases, subleases, tenancies and any other
agreements, whether written or oral, now or hereafter existing with respect to
any portion or portions of the Mortgaged Premises, together with any renewals or
extentions thereof or any agreements in substitution therefor (all of which are
hereinafter collectively referred to as the "Assigned Leases"), (2) all rents
and other payments of every kind due or payable and to become due or payable to
the Assignor by virtue of the Assigned Leases, or otherwise due or payable and
to become due or payable to the Assignor as the result of any use, possession or
occupancy of any portion or portions of the Mortgage Premises, and (3) all
rights, title and interest of the Assignor in and to any and all guaranties of
the Assigned Leases.
TO HAVE AND TO HOLD the same unto the Assignee, its successors and assigns,
for the purpose of securing (1) payment of the Note together with the interest
thereon; (2) payment of all other sums, with interest thereon, to become due and
payable to the Assignee hereunder, under the Mortgage or under any other
instrument securing the Note; (3) performance and discharge of each and every
obligation, covenant and agreement of the Assignor contained herein, or in the
Note or Mortgage; and (4) payment of any other obligation of the Assignor to the
Assignee now or hereafter existing, (said obligations are hereinafter
collectively referred to as the "Obligations").
This instrument of assignment is delivered and accepted upon the following
terms and conditions:
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<PAGE>
1. Assignor's License to Operate if no Default. So long as no Event of
Default (as defined under the Obligations) or other default in the performance
of the Obligations (subject to applicable cure periods) shall exist (hereinafter
referred to as an "Event of Default"), the Assignor shall have a license to
manage and operate the Mortgaged Premises and to collect, receive and apply for
its own account all rents, issues and profits accruing by virtue of the Assigned
Lease, and to execute and deliver proper receipts and acquittance therefor,
provided, however, that without the written consent of the Assignee the Assignor
shall not collect any installment of rent in advance of the respective dates
prescribed in the Assigned Leases for the payment thereof other than one (1)
month's advance rental in the form of a security deposit or as payment for the
last one (1) month of any lease term (hereinafter referred to as "Permitted
Advance Rental Payments").
2. Assignee's Rights in Event of Default.
2.1 Immediately upon the occurrence of any Event of Default, the license
mentioned in the foregoing paragraph 1 hereof shall cease and terminate, and in
such event in addition to any other remedies of the Assignee, upon notice of
Assignee to each lessee of an Assigned Lease, all rentals thereafter payable to
Assignor shall be paid to Assignee.
2.2 The Assignor does hereby constitute and appoint the Assignee,
irrevocably, with full power of substitution and revocation, its true and lawful
attorney, for it and in its name, place and stead, upon the occurrence of an
event of default, to do and perform any or all of the actions which Assignor is
entitled to perform in connection with the Assigned Leases, as fully, to all
intents and purposes, as it could do if personally present, hereby ratifying and
confirming all that its said attorney or its substitute shall lawfully do or
cause to be done by virtue hereof. Any action, or failure or refusal to act, by
the Assignee under this subparagraph 2.2 shall be at its election and without
any liability on its part.
2.3 The Assignee shall apply the net amount of rents, issues and profits
received by it from the Mortgaged premises, in the following order of priority:
(i) to payment of all proper costs and charges (including any liability, loss,
expense or damage hereinafter referred to in paragraph 4.1 hereof), (ii) to the
payment of all accrued but unpaid interest due under the Note, (iii) to the
payment of principal under the Note to be applied to principal install ments in
the inverse order of maturity, (iv) to the payment of any other amounts owed to
Assignee and secured by the Mortgage, and (v) to the Assignor or such persons
legally entitled thereto.
2.4 The Assignee shall be accountable to the Assignor only for monies
actually received by the Assignee and the acceptance of this assignment shall
not constitute a satisfaction of any of the Obligations, except to the extent of
amounts actually received and applied by the Assignee on account on the same.
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<PAGE>
2.5 The rights and powers of the Assignee hereunder shall continue and
remain in full force and effect until all amounts secured hereby are paid in
full.
3. Covenants of Assignor. The Assignor, for itself and for its successors
and assigns, agrees and warrants as follows:
(a) that each of the Assigned leases now or hereafter in effect is and
shall be a valid and subsisting lease and that there are no defaults on the part
of any of the parties thereto;
(b) that the Assignor has not sold, assigned, transferred, mortgaged
or pledged any of the rents, issues or profits from the Mortgaged Premises or
any part thereof, whether now or hereafter to become due, to any person, firm or
corporation other than the Assignee;
(c) that no rents, issues or profits of the Mortgaged Premises, or any
part thereof, becoming due subsequent to the date hereof have been collected
(other than permitted Advance Rental Payments) nor has payment of any of the
same been anticipated, waived, released, discounted or otherwise discharged or
compromised;
(d) that it will not assign, pledge or otherwise encumber the Assigned
Leases or any of the rents thereunder unless the prior written consent of the
Assignee shall have been obtained thereto;
(e) that it will not, without in each case having obtained the prior
written consent of the Assignee, which consent shall not be unreasonably
withheld, amend or modify, directly or indirectly in any material respect
whatsoever, cancel, terminate, or accept any surrender of any Assigned Lease;
(f) that it will not waive or give any consent with respect to any
default or variation in the performance of any material term, covenant or
condition on the part of the lessee, sublessee, tenant or other occupant to be
performed under the Assigned Leases, but will at all times take proper steps to
enforce all of the provisions and conditions thereof;
(g) that it will perform and observe, or cause to be performed and
observed, all of the terms, covenants and conditions on its part to be performed
and observed with respect to each of the Assigned Leases;
(h) that it will, upon written request by the Assignee, serve such
written notices upon any lessee under any Assigned Lease or any other occupant
of any portion of the Mortgaged Premises concerning this assignment, or include
among the written provisions of any instrument hereafter creating any such
lease, sublease, tenancy or right of occupancy specific reference to this
assignment, and make, execute and deliver all such powers of attorney,
instruments of pledge or assignment, and such other instruments or documents as
the Assignee may reasonably request at any time for the purpose of securing its
rights hereunder; and
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<PAGE>
(i) that it will furnish to the Assignee, on demand, true copies of
all Assigned Leases hereafter executed and true copies of each document
effecting the renewal, amendment or modification of any Assigned Lease;
(j) that it will not enter into any lease with respect to the
Mortgaged Premises without first obtaining Assignee's written approval of the
terms and conditions thereof and of the prospective lease thereunder, which
approval shall not be unreasonably withheld;
(k) that it will promptly notify Assignee of any extension or renewal
of any Assigned Lease;
(l) that, upon Assignee's request, from time to time, it will provide
Assignee with a rent roll, dated as of the end of such fiscal quarter and
certified as correct by the chief financial officer of Assignor, stating with
respect to each lease of the Mortgaged Premises, or any portion thereof, the
name of the tenant thereof, the rent paid by such tenant, the date to which such
rent is paid, the date on which the tenant's leasehold interest terminate and
the amount held by Assignor by way of security deposit from each such tenant;
(m) that it will not enter into any agreement with any management
agent or firm with respect to the Mortgaged Premises unless such agent or firm
first agrees with Assignee to recognize Assignee's rights under this Collateral
Assignment of Leases and Rents and further agrees, upon an occurrence of an
event of default, to transfer all rents received by such agent or firm directly
to Assignee upon Assignee's demand therefor.
4. Indemnification.
4.1 The Assignor hereby agrees to indemnify and hold the Assignee harmless
against and from (a) any and all liability, loss, damage and expense, including
reasonable attorneys' fees, which it may or shall incur or which may be asserted
under or in connection with any of the Assigned Leases, or by reason of any
breach of the Obligations, or by reason of any action taken or reasonable
expenses incurred or paid by the Assignee under this Collateral Assignment of
Leases and Rents or under any of the Obligations (including without limitation
any action which the Assignee in its discretion may take to protect its
interests in the Mortgaged Premises), and (b) any and all claims and demands
whatsoever which may be incurred by or asserted against the Assignor by reason
of any alleged obligations or undertaking on its part to perform or discharge
any of the terms, covenants and conditions contained in any of the Assigned
Leases. Assignee shall give prompt notice to Assignor of any claims made against
Assignee. Assignor shall not be required to indemnify Assignee with respect to
matter arising from Assignee's willful misconduct or gross negligence.
4.2 Should the Assignee incur any such liability as described in Section
4.1, the amount thereof, together with interest thereon at the rate as set forth
in the Note shall be payable by the Assignor to the Assignee within fifteen (15)
days of demand, or at the option of the
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<PAGE>
Assignee, the Assignee may reimburse itself therefor out of any rents, issues or
profits of the Mortgaged Premises collected by the Assignee.
4.3 Nothing contained herein shall operate or be construed to obligate the
Assignee to perform any of the terms covenants or conditions contained in any
Assigned Lease, or to take any measures, legal or otherwise, to enforce
collection of any of said rents or other payments, or otherwise to impose any
obligation upon the Assignee with respect to any of said leases, including but
not limited to, any obligation arising out of any covenant of quiet enjoyment
therein contained, in the event that any lessee shall have been joined as a
party defendant in any action to foreclose the Mortgage and the estate of such
lessee shall have been thereby terminated.
4.4 Prior to actual entry into any taking possession of the Mortgaged
Premises by the Assignee, this Assignment shall not operate to place upon the
Assignee any responsibility for the operation, control, care, management or
repair of the Mortgaged Premises, and the execution of this assignment by the
Assignor shall constitute conclusive evidence that all responsibility of the
operation, control, care, management and repair of the Mortgaged Premises is and
shall be that of the Assignor prior to such actual entry and taking of
possession.
5. Exercise of Remedies. Failure of the Assignee to avail itself of any of
the terms, covenants and conditions of this assignment for any period of time,
or at any time or times, shall not be construed or deemed to be a waiver of any
of its rights hereunder. The rights and remedies of the Assignee under this
assignment are cumulative and are not in lieu of but are in addition to any
other rights and remedies which the Assignee shall have under or by virtue of
any other of the Obligations. The rights and remedies of the Assignee hereunder
may be exercised from time to time and as often as such exercise is deemed
expedient.
6. Termination of this Assignment. Upon payment in full of all of the
indebtedness secured by the Mortgage, as evidenced by a recorded satisfaction or
release of the Mortgage, as well as any sums which may be payable hereunder,
this assignment shall become and be void and of no effect and, in that event,
upon the request of the Assignor and at its expense, the Assignee covenants to
execute and deliver to the Assignor instruments effective to evidence the
termination of this assignment and/or the reassignment to the Assignor of the
rights, powers and authority granted herein.
7. Notice. Any notice, demand, request or other communication given
hereunder or in connection herewith (hereinafter "Notices") shall be deemed
sufficient if in writing and sent by certified mail, postage prepaid, return
receipt requested, address to the party to receive such Notice at its address
first set forth above or at such other address as such party may hereafter
designate by Notice given in like fashion. Notices shall be deemed given when
mailed. Notwithstanding the foregoing, routine communications such as
ordinary distribution checks, copies of documents, etc. may be sent by
ordinary first class mail.
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<PAGE>
8. Miscellaneous Provisions.
8.1 Wherever the context so requires, reference herein to the neuter gender
shall include the masculine and/or feminine gender, and the singular number
shall include the plural.
8.2 This assignment shall be construed and enforced in accordance with and
governed by the laws of the State of New Hampshire.
8.3 No charge, amendment, modification, cancellation or discharge hereof,
or of any part hereof, shall be valid unless the Assignee shall have consented
thereto in writing.
8.4 In the event there is any conflict between the terms and provisions of
the Mortgage and the terms and provisions of this assignment, the terms and
provisions of this assignment shall prevail.
8.5 The terms, covenants, and conditions contained herein shall inure to
the benefit of, and bind the Assignee and the Assignor and their respective
successors and assigns or heirs, executors, administrators, successors and
assigns, as the case may be.
8.6 The captions of this assignment are for convenience and reference only
and neither in any way define, limit, or describe the scope or interest of this
assignment nor in any way affect this assignment.
IN WITNESS WHEREOF, the Assignor has caused these presents to be executed
by its duly authorized officer, on the day and year first above written.
Stocker & Yale, Inc.
/s/ By:
- -------------------------------- -----------------------------
Witness /s/ Susan Hojer Sundell
Susan Hojer Sundell
Vice President, Finance
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH August 29, 1996
Personally appeared Susan Hojer Sundell, in her capacity as Vice President,
Finance, of Stocker & Yale, Inc., known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing instrument and acknowledged
that he executed the same for the purposes therein contained on behalf of
Stocker & Yale, Inc.
Before me, By
------------------------------
/s/ Justice of the Peace
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