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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, 1998
COMMISSION FILE NUMBER: 0-5460
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STOCKER & YALE, INC.
(Name of small business issuer in its charter)
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MASSACHUSETTS 04-2114473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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32 HAMPSHIRE ROAD 03079
SALEM, NEW HAMPSHIRE (Zip Code)
(Address of principal
executive offices)
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(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. Yes _X_ 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, 1998 were
$12,585,322.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 31, 1999 was $2,561,857 based on the price per share of
such stock reported at closing on the Nasdaq SmallCap Market on that date.
As of March 31, 1999 there were 3,679,448.6 shares of the issuer's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
Special Meeting in Lieu of an Annual Meeting of Shareholders to be held on May
20, 1999, 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, 1998, are
incorporated by reference into Items, 9, 10, 11 and 12 of Part III.
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TABLE OF CONTENTS
PART I
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Item 1. Description of Business........................................................................ 1
Item 2. Description of Properties...................................................................... 6
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 Related Stockholder Matters....................................... 7
Item 6. Management Discussion and Analysis of Financial Condition and Results of Operations............ 9
Item 7. Financial Statements........................................................................... 18
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.......... 40
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of
the Exchange Act............................................................................... 40
Item 10. Executive Compensation......................................................................... 40
Item 11. Security Ownership of Certain Beneficial Owners and Management................................. 40
Item 12. Certain Relationships and Related Transactions................................................. 40
Item 13. Exhibits, List and Reports on Form 8-K......................................................... 41
Signatures..................................................................................... 43
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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. YOU CAN IDENTIFY FORWARD LOOKING STATEMENTS BY THE USE OF
THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "ASSUME," AND
OTHER SIMILAR EXPRESSION WHICH PREDICT OR INDICATE FUTURE EVENTS AND TRENDS AND
WHICH DO NOT RELATE TO HISTORICAL MATTERS. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM OUR EXPECTATIONS
EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS SOMETIMES FOR REASONS
THAT ARE BEYOND OUR CONTROL. CERTAIN FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
ARE DISCUSSED IN THE SECTION ENTITLED "CERTAIN FACTORS AFFECTING FUTURE
OPERATING RESULTS" ON PAGE 11 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. In May 1994, the Company
became publicly traded on the Vancouver Stock Exchange (the "VSE") via a merger
with Brower Exploration, Inc., a Wyoming corporation that was publicly traded in
Canada. The Company's common stock (the "Common Stock") was listed and traded on
the Vancouver Stock Exchange from May 14, 1994 until May 10, 1996, when the
Company de-listed its stock from the VSE. In December 1995, the Company
completed the registration of its Common Stock with the U.S. Securities and
Exchange Commission, and in January, 1996, the Company listed its stock on the
Nasdaq SmallCap Market under the trading symbol "STKR".
On May 13, 1998, the Company acquired Lasiris, Inc. ("Lasiris"), a Canadian
manufacturer of industrial lasers for the machine vision and industrial
inspection industries. The Company acquired Lasiris through Lasiris Holdings,
Inc., a newly formed New Brunswick corporation ("LHI") and a wholly owned
subsidiary of the Company. Lasiris is operated as a wholly-owned Canadian
subsidiary of LHI.
As of December 31, 1998, the authorized capital stock of the Company was
10,000,000 shares of Common Stock of which 3,679,448.6 shares were issued and
outstanding. Additionally, 570,091 shares of Common Stock have been reserved for
issuance upon the exercise of outstanding options and warrants to purchase
Common Stock and upon conversion of certain convertible indebtedness of the
Company.
In addition to Lasiris Holding, Inc., the Company has two active
subsidiaries. Stocker & Yale Foreign Sales Corporation, a U. S. Virgin Islands
corporation, is a wholly-owned subsidiary of the Company and qualifies as a
"foreign sales corporation" under the Internal Revenue Code of 1986, as amended.
Radiant Asiatec Pte, Ltd., a Singapore corporation which was formed in December
1997, is an 80% owned subsidiary of the Company. A third subsidiary, Stocker &
Yale Hong Kong Ltd., a Hong Kong corporation formed in March 1995, ceased
operations in December 1997.
BUSINESS DESCRIPTION
The Company is a diversified manufacturing company engaged predominantly in
the production of lighting systems for measuring and inspection equipment in the
microscopy and machine vision markets. In addition, the Company manufactures
machine tool components and accessories for the automotive and related
industries. The Company operates in two company-owned facilities in Salem, New
Hampshire and Fraser, Michigan and in two leased spaces, one in Singapore and
the other in Saint-Laurent, Quebec. Sales to unaffiliated customers in foreign
countries represented 9% and 17% of net sales in 1998 and 1997, respectively.
LIGHTING AND ACCESSORIES FOR MEASURING AND INSPECTION INSTRUMENTS
The Company's Salem Division, located in Salem, New Hampshire, produces a
broad array of inspection and measurement instruments and accessories. The
Division's core business is the development,
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manufacture and distribution of lighting products for the microscopy and machine
vision markets ("Industrial Lighting Products"). The Salem Division also
supports two ancillary product lines: Military Products and Recorder/Printer
Products.
The Company's Lasiris Division, located in Saint-Laurent, Quebec, develops,
manufactures and distributes industrial lasers for the machine vision and
industrial inspection industries. Lasiris was founded in 1985 to offer technical
and scientific expertise in lasers, optics and holography. Through a number of
research and development contracts, Lasiris began in 1990 to design a wide range
of laser pattern projectors for industrial inspection and machine vision
applications.
SALES DATA. Industrial Lighting Products represent the Company's fastest
growing product segment in terms of sales volume and represent approximately 58%
of total Company sales in 1998, up from approximately 37% in 1997 and
approximately 24% in 1996. Measuring and Inspection Instruments represented
approximately 16% of total Company sales in 1998, down from approximately 27% in
1997 and approximately 35% in 1996.
INDUSTRIAL LIGHTING PRODUCTS. Stocker & Yale has been designing and
manufacturing industrial fluorescent lighting products for its metrology
instruments for over twenty years. In 1994 the Company recognized the need for
reliable specialized lighting for industrial applications and made a strategic
decision to shift corporate resources into the Company's lighting product line.
The Company manufactures fluorescent illumination systems for microscopy and
machine vision applications. As part of that strategy, in 1997, the Company
began to manufacture fiber optic illumination systems for the same industries.
The Company has developed a line of fiber optic illumination products for
use with high power microscopes. These products utilize glass fiber and are
produced in-house, enabling the Company to ensure high quality. As new fiber
optic lighting products were developed and refined, initial orders were
primarily for fiber bundles and came primarily from lighting distributors.
The Company's fluorescent illuminators are used primarily to provide
lighting for microscopes and cameras, and are widely utilized for inspection
operations in the semiconductor and hard disk manufacturing industries.
Representatives of these industries are IBM, Seagate and Read-Rite, which are
among the Company's largest customers, although none of these accounts for more
than 2.5% of the Company's total sales.
In 1993, Lasiris introduced its base product offering, the SNF line of laser
diode structured light generators, which has become its core technology. Each
product is based on this core laser technology that can be packaged in various
wavelength and power configurations. These structured light projectors are
designed and built to perform reliably under the most adverse conditions likely
to be found in an industrial environment. Sales from the Lasiris division since
the acquisition amounted to $3,229,670.
MEASURING AND INSPECTION INSTRUMENTS. In addition to Industrial Lighting
Products, the Salem Division also supports other product lines, which are
broadly characterized as Measuring and Inspection Instruments, and include
specifically Military Products and Recorder/Printer Products. The Company
manufactures compasses and sources and distributes watches to military
specifications. These watches and compasses ("Military Products") are sold to
the U.S. government and to the civilian market. Although the Company competes
against foreign companies in the bidding process, as of December 31, 1997,
Stocker & Yale is the only U.S. company qualified as a supplier of watches to
the U.S. armed forces. Under the MFE brand name, the Salem Division also
manufactures and distributes a variety of oscillographic and thermal recorders
and printers ("Recorder/Printer Products") for diverse field, industrial and
laboratory uses.
DISTRIBUTION. The Company's 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
distributors and machine vision integrators in selling industrial lighting
products
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and with approximately five manufacturer's representatives in selling MFE brand
products. No single customer represents more than 10% of division revenues.
COMPETITION AND COMPETITIVE POSITION
The Company competes with a number of large and small firms in the design
and manufacture of its Industrial Lighting Products and Measurement and
Inspection Instruments. 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.
INDUSTRIAL LIGHTING PRODUCTS
In the industrial fluorescent lighting market, the Company has two primary
competitors. Microlite markets a product similar in appearance to the Company's
circular fluorescent microscope illuminator. Techni-Quip Corp. offers industrial
fluorescent lighting as part of its product line but its lighting product line
is limited and represents a small percentage of that company's total business.
The Company has five primary competitors in the fiber optic lighting market.
The most mature segment of this market relates to lighting for microscopes.
Within that segment, Volpi Manufacturing USA, Inc. and Dolan-Jenner Industries,
Inc. have the highest market share. Both of these companies have been producing
fiber optic products for more than thirty years and offer a fully developed line
of microscopy products. A third company, Cuda Products, Inc., also supplies
fiber optic lighting for microscopy; however, its primary market is medical
products. The value-oriented segment of the microscopy market is dominated by
Chiu Technical Corp, which offers an inexpensive "no-frills" fiber optic
lighting system. A newer segment in the fiber optic lighting market relates to
lighting machine vision, which is automated imaging and inspection equipment.
Fostec, Inc. is the leading provider of fiber optic lighting for machine vision,
with ten years of experience in the machine vision industry and the use of
advanced glass technology being its primary advantages.
The Company has developed the in-house capability to draw its own glass
fiber in variable dimensions to suit customer needs. Although some of the above
named competitors also have this capability, the Company believes that its fiber
has certain qualities that may make the Company's fiber higher performance and
more reliable. The Company's spectrographic analysis has established that the
fiber drawn by the Company demonstrates higher light transmission qualities than
its competitors' fiber.
Since mid-1996, the Company has invested in building up its in-house design,
development and research capabilities, including the hiring of personnel trained
in optical, chemical, mechanical and electrical engineering and related
disciplines, and the purchase of computers and laboratory equipment necessary to
support these personnel. Further, the Company has succeeded in designing and
developing a complete line of fiber optic lighting products for microscopy
applications.
The market for machine vision lasers is highly fragmented, with a large
number of suppliers providing different types of products for different markets.
This emerging laser segment is characterized by continuous pressure to
incorporate new features, improve functionality, and reduce prices. The
principal competitive factors in the industry are product features and accuracy,
delivery time, technical support, manufacturer reputation, and price.
The Company competes primarily on the basis of service and product
performance. The Company believes that its primary market advantages going
forward are its history of providing specialized products to meet customers'
illumination needs, its broad line of industrial fluorescent lighting products,
its ability to produce high quality glass fiber, and its design and development
capabilities.
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MEASURING AND INSPECTION INSTRUMENTS
Companies that are larger and offer more advanced technology than the Salem
Division dominate the chart recorder and thermal printer markets. 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 and
specialized applications.
In bidding for contracts to supply compasses and watches 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 in the future.
MACHINE TOOL COMPONENTS AND ACCESSORIES
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. SDD Division recently completed a capital equipment upgrade program
that the Company believes will lower production costs and improve product
quality.
SALES DATA. Machine tools and accessories represented approximately 26% of
the total Company sales in 1998, compared to approximately 35% in 1997. Material
handling products, such as conveyor rolls and bumpers, were approximately 12% of
total Company sales in 1998 and approximately 17% in 1997. 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 1998. Although SDD Division products are sold throughout the world,
sales to customers in the U.S. industrial Midwest (Ohio, Michigan, Illinois, and
Indiana) represented approximately 54% of Stilson Division sales in 1998 and 54%
in 1997 and 53% in 1996. The Division works with approximately 60 distributors
and manufacturers' representatives in the marketing of the Stilson and
Die-Draulics product lines.
COMPETITION AND COMPETITIVE POSITION. The market for machine components and
accessories is mature, with a number of small companies competing within the
industry. 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.
The SDD Division competes primarily on the basis of service, 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, 1998, the Company had a backlog of
orders for future delivery of approximately $2,312,000. This is compared to
approximately $920,000 as of December 31, 1997.
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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 was less than 1% and 3% of the Company's total sales in 1998
and 1997, respectively.
PATENTS AND TRADEMARKS
The Company holds patents in the United States and has filed additional
patent applications in the United States, Europe and Japan. Lasiris holds rights
in three patents in the United States and one patent in Canada through licensing
agreements. The Company's material patents consist of four patents relating to
fundamental technological devices and methodologies used to achieve low-cost
fluorescent light dimming, which expire on August 18, 2009, August 24, 2010,
September 6, 2011 and September 13, 2011. Lasiris' material patents consist of
four patents for lenses, which expire on December 15, 2015, June 4, 2013, May 2,
2006 and November 27, 2007. The Company believes that patents are an effective
way of protecting its competitive technological advantages, and considers its
patents to be a strong deterrent against unauthorized manufacture, use and sale
of its products and key product attributes. There can be no assurance, however,
that a patent will be issued with respect to the patent applications or whether
the Company's patents or license rights 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 their trade secrets.
The Company holds rights in certain trademarks to protect its brand name
recognition in various markets. Because of the Company's long history and
reputation for designing and manufacturing high quality products, trademark
protection enhances the Company's position in the market.
Although the Company believes that its products and other proprietary rights
do not infringe the proprietary rights of third parties, there can be no
guarantee that infringement claims will not be asserted against the Company in
the future or that any such claims will not require the Company to enter into
royalty arrangements or result in costly litigation.
RESEARCH AND DEVELOPMENT
Research and development expenditures for the Company were $971,378 in 1998,
$725,539 in 1997, and $424,637 in 1996. The increase in 1997 reflect a stepped
up development effort, which focused on a line of fiber optic illumination
products to complement the Company's line of industrial fluorescent lighting
products. Specifically, the Company strengthened its capability to design and
develop fiber optic illuminators, ring lights and standard and custom lengths of
glass fiber for 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,
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New Hampshire headquarters are currently the subject of environmental testing
and monitoring relating to soil and groundwater contamination which occurred
under prior ownership. The costs incurred to date for such testing and for
remediation planning have been paid by third parties. 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.
In addition, it is management's understanding that in April 1996, the
Massachusetts Department of Environmental Protection circulated notices to
parties identified as "potentially responsible parties" with respect to the
Company's Salem, New Hampshire headquarters. The Company did not receive such
notice. 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, 1998, the Company employed approximately 137 persons, of
which 133 were full-time employees. None of the employees is represented by a
union and the Company believes it has good relations with employees.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently conducts its business at two Company-owned facilities
and in two leased spaces, one in Singapore and the other in Saint-Laurent,
Quebec. 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. Lasiris operates out of an approximately 20,000 square foot
leased facility in Saint-Laurent, Quebec. The lease for Lasiris' facility
expires July 2004. Radiant Asiatec Pte., Ltd. operates out of an approximate
2,733 square foot leased office space in Singapore. The lease for Radiant
Asiatec's facility expires on March 2001.
The Company's Salem facility is owned by the Company subject to a mortgage
granted to Granite State Bank and a second mortgage granted to Danvers Savings
Bank. The Company's Michigan facility is owned by the Company and subject to a
mortgage granted by the Company to Comerica Bank. Both of which secure
obligations of the Company to such parties. 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 the Company's needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company was a named defendant in a civil action filed on or about
February 17, 1998, in the Superior Court of Massachusetts, Essex County. The
plaintiff, Dolan-Jenner Industries, Inc., alleged that the Company and one of
its employees (a former employee of the plaintiff) breached and/or interfered
with a non-competition and non-disclosure agreement and misappropriated
plaintiff's proprietary information. The plaintiff sought both injunctive relief
and monetary damages. At the time the plaintiff filed its action, the plaintiff
also submitted a statement alleging damages of at least $500,000. On February
25, 1999, the court dismissed the case without prejudice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
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 closing sales prices for the
last 8 quarters:
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HIGH LOW
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Quarter ended March 31, 1997................................................................... $ 5.625 $ 5.00
Quarter ended June 30, 1997.................................................................... $ 6.25 $ 4.75
Quarter ended September 30, 1997............................................................... $ 5.875 $ 4.25
Quarter ended December 31, 1997................................................................ $ 5.969 $ 4.125
Quarter ended March 31, 1998................................................................... $ 6.438 $ 3.75
Quarter ended June 30, 1998.................................................................... $ 5.875 $ 3.125
Quarter ended September 30, 1998............................................................... $ 3.625 $ 1.75
Quarter ended December 31, 1998................................................................ $ 2.313 $ 0.906
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The Company has been informed by the Nasdaq Stock Market that it was out of
compliance with Nasdaq's requirements for continued listing as of September 30,
1998 and that as a result it may be delisted. The Company has scheduled a
hearing before Nasdaq's listing qualification committee in early April in order
to appeal Nasdaq's assertion. At this time, the Company can give no assurance as
to the outcome of the scheduled hearing.
HOLDERS
As of March 31, 1999, there were approximately 637 shareholders of record of
the Company's Common Stock.
DIVIDENDS
The Company presently is restricted from payment of dividends under the
terms of its credit facility with Norwest Business Credit, Inc., 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.
RECENT SALES OF UNREGISTERED SECURITIES
As of May 13, 1998, the Company offered and sold in a private transaction
350,000 shares of Common Stock for a price of $3.50 per share. The Company did
not engage any underwriters in connection with such offering, but the Company
did enter into an arrangement with J.E. Sheehan & Co. ("Sheehan") to act as
placement agent for all or a portion of the shares offered thereby. In
connection with the offering, Sheehan was paid a commission of $73,500 and was
issued a warrant entitling Sheehan to purchase an aggregate of 10,000 shares of
Common Stock at a price of $4.00 per share (the "Sheehan Warrant"). The Sheehan
Warrant is exercisable for a period of three years and contains customary
weighted-average anti-dilution provisions providing for appropriate adjustment
of the exercise price and the number of shares issuable upon exercise thereof
upon the occurrence of certain events regarding the Common Stock as a whole. The
net cash proceeds to the Company from the offering were $1,124,716. The offering
qualified for the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), based upon: (i) the
Company did not engage in any general solicitation or
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advertising in connection with the offering; (ii) the shares of Common Stock
were sold to a total of fourteen purchasers, each of whom represented to the
Company that it was an "accredited investor" as defined under Regulation D under
the Securities Act; (iii) the Company took reasonable precautions to assure that
the purchasers were financially sophisticated and able to bear the risks of the
investment as well as to assure that the Common Stock was being purchased for
investment purposes and would not be resold in a public offering; and (iv)
pertinent information regarding the Company and the offering was provided to the
purchasers, and they or their representatives had access to officers of the
Company to inquire as to any further information they believed relevant.
Also as of May 13, 1998, in connection with the acquisition of Lasiris,
sixteen direct and indirect stockholders of Lasiris were issued 444,146 shares
of capital stock of LHI. Such shares of LHI stock are exchangeable for shares of
the Company's Common Stock on a one for one basis at any time. The Company did
not engage any underwriters in connection with such issuance of LHI stock. In
consideration of such shares of LHI stock, as well as other consideration, LHI
received, directly or indirectly, all of the issued and outstanding stock of
Lasiris. The issuance of LHI stock qualified for the exemption from registration
provided by Section 4(2) of the Securities Act based upon the facts above as
well as: (i) the Company did not engage in any general solicitation or
advertising in connection with such issuance; (ii) the Company took reasonable
precautions to assure that the recipients of the LHI stock would hold such stock
for investment purposes and not transfer such shares of LHI or shares of the
Company's Common Stock in a public offering; and (iii) pertinent information
regarding the Company was provided to the recipients and they or their
representatives had access to officers of the Company to inquire as to any
further information they believed relevant.
In December 1998, the Company issued shares of its Common Stock to certain
of its officers and directors. No underwriter or agent was engaged in connection
with such issuances. A total of 288,408 shares of Common Stock were issued to
Mark W. Blodgett, the Company's Chairman and Chief Executive Officer. Of such
shares, 187,500 shares of Common Stock were sold to Mr. Blodgett at a price of
$2.00 per share, and 100,908 shares of Common Stock were issued to Mr. Blodgett
as compensation for his guarantee of certain Company indebtedness. In addition,
one other director and one officer of the Company purchased an aggregate of
26,700 shares of Common Stock at a price of $2.00 per share. All of such
issuances qualified for the exemption from registration provided by Section 4(2)
of the Securities Act, based upon: (i) the Company did not engage in any general
solicitation or advertising in connection with such issuances; (ii) the shares
of Common Stock were issued to only directors and officers of the Company; and
(iii) the Company took reasonable precautions to assure that the Common Stock
was being purchased for investment purposes and would not be resold in a public
offering.
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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.
BACKGROUND
On May 13, 1998, the Company completed its purchase of all of the
outstanding stock of Lasiris, Inc., a Canadian manufacturer of industrial lasers
for the machine vision and industrial inspection industries. The Company
acquired Lasiris through LHI. The acquisition was accounted for as a purchase,
and the purchase price was allocated pursuant to an independent appraisal. The
fiscal year ended December 31, 1998 results include the effects of increased
goodwill amortization, increased depreciation of acquired assets, as well as the
results of Lasiris operations for the period since the acquisition date. In
addition, $1,087,914 of in-process research and development projects of Lasiris
was charged against income. This portion of the assets acquired were identified
as projects that had not yet reached technological feasibility and that, until
completion of the development, have no alternative future use. See "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS--Acquisition of Lasiris."
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net sales for the fiscal year ended December 31, 1998 were $12,585,322
compared to $11,162,026 in the prior year, which represents an increase of
approximately 12.8% or $1,423,296. Despite significantly reduced sales to
Southeast Asia, sales from the Company's lighting products were $7,296,782
compared to $4,203,493 in the prior year, an increase of approximately 73.6%.
This increase was due to the addition of $3,229,670 in laser lighting sales
contributed by Lasiris and $409,868 in microscope lighting sales from the
Company's Singapore subsidiary, Radiant Asiatec Pte., Ltd. Government and
civilian sales of Military Products decreased $875,643 from $1,333,434 to
$457,791 reflecting the absence in 1998 of a large contract with a direct mail
marketing firm which favorably impacted the previous years' results. The
Company's strategic business decision to de-emphasize these products in favor of
the lighting business, the diminished peacetime demand for military products and
the closing of Company's Hong Kong subsidiary in December, 1997 which sold
military products to the civilian market also contributed to the decline in
sales of Military Products. Net sales of machine components and accessories were
$3,311,888 or 16.1% lower than the previous years' sales of $3,948,151. A
slowdown in orders from distributors primarily attributable to the proposed sale
of this division and the business decision to convert from using manufacturer's
representatives to using distributors contributed to the decrease in sales of
machine components and accessories from the prior year. Sales from the Company's
printer and recorder products decreased approximately 9.4% or $158,093 from
$1,676,949 in 1997 to $1,518,856 in 1998. For the year ended December 31, 1998,
the Company's Salem division contributed 44.8% of total sales with Stilson
contributing 26.3%, Lasiris contributing 25.7% and the remainder coming from
Radiant Asiatec Pte., Ltd.
Gross profit for the year ended December 31, 1998 was $5,144,579 in 1998
compared to $4,263,056 in 1997, and improved as a percentage of net sales to
40.9% compared to 38.2% of net sales for the same period in the prior year. The
increase in gross profit was mainly due to increased sales attributable to
Lasiris following its acquisition. Selling expenses decreased $115,276 from
$2,040,637 or 18.3% of net sales in 1997 to $1,925,361 or 15.3% of net sales in
1998, reflecting reduced commission expense on lower sales at the Stilson
division and a reduction of sales personnel in the Salem division. Research and
development expenses increased $245,839 in 1998 to $971,378 or 7.7% of net sales
compared to $725,539 or 6.5% on net sales in the prior year. The increase
includes research and development expenses from Lasiris and a continued
investment in developing future fiber optic products. General and administrative
expenses
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<PAGE>
increased $1,189,592 or 55.6% to $3,329,995 in fiscal 1998 compared to
$2,140,403 in the prior year. The increase of $1,189,592 was mainly due to
higher professional and banking fees, startup costs associated with the
Company's new Singapore subsidiary and the costs associated with the acquisition
and integration of Lasiris. Interest expense was $601,031 or $212,694 higher
than the previous year as a result of the Company's increased indebtedness due
to the Lasiris acquisition.
In accordance with the provisions of Statement of Financial Standards (SFAS)
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company periodically assesses the realizability
of its long-lived assets. In addition to this periodic review, the Company is
obliged to initiate such an assessment in the event of a change in the Company's
assets or in the valuation of its assets.
On July 14, 1998, the Company announced that it had signed a non-binding
letter of intent to sell its Stilson division. As of June 30, 1998 the carrying
value of net assets for the Stilson division was approximately $2.0 million plus
a portion of the goodwill recorded in 1989 when the Company, including Stilson,
was acquired. This proposed sale of Stilson required the Company to assess the
realizable value of its goodwill. There was no allocation of goodwill to the
individual divisions of the Company at the time of the acquisition in 1989.
Accordingly, management of the Company evaluated the cash flow generated by
Stilson for the five years preceding and the five years following the
acquisition relative to the cash flow of the entire Company. Based on this
assessment, management allocated approximately 60% of the goodwill resulting
from the 1989 acquisition to Stilson, $4.9 million net of amortization as of
June 30, 1998. Therefore the net assets of Stilson as of June 30, 1998,
inclusive of goodwill, was approximately $6.9 million. The purchase price for
the net assets of Stilson set forth in the letter of intent was $3.0 million.
Accordingly, on June 30, 1998 the Company wrote down the carrying value of the
net assets of Stilson to $3.0 million and recorded a charge of $3.9 million that
is included in the goodwill impairment, for the year ended December 31, 1998. On
November 9, 1998, the Company announced that the agreement dated July 14, 1998
for the proposed sale of the assets of its Stilson division to De-Sta-Co
Industries had been terminated. Despite the termination of the agreement to sell
Stilson to De-Sta-Co, the Company believes that the letter of intent is the most
reliable evidence of the fair market value of Stilson and that no further
adjustment to the Company value of the Stilson goodwill is appropriate at this
time.
After allocating the portion of goodwill associated with Stilson, the
Company assessed the realizable value of its remaining goodwill from the 1989
acquisition, which was $3.5 million, net of amortization, as of June 30, 1998.
Based on changes in the Company since 1989, including management's strategic
decision to shift the business focus toward the industrial lighting industries
and the recent history of losses, the Company concluded that the realizable
value of the remaining goodwill is uncertain and that the carrying value should
be written down to zero. As a result of this assessment, the Company recorded an
additional charge of approximately $3.5 million, which was included in the
goodwill impairment for the year ended December 31, 1998.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
As previously reported, in 1996 management formulated a strategy to
de-emphasize less profitable product lines and to focus on and expand its
Industrial Lighting Products, which included a plan to develop, manufacture and
sell fiber optic illumination products. In 1997, the Company implemented its
plan to establish a line of fiber optic products, investing over $2 million in
inventories and capital equipment and nearly doubling research and development
expenditures to expand development capabilities. The Company ended the year
having successfully completed the first phases of this initiative, with the
installation of its glass fiber drawing tower, the quantity production of high
quality glass fiber, and the design and development of a complete fiber optic
product line for use in microscopy. The Company reported a net loss of $726,860
for fiscal year 1997 as compared to a net loss of $643,296 in 1996. The 1997
loss is primarily attributable to expenses associated with the startup of the
new fiber optic product including an increase of approximately $300,000 in
Research and Development.
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<PAGE>
Total Company revenues increased 3.5% from $10,782,078 in 1996 to
$11,162,026 in 1997. Industrial Lighting Product sales grew more than 61%,
increasing from $2,586,973 in 1996 to $4,169,795 in 1997. This revenue growth
resulted from increased selling activity, especially in Southeast Asia, and the
introduction of thirty-seven new products, including the Company's fiber optic
lighting products. Fiber optic lighting sales increased to $323,506 as compared
to $3,604 in 1996. Sales of machine tool components and accessories through the
SDD Division decreased by 3% from $4,087,218 to $3,948,151, due primarily to
delays in the SDD Division's fulfillment cycle resulting from changes in the
division's personnel. Less profitable lines, which had been strategically
de-emphasized, experienced expected decreases in revenue. Sales of Military
Products decreased from $1,775,798 in 1996 to $1,329,362 in 1997, largely due to
decreased U.S government sales, which in 1996 had benefited from the final sale
under a large contract for navigation watches. Recorder/Printer Product sales
declined from $2,034,146 in 1996 to $1,676,949 in 1997, as customers continued
to turn from generic printers and recorders to develop their own application-
specific products.
Gross profit increased $390,244 from $3,872,812 in 1996 to $4,263,056 in
1997, and improved as a percentage of revenues from 35.9% to 38.2%. Management
credits this improvement to the increased sales of Industrial Lighting Products,
which generally produce higher margins than other product lines.
Research and development expenses increased by approximately $300,000 as the
Company hired additional engineering staff and updated its equipment. Selling
expenses increased by approximately $291,000 as a result of hiring and training
new sales people and the purchase of new product advertising and literature.
Such planned expenditures contributed to the Company's capability to produce
glass fiber and manufacture fiber optic light sources, and positioned the
Company to enter the fiber optic lighting marketplace. General and
Administrative expense increased modestly but remained at 19% of Company
revenue. Total operating costs increased from $4,247,422 in 1996 to $4,906,583
in 1997, as a result of the increased selling and research and development costs
associated with the startup of the fiber optic product line.
Included in the 1997 operating expenses were approximately $329,000 of
non-recurring charges. These charges consist primarily of approximately $260,000
in costs associated with personnel changes, such as severance pay and hiring of
interim help, as well as costs related to the closing of the Company's Hong Kong
subsidiary in December, 1997.
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, (iv) obtain financing on favorable
terms or refinance indebtedness prior to maturity or (v) maintain availability
of funds for borrowing under the Company's credit arrangement. In addition, the
Company sells certain products to customers located in southeast Asia, and in
1997, the Company experienced a slowdown in orders and payments from its
customers in that region as the currencies of certain countries in that region
have been devalued and destabilized. Although the Company has taken reasonable
precautions to limit its credit risk in southeast Asia, there can be no
assurance that the Company will be able to secure future orders from its
customers in that region. General economic conditions in the United States,
Southeast Asia, and elsewhere may affect the Company's results.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations primarily through third party credit
facilities and cash from operations. Net cash used in operations was $306,008
for the year ended December 31, 1998 which resulted primarily from a net loss of
$10,005,896 partially offset by non-cash charges of $7,365,662 of goodwill
impairment; $1,087,914 for the write-off of acquired in process research and
development expenses; and $848,463 of depreciation and amortization expenses.
During 1998, the Company's primary third party financing relationship was
with Fleet National Bank of Massachusetts, N.A. (the "Bank"). The initial Credit
Agreement between the Company and the Bank, dated March 6, 1995 (the "Credit
Agreement"), provided for a Revolving Line of Credit Loan (the "Revolving Loan")
and a Long Term Loan (the "Term Loan") both due March 31, 1998. On March 27,
1998, the Company and the Bank entered into an agreement to extend the maturity
dates of its Revolving Loan and Term Loan to January 2, 1999. This agreement was
further extended to February 15, 1999. The Revolving Loan and the Term Loan bore
interest at the Bank's base rate plus 2% from July 1, 1998 through the maturity
date. The Company was obligated to pay monthly extension fees of $10,000 payable
on the last day of each month. On December 31, 1998 there was a total of
$2,790,786 borrowed under the Credit Agreement and availability to borrow of
$59,311 under the Revolving Loan.
Under the terms of the Credit Agreement, as amended, the Company was
required to comply with a quarterly minimum net income covenants. As of June 30,
1998, the Company was not in compliance with this covenant, and on July 21,
1998, the Bank granted a waiver of the net income covenant for the quarter ended
June 30, 1998. As of September 30, 1998 the Company was not in compliance with
this covenant, and on November 5, 1998 the Bank granted a waiver of the net
income covenant for the quarter ended September 30, 1998.
On February 11, 1999 the Company entered in a new credit agreement with
Norwest Business Credit, Inc. ("Norwest") with total borrowing availability up
to $3,500,000. Initial proceeds were used to payoff the Credit Agreement between
the Company and Fleet National Bank of Massachusetts, N.A. This new credit
facility with Norwest consists of a $500,000 term loan that requires 60 monthly
principal payments of $8334, beginning April 1, 1999. The credit facility also
provides for a revolving line of credit of up to $3.5 million less the amount of
the term loan and subject to a defined borrowing base consisting of eligible
accounts receivable and inventory. As of March 31, 1999, $2,218,959 was
outstanding under the term loan and revolving credit line and $126,840 was
available for additional borrowings. The outstanding principal balance of all
advances under this credit facility bear interest at a floating rate of the
bank's base rate plus 2.5%. The Company's obligation under the Norwest credit
agreement is evidenced by a demand note and may be terminated at any time, by
Norwest in its sole discretion, prior to the stated maturity date of March 1,
2002. The Company's obligations under this credit facility are secured by
essentially all of the Company's assets other than real property. In addition,
Mark W. Blodgett, the Company's Chief Executive Officer, has unconditionally
guaranteed all amounts outstanding. The Credit and Security Agreement between
the Company and Norwest require the Company to comply with certain affirmative
and negative covenants.
On January 21, 1999, the Company entered into an $824,000 mortgage loan with
Comerica Bank, which matures on January 1, 2004 and is secured by a first
mortgage on the Fraser, Michigan property. The loan bears interest at Comerica's
prime rate. Payments are amortized over a 15-year period assuming a 7 3/4% rate
of interest.
In connection with the Lasiris acquisition, the stockholders of Lasiris
received cash in an aggregate amount of approximately $3.3 million and 444,146
shares of capital stock of LHI, which are exchangeable for shares of the
Company's common stock on a one for one basis. The aggregate value of the shares
was deemed to be $1,732,167 as of May 13, 1998. The Company financed a portion
of the cash consideration paid for Lasiris through a private placement of
350,000 shares of the Company's common stock at a price
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<PAGE>
of $3.50 per share, which generated net proceeds to the Company of $1,124,716,
after offering expenses of $100,284.
On May 13, 1998, the Company entered into a $750,000 second mortgage loan
with Danvers Savings Bank (the "Danvers Loan"). This loan bears interest at a
rate of 11%, requires monthly payments of interest only, and matures on May 13,
1999. The Danvers Loan generated net proceeds after expenses of $731,196, which
were used to finance a portion of the Lasiris acquisition. The balance at
December 31, 1998 is $750,000.
Also on May 13, 1998, Lasiris entered into a credit agreement with Toronto
Dominion Bank ("TD Bank"). The credit agreement provides for (i) a $1,000,000
CDN Operating Line of Credit (the "TD Line of Credit"); (ii) a $1,000,000 CDN
Term Loan (the "TD Four Year Term Loan"); (iii) an $83,333 CDN Term Loan (the
"TD Two Year Term Loan"); and (iv) a $4,461 CDN Letter of Guarantee of (the
"Letter of Guarantee"). The TD Line of Credit bears interest at 1% over the TD
Bank prime rate, requires monthly payments of interest only, and is payable on
demand. As of December 31, 1998, borrowings on the TD Line of Credit were
$640,000 CDN ($418,240 US). The TD Four Year Term Loan bears interest at 2% over
the TD Bank prime rate, matures on May 13, 2002, and requires monthly principal
payments of $20,833 CDN (approximately $14,500 US) plus interest. As of December
31, 1998, the outstanding balance on the TD Four-Year Term Loan was $937,885 CDN
($612,908 US). The TD Two Year Term Loan bears interest at 2% over the TD Bank
prime rate, matures on May 13, 2000, and requires monthly principal payments of
$4,167 CDN (approximately $2,900 US) plus interest. As of December 31, 1998, the
outstanding balance on the TD Two-Year Term Loan was $54,167 CDN ($35,398 US).
On May 7, 1998, Beverly Hospital Corporation prepaid its $1,000,000 Note
Receivable due to the Company, less a $50,000 discount for early payment. The
proceeds were used to finance a portion of the Lasiris acquisition.
The Company's headquarters facility in Salem, New Hampshire, is subject to a
mortgage and note issued to Granite bank on August 29, 1996 (the "Granite
Note"). The Granite Note, in an initial principal amount of $1,500,000 is due
August 29, 2011. The Granite 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 Granite Note, the Company may
prepay amounts outstanding thereunder, in whole or in part, at any time without
premium or penalty.
On May 20, 1997 the Company entered into an equipment line of credit
agreement with Granite Bank to finance capital equipment related to new product
development. The line of credit provides that equipment purchases will be
converted quarterly into a series of five year notes, not to exceed $500,000 in
the aggregate, bearing interest at the prime rate plus .75%. As of December 31,
1998, the Company had borrowed $315,868 against such line of credit.
The Company has issued and outstanding Subordinated Notes in an original
principal amount of $1,350,000. These notes mature on May 1, 2001. They bear
interest at 7.25% and are convertible into shares of the Company's common stock
at a price of $7.375 per share.
Accounts payable increased $1,275,997 from December 31, 1997 to December 31,
1998. Of this increase $614,171 resulted from the Lasiris acquisition and the
balance is attributable to increased payment cycles. Company expenditures for
capital equipment were $636,170 for the year ended December 31, 1998 as compared
to $882,540 in the same period of 1997. The majority of the 1997 expenditures
related to the Company's new fiber optic product line. The majority of the 1998
expenditures related to the purchase of new CNC machinery at Stilson.
From time to time, the Company contemplates raising additional capital by
the issuance of equity securities, the proceeds of which may be used, among
other things, in connection with refinancing existing indebtedness, although the
Company has no reason to believe that Norwest will do so, the structure of the
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Company's credit facility, with Norwest allows the lender to terminate the
facility and demand payment of the Company's obligations at any time. In
addition, the availability for borrowing under the Norwest credit facility is
limited by a defined borrowing base of eligible accounts receivable and
inventory, which fluctuates from time to time. The Danvers Loan matures on May
13, 1999 and. while the Company is in discussions with lenders regarding
extending or refinancing the loan, the Company can give no assurance as to
whether a refinancing will be in place prior to the maturity date. Assuming
Norwest does not terminate the Norwest credit facility and demand repayment, the
Company's borrowing base remains at its current level or higher and that the
Danvers Loan is refinanced prior to maturity, the Company believes that its
available financial resources are adequate to meet foreseeable working capital,
debt service and capital expenditure requirements through the next twelve
months. If these factors do not continue as expected, then the Company's lenders
may declare a default and the Company would not be able to continue to operate.
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
The Company translates the assets and liabilities of its foreign
subsidiaries at the rate of exchange in effect at year-end. Revenues and
expenses are translated using exchange rates in effect during the year. Gains
and losses from foreign currency translation are credited or charged to
"Cumulative translation adjustment" included in stockholders' investment in the
accompanying consolidated balance sheets. Foreign currency transaction gains and
losses are included in "Other expense" in the accompanying statements of
operations. Foreign currency transaction gains and losses were not significant
for the years ended December 31, 1998, 1997 or 1996.
YEAR 2000 READINESS
THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE "YEAR 2000 READINESS DISCLOSURE"
WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS ACT.
The Company has undertaken a plan to address the potential impact to its
business of "Year 2000 issues" (i.e., issues that may arise as a result of
computer programs that use only the last two, rather than all four, digits of
the year). The plan addresses Internal Matters, which relate to the Company's
operations and over which the Company exercises some control, and External
Matters, which are outside the Company's control and influence. The Company is
well under way in its plans to review internal matters and has begun to review
external matters related to its customer and supplier base.
Internal Matters
Review of Internal Matters is the first phase of the Company's Year 2000
Compliance Program and is broken down into five categories; each are identified
and addressed separately below.
1) Mission critical hardware, operating system, and associated equipment such
as terminals and printers.
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<PAGE>
The Company utilizes an IBM AS/400 hardware platform to support its mission
critical software. The hardware, operating system, and related software
components were upgraded to a RISC-based architecture with operating system
version 3.7 in 1997. All hardware and software listed above have been
represented to be Year 2000 Compliant by IBM.
All associated peripherals including terminals, printers, and modems have
been confirmed compliant by suppliers with the exception of 5 terminals
which will be eliminated or replaced at an approximate cost of $2,000 or
less.
2) Mission Critical Software
The Company's primary information systems software have been reviewed and
have been, or will be, upgraded as follows:
a) Integrated Manufacturing Software, MACPAC written by Andersen Consulting
and supported by The Development Center, Inc.
MACPAC was upgraded in 1997 so that it would function with the Company's
upgraded computer system hardware. The cost for the new software was
approximately $80,000. The company completed installation of MACPAC Year
2000 compliant Version 10.2 in March of 1998. This software is
represented by Andersen Consulting to be Year 2000 compliant.
b) Payroll Software, MAPICS supported by MARCAM
The MAPICS Payroll software was upgraded to the Year 2000 Compliant
Version DB Mod 4, PTF 4000 in November 1997. This software is represented
by Marcam to be Year 2000 compliant. As of April 1, 1999, the Company
elected to utilize an outsource payroll processing company who has
represented to the Company that it is fully Year 2000 compliant.
c) Marketing Sales Management (MSM) Software supported by IMA
The Year 2000 compliant version of MSM became available in November 1998.
The Company installed Year 2000 Compliant Version 6.5A in February 1999.
This software is represented by IMA to be Year 2000 compliant.
3. Personal Computer Hardware and Software
The Company also utilizes a number of personal computers which are operated
independently (i.e., not linked by a network). These computers use a wide
variety of different software packages and are of various ages. The Company
has compiled an inventory of these personal computers, their hardware, as
well as their operating systems and installed application software packages.
This information will be assessed initially to determine if suppliers
represent that they are Year 2000 compliant. The Company estimates that it
has completed approximately 85% of this assessment (preliminary results
indicate compliance for the majority, with minor issues relating to Windows
95). Following the assessment phase, the Company will undertake to upgrade
and replace software and, if necessary, replace personal computers so that
all equipment and software is represented compliant by the providers. The
Company estimates that the cost for such upgrades and replacements will not
exceed $30,000. Subsequent phases will include obtaining written
certification of Year 2000 testing by providers followed by our own in-house
Year 2000 tests.
The Company intends to fund Year 2000 upgrades and changes through operating
cash flow and indebtedness. Software upgrades related to Year 2000 are captured
as part of the individual software's annual upgrade charge; hardware upgrades
are budgeted at $30,000.
4. The Products and Product Components manufactured by the Company
Comprehensive review and testing has been completed for all of the Company's
products. As a part of this process, the Company's engineers have compiled a
Product Compliance Listing (the "List") to
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<PAGE>
inform customers regarding "year 2000 compliance readiness" of products
manufactured by the Company. A copy of the List is available from the
Company upon request and will be posted on the Company Web site at
www.stkr.com. The List denotes those products that are "Year 2000
Compliant", those that are not affected by "Year 2000 Compliance", and those
that do not meet the definition "Year 2000 Compliant" set forth below.
YEAR 2000 COMPLIANT: The Company's products identified on the List as
"Compliant" will be able to accurately process date (including leap
year); provided that, at the commencement of the Year 2000; (1) the
products were functioning normally as specified in their operator's
manuals; (2) the products have been used and will continue to be used in
accordance with the terms of the limited warranty and operator's manual
given with the products at the time of original purchase, regardless of
whether this warranty has expired; and (3) any products which are
connected or integrated to the products listed on the List are also Year
2000 Compliant.
NOT APPLICABLE: Certain of the Company's products indicated on the List
do not have a date function and, therefore, do not present any Year 2000
readiness issues. These products are identified by the phrase "Not
Applicable" on the List.
NON-COMPLIANT: Company products which have a date function and which do
not meet the definition of Year 2000 Compliant set forth above are
identified as "Non-Compliant" on the List.
A letter along with the List are available by request and can be viewed on
the Company's Web site as a convenience for the Company's customers. The
information in this letter will be subject to, and will not supplement,
extend or modify any agreement between the Company and the customer relating
to the applicable product, including the period, terms, conditions or scope
of any warranty given with respect to the Products at the time of original
purchase. The Company makes no representation or warranty as to, and will
not address, the Year 2000 readiness of any hardware, firmware, software
(such as any BIOS or operating system), services protocols, data, interfaces
to third party systems, or user customized functions or features that may be
used with the Company software other than those Company products listed on
the List. Products that it has manufactured, distributed or sold over the
course of its fifty year history but which the Company is not currently
manufacturing or servicing are not included on the List and have not been
tested for Year 2000 compliance. The Company does not plan to test any
products other than those listed on the List and will not provide Year 2000
support for any products other than those identified on the list so that the
Company can focus its efforts on those products about which its customers
will be most concerned. The Company also will not be assessing the Year 2000
compliance of any products manufactured or sold by third parties. The
Company's current products should not be affected by the potential failure
of such third party products because all of its products function
independently of other equipment. The information contained on the List is
based on data available to Stocker & Yale at the time of its preparation.
From time to time, Stocker & Yale may change the information in the List
without notice to the customer. The information contained in the List is
provided "as is", without warranties or guarantees of any kind.
As a result of the product review and testing process, the Company has
determined that Year 2000 compliance exposure is limited to certain older
model Printer products that incorporate date functionality which does not
interfere with normal operation of the printers. Those printers will not be
made Year 2000 Compliant. However, this will not preclude the customer(s)
from utilizing the product. Surveys of the primary customers indicated that
they are not using the date functionality. Therefore, management believes
the risk of potential impact to revenue to be less than $25,000 per year,
and that the current customer base will probably continue to purchase the
product(s) regardless of the Non-Compliant designation.
5. Ancillary systems such as test equipment, communications equipment and
security systems
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The Company's ancillary systems are largely provided by third parties, most
of which have not yet completed their own assessments of Year 2000 exposure.
The Company will continue to solicit such information from these third
parties. Due to the incompleteness of this information, contingency plans
have not yet been finalized. The following is a list of known Year 2000
issues:
<TABLE>
<S> <C>
Stilson Division Telephone System $3,000 to Upgrade for Year 2000
Compliance
Salem Division Telephone System Manual Clock Date Set Required
</TABLE>
The Company estimates that it has completed approximately 75% of its year 2000
Plan regarding Internal Matters. The Internal Matter review process is planned
for completion by the end of the second quarter 1999.
External Matters
The Company has commenced a review of External Matters that are outside the
Company's control and influence. This process comprised of a review and
assessment of the customer and supplier relationships that could have a
potential material impact upon the Company and its ongoing operations by means
of analysis of response to questionnaires sent to these parties. As a result of
the preliminary nature of the Company's review of External Matters, a
contingency plan has not yet been developed and there can be no assurance that
Year 2000 problems resulting from customer or supplier relationships will not
have a material adverse impact on the Company. The Company anticipates
completion of this process by the first half of 1999.
The Company estimates that it has completed approximately 55% of its overall
Year 2000 plan. Although the Company believes that it has an effective plan in
place that will resolve any Year 2000 issues in a timely manner, the Company may
be adversely impacted by Year 2000 issues if its proposed updates, modifications
or replacements are not completed on schedule. In the event that third parties
do not complete the necessary remediation, the Company could be subject to
interruption of its normal business activities, including its ability to take
customer orders, manufacture and ship products, invoice customers, collect
payments or engage in similar business activities. Such an event could result in
a material adverse effect on the Company's revenues or in litigation surrounding
such business interruptions. In addition, disruptions in the economy generally
resulting from the Year 2000 issue could materially adversely affect the
Company. The amount of potential liability and revenues cannot reasonably be
estimated at this time.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 is presented on pages 18 through 39 of this
Form 10-KSB. The index to the Company's Financial Statements is set forth below:
<TABLE>
<CAPTION>
PAGE(S)
-----------
<S> <C>
Report of Independent Public Accountants................................................................. 19
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. 20
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997..................... 21
Consolidated Statements of Stockholder's Investment for the Years Ended December 31, 1998 and 1997....... 22
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997..................... 23
Notes to Consolidated Financial Statements............................................................... 24-39
</TABLE>
18
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT
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,
1998 and 1997, 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, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
April 7, 1999
19
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 85,854 $ 73,520
Marketable Securities............................................................ 86,407 --
Trade receivables, less reserves of approximately $209,000 in 1998 and $187,000
in 1997........................................................................ 2,131,472 1,860,624
Prepaid income taxes............................................................. 373,039 579,332
Inventories...................................................................... 6,260,779 4,957,095
Prepaid expenses................................................................. 276,565 117,354
------------- -------------
Total current assets......................................................... 9,214,116 7,587,925
------------- -------------
Property, Plant and Equipment, net................................................. 4,340,654 3,857,504
------------- -------------
Note Receivable.................................................................... -- 1,000,000
------------- -------------
Goodwill, net of accumulated amortization.......................................... 2,470,796 8,453,000
------------- -------------
Identified intangible assets....................................................... 2,902,675 39,776
------------- -------------
Cash Value Life Insurance.......................................................... 52,546 52,546
------------- -------------
$ 18,980,787 $ 20,990,751
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt................................................ $ 4,420,085 $ 443,334
Accounts payable................................................................. 3,134,933 1,858,936
Accrued expenses................................................................. 756,970 541,668
Short-term lease obligation...................................................... 224,046 89,771
------------- -------------
Total current liabilities.................................................... 8,536,034 2,933,709
------------- -------------
Long-Term Debt and Capital Lease Obligations....................................... 3,691,140 5,383,233
------------- -------------
Other Long-Term Liabilities........................................................ 564,688 564,688
------------- -------------
Deferred Income Taxes.............................................................. 1,501,925 876,904
------------- -------------
Commitments and Contingencies
Stockholders' Investment:
Common stock, par value $0.001--
Authorized--10,000,000 shares at December 31, 1998 and 1997
Issued and outstanding--3,679,448 and 2,567,894 shares at December 31, 1998 and
1997, respectively........................................................... 3,679 2,568
Paid-in capital.................................................................... 14,224,841 10,822,705
Accumulated Other Comprehensive Income............................................. 57,432 --
Retained earnings.................................................................. (9,598,952) 406,944
------------- -------------
Total stockholders' investment............................................... 4,687,000 11,232,217
------------- -------------
$ 18,980,787 $ 20,990,751
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
20
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
<S> <C> <C>
1998 1997
-------------- -------------
Net Sales.......................................................................... $ 12,585,322 $ 11,162,026
Cost of Sales...................................................................... 7,440,743 6,898,970
-------------- -------------
Gross profit..................................................................... 5,144,579 4,263,056
Selling Expenses................................................................... 1,925,361 2,040,637
General and Administrative Expenses................................................ 3,329,995 2,140,403
Acquired in Process R&D............................................................ 1,087,914 --
Goodwill Impairment................................................................ 7,365,662 --
Research and Development........................................................... 971,378 725,539
-------------- -------------
Operating loss................................................................... (9,535,731) (643,523)
Interest Expense................................................................... 601,031 388,337
-------------- -------------
Loss before income tax benefit................................................... (10,136,762) (1,031,860)
Income Tax Benefit................................................................. (130,866) (305,000)
-------------- -------------
Net loss......................................................................... $ (10,005,896) $ (726,860)
-------------- -------------
-------------- -------------
Loss per Share--Basic and diluted.................................................. $ (3.25) $ (0.28)
-------------- -------------
-------------- -------------
Weighted Average Common Shares--Basic and diluted.................................. 3,078,674 2,567,894
-------------- -------------
-------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
21
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- PAID-IN COMPREHENSIVE RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL INCOME/(LOSS) EARNINGS INVESTMENT
---------- --------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............ 2,567,894 $ 2,568 $ 10,822,705 $ -- $ 1,133,804 $ 11,959,077
Net loss.......................... -- -- -- -- (726,860) (726,860)
---------- --------- ------------- -------------- ------------- -------------
Balance, December 31, 1997............ 2,567,894 $ 2,568 $ 10,822,705 $ -- $ 406,944 $ 11,232,217
Issuance of common stock to
employee........................ 100,908 101 107,744 107,845
Issuance of common stock for
acquisition of Lasiris.......... 444,146 444 1,731,723 1,732,167
Sale of common stock, including
options exercised, net of
issuance cost................... 566,500 566 1,562,669 1,563,235
Comprehensive income:
Net loss.......................... -- -- -- (10,005,896) (10,005,896)
Unrealized gain on investment..... 86,407 86,407
Cumulative translation
adjustment...................... -- -- -- (28,975) -- (28,975)
---------- --------- ------------- -------------- ------------- -------------
Balance, December 31, 1998............ 3,679,448 $ 3,679 $ 14,224,841 $ 57,432 $ (9,598,952) $ 4,687,000
---------- --------- ------------- -------------- ------------- -------------
---------- --------- ------------- -------------- ------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
22
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
<S> <C> <C>
1998 1997
------------ ---------
Cash Flows from Operating Activities:
Net loss.............................................................................. ($10,005,896) $(726,860)
Adjustments to reconcile net loss to net cash used in operating activities--
Acquired in Process Research and Development........................................ 1,087,914 --
Goodwill Impairment................................................................. 7,365,662 --
Issuance of common stock to employee................................................ 107,845 --
Depreciation and amortization....................................................... 848,463 676,258
Deferred income taxes............................................................... (629,011) (305,000)
Other changes in assets and liabilities--
Accounts receivable, net.......................................................... 403,396 (449,850)
Inventories....................................................................... (500,072) (1,256,076)
Prepaid expenses.................................................................. (150,832) 14,124
Prepaid taxes..................................................................... 331,198 --
Accounts payable.................................................................. 742,884 485,815
Accrued expenses.................................................................. 92,441 (5,986)
Cash value of life insurance...................................................... -- (52,546)
Other............................................................................. -- (26,492)
------------ ---------
Net cash used in operating activities......................................... (306,008) (1,646,613)
------------ ---------
Cash Flows Used for Investing Activities:
Purchases of property, plant and equipment............................................ (636,170) (882,540)
Acquisition of Lasiris................................................................ (3,815,234) --
------------ ---------
Net cash used in investing activities......................................... (4,451,404) (882,540)
------------ ---------
Cash Flows from Financing Activities:
Danvers Savings Bank financing........................................................ 750,000 --
Toronto Dominion financing............................................................ 798,675 --
Equipment lease financing............................................................. 377,573
Proceeds from bank debt............................................................... 309,238
Payments of bank debt................................................................. (227,466)
Proceeds from bank debt and equipment loans........................................... 1,611,678
Payments on capital lease............................................................. (25,957)
Issuance of common stock, including options exercised................................. 1,563,235 --
Receipt of Beverly Hospital note receivable........................................... 1,000,000 --
------------ ---------
Net cash provided by financing activities..................................... 4,798,721 1,358,255
------------ ---------
Effect of Exchange Rate on Changes in Cash.............................................. (28,975) --
Net (Decrease) Increase in Cash and Cash Equivalents.................................... 12,334 (1,170,898)
Cash and Cash Equivalents, beginning of year............................................ 73,520 1,244,418
------------ ---------
Cash and Cash Equivalents, end of year.................................................. $ 85,854 $ 73,520
------------ ---------
------------ ---------
Supplemental Disclosure of Cash Flow Information:
Interest paid......................................................................... $ 597,343 $ 426,409
------------ ---------
------------ ---------
Taxes paid............................................................................ $ -- $ 67,492
------------ ---------
------------ ---------
Supplemental Disclosure of Noncash Financing Activities:
Capital lease obligations incurred for new equipment.................................. $ -- $ 153,008
------------ ---------
------------ ---------
Shares of common stock issued in connection with Lasiris acquisition.................. 444,146 --
------------ ---------
------------ ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
23
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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 developing and
marketing 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 Company is presently in the process
of ceasing the operations of this subsidiary. The operations of this entity are
consolidated into the accompanying consolidated financial statements.
Radiant Asiatec Pte. Ltd. (Radiant) was established in December 1997 as an
80% owned Singapore-based distribution company. Radiant sells industrial
microscopes, imaging application software, production accessories and lighting
systems manufactured by the Company. The operations of this entity are
consolidated into the accompanying consolidated financial statements.
(2) ACQUISITION OF LASIRIS
On May 13, 1998, the Company acquired Lasiris, Inc. ("Lasiris"), a Canadian
manufacturer of industrial lasers for the machine vision and industrial
inspection industries. The Company acquired Lasiris through Lasiris Holdings,
Inc., a newly formed New Brunswick corporation ("LHI") and a subsidiary of the
Company. Lasiris is operated as a wholly-owned Canadian subsidiary of LHI.
In connection with the acquisition, the stockholders of Lasiris received an
aggregate of approximately $3.2 million in cash and 444,146 shares of LHI's
capital stock which are exchangeable for shares of the Company's common stock on
a one for one basis. The Company financed the cash portion of the consideration
through (i) a private placement of 350,000 shares of the Company's common stock
at a price of $3.50 per share; (ii) a loan in the amount of $750,000 from a bank
which is secured by a second mortgage interest in the Company's headquarters;
(iii) a loan of approximately $800,000 pursuant to a credit agreement between
the Toronto Dominion Bank and Lasiris; and (iv) cash in the amount of $950,000
received pursuant to the prepayment of a note receivable due to the Company.
24
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(2) ACQUISITION OF LASIRIS (Continued)
ALLOCATION OF PURCHASE PRICE
The acquisition was accounted for as a purchase, and accordingly, the
initial purchase price and acquisition costs aggregating approximately $5.5
million have been allocated to the assets acquired, which consist of
approximately $4.0 million in identifiable assets, approximately $1.7 million in
goodwill, and approximately $1.1 million of in-process research and development
which was charged to operations in the second quarter of 1998. The purchase
price allocations represent the fair values determined by an independent
appraisal. The Company has assigned a ten year life for the identified
intangible assets and the goodwill.
The following outlines the allocation of purchase price for the acquisition
of Lasiris.
<TABLE>
<S> <C>
Purchased in-process research and development................................... $1,088,000
Developed Patented Technology................................................... 2,364,000
Trademarks/Tradenames........................................................... 471,000
Assembled workforce............................................................. 241,000
Goodwill........................................................................ 1,669,000
----------
5,833,000
Net book value of assets acquired............................................... 944,000
----------
6,777,000
Less deferred taxes............................................................. (1,230,000)
----------
5,547,000
</TABLE>
In connection with the acquisition of Lasiris, the Company allocated $1.088
million of the purchase price to incomplete research and development projects.
This allocation represents the estimated fair value based on risk-adjusted cash
flows related to the incomplete projects. At the date of acquisition, the
development of these projects had not reached technological feasibility and the
research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.
Lasiris' acquired research and development value is comprised of research
and development programs designed to significantly enhance the Company's current
product line, as well as to develop new laser products and technologies.
Management expects that the projects will be completed during the period from
the fourth quarter of 1998 through the end of the calendar year 2000. At the
acquisition date, programs ranged in completion from 10% to 80%, and aggregate
continuing research and development commitments to complete the projects are
expected to be approximately $1.5 million at the date of acquisition. The
acquired research and development represents developmental efforts associated
with the introduction of new and enhanced laser systems. Remaining development
activities for these programs included the research, development and testing of
advanced electronic, optical, and thermal technologies. Expenditures to complete
these projects are expected to total approximately $500,000 in 1999, and
$500,000 in 2000. These estimates are subject to change, given the uncertainties
of the development process, and no assurance can be given that deviations from
these estimates will not occur.
As evidenced by the continuation of these projects, management believes the
Company has a reasonable chance of successfully completing each of the major
research and development programs.
25
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(2) ACQUISITION OF LASIRIS (Continued)
However, there is substantial risk associated with the completion of the
projects and there is no assurance that any will achieve either technological or
commercial success. If none of the research and development projects is
completed successfully, the sales and profitability of the combined company
would be adversely affected and the value of the research and development
projects will not be realized.
The following unaudited, proforma financial information assumes that the
acquisition of Lasiris took place at the beginning of each respective period.
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Net Revenues....................................................................... $ 14,155,590 $ 15,309,392
Net Income......................................................................... (10,213,921) (721,117)
Earnings per Share................................................................. $ (3.15) $ (0.24)
Average shares outstanding......................................................... 3,239,296 3,012,041
</TABLE>
(3) 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.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, Stocker & Yale Foreign Sales Corp., Stocker &
Yale Hong Kong Limited, Radiant Asiatec Pte. Ltd., and Lasiris Holdings, Inc.
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:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
ASSET CLASSIFICATION LIFE
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
Building and building improvements.......................................................... 10 to 40 years
Machinery and equipment..................................................................... 5 to 10 years
Furniture and fixtures...................................................................... 3 to 10 years
</TABLE>
26
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, plant and equipment, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ ------------
Land................................................ $ 483,989 $ -- $ 483,989
Building and building improvements.................. 2,693,176 443,318 2,249,858
Machinery and equipment............................. 5,235,700 4,174,502 1,061,198
Furniture and fixtures.............................. 1,181,458 635,849 545,609
------------ ------------ ------------
$ 9,594,323 $ 5,253,669 $ 4,340,654
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------------ ------------ ------------
Land................................................ $ 446,300 $ -- $ 446,300
Building and building improvements.................. 2,670,191 379,879 2,290,312
Machinery and equipment............................. 4,676,554 4,031,048 645,506
Furniture and fixtures.............................. 974,283 498,897 475,386
------------ ------------ ------------
$ 8,767,328 $ 4,909,824 $ 3,857,504
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Total depreciation of property, plant and equipment amounted to
approximately $500,000 and $312,000 for the periods ended December 31, 1998 and
1997, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with the provisions of Statement of Financial Standards (SFAS)
No. 121--"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company periodically assesses the realizability
of its long-lived assets. In addition to this periodic review, the Company is
obliged to initiate such an assessment in the event of a change in the Company's
assets or in the valuation of its assets. Based on its most recent assessment,
the Company has recorded a non-recurring, non-cash charge of $7.4 million during
the year ended December 31, 1998, to write down the carrying value of its
goodwill to its estimated fair value.
On July 14, 1998, the Company announced that it had signed a non-binding
letter of intent to sell its Stilson Division ("Stilson"). As of June 30, 1998
the carrying value of the Stilson's net assets was $2.0 million excluding a
portion of the goodwill recorded in 1989 when the Company, including Stilson,
was acquired. The proposed sale of Stilson required the Company to assess the
realizability of goodwill. There was no allocation of goodwill to the individual
divisions of the Company at the time of the acquisition in 1989. Accordingly,
management of the Company has evaluated the cash flow generated by Stilson for
the five years preceding and the five years following the acquisition relative
to the cash flow of the entire Company. Management has also reviewed their
expectations, at the time of the 1989 acquisition, of the future cash flow of
Stilson. Based on this assessment, management allocated approximately 60% of the
goodwill resulting from the 1989 acquisition to Stilson, $4.9 million net of
amortization at June 30, 1998. Therefore the net assets of Stilson at June 30,
1998 inclusive of goodwill were approximately
27
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
$6.9 million. The purchase price for the net assets of Stilson set forth in the
letter of intent was $3.0 million. Accordingly, at June 30, 1998 the Company
wrote down the carrying value of the net assets of Stilson to $3.0 million and
recorded a charge of $3.9 million that is included in the goodwill impairment
for the year ended December 31, 1998. In addition, the Company has reduced the
amortization of the remaining goodwill allocated from Stilson from forty years
to ten years. On November 9, 1998, the Company announced that the agreement,
dated July 14, 1998, for the proposed sale of the assets of its Stilson Division
to De-Sta-Co Industries had been terminated. Despite the termination of the
agreement to sell Stilson to De-Sta-Co, the Company believes that the letter of
intent is the most reliable evidence of the fair market value of Stilson and
that no further adjustment to the carrying value of the Stilson goodwill is
appropriate at this time.
After allocating the portion of the goodwill associated with Stilson, the
Company assessed the realizability of the remaining goodwill from the 1989
acquisition, $3.5 million, net of amortization. Based upon the changes in the
Company since 1989 and the recent history of losses, the Company has concluded
that the realizability of the remaining goodwill is uncertain and that the
carrying value should be written down to zero. As a result of this assessment
the Company recorded an additional charge of $3.5 million which was included in
the goodwill impairment in the year ended December 31, 1998.
Rates used to compute amortization are based on the following estimated
useful lives:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Goodwill...................................... 10 years
Identifiable intangibles...................... 10 years
Debt issuance costs........................... Life of loan
</TABLE>
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------- ------------ ------------
Goodwill.......................................... $ 12,418,530 $9,947,734 $ 2,470,796
Debt issuance costs............................... 334,857 316,657 18,200
Other identified intangibles...................... 3,075,450 190,975 2,884,475
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
------------- ------------ ------------
Goodwill.......................................... $ 10,749,000 $2,296,000 $ 8,453,000
Debt issuance costs............................... 316,053 276,277 39,776
</TABLE>
Amortization of goodwill and other intangibles, exclusive of the writeoff of
approximately $7,366,000, was approximately $477,000 for the year ended December
31, 1998 and approximately $268,800 for the year ended December 31, 1997.
28
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 $40,380 and $98,714 for the years ended
December 31, 1998 and 1997, 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.
EARNINGS PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, EARNINGS PER
SHARE. This statement was issued by the FASB in March 1997 and establishes the
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerators and denominators for the basic and
diluted EPS computations for all prior-period EPS data presented. The Company
has reported a net loss for the years ended December 31, 1998 and 1997.
Accordingly, all options and warrants have been excluded from diluted earnings
per share as they would be antidilutive.
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, 1998.
29
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECLASSIFICATION
Certain amounts reported for prior periods have been reclassified to be
consistent with the current period presentation.
(4) INCOME TAXES
The components of the income tax (benefit) are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
<S> <C> <C>
1998 1997
----------- -----------
Current--
Federal............................................................. $ (283,000) $ --
State............................................................... (88,000) --
Foreign............................................................. 68,000 --
----------- -----------
(303,000) --
----------- -----------
Deferred--
Federal............................................................. 146,000 (234,850)
State............................................................... 26,000 (70,150)
Foreign............................................................. -- --
----------- -----------
172,000 (305,000)
----------- -----------
$ (131,000) $ (305,000)
----------- -----------
----------- -----------
</TABLE>
The following is a reconciliation of the federal income tax (benefit)
calculated at the statutory rate of 34% to the recorded amount:
<TABLE>
<CAPTION>
FOR THE YEARS
--------------------------
<S> <C> <C>
ENDED DECEMBER 31,
--------------------------
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Applicable statutory federal income tax benefit....................................... $ (3,447,000) $ (350,834)
State income taxes, net of federal income tax benefit................................. (608,000) (64,698)
Non-deductible amortization and impairment charge..................................... 3,136,000 91,392
Acquired in process research and development.......................................... 435,000 --
Valuation allowance................................................................... 210,000 --
Other, net............................................................................ 143,000 19,140
------------- -----------
$ (131,000) $ (305,000)
------------- -----------
------------- -----------
</TABLE>
30
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(4) INCOME TAXES (CONTINUED)
The significant items composing the domestic deferred tax asset and
liability at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -----------------------
<S> <C> <C> <C> <C>
CURRENT LONG-TERM CURRENT LONG-TERM
---------- ------------- ---------- -----------
Assets--
Net operating loss carryforwards............................. $ -- $ 758,000 $ -- $ --
Reserves not currently deductible............................ 240,000 -- 240,772 --
Other........................................................ (30,000) 65,000 338,560 --
---------- ------------- ---------- -----------
Total assets............................................. 210,000 823,000 579,332 --
---------- ------------- ---------- -----------
Liabilities--
Accelerated depreciation and property-basis differences...... -- (819,000) -- (672,602)
Note receivable.............................................. -- -- -- (402,700)
Identified intangibles....................................... -- (1,154,000) -- --
Other........................................................ -- (100,000) -- 198,398
---------- ------------- ---------- -----------
Total liabilities...................................... -- (2,073,000) -- (876,904)
---------- ------------- ---------- -----------
Valuation allowance.................................... -- (210,000) -- --
---------- ------------- ---------- -----------
Net assets (liabilities)............................... $ 210,000 $ (1,460,000) $ 579,332 $ (876,904)
---------- ------------- ---------- -----------
---------- ------------- ---------- -----------
</TABLE>
The Company has provided a valuation allowance for a portion of deferred tax
assets that may not be realized. The Company's federal net operating loss
carryforwards, approximately $1.8 million as of December 31, 1998, expiring
beginning in 2011.
(5) INVENTORIES
Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Finished goods.................................................... $ 603,435 $ 435,201
Work-in-process................................................... 201,695 431,142
Raw materials..................................................... 5,455,649 4,090,752
------------ ------------
$ 6,260,779 $ 4,957,095
------------ ------------
------------ ------------
</TABLE>
(6) NOTE RECEIVABLE
On September 5, 1995, the Company sold its manufacturing facility in
Beverly, Massachusetts, for $1.2 million in cash and a note receivable of $1
million from the buyer. On May 7, 1998, Beverly Hospital Corporation prepaid its
$1,000,000 Note Receivable due the Company, less a $50,000 discount for early
payment. The proceeds were used to finance a portion of the Lasiris acquisition
(Note 2).
31
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(7) LONG-TERM DEBT
As of December 31, 1998 and 1997, debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Revolving line of credit, maturing March 31, 1999, payable to a bank, with an interest
rate at the bank's prime lending rate plus 1/2 % at December 31, 1998 (9.75%)......... $ 1,775,881 $ 1,307,053
Revolving line of credit, maturing April 1998, payable to a Hong Kong bank, with an
interest rate at the bank's prime lending rate as defined (8.50%) at December 31,
1998.................................................................................. 202,121 202,121
Mortgage note payable (Salem facility), maturing August 29, 2011, payable to a bank,
with an interest rate of 9.25% as of December 31, 1998, effective August 29, 1999 the
rate is at the bank's prime rate plus 1%.............................................. 1,379,489 1,434,395
Term loan, maturing on March 31, 1999, payable to a bank, with an interest rate of
prime plus 1/2% (9.75%) at December 31, 1998.......................................... 1,014,905 1,175,945
Convertible subordinated notes payable, maturing on May 1, 2001, interest payable
quarterly in arrears at 7.25%......................................................... 1,350,000 1,350,000
Equipment loan, maturing October 17, 2000, payable to a bank, with an interest rate at
8.80%................................................................................. 44,913 66,534
Auto loan, maturing February 2002, payable to a bank, with an interest rate at
8.50%................................................................................. 13,842 17,524
Term Loan, maturing May 13, 2002, payable to a bank, with an interest rate of bank's
prime plus 2.0%....................................................................... 612,908 --
Term Loan, maturing May 13, 2000, payable to a bank, with an interest rate of bank's
prime plus 2.0%....................................................................... 35,398 --
Term Loan, maturing May 13, 1999, payable to a bank, with an interest rate of 11.0%... 750,000 --
Equipment capital lease obligation, maturing August 31, 2000, with an interest rate of
7.81%................................................................................. 99,322 153,008
Equipment lease line of credit, maturing July 22, 2003, payable to a bank, with an
interest rate of prime plus 3/4% (9.25%) at December 31, 1998......................... 315,868 209,759
Machinery equipment lease obligation, maturing November 1, 2002, with an interest rate
of 8.00%.............................................................................. 210,459 --
Machinery equipment lease obligation, maturing October 18, 2002, with an interest rate
of 8.00%.............................................................................. 111,925 --
Revolving line of credit, maturing on demand, payable to a bank, with an interest rate
of bank's prime plus 1%............................................................... 418,240 --
------------ ------------
8,335,271 5,916,339
Less--Current portion of long-term debt............................................... 4,644,131 533,106
------------ ------------
$ 3,691,140 $ 5,383,233
------------ ------------
</TABLE>
32
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(7) LONG-TERM 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. The line
has a floating interest rate of 1/2% above the bank's prime lending rate.
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, by the Chairman of the Board.
As of December 31, 1997, 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 5, 1998, the Company
obtained a waiver for these events of noncompliance. This waiver was effective
for the period ended December 31, 1997.
On March 27, 1998, the Company entered into an agreement to extend the
maturity dates of its revolving line of credit and term loan to January 2, 1999.
Under the terms of the extension, the revolving line of credit's maximum credit
limit decreased from $4.0 million to the lesser of $2.5 million or a borrowing
base as defined in the Amended Credit Agreement. Also, both the term loan and
the revolving line of credit will bear interest at a rate equal to the Bank's
base rate plus 1% through June 30, 1998, after which the rate will increase to
the Bank's base rate plus 2%. The Company paid quarterly extension fees of
$10,000 on March 31, 1998 and $20,000 on June 30, 1998, and monthly extension
fees of $7,000 payable on the last day of July, August and September, and
$10,000 payable on the last day of October, November and December. The Amended
Credit Agreement deletes the minimum debt service covenant and requires the
Company to report a pretax profit in the month of March 1998, and for each of
the subsequent quarters in fiscal year 1998.
Under the terms of the Credit Agreement, as amended, the Company was
required to comply with a quarterly minimum net income covenants. As of June 30,
1998, the Company was not in compliance with this covenant, and on July 21,
1998, the Bank granted a waiver of the net income covenant for the quarter ended
June 30, 1998. As of September 30, 1998 the Company was not in compliance with
this covenant, and on November 5, 1998 the Bank granted a waiver of the net
income covenant for the quarter ended September 30, 1998.
On January 15, 1999, the Company entered into an agreement to extend the
maturity dates of its revolving line of credit from February 1, 1999 to March
31, 1999, after which date no further advances would be made with respect to the
Amended Revolving Note. As part of the agreement, the Company agreed to pay the
bank all payments due prior to March 31, 1999 and that failure to make such
payments would result in the Company being in default under this agreement. As
part of the agreement, the maturity date of the term note with the same bank was
also extended to March 31, 1999. The Company agreed to pay the bank the entire
principal balance outstanding on the term note, plus all unpaid accrued
interest. Also, both the revolving line of credit and the term loan will bear
interest at a rate equal to the bank's base rate plus 4%. The Company agreed to
pay up to $35,000 in consideration for the agreement, with $20,000
33
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(7) LONG-TERM DEBT (CONTINUED)
due upon execution of the agreement. In the event that the Company pays off it
obligation in full on or before February 15, 1999, the bank agreed to waive the
remaining $15,000 balance.
On February 11, 1999 the Company entered in a new credit agreement with
Norwest Business Credit, Inc. with total borrowing availability up to
$3,500,000. Initial proceeds were used to payoff the Credit Agreement between
the Company and Fleet National Bank of Massachusetts, N.A. This new credit
facility with Norwest consists of a $500,000 term loan that requires 60 monthly
principal payments of $8,334 beginning April 1, 1999. The credit facility also
provides for a revolving line of credit of up to $3.0 million subject to a
defined borrowing base consisting of eligible accounts receivable and inventory.
As of March 31, 1999, $2,218,959 was outstanding under the term loan and
revolving credit line and $126,840 was available for additional borrowings. The
outstanding principal balance of all advances under the Norwest facility bear
interest at a floating rate of the bank's base rate plus 2.5%. The Norwest
credit agreement is a demand note and maybe terminated by the lender at any time
at the discretion of the lender, prior to the stated maturity date of March 1,
2002. The credit agreement is secured by essentially all of the Company's
assets. Mark W. Blodgett, the Company's Chief Executive Officer has,
unconditionally guaranteed all amounts outstanding under the credit agreement.
The Credit and Security Agreement require the Company to comply with certain
affirmative and negative covenants.
On January 21, 1999, the Company entered into mortgage loan with a bank in
the amount of $824,000. The mortgage matures on January 1, 2004, and is secured
by a first mortgage on the Company's Fraser, Michigan property.
In May 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.
(8) STOCKHOLDERS' INVESTMENT
On May 13, 1998, in connection with the Lasiris acquisition, the
stockholders of Lasiris received 444,146 shares of capital stock of Lasiris
Holdings, Inc., a newly formed New Brunswick corporation and a subsidiary of the
Company. These newly issued shares were exchangeable for shares of the Company's
common stock on a one for one basis with aggregate value of $1,732,167 on the
acquisition date. The Company financed a portion of the cash consideration paid
through a private placement of 350,000 shares of the Company's common stock at a
price of $3.50 per share, which generated net proceeds to the Company of
$1,124,714 after offering expenses of $100,284. The Company did not engage any
underwriters in connection with such offering, but the Company did enter into an
arrangement with J.E. Sheehan & Co. ("Sheehan") to act as placement agent for
all or a portion of the shares offered thereby. In connection with the offering,
Sheehan was paid a commission of $73,500 and was issued a warrant entitling
Sheehan to purchase an aggregate of 10,000 shares of Common Stock at a price of
$4.00 per share (the "Sheehan Warrant"). The Sheehan Warrant is exercisable for
a period of three years and contains customary weighted-average anti-dilution
provisions providing for appropriate adjustment of the exercise price and the
number of shares issuable upon exercise thereof upon the occurrence of certain
events regarding the Common Stock as a whole.
34
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(8) STOCKHOLDERS' INVESTMENT (Continued)
In December 1998, the Company issued and sold 214,200 shares of common
stock, at a price of $2.00 per share in a private placement to officers and
directors of the Company generating proceeds of $428,400.
Also in December 1998, the Company issued 100,908 shares to the Company's
CEO in exchange for his guarantee of certain indebtedness to the Company. As a
result, the Company recorded a charge of $107,845 in the accompanying statement
of operations for the year ended December 31, 1998.
(9) EMPLOYEE BENEFITS AND STOCK OPTIONS
The Company had two noncontributory defined benefit pension plans that
covered a majority of Company employees. The accrued benefit is determined based
on credited service as of the employee's retirement date. Employees became fully
vested after five years.
The Company froze the benefits of the defined benefit pension plans during
August 1993. During 1998, the Company distributed the plan assets to the plan
participants, based upon actuarial calculations of benefit amounts due each
participant. After all liabilities to participants had been paid, the Pension
Plans were effectively terminated. Upon termination, there existed approximately
$389,000 in excess funds. The Company subsequently distributed approximately
$98,000 to the 401(k) plan established for Company employees. At December 31,
1998, the Company recorded net curtailment gain of approximately $233,000 in
accordance with SFAS No. 88, EMPLOYERS' ACCOUNTING FOR SETTLEMENTS AND
CURTAILMENTS OF DEFINED BENEFIT PENSION PLANS AND FOR TERMINATION BENEFITS.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C> <C>
Actuarial present value of benefit obligations--
Accumulated benefit obligation, including vested benefits of $440,931 in 1997................ $ (456,444)
-----------------
-----------------
Projected benefit obligation for service rendered to date...................................... $ (456,444)
Plan assets at fair value, guaranteed investment contract with an insurance company............ 775,505
Unrecognized net gain.......................................................................... (297,597)
Unrecognized net (assets) liabilities.......................................................... 13,365
-----------------
Prepaid (accrued) pension cost............................................................. $ 34,829
-----------------
-----------------
</TABLE>
Net periodic pension cost (income) includes the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Service cost--income earned during the period................................................. $ --
Interest cost on projected benefit obligation................................................. 29,861
Return on plan assets......................................................................... (57,445)
Amortization.................................................................................. (18,087)
--------
Net periodic pension income............................................................... $ (45,671)
--------
--------
</TABLE>
35
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(9) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
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% in 1997. The expected long-term rate of return on
assets was 8% in 1997.
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. Upon termination of the Company's defined benefit pension plans
in December 1998, the Company made a $98,000 contribution to the 401(k) Plan.
The Company made no such contributions for the plan year ended December 31,
1997. The Company incurred costs of $4,929 and $5,169 in 1998 and 1997,
respectively, to administer the Plan.
During 1994, the Company adopted a stock option plan (the Option Plan) for
the purpose of issuing both Incentive Options and Nonqualified Options to
officers, employees and directors of the Company. Options may be granted under
the Option Plan on such terms and at such prices as determined by the Board of
Directors, except that the options cannot be granted at less than 100%, or in
certain circumstances not less than 110%, of the fair market value of the common
stock on the date of the grant. Each option will be exercisable after the period
or periods specified in the option agreement, but no option may be exercised
after the expiration of 10 years from the date of grant.
In March 1996, the Company adopted the 1996 Stock Option and Incentive Plan
(the Option 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 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.
36
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(9) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
The following is a summary of the activity for the 1996 and 1994 Stock
Option Plans:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES PRICE RANGE PRICE
----------- -------------- -----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996............... 203,440 $ 3.70--$7.25 $ 6.14
Granted.................................... 61,600 $ 4.50--$5.38 $ 5.27
----------- -------------- -----
Outstanding at December 31, 1997............... 265,040 $ 3.70--$7.25 $ 5.97
Granted.................................... 128,000 $ 1.75--$5.16 $ 3.37
Forfeited.................................. (13,700) $ 4.40--$6.00 $ 4.94
Exercised.................................. (2,300) $ 4.40 $ 4.40
----------- -------------- -----
Outstanding at December 31, 1998............... 377,040 $ 1.75--$7.25 $ 5.13
----------- -------------- -----
----------- -------------- -----
Exercisable at December 31, 1998............... 184,540 $ 3.70--$7.25 $ 6.30
----------- -------------- -----
----------- -------------- -----
Weighted average option price for all
options...................................... $ 5.14
-----
-----
</TABLE>
Included in the options listed above, as of December 31, 1998, there are
50,000 options outstanding to nonemployees to purchase shares of the Company's
common stock at prices ranging from $4.30--$7.25 per share. These options were
issued in 1994 through 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 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 1997 and 1998 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123, using the following
weighted-average assumptions for grants in 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Risk-free interest rate....................................................... 4.70%--5.97% 5.87%--6.9%
Expected dividend yield....................................................... -- --
Expected life................................................................. 10 years 10 years
Expected volatility........................................................... 61.83% 32.29%
</TABLE>
The total value of options granted during 1997 and 1998 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
37
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(9) EMPLOYEE BENEFITS AND STOCK OPTIONS (Continued)
the Company had accounted for these plans in accordance with SFAS No. 123, the
Company's net loss and net loss per share would have increased as reflected in
the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C>
1998 1997
-------------- -----------
Net loss--
As reported..................................................................... $ (10,005,896) $ (726,860)
Pro forma....................................................................... (10,331,756) (1,057,884)
Net loss per share--
As reported..................................................................... (3.25) (0.28)
Pro forma....................................................................... (3.36) (0.41)
</TABLE>
Set forth below is a summary of options granted in 1998 and 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------- --------------------------
<C> <C> <C> <S> <C> <C> <C> <C>
WEIGHTED AVERAGE WEIGHTED
OUTSTANDING REMAINING WEIGHTED AVERAGE
EXERCISE PRICE SHARES AT CONTRACTUAL LIFE AVERAGE PER SHARE EXERCISABLE EXERCISE
RANGE DECEMBER 31, 1998 (YEARS) EXERCISE PRICE FAIR VALUE OPTIONS PRICE
-------------- ----------------- ---------------- ----------------- ------------- ----------- -------------
1997 $ 4.50--$5.38 72,000 9 years 5.28 3.96 -- --
1998 $ 1.75--$5.16 128,000 10 years 3.37 2.55 -- --
</TABLE>
(10) COMMITMENTS AND CONTINGENCIES
Total rent expense for operating leases charged to operations for the
periods ended December 31, 1998 and 1997 was $47,873 and $17,862, respectively.
Minimum commitments under leases in effect at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 104,083
2000.............................................................................. 69,116
2001.............................................................................. 42,201
Thereafter........................................................................ 5,493
----------
Total minimum lease payments...................................................... $ 220,893
----------
----------
</TABLE>
(11) SEGMENTED INFORMATION
Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, issued June 1997.
SFAS No. 131 introduces a new model for segment reporting called the
"management approach." The management approach is based on the way the chief
operating decision maker organizes segments based on products and services,
geography, legal structure, management structure--any manner in which management
disaggregates the company. This statement replaces SFAS No. 14, FINANCIAL
REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. SFAS requires disclosures for
each segment that are similar to those
38
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(11) SEGMENTED INFORMATION (Continued)
required under current standards with the addition of quarterly disclosure
requirements and a finer partitioning of geographic disclosures. It requires
limited segment data on a quarterly basis. It also requires geographic data by
country, as opposed to broader geographic regions permitted under current
standards. This statement applies to public business enterprises.
The Company has assessed the new statement and has classified the operating
results of Lasiris with the Measuring and Inspection Instruments Segment.
The Company's operations were conducted primarily within the following
industry segments for the fiscal years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------
<S> <C> <C> <C>
MEASURING AND
INSPECTION MACHINE COMPONENTS
INSTRUMENTS AND ACCESSORIES TOTAL
-------------- -------------------- -------------
Net sales.................................................... $ 9,273,434 $ 3,311,888 $ 12,585,322
Operating income (loss)...................................... (5,355,750) (4,179,981) (9,535,731)
Capital expenditures......................................... 311,106 325,064 636,170
Depreciation expense......................................... 413,769 86,062 499,831
Amortization expense......................................... 195,871 130,581 326,452
Fixed assets, net............................................ 2,944,313 1,396,341 4,340,654
Total identifiable assets.................................... 17,867,643 1,113,144 18,980,787
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
<S> <C> <C> <C>
MEASURING AND
INSPECTION MACHINE COMPONENTS
INSTRUMENTS AND ACCESSORIES TOTAL
-------------- -------------------- -------------
Net sales.................................................... $ 7,213,876 $ 3,948,150 $ 11,162,026
Operating income (loss)...................................... (325,314) (318,209) (643,523)
Capital expenditures......................................... 751,293 282,763 1,034,056
Depreciation expense......................................... 133,013 179,436 312,449
Amortization expense......................................... 220,508 147,006 367,514
Fixed assets, net............................................ 2,707,700 1,149,804 3,857,504
Total identifiable assets.................................... 19,666,636 1,324,115 20,990,751
</TABLE>
Sales to unaffiliated customers in foreign countries outside of the United
States represented approximately 9% and 17% of net sales for fiscal 1998 and
1997, respectively. The Company's export sales are denominated in U.S. dollars.
(12) COMPREHENSIVE INCOME/(LOSS)
For the year ended December 31, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements for
disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"Other comprehensive items, net" which represents certain amounts that are
reported as components of shareholders' investment in the accompanying balance
sheet, including foreign currency translation adjustments and unrealized net of
tax gains and losses from available-for-sale investments.
39
<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
Special Meeting in Lieu of an Annual Meeting of Stockholders to be held on May
20, 1999 (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.
40
<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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Articles of Organization of Stocker & Yale, incorporated by reference to Exhibit
3.1 of Stocker & Yale's Form SB-2, Amendment No.1, filed on October 11, 1996.
3.2 Amended and Restated Bylaws of Stocker & Yale, 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 Stocker & Yale 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 and Security Agreement dated February 11, 1999 by and between Stocker & Yale and Norwest
Business Credit, Inc.
*10.1(b) Demand Note dated February 11, 1999 issued to Norwest Business Credit, Inc. by Stocker & Yale.
*10.1(c) Guaranty dated February 11, 1999 by and between Mark W. Blodgett and Norwest Business Credit, Inc.
*10.2(a) Mortgage Note dated January 11, 1999 issued to Comerica Bank by Stocker & Yale.
*10.2(b) Continuing Collateral Mortgages dated January 21, 1999 by Stocker & Yale to Comerica Bank.
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 10.8(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 Form 10-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 Form 10-SB, as amended,
filed on November 2, 1995.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.9 Form of Option Agreement for Outside Directors outside the Amended and Restated 1994 Stock Option
Plan, incorporated by reference to Exhibit 10.9 of Stocker & Yale's Form 10-SB, as amended, filed on
November 2, 1995.
10.10 1995 Senior Management Profit Sharing Plan, incorporated by reference to Exhibit 10.10 of Stocker &
Yale's Form 10-SB, as amended, filed on November 2, 1995.
10.12 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-KSB, for the fiscal year
ended December 31, 1995.
10.14(a) Promissory Note, due August 29, 2011, issued by the Company to Granite Bank.
10.14(b) Mortgage Deed and Security Agreement, dated August 29, 1996, granted by the Company to Granite Bank.
10.14(c) Collateral Assignment of Leases and Rents, dated August 29, 1996, granted by the Company to Granite
Bank.
10.15(a) Promissory Note, due May 13, 1999, issued by the Company to Danvers Savings Bank, incorporated by
reference to Exhibit 10.15(a) of Stocker & Yale's Form 10-QSB filed on August 19, 1998.
10.16(a) Voting, Support and Exchange Agreement between Lasiris Holding, Inc., Stocker & Yale, Inc. and the
stockholders' of Lasiris, Inc. and certain other parties named therein, dated May 13, 1998,
incorporated by reference to Exhibit 10.16(a) of Stocker & Yale's Form 10-QSB filed on August 19,
1998.
10.16(b) Employment Agreement by and among Lasiris, Inc., Stocker & Yale, Inc. and Alain Beauregard, dated as
of May 13, 1998, incorporated by reference to Exhibit 10.16(b) of Stocker & Yale's Form 10-QSB filed
on August 19, 1998.
10.16(c) Employment Agreement by and among Lasiris, Inc., Stocker & Yale, Inc. and Luc Many, dated as of May
13, 1998, incorporated by reference to Exhibit 10.16(c) of Stocker & Yale's Form 10-QSB filed on
August 19, 1998.
10.16(d) Lasiris, Inc. Executive Incentive Compensation Plan, incorporated by reference to Exhibit 10.16(d) of
Stocker & Yale's Form 10-QSB filed on August 19, 1998.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth quarter of 1998.
42
<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.
<TABLE>
<S> <C> <C>
STOCKER & YALE, INC.
By: /s/ MARK W. BLODGETT
-----------------------------------------
Mark W. Blodgett, Chairman
Date: April 7, 199 and Chief Executive Officer
</TABLE>
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.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ MARK W. BLODGETT Chairman of the Board of
- ------------------------------ Directors and Chief April 7, 1999
Mark W. Blodgett Executive Officer
/s/ JAMES BICKMAN
- ------------------------------ President and Director April 7, 1999
James Bickman
/s/ LAWRENCE BLODGETT
- ------------------------------ Director April 7, 1999
Lawrence Blodgett
- ------------------------------
Clifford Abbey Director
/s/ STEVEN E. KAROL
- ------------------------------ Director April 7, 1999
Steven E. Karol
/s/ JOHN M. NELSON
- ------------------------------ Director April 7, 1999
John M. Nelson
/s/ GARY B. GODIN
- ------------------------------ Senior Vice President- April 7, 1999
Gary B. Godin Finance and Treasurer
</TABLE>
43
<PAGE>
Exhibit 10.1(a)
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
STOCKER & YALE, INC.
AND
NORWEST BUSINESS CREDIT, INC.
FEBRUARY 11, 1999
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of February 11, 1999
STOCKER & YALE, INC., a Massachusetts corporation (the
"BORROWER"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"LENDER"), hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"ACCOUNTS" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate
unpaid obligations of customers and other account debtors to the
Borrower arising out of the sale or lease of goods or rendition of
services by the Borrower on an open account or deferred payment basis.
"ADVANCE(S)" means an advance(s) to the Borrower by the Lender
under the Discretionary Credit and includes a revolving advance and the
Term Loan.
"AFFILIATE" or "AFFILIATES" means Lasiris, Inc., Radiant
Asiatec Pte, Ltd, Stocker & Yale Foreign Sales Corp. and any other
Person controlled by, controlling or under common control with the
Borrower, including (without limitation) any Subsidiary of the
Borrower. For purposes of this definition, "control," when used with
respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"BANKING DAY" means a day other than a Saturday, Sunday or
other day on which banks are generally open for business in
Minneapolis, Minnesota, or Boston, Massachusetts.
<PAGE>
"BASE RATE" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such
bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
"BORROWING BASE" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of:
(a) Three Million Five Hundred Thousand ($3,500,000.00)
Dollars (the "MAXIMUM LINE"), less the outstanding
principal balance of the Term Loan;
or
(b) the sum of:
(i) the lesser of (A) eighty (80%) percent of
Eligible Accounts, plus
(ii) the lesser of (A) forty (40%) of Eligible
Inventory consisting of raw materials less
book reserves, or (B) One Million Two
Hundred Thousand ($1,200,000.00) Dollars
(the "INVENTORY LIMIT").
"COLLATERAL" means all of the Borrower's Equipment, General
Intangibles, Investment Property, Inventory, Receivables, all sums on
deposit in any Collateral Account, and any items in any Lockbox;
together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) proceeds of any and all of the foregoing;
(iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any tangible goods;
(v) all warehouse receipts, bills of lading and other documents of
title now or hereafter covering such goods; and (vi) the Life Insurance
Policy.
"COLLATERAL ACCOUNT" has the meaning given in the Collateral
Account Agreement.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account
Agreements of even date herewith by and among (i) the Borrower,
Comerica Bank and the Lender; and (ii) the Borrower, Fleet National
Bank and the Lender.
"CREDIT FACILITY" means the discretionary credit facility
being made available to the Borrower by the Lender pursuant to Article
II.
"DEBT" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
-2-
<PAGE>
"DEFAULT" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"DEFAULT PERIOD" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"DEFAULT RATE" means an annual rate equal to three (3%)
percent over the Floating Rate, which rate shall change when and as the
Floating Rate changes.
"DEMAND NOTE" means the Borrower's promissory note, payable to
the order of the Lender in substantially the form of Exhibit A hereto,
as the same may hereafter be amended, supplemented or restated from
time to time and any note or notes issued in substitution therefor. The
Demand Note shall be dated as of the Funding Date and Borrower hereby
authorizes the Lender to complete the Demand Note by dating the same as
of the Funding Date.
"DISCRETIONARY CREDIT FACILITY" means the discretionary credit
facility being made available to the Borrower by the Lender pursuant to
Article II hereof.
"ELIGIBLE ACCOUNTS" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts over ninety (90) days
past invoice date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government for which the Borrower has provided
evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against such
unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank
letter of credit naming the Lender as beneficiary or assigned
to the Lender, in the Lender's possession and acceptable to
the Lender in
-3-
<PAGE>
all respects, in its sole discretion, or (B) covered by a
foreign receivables insurance policy acceptable to the Lender
in its sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone
out of business;
(vii) Accounts owed by a shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender including without limitation any payment
or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or
excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if twenty-five (25%) percent or
more of the total amount due under Accounts from such debtor
is ineligible under clauses (i), (ii) or (ix) above;
(xii) That portion of Accounts which, when aggregated
with all of the accounts of that account debtor, exceeds
twenty-five (25%) percent of the then aggregate of Eligible
Accounts; and
(xiii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"ELIGIBLE INVENTORY" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
GAAP; provided, however, that the following shall not in any event be
deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any
warehouse, job site or other premises not approved by the
Lender in writing; located outside of the states, or
localities, as applicable, in which the Lender has filed
financing statements to perfect a first priority security
interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless
such consignee or bailee has executed an agreement with the
Lender;
-4-
<PAGE>
(ii) Supplies, packaging, parts or sample Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving
or not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant
to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory;
(viii) Inventory that is subject to a security
interest in favor of any Person other than the Lender; and
(ix) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"ENVIRONMENTAL LAWS" has the meaning specified in Section
5.12.
"EQUIPMENT" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and record keeping equipment, parts, tools, supplies, and
including specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EVENT OF DEFAULT" has the meaning specified in Section 8.1.
"FLOATING RATE" means an annual rate equal to the sum of the
Base Rate plus two and one-half (2.50%) percent, which annual rate
shall change when and as the Base Rate changes.
"FUNDING DATE" has the meaning given in Section 2.1.
-5-
<PAGE>
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5, except for any change
in accounting practices to the extent that, due to a promulgation of
the Financial Accounting Standards Board changing or implementing any
new accounting standard, the Borrower either (i) is required to
implement such change, or (ii) for future periods will be required to
and for the current period may in accordance with generally accepted
accounting principles implement such change, for its financial
statements to be in conformity with generally accepted accounting
principles (any such change is hereinafter referred to as a "Required
GAAP Change"), provided that the Borrower shall fully disclose in such
financial statements any such Required GAAP Change and the effects of
the Required GAAP Change on the Borrower's income, retained earnings or
other accounts, as applicable.
"GENERAL INTANGIBLES" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts,
manuals, operating instructions, permits, franchises, the right to use
the Borrower's name, and the goodwill of the Borrower's business.
"GUARANTOR(S)" means Mark W. Blodgett.
"HAZARDOUS SUBSTANCE" has the meaning given in Section 5.12.
"INVENTORY" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"INVESTMENT PROPERTY" means investment property as that term
is defined in Section 9-115 of the UCC.
"LIFE INSURANCE ASSIGNMENT" means an Assignment of Life
Insurance Policy as Collateral to be executed by the owner and the
beneficiary thereof, in form and substance satisfactory to the Lender,
granting the Lender a lien on the Life Insurance Policy to secure
payment of the Obligations.
"LIFE INSURANCE POLICY" has the meaning given in Section 6.11.
"ISSUER" means the issuer of any Letter of Credit.
"L/C AMOUNT" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
-6-
<PAGE>
"L/C APPLICATION" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
"LETTER OF CREDIT" has the meaning specified in Section 2.14
hereof.
"LOAN DOCUMENTS" means this Agreement, the Demand Note and the
Security Documents.
"LOCKBOX" has the meaning given in the Lockbox Agreement.
"LOCKBOX AGREEMENT" means the Lockbox Agreements of even date
herewith by and among (i) the Borrower, Comerica Bank and the Lender;
and (ii) the Borrower, Fleet National Bank and the Lender.
"MATURITY DATE" has the meaning given in Section 2.12.
"MAXIMUM LINE" means Three Million Five Hundred Thousand
($3,500,000.00) Dollars.
"NORWEST BANK MINNESOTA" means Norwest Bank Minnesota,
National Association.
"OBLIGATION OF REIMBURSEMENT" has the meaning specified in
Section 2.5 hereof.
"OBLIGATIONS" means the Demand Note and each and every other
debt, liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower,
and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including specifically, but
not limited to, all indebtedness of the Borrower arising under this
Agreement, any Obligations of Reimbursement, the Demand Note or any
other loan or credit agreement or guaranty between the Borrower and the
Lender, whether now in effect or hereafter entered into.
"ORIGINAL MATURITY DATE" means March 1, 2002.
"PERMITTED LIEN" has the meaning given in Section 7.1.
"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
-7-
<PAGE>
"PLAN" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"PREMISES" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit C attached
hereto.
"RECEIVABLES" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"REPORTABLE EVENT" shall have the meaning assigned to that
term in Title IV of ERISA.
"SECURITY DOCUMENTS" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Life Insurance
Assignment, and any other document delivered to the Lender from time to
time to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"SECURITY INTEREST" has the meaning given in Section 3.1.
"SPECIAL ACCOUNT" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit.
"SUBSIDIARY" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
-8-
<PAGE>
"TERM LOAN" has the meaning specified in Section 2.2 hereof.
"TERMINATION DATE" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or
(iii) the date the Lender demands payment of the Obligations.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.14 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
"UNITED STATES BANKRUPTCY CODE" means Title 11 of the United
States Code entitled "Bankruptcy", as amended, and any successor
statute.
Section 1.2 CROSS REFERENCES. All references in this Agreement
to Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 ADVANCES. The Lender may, in its sole discretion,
make advances to the Borrower from time to time from the date all of the
conditions set forth in Section 4.1 are satisfied (the "FUNDING DATE") to the
Termination Date, on the terms and subject to the conditions herein set forth.
The Lender shall not consider any request for an Advance if, after giving effect
to such requested Advance, the sum of the outstanding and unpaid Advances would
exceed the Borrowing Base, less the L/C Amount. The Borrower's obligation to pay
the Advances shall be evidenced by the Demand Note and shall be secured by the
Collateral as provided in Article III. Within the limits set forth in this
Section 2.1, the Borrower may request Advances, prepay pursuant to Section 2.13
and request additional Advances. The Borrower agrees to comply with the
following procedures in requesting Advances under this Section 2.1:
(a) The Borrower will not request any Advance under this
Section 2.1 if, after giving effect to such requested Advance, the sum
of the outstanding and unpaid Advances under this Section 2.1 and under
Section 2.2 or otherwise would exceed the Borrowing Base less the L/C
Amount.
(b) The Borrower shall make each request for an Advance to the
Lender before 11:00 a.m. (Boston time) of the day of the requested
Advance. Requests may be made in writing or by telephone, specifying
the date of the requested Advance and the amount thereof. Each request
shall be by (i) any officer of the Borrower; or (ii) any person
designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender;
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or (iii) any person whom the Lender reasonably believes to be an
officer of the Borrower or such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Advance by crediting the same to the Borrower's demand deposit account
maintained with Fleet National Bank unless the Lender and the Borrower
shall agree in writing to another manner of disbursement. Upon the
Lender's request, the Borrower shall promptly confirm each telephonic
request for an Advance by executing and delivering an appropriate
confirmation certificate to the Lender. The Borrower shall be obligated
to repay all Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in
fact authorized to do so. Any request for an Advance, whether written
or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of
the time of the request.
Section 2.2 TERM LOAN. The Lender may, in its sole discretion,
make a term loan (the "TERM LOAN") in the aggregate principal amount of Five
Hundred Thousand ($500,000.00) Dollars, which Term Loan shall be secured by the
Collateral as provided in Article III hereof. Upon fulfillment of the applicable
conditions set forth in Article IV hereof and upon its determination to make the
Term Loan, the Lender shall disburse loan proceeds, if any, by crediting the
same to the Borrower's demand deposit account specified in Section 2.1(c) hereof
unless the Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section 2.3 DEMAND NOTE. All Advances and the Term Loan, if
any, made by the Lender under this Article II shall be evidenced by and
repayable with interest in accordance with the Demand Note. The principal of the
Demand Note shall be due and payable as provided herein and on the earlier of
termination of the Discretionary Credit Facility or demand by the Lender and
shall bear interest as provided herein. The portion of the Demand Note which
evidences principal of the Term Loan, if any, shall be payable in sixty (60)
installments as follows: $8,334.00 on April 1, 1999, and the same amount (except
the last installment which shall be the unpaid balance) on the first day of each
month thereafter until the Term Loan is fully paid.
Section 2.4 ISSUANCE OF LETTERS OF CREDIT.
(a) The Lender may, in its sole discretion, issue or cause to
be issued by an Issuer one or more letters of credit for the account of
the Borrower (each a "LETTER OF CREDIT") from time to time during the
period from the date hereof until the Lender demands payment of the
Advances or the Discretionary Credit Facility has been terminated
pursuant to Section 2.12 or 2.13 in an aggregate amount at any time
outstanding not to exceed the Borrowing Base less the sum of (i) all
outstanding and unpaid Advances hereunder and (ii) the unpaid amount of
the Obligation of Reimbursement. Each Letter of Credit, if any, shall
be issued pursuant to a separate L/C Application entered into by the
Borrower and the Lender as co- applicants for the benefit of the
Issuer, completed in a manner satisfactory to the Lender and
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the Issuer. The terms and conditions set forth in each such L/C
Application shall supplement the terms and conditions hereof, but in
the event of inconsistency between the terms of any such L/C
Application and the terms hereof, the terms hereof shall control.
(b) The Borrower will not request the issuance of any Letter
of Credit under this Section 2.4, if, after the issuance of such
requested Letter of Credit, the sum of the face amounts of all issued
and outstanding Letters of Credit would exceed the Borrowing Base less
the sum of (i) all outstanding and unpaid Advances hereunder and (ii)
the unpaid amount of the Obligation of Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(d) Any request for the issuance of a Letter of Credit under
this Section 2.4 shall be deemed to be a representation by the Borrower
that (i) the condition set forth in Section 2.4(b) hereof has been met,
and (ii) the statements set forth in Section 4.2 hereof are correct as
of the time of the request.
Section 2.5 PAYMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
The Borrower acknowledges that the Lender, as co-applicant, will be liable to
the Issuer of any Letter of Credit for reimbursement of any and all draws
thereunder and all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Issuer or the Lender may pay or incur relative to
such draw, plus interest on all such amounts, charges and expenses as
set forth below (all such amounts are hereinafter referred to,
collectively, as the "OBLIGATION OF REIMBURSEMENT").
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the Borrower
to the Lender under this Section 2.5, accrued from the date any such
draft, charge or expense is paid by the Issuer until payment in full by
the Borrower at the Default Rate.
If the Borrower fails to pay to the Lender promptly the amount
of its Obligation of Reimbursement in accordance with the terms hereof
and the L/C Application pursuant to which such Letter of Credit was
issued, the Lender is hereby irrevocably authorized and directed, in
its sole discretion, to make an Advance in an amount sufficient to
discharge the Obligation of Reimbursement, including all interest
accrued thereon but unpaid at the time
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of such Advance, and such Advance shall be evidenced by the Demand Note
and shall bear interest as provided in Section 2.9 hereof.
Section 2.6 SPECIAL ACCOUNT. If the Lender terminates the
Discretionary Credit Facility pursuant to Section 2.12 or the Discretionary
Credit Facility is otherwise terminated for any reason whatsoever, while any
Letter of Credit is outstanding, the Borrower shall thereupon pay the Lender in
immediately available funds for deposit in the Special Account an amount equal
to the maximum aggregate amount available to be drawn under all Letters of
Credit then outstanding, assuming compliance with all conditions for drawing
thereunder. The Special Account shall be maintained for the Lender by any
financial institution acceptable to the Lender. Any interest earned on amounts
deposited in the Special Account shall be credited to the Special Account.
Amounts on deposit in the Special Account may be applied by the Lender at any
time or from time to time to the Borrower's Obligation of Reimbursement or any
other Obligations, in the Lender's sole discretion, and shall not be subject to
withdrawal by the Borrower so long as the Lender maintains a security interest
therein. The Lender agrees to transfer any balance in the Special Account to the
Borrower at such time as the Lender is required to release its security interest
in the Special Account under applicable law.
Section 2.7 INCREASED COSTS AND REDUCED RETURN.
(a) If the Lender shall determine that, after the date hereof,
the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by the Issuer or the Lender or its parent corporation with
any requirement or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(i) shall subject the Issuer or the Lender or its
parent corporation to any tax, duty or other similar charge
with respect to any Letter of Credit, the Advances or the
Demand Note or shall change the basis of taxation of payments
to the Issuer or the Lender or its parent corporation of the
Reimbursement Obligation, of the principal of or interest on
the Advances or of any other amounts due under this Agreement
in respect of any Letter of Credit, the Advances or the Demand
Note (except for any change in respect of any tax imposed on
the overall income of the Issuer or the Lender or its parent
corporation); or
(ii) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including,
without limitation, any such requirement imposed by the Board
of Governors of the Federal Reserve System) against assets of,
deposits with or for the account of, or credit extended by,
the Issuer or the Lender or its parent corporation or shall
impose on the Issuer or the Lender or its parent corporation
any other condition affecting any Letter of Credit, the
Advances or the Demand Note;
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and the result of any of the foregoing is to increase the cost to the
Issuer or the Lender or its parent corporation of issuing or
maintaining any Letter of Credit or of making or maintaining any
Advances, or to reduce the amount of any sum received or receivable by
the Issuer or the Lender or its parent corporation under the
application and agreement pursuant to which the Letter of Credit was
issued, this Agreement or the Demand Note with respect thereto, by an
amount deemed by the Lender or its parent corporation to be material,
then upon demand by the Lender, the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Issuer or the
Lender or its parent corporation for such increased cost or reduction.
(b) If the Lender shall determine that the adoption
after the date hereof of any applicable law, rule or regulation
regarding capital adequacy, or any change therein after the date
hereof, any change after the date hereof in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by the Lender or its parent corporation with any
guideline or request issued after the date hereof regarding capital
adequacy (whether nor not having the force of law) of any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the Lender's or the Lender's
parent corporation's capital as a consequence of any Letters of Credit,
Advances or the Lender's obligations hereunder to a level below that
which the Lender or its parent corporation could have achieved but for
such adoption, change or compliance (taking into consideration the
Lender's policies with respect to capital adequacy and those of the
Lender's parent corporation) by an amount deemed to the Lender or its
parent corporation to be material, then from time to time on demand by
the Lender, the Borrower shall pay to the Lender such additional amount
or amounts as will compensate the Lender or its parent corporation for
such reduction.
(c) Certificates of the Lender sent to the Borrower
from time to time claiming compensation under this Section, stating the
reason therefor and setting forth in reasonable detail the calculation
of the additional amount or amounts to be paid to the Lender hereunder
shall be conclusive absent manifest error. In determining such amounts,
the Lender or its parent corporation may use any reasonable averaging
and attribution methods.
Section 2.8 OBLIGATIONS ABSOLUTE. The obligations of the
Borrower arising under this Agreement shall be absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including (without limitation)
the following circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "RELATED DOCUMENTS");
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(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate
which does not strictly comply with the terms of such Letter of Credit;
or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.9 INTEREST; DEFAULT INTEREST; PARTICIPATIONS; USURY.
Interest accruing on the Demand Note shall be due and payable in arrears on the
first day of each month.
(a) DEMAND NOTE. Except as set forth in Sections 2.9(b) and
2.9(c), the outstanding principal balance of the Advances shall bear
interest at the Floating Rate.
(b) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(c) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
Section 2.10 FEES.
(a) ANNUAL LINE FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable line fee equal to one (1%)
percent of the Maximum Line, due and payable upon the execution of this
Agreement and on each anniversary date of this Agreement. On the date
hereof, the Maximum Line is Three Million Five Hundred Thousand
($3,500,000.00) Dollars and the fee payable on the date hereof is
Thirty-Five Thousand ($35,000.00) Dollars.
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(b) AUDIT FEES. The Borrower hereby agrees to pay the Lender
audit fees in the amount of One Thousand Five Hundred ($1,500.00)
Dollars per audit, together with all actual out-of-pocket costs and
expenses incurred in conducting any audit or inspection.
(c) WIRE TRANSFER FEE. Borrower agrees to pay to the Lender a
fee in the amount of Fifteen ($15.00) Dollars for each wire transfer
initiated by or for the account of the Borrower.
(d) FIRST DATA CORPORATION FEE. Borrower agrees to pay to the
Lender all fees charged to the Lender by First Data Corporation in
connection with the transfer of funds in the Collateral Account and/or
the Lockbox. Such fees are currently in the amount of Seventy-Five
($75.00) Dollars per month.
(e) LETTER OF CREDIT FEE. The Borrower agrees to pay the
Lender a commission with respect to each Letter of Credit, if any,
accruing on a daily basis and computed at the annual rate of two (2%)
of the available amount of such Letter of Credit (as it may be changed
from time to time) from and including the date of issuance of such
Letter of Credit until such date as such Letter of Credit shall
terminate by its terms, payable annually in advance, and prorated for
any part of a full calendar year in which such Letter of Credit remains
outstanding. The foregoing commission shall be in addition to any and
all fees, commissions and charges of any Issuer of a Letter of Credit
with respect to or in connection with such Letter of Credit.
(f) LETTER OF CREDIT ADMINISTRATIVE FEE. The Borrower agrees
to pay the Lender, on written demand, the administrative fees charged
by the Issuer in connection with the honoring of drafts under any
Letter of Credit, amendments thereto, transfers thereof and all other
activity with respect to the Letters of Credit.
Section 2.11 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST
DUE AND PAYABLE. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest shall
be payable in arrears on the first day of each month and on the Termination
Date.
Section 2.12 DISCRETIONARY NATURE OF THIS FACILITY;
TERMINATION BY THE LENDER; AUTOMATIC RENEWAL. This Agreement contains the terms
and conditions upon which the Lender presently expects to make Advances and the
Term Loan to the Borrower or issue or cause to be issued Letters of Credit for
the account of the Borrower (in this section, collectively called an "ADVANCE").
Each Advance by the Lender to the Borrower shall be in the Lender's sole
discretion, and the Lender need not show that an adverse change has occurred in
the Borrower's condition, financial or otherwise, or that any of the conditions
of Article IV have not been met, in order to refuse to make any requested
Advance or to demand payment of the Obligations. The Lender may at any time
terminate the Credit Facility whereupon the Lender shall no longer consider
requests for
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Advances under this Agreement. Unless terminated by the Lender at any time or by
the Borrower pursuant to Section 2.13, the Credit Facility shall remain in
effect until the Original Maturity Date and, thereafter, shall automatically
renew for successive one year periods (the Original Maturity Date and each
anniversary date thereof to which the Credit Facility has been automatically
renewed, is herein referred to as a "MATURITY DATE").
Section 2.13 PREPAYMENT; TERMINATION OF CREDIT FACILITY BY THE
BORROWER; TERMINATION FEES. Except as otherwise provided herein, the Borrower
may terminate the Credit Facility or prepay the Advances in whole at any time or
from time to time in part and, subject to payment and performance of all
Obligations and termination of the Credit Facility, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
(a) TERMINATION BY BORROWER. The Borrower may terminate the
Credit Facility as of a Maturity Date by giving at least ninety (90)
days' prior written notice to the Lender of the Borrower's intention to
terminate the Credit Facility as of the specified Maturity Date. The
Borrower may also terminate the Credit Facility at any time by (i)
giving at least thirty (30) days' prior written notice to the Lender of
the Borrower's intention to terminate the Credit Facility; and (ii)
paying the Lender termination fees in accordance with subsection (b) if
the Borrower terminates the Credit Facility effective as of any date
other than a Maturity Date.
(b) TERMINATION FEE. If the Borrower desires to terminate the
Credit Facility as of any date other than a Maturity Date, or as of a
Maturity Date but without giving at least ninety (90) days' prior
written notice thereof, it shall give at least thirty (30) days' prior
written notice to the Lender of the Borrower's intention to do so and
pay to the Lender a premium in an amount equal to a percentage of the
Maximum Line as follows:
(i) three (3%) percent if the termination occurs on
or before the first anniversary of the Funding Date;
(ii) two (2%) percent if the termination occurs after
the first anniversary of the Funding Date but on or before the
second anniversary of the Funding Date; and
(iii) one (1%) percent if the termination occurs
after the second anniversary of the Funding Date but on or
before the third anniversary of the Funding Date;
(iv) without a termination fee if the termination
occurs after the third anniversary of the Funding Date.
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(c) TERMINATION BY LENDER. In the event that the Credit
Facility is terminated as a result of: (i) a demand by Lender for the
payment of the Obligations, or (ii) the occurrence of an Event of
Default, Borrower shall pay to Lender on the effective day of such
termination, in addition to any other payments Borrower is required to
make hereunder, a termination premium in an amount equal to a
percentage of the Maximum Line as follows:
(i) three (3%) percent if the termination occurs on
or before the first anniversary of the Funding Date;
(ii) two (2%) percent if the termination occurs after
the first anniversary of the Funding Date but on or before the
second anniversary of the Funding Date; and
(iii) one (1%) percent if the termination occurs
after the second anniversary of the Funding Date but on or
before the third anniversary of the Funding Date;
(iv) without a termination fee if the termination
occurs after the third anniversary of the Funding Date.
Section 2.14 MANDATORY PREPAYMENT. The Borrower shall repay
the Advances and the Term Loan immediately upon demand of the Lender. Without
notice or demand, if the sum of the outstanding principal balance of the
Advances plus the L/C Amount shall at any time exceed the Borrowing Base, the
Borrower shall (i) first, immediately prepay the Advances to the extent
necessary to eliminate such excess; and (ii) if prepayment in full of the
Advances is insufficient to eliminate such excess, pay to the Lender in
immediately available funds for deposit in the Special Account an amount equal
to the remaining excess. Any payment received by the Lender under this Section
2.14 or under Section 2.13 may be applied to the Obligation of Reimbursement,
the Advances or the Term Loan, including interest thereon and any fees,
commissions, costs and expenses hereunder and under the Security Documents, in
such order and in such amounts as the Lender, in its discretion, may from time
to time determine; provided that any prepayment by the Borrower under Section
2.13 which is designated as a partial prepayment of the Term Loan shall be
applied to principal installments of the Term Loan in inverse order of maturity.
Section 2.15 PAYMENT. All payments to the Lender shall be made
in immediately available funds and shall be applied to the Obligations two (2)
Banking Days after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) additional days before
applying them to the Obligations. Notwithstanding anything in Section 2.1, the
Borrower hereby authorizes the Lender, in its discretion at any time or from
time to time without the Borrower's request and even if the conditions set forth
in Section 4.2 would not be satisfied, to make an Advance in an amount equal to
the portion of the Obligations from time to time due and payable and amounts
required to be paid to the Lender for deposit in the Special Account.
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Section 2.16 PAYMENT ON NON-BANKING DAYS. Whenever any payment
to be made hereunder shall be stated to be due on a day which is not a Banking
Day, such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of interest
on the Advances and the Term Loan or the fees hereunder, as the case may be.
Section 2.17 USE OF PROCEEDS. The Borrower shall use the
proceeds of Advances, the Term Loan and each Letter of Credit for ordinary
working capital purposes.
Section 2.18 LIABILITY RECORDS. The Lender may maintain from
time to time, at its discretion, liability records as to any and all Advances
and the Term Loan made or repaid, interest accrued or paid under this Agreement,
outstanding Letters of Credit and fees thereon and the Borrower's Obligation of
Reimbursement. All entries made on any such record shall be presumed correct
until the Borrower establishes the contrary. On demand by the Lender, the
Borrower will admit and certify in writing the exact principal balance that the
Borrower then asserts to be outstanding to the Lender for Advances and the Term
Loan under this Agreement and the amount of any Letters of Credit outstanding.
Any billing statement or accounting rendered by the Lender shall be conclusive
and fully binding on the Borrower unless specific written notice of exception is
given to the Lender by the Borrower within thirty (30) days after its receipt by
the Borrower.
ARTICLE III
SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby
pledges, assigns and grants to the Lender a security interest (collectively
referred to as the "SECURITY INTEREST") in the Collateral, as security for the
payment and performance of the Obligations.
Section 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER
OBLIGORS. The Lender may at any time (whether or not a Default Period then
exists) notify any account debtor or other person obligated to pay the amount
due that such right to payment has been assigned or transferred to the Lender
for security and shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after the Borrower or
the Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
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Section 3.3 ASSIGNMENT OF INSURANCE. As additional security
for the payment and performance of the Obligations, the Borrower hereby assigns
to the Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of the Borrower with respect to, any and all policies of insurance
now or at any time hereafter covering the Collateral or any evidence thereof or
any business records or valuable papers pertaining thereto, and the Borrower
hereby directs the issuer of any such policy to pay all such monies directly to
the Lender. At any time, whether or not a Default Period then exists, the Lender
may (but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 OCCUPANCY.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 SECURITY INTEREST IN SPECIAL ACCOUNT AND
COLLATERAL ACCOUNT. The Borrower hereby pledges, and grants to the Lender a
security interest in, all funds held in the Special Account and in the
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all present and future Obligations of Reimbursement and all other
Obligations.
Section 3.6 LICENSE. Without limiting the generality of the
Patent Security Agreement, Copyright Security Agreement, Trademark Security
Agreement, the Borrower hereby grants to the Lender a non-exclusive, worldwide
and royalty-free license to use or otherwise exploit
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all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.7 FINANCING STATEMENT. A carbon, photographic or
other reproduction of this Agreement or of any financing statements signed by
the Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Borrower: Stocker & Yale, Inc.
32 Hampshire Road
Salem, New Hampshire 03079
Federal Tax Identification No. 04-2114473
Name and address of Lender: Norwest Business Credit, Inc.
300 Commercial Street
Boston, Massachusetts 02109
Federal Tax Identification No. 41-1237652
Section 3.8 SETOFF. The Borrower agrees that the Lender may at
any time or from time to time, at its sole discretion and without demand and
without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to the Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.
ARTICLE IV
CONDITIONS OF WILLINGNESS TO CONSIDER LENDING
Section 4.1 CONDITIONS PRECEDENT TO LENDER'S WILLINGNESS TO
CONSIDER MAKING THE INITIAL ADVANCE OR THE TERM LOAN. The Lender's willingness
to consider making the initial Advance or the Term Loan hereunder or issuing or
causing to be issued any Letter of Credit hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Demand Note, properly executed by the Borrower.
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(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) A true and correct copy of any and all mortgages pursuant
to which the Borrower has mortgaged the Premises, together with a
mortgagee's disclaimer and consent with respect to each such mortgage.
(e) A true and correct copy of any and all agreements pursuant
to which the Borrower's property is in the possession of any Person
other than the Borrower, together with, in the case of any goods held
by such Person for resale, (i) a consignee's acknowledgment and waiver
of liens, (ii) UCC financing statements sufficient to protect the
Borrower's and the Lender's interests in such goods, and (iii) UCC
searches showing that no other secured party has filed a financing
statement against such Person and covering property similar to the
Borrower's other than the Borrower, or if there exists any such secured
party, evidence that each such secured party has received notice from
the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such
secured party.
(f) An acknowledgment and waiver of liens from each warehouse
in which the Borrower is storing Inventory.
(g) A true and correct copy of any and all agreements pursuant
to which the Borrower's property is in the possession of any Person
other than the Borrower, together with, (i) an acknowledgment and
waiver of liens from each subcontractor who has possession of the
Borrower's goods from time to time, (ii) UCC financing statements
sufficient to protect the Borrower's and the Lender's interests in such
goods, and (iii) UCC searches showing that no other secured party has
filed a financing statement covering such Person's property other than
the Borrower, or if there exists any such secured party, evidence that
each such secured party has received notice from the Borrower and the
Lender sufficient to protect the Borrower's and the Lender's interests
in the Borrower's goods from any claim by such secured party.
(h) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in
form and substance satisfactory to the Lender, together with such
evidence as the Lender may request that the Life Insurance Policy is
subject to no assignments or encumbrances other than the Life Insurance
Assignment.
(i) The Collateral Account Agreement, properly executed by the
Borrower and a financial institution acceptable to the Lender.
(j) The Lockbox Agreement, properly executed by the Borrower
and a financial institution acceptable to the Lender.
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(k) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the Borrower except those financing statements
and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing
that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of
patents, trademarks or copyrights satisfactory to the Lender, and (iii)
the Lender has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest is capable
of being perfected by filing.
(l) A certificate of the Borrower's Clerk or Assistant Clerk
certifying as to (i) the resolutions of the Borrower's directors and,
if required, shareholders, authorizing the execution, delivery and
performance of the Loan Documents, (ii) the Borrower's articles of
incorporation and bylaws, and (iii) the signatures of the Borrower's
officers or agents authorized to execute and deliver the Loan Documents
and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf.
(m) A current certificate issued by the Secretary of State of
Massachusetts certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Massachusetts.
(n) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(o) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in
Article V.
(p) An opinion of counsel to the Borrower, addressed to the
Lender.
(q) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(r) A separate guaranty, properly executed by each Guarantor,
pursuant to which each Guarantor unconditionally guarantees the full
and prompt payment of all Obligations.
(s) A standby letter of credit in the amount of Seven Hundred
Fifty Thousand ($750,000.00) Dollars naming the Lender as beneficiary
which contains terms and conditions satisfactory to the Lender (the
"SBLC").
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(t) Payment of the fees and commissions due through the date
of the initial Advance, Term Loan or Letter of Credit under Section
2.10 and expenses incurred by the Lender through such date and required
to be paid by the Borrower under Section 9.7, including all legal
expenses incurred through the date of this Agreement.
(u) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender
will not consider any request for an Advance or Term Loan or the issuance of any
Letter of Credit unless on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance or Term Loan as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date;
(b) no event has occurred and is continuing, or would result
from such Advance or Term Loan or the issuance of such Letter of Credit
which constitutes a Default or an Event of Default; and
(c) the SBLC is in full force and effect and the Lender has
not received notice that the SBLC will not be renewed.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF
EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER.
The Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Massachusetts and is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary. The Borrower has all requisite power
and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto. The Borrower's chief
executive office and principal place of business is located at the address set
forth in Schedule 5.1 hereto, and all of the Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set forth
in Schedule 5.1 hereto. The Borrower's tax identification number is correctly
set forth in Section 3.7 hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW
OR AGREEMENTS. The execution, delivery and performance by the Borrower of the
Loan Documents and the
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borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (i) require any consent or
approval of the Borrower's stockholders; (ii) require any authorization, consent
or approval by, or registration, declaration or filing with, or notice to, any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, except such authorization, consent,
approval, registration, declaration, filing or notice as has been obtained,
accomplished or given prior to the date hereof; (iii) violate any provision of
any law, rule or regulation (including, without limitation, Regulation X of the
Board of Governors of the Federal Reserve System) or of any order, writ,
injunction or decree presently in effect having applicability to the Borrower or
of the Borrower's articles of incorporation or bylaws; (iv) result in a breach
of or constitute a default under any indenture or loan or credit agreement or
any other material agreement, lease or instrument to which the Borrower is a
party or by which it or its properties may be bound or affected; or (v) result
in, or require, the creation or imposition of any mortgage, deed of trust,
pledge, lien, security interest or other charge or encumbrance of any nature
(other than the Security Interest) upon or with respect to any of the properties
now owned or hereafter acquired by the Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and,
upon due execution by the Borrower, the other Loan Documents will constitute the
legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4
hereto, the Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The
Borrower has heretofore furnished to the Lender drafts of audited financial
statements of the Borrower for its fiscal year ended December 31, 1997, and
unaudited financial statements of the Borrower for the fiscal year ended
December 31, 1998, and those statements fairly present the Borrower's financial
condition on the dates thereof and the results of its operations and cash flows
for the periods then ended and were prepared in accordance with generally
accepted accounting principles. Since the date of the most recent financial
statements, there has been no material adverse change in the Borrower's
business, properties or condition (financial or otherwise).
Section 5.6 LITIGATION. There are no actions, suits or
proceedings pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.7 REGULATION U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds
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of any Advance will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock.
Section 5.8 TAXES. The Borrower and its Affiliates have paid
or caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them. The Borrower and its
Affiliates have filed all federal, state and local tax returns which to the
knowledge of the officers of the Borrower or any Affiliate, as the case may be,
are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 TITLES AND LIENS. The Borrower has good and
absolute title to all Collateral described in the collateral reports provided to
the Lender and all other Collateral, properties and assets reflected in the
latest financial statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and encumbrances,
except for Permitted Liens. No financing statement naming the Borrower as debtor
is on file in any office except to perfect only Permitted Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in
writing prior to the date hereof, neither the Borrower nor any of its Affiliates
maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 DEFAULT. The Borrower is in compliance with all
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
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(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
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Section 5.13 SUBMISSIONS TO LENDER. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided
to the Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. When such financing statements are filed in the offices noted
therein, the Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security Documents which is
capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver,
or cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall
include the Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income, retained earnings
and cash flows for the fiscal year then ended, prepared, if the Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) copies of all management letters prepared by
such accountants; (ii) a report signed by such accountants
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stating that in making the investigations necessary for said opinion
they obtained no knowledge, except as specifically stated, of any
Default or Event of Default hereunder; and (iii) a certificate of the
Borrower's chief financial officer stating that such financial
statements have been prepared in accordance with GAAP and whether or
not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable detail the
facts with respect thereto;
(b) as soon as available and in any event within twenty (20)
days after the end of each month, an unaudited/internal balance sheet
and statements of income and retained earnings of the Borrower as at
the end of and for such month and for the year to date period then
ended, prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate
of the Borrower's chief financial officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto;
(c) within fifteen (15) days after the end of each month or
more frequently if the Lender so requires, agings of the Borrower's
accounts receivable and its accounts payable, an inventory
certification report, and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory and Eligible Inventory as at the end of
such month or shorter time period;
(d) at least thirty (30) days before the beginning of each
fiscal year of the Borrower, the projected balance sheets and income
statements for each month of such year, each in reasonable detail,
representing the Borrower's good faith projections and certified by the
Borrower's chief financial officer as being the most accurate
projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such supporting
schedules and information as the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of Twenty-Five Thousand ($25,000.00) Dollars.
(f) as promptly as practicable (but in any event not later
than five (5) business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed
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statement by a responsible officer of the Borrower of the steps being
taken by the Borrower to cure the effect of such breach, default or
event;
(g) as soon as possible and in any event within thirty (30)
days after the Borrower knows or has reason to know that any Reportable
Event with respect to any Plan has occurred, the statement of the
Borrower's chief financial officer setting forth details as to such
Reportable Event and the action which the Borrower proposes to take
with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within ten (10) days
after the Borrower fails to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) daily, (i) copies of all entries to the sales journal and
the cash receipt journal; (ii) copies of all credit memos; (iii) copies
of all invoices in excess of Five Thousand ($5,000.00) Dollars for
sales originating from the Borrower's place of business in Michigan,
together with proof of delivery; and (iv) copies of all invoices in
excess of Ten Thousand ($10,000.00) Dollars for sales originating from
the Borrower's place of business in New Hampshire, together with proof
of delivery;
(j) weekly, a certificate signed by the Borrower's President
or Treasurer regarding the Borrower's inventory in such form as the
Lender may specify from time to time;
(k) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request;
(l) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding Five Thousand
($5,000.00) Dollars individually or Ten Thousand ($10,000.00) Dollars
in the aggregate during any fiscal year; (ii) credit memos; (iii) any
goods returned to or recovered by the Borrower; and (iv) any change in
the persons constituting the Borrower's officers and directors;
(m) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
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(n) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders; promptly after the sending or filing thereof,
copies of all regular and periodic reports which the Borrower shall
file with the Securities and Exchange Commission or any national
securities exchange;
(o) the Borrower will cause each Guarantor to provide the
Lender, annually, a personal financial statement as of December 31,
listing all assets, liabilities and net worth of each Guarantor; the
personal financial statement shall be signed and dated and will be
forwarded to the Lender no later than April 30 of the following year;
and
(p) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time
and from time to time send or require the Borrower to send requests for
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time telephone
account debtors and other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
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generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security
interests, liens and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all
times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower will at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such
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insurance shall contain a lender's loss payable endorsement for the Lender's
benefit. All policies of liability insurance required hereunder shall name the
Lender as an additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will
preserve and maintain its existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the
Lender, the Borrower will promptly deliver to the Lender in pledge all
instruments, documents and chattel papers constituting Collateral, duly endorsed
or assigned by the Borrower.
Section 6.10 LOCKBOX; COLLATERAL ACCOUNT.
(a) The Borrower will irrevocably direct all present and
future Account debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the Lockbox.
All of the Borrower's invoices, account statements and other written or
oral communications directing, instructing, demanding or requesting
payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox and
shall include the Lockbox address. All payments received in the Lockbox
shall be processed to the Collateral Account. If, notwithstanding the
instructions to debtors to make payments to the Lockbox, the Borrower
receives any payments on Receivables, the Borrower shall deposit such
payments into the Collateral Account. Until so deposited, the Borrower
shall hold all such payments in trust for and as the property of the
Lender and shall not commingle such payments with any of its other
funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing two (2) Banking Days, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in
the Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.
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Section 6.11 KEY PERSON LIFE INSURANCE. The Borrower shall
maintain insurance upon the life of Mark W. Blodgett, its Chairman and Chief
Executive Officer with the death benefit thereunder in an amount not less than
Five Hundred Thousand ($500,000.00) Dollars (the "LIFE INSURANCE POLICY"). The
right to receive the proceeds of the Life Insurance Policy shall be assigned to
the Lender by the Life Insurance Assignment.
Section 6.12 PERFORMANCE BY THE LENDER. If the Borrower at any
time fails to perform or observe any of the foregoing covenants contained in
this Article VI or elsewhere herein, and if such failure shall continue for a
period of ten (10) calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in Sections 6.5 and
6.7, immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
Section 6.13 MINIMUM EARNINGS. The Borrower will achieve,
during each quarter of its fiscal year and on a year-to-date basis at the end of
each quarter, income of not less than seventy (70%) percent of its projected
pre-tax profitability set forth in the projected income statements required
pursuant to Section 6.1(d) hereof.
Section 6.14 MAXIMUM DILUTION. The Borrower will not permit
its Receivables to suffer a dilution at any time resulting from bad debts,
credit memos, returned merchandise or any other reason or any combination
thereof (other than payment) in an amount greater than five (5%) percent of the
Borrower's sales.
Section 6.15 FISCAL YEAR 1998. The Borrower will deliver or
cause to be delivered to the Lender, as soon as available, and in any event
within ninety (90) days from the date hereof,
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the Borrower's audited financial statements for the year ended December 31,
1998, together with the unqualified opinion of its independent certified public
accountants.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or the Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
Section 7.1 LIENS. The Borrower will not create, incur or
suffer to exist any mortgage, deed of trust, pledge, lien, security interest,
assignment or transfer upon or of any of its assets, now owned or hereafter
acquired, to secure any indebtedness; excluding, however, from the operation of
the foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding
the lesser of cost or fair market value thereof, not exceeding
Twenty-Five Thousand ($25,000.00) Dollars for any one purchase or Fifty
Thousand ($50,000.00) Dollars in the aggregate during any fiscal year,
and so long as no Default Period is then in existence and none would
exist immediately after such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
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(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation its Affiliates or any partnership
or joint venture, except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one (1)
year or less, commercial paper issued by U.S. corporations
rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1"
or "P-2" by Moody's Investors Service or certificates of
deposit or bankers' acceptances having a maturity of one year
or less issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation); and
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of Five Thousand ($5,000.00) Dollars; and
(iii) advances in the form of progress payments,
prepaid rent not exceeding one (1) month or security deposits.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in Schedule 5.4 hereto.
Section 7.5 DIVIDENDS. The Borrower will not declare or pay
any dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
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Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The
Borrower will not consolidate with or merge into any Person, or permit any other
Person to merge into it, or acquire (in a transaction analogous in purpose or
effect to a consolidation or merger) all or substantially all the assets of any
other Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower
will not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 CAPITAL EXPENDITURES. The Borrower will not incur
or contract to incur Capital Expenditures of more than Fifty Thousand
($50,000.00) Dollars in the aggregate during any fiscal year, or more than
Twenty-Five Thousand ($25,000.00) Dollars in any one transaction.
Section 7.11 ACCOUNTING. The Borrower will not adopt any
material change in accounting principles other than as required by GAAP. The
Borrower will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 DISCOUNTS, ETC. The Borrower will not, after
notice from the Lender, grant any discount, credit or allowance to any customer
of the Borrower or accept any return of goods sold, or at any time (whether
before or after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will
not adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
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Section 7.14 OTHER DEFAULTS. The Borrower will not permit any
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 PLACE OF BUSINESS; NAME. The Borrower will not
transfer its chief executive office or principal place of business, or move,
relocate, close or sell any business location. The Borrower will not permit any
tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 ORGANIZATIONAL DOCUMENTS; S. CORPORATION STATUS.
The Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation.
Section 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than ten (10%) percent in any one year, either
individually or for all such persons in the aggregate, or pay any such increase
from any source other than profits earned in the year of payment.
Section 7.18 7.5% CONVERTIBLE SUBORDINATED NOTES. The Borrower
will not make any payments of principal or interest on any of the 7.5%
Convertible Subordinated Notes due on May 1, 2000 (the "SUBORDINATED NOTES")
without (a) giving the Lender thirty (30) days prior written notice of the
Borrower's intention to make such payments of principal and/or interest; and (b)
obtaining the Lender's prior written consent; provided, however, unless an Event
of Default has occurred and is continuing hereunder or an event has occurred and
is continuing which, with notice or lapse of time or both, would constitute an
Event of Default hereunder, the Borrower shall be permitted to make regularly
scheduled payments of interest on the Subordinated Notes and cash payments not
to exceed One Hundred ($100.00) Dollars in lieu of the issuance of fractional
shares upon conversion of any of the Subordinated Notes.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. Notwithstanding that the Lender
may demand immediate payment of the Obligations at any time, whether or not a
Default Period then exists, AND WITHOUT WAIVING OR LIMITING IN ANY RESPECT THE
LENDER'S RIGHT TO SO DEMAND PAYMENT OF THE OBLIGATIONS AT ANY TIME, this
Agreement sets forth a non-exclusive list of certain critical events after the
occurrence of which the Lender expects that it
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would demand immediate payment of the Obligations and exercise its remedies.
"Event of Default", wherever used herein, means any one of the following events:
(a) Default in the payment of the Obligations on demand or on
any portion of the Obligations that otherwise becomes due and payable;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay its or his
debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower or any Guarantor shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower or such Guarantor, as the
case may be; or the Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him
under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower
or any such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower or
any Guarantor under the United States Bankruptcy Code naming the
Borrower or such Guarantor as debtor;
(f) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within thirty (30) days and the Borrower shall not have
delivered a satisfactory renewal thereof to the Lender; or the Borrower
shall fail to pay any premium on the Life Insurance Policy when due; or
the Borrower shall take any other action that impairs the value of the
Life Insurance Policy.
(g) Any representation or warranty made by the Borrower in
this Agreement, by any Guarantor in any guaranty delivered to the
Lender, or by the Borrower (or any of its officers) or any Guarantor in
any agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall prove to have
been incorrect in any material respect when deemed to be effective;
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(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of Twenty-Five
Thousand ($25,000.00) Dollars and the continuance of such judgment,
decree or order unsatisfied and in effect for any period of thirty (30)
consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
thirty (30) days after written notice to such effect shall have been
given to the Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax
deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
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(o) Any Guarantor shall repudiate, purport to revoke or fail
to perform any such Guarantor's obligations under such Guarantor's
guaranty in favor of the Lender, any individual Guarantor shall die or
any other Guarantor shall cease to exist;
(p) The Borrower shall take or participate in any action which
would be prohibited under the provisions of any Subordination Agreement
or make any payment on the Subordinated Indebtedness (as defined in the
Subordination Agreement) that any Person was not entitled to receive
under the provisions of the Subordination Agreement;
(q) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the
prospect of payment of all or any part of the Obligations or the
performance by the Borrower under the Loan Documents is impaired or any
material adverse change in the business or financial condition of the
Borrower shall occur; or
(r) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2 RIGHTS AND REMEDIES. As provided in Section 2.12,
the Lender may, at any time, refuse to make any requested Advance or Term Loan,
refuse to issue or cause to be issued any Letter of Credit, demand payment of
the Advances and the Term Loan or terminate the Credit Facility, whether or not
a Default Period then exists. In addition, during any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(b) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(c) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Sections 2.11 and 3.6 hereof an amount equal to the maximum
aggregate amount available to be drawn under all Letters of Credit then
outstanding, assuming compliance with all conditions for drawing
thereunder;
(d) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower
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hereby expressly waives) and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and, in connection therewith,
the Borrower will on demand assemble the Collateral and make it
available to the Lender at a place to be designated by the Lender which
is reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event
of Default described in subsections (d) or (e) of Section 8.1, the Obligations
shall be immediately due and payable automatically without presentment, demand,
protest or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten (10)
calendar days before the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or
delay by the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in
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each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower: Stocker & Yale, Inc.
32 Hampshire Road
Salem, New Hampshire 03079
Telecopier: (603) 893-5604
Attn: Mark W. Blodgett, Chairman of the Board
and Chief Executive Officer
If to the Lender: Norwest Business Credit, Inc.
300 Commercial Street
Boston, Massachusetts 02109
Telecopier: (617) 248-8922
Attn: East Regional Manager
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to
time execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes, delivers or endorses any such item shall not affect or impair the
validity, sufficiency or enforceability of the Loan Documents and the Security
Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a
sale of accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
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<PAGE>
Section 9.6 COSTS AND EXPENSES. The Borrower agrees to pay on
demand all costs and expenses, including (without limitation) attorneys' fees,
incurred by the Lender in connection with the Obligations, this Agreement, the
Loan Documents, and any other document or agreement related hereto or thereto,
and the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest and all reasonable costs (including search fees) of
examinations and inspections of the Collateral or records relating to the
Collateral conducted by third parties or the Lender.
Section 9.7 INDEMNITY. In addition to the payment of expenses
pursuant to Section 9.7, the Borrower agrees to indemnify, defend and hold
harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and
all present and future officers, directors, employees, attorneys and agents of
the foregoing (the "INDEMNITEES") from and against any of the following
(collectively, "INDEMNIFIED LIABILITIES"):
(a) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the
Advances;
(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in Section 6.4(b); and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or
not such Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of
the Advances and the Loan Documents or the use or intended use of the
proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the
-43-
<PAGE>
Indemnified Liabilities which is permissible under applicable law. The
Borrower's obligation under this Section 9.7 shall survive the termination of
this Agreement and the discharge of the Borrower's other obligations hereunder.
Section 9.8 PARTICIPANTS. The Lender and its participants, if
any, are not partners or joint venturers, and the Lender shall not have any
liability or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 YEAR 2000 COMPLIANCE PROGRAM. The Borrower agrees
to (a) conduct a detailed inventory and assessment of all of its computer
hardware and software systems and imbedded chip technology ("INFORMATION
SYSTEMS") and of its business and operations that could be adversely affected by
its failure to be Year 2000 Compliant on a timely basis; (b) develop, fund and
implement a project plan to make its Information Systems Year 2000 Compliant,
and complete implementation of the plan and the remediation and testing of its
Information Systems no later than June 30, 1999; and (c) initiate a process to
determine whether its material suppliers, vendors and customers have taken
meaningful steps to become Year 2000 Compliant on a timely basis, and develop
and implement a feasible contingency plan to ensure the uninterrupted and
unimpaired operation of its business in the event of the failure of the systems
of such third parties or of its own Information Systems no later than June 30,
1999. For purposes of this covenant, "YEAR 2000 COMPLIANT" means that the
Borrower's Information Systems that are material to its operations and financial
condition will be able to properly process date sensitive functions before, on
and after December 31, 1999.
The Borrower will also provide the Lender promptly
upon receipt, copies of any reports or management letters relating to its Year
2000 compliance project and contingency plans, either internally prepared or
prepared by outside consultants or its accountants, and will provide such other
information relating to its Year 2000 compliance efforts, and deliver such
certifications by its officers relating thereto as the Lender in its discretion
may deem appropriate.
Section 9.10 EXECUTION IN COUNTERPARTS. This Agreement and
other Loan Documents may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.11 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT;
EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest
-44-
<PAGE>
Corporation, may exchange any and all information they may have in their
possession regarding the Borrower and its Affiliates, and the Borrower waives
any right of confidentiality it may have with respect to such exchange of such
information.
Section 9.12 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.13 HEADINGS. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.14 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF
JURY TRIAL. The Loan Documents shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the Commonwealth of
Massachusetts. This Agreement shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the Commonwealth of
Massachusetts. The parties hereto hereby (i) consent to the personal
jurisdiction of the state and federal courts located in the Commonwealth of
Massachusetts in connection with any controversy related to this Agreement; (ii)
waive any argument that venue in any such forum is not convenient, (iii) agree
that any litigation initiated by the Lender or the Borrower in connection with
this Agreement or the other Loan Documents shall be venued in either the
Superior Court of Suffolk or Middlesex County, Massachusetts, or the United
States District Court, District of Massachusetts, Eastern Division; and (iv)
agree that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
STOCKER & YALE, INC.
/s/ MICHAEL J. RUBERTO By: /s/ MARK W. BLODGETT
- ------------------------------ ---------------------------------------
Witness Mark W. Blodgett, Chairman of the Board
and Chief Executive Officer
NORWEST BUSINESS CREDIT, INC.
/s/ MICHAEL J. RUBERTO By: /s/ STANLEY J. HORSMAN
- ------------------------------ ---------------------------------------
Witness Stanley J. Horsman, Vice President
-45-
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Demand Note
Exhibit B Compliance Certificate
Exhibit C Premises
---------------------------------------------------------------------------
Schedule 5.1 Trade Names, Chief Executive Office, Principal Place of
Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
</TABLE>
<PAGE>
EXHIBIT A TO CREDIT AND SECURITY AGREEMENT
DEMAND NOTE
$3,500,000.00 Boston, Massachusetts
February , 1999
For value received, the undersigned, Stocker & Yale, Inc., a
Massachusetts corporation (the "BORROWER"), hereby promises to pay ON DEMAND,
and if demand is not sooner made, then as provided in the Credit Agreement
(defined below), to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota
corporation (the "LENDER"), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of Three Million Five Hundred Thousand ($3,500,000.00) Dollars or, if less,
the aggregate unpaid principal amount of all Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith (the "CREDIT
AGREEMENT") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Demand Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
STOCKER & YALE, INC.
By:
-----------------------------------------
Mark W. Blodgett, Chief Executive Officer
<PAGE>
EXHIBIT B TO CREDIT AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
To: Norwest Business Credit, Inc.
Date:
------------------------
Subject: Financial Statements
In accordance with our Credit and Security Agreement dated as of
February 11, 1999 (the "CREDIT AGREEMENT"), attached are the financial
statements of Stocker & Yale, Inc. (the "BORROWER") as of and for
____________________ (the "REPORTING DATE") and the year-to-date period then
ended (the "CURRENT FINANCIALS"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrower's financial condition as of the date thereof.
EVENTS OF DEFAULT. (Check one):
/ / The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
/ / The undersigned has knowledge of the occurrence of a Default or
Event of Default under the Credit Agreement and attached hereto
is a statement of the facts with respect to thereto.
By:____________________________________
Its Chief Financial Officer
-B1-
<PAGE>
EXHIBIT C TO CREDIT AND SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement
are legally described as follows:
<TABLE>
<S> <C>
1. 32 Hampshire Road, Salem, New Hampshire 03079
2. 34775 Commerce Road, Fraser, Michigan
</TABLE>
<PAGE>
SCHEDULE 5.1 TO CREDIT AND SECURITY AGREEMENT
Trade Names, Chief Executive Office, Principal Place of Business,
and Locations of Collateral
TRADE NAMES
Stilson and Die-Draulics
The name used by the division of the Borrower located in Fraser, Michigan
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
32 Hampshire Road, Salem, New Hampshire 03079
OTHER INVENTORY AND EQUIPMENT LOCATIONS
34775 Commerce Road, Fraser, Michigan
<PAGE>
SCHEDULE 5.4 TO CREDIT AND SECURITY AGREEMENT
SUBSIDIARIES
------------
<TABLE>
<S> <C>
1. Lasiris, Inc., Montreal, Canada
2. Radiant Asiatec Pte, Ltd., Singapore
3. Stocker & Yale Foreign Sales Corp., U.S. Virgin Islands
</TABLE>
<PAGE>
SCHEDULE 7.1 TO CREDIT AND SECURITY AGREEMENT
PERMITTED LIENS
Mortgage on Salem, New Hampshire facility in favor of Granite State
Bank as successor to Primary Bank.
Mortgage on Salem, New Hampshire facility in favor of Danvers Savings
Bank.
Mortgage on Fraser, Michigan facility in favor of Comerica Bank.
Miscellaneous leases and purchase money security interests securing
equipment acquisitions as reflected on attached UCC search reports of New
Hampshire and Michigan (financing statements in favor of Shawmut Bank and its
successor Fleet are being discharged in connection with this financing).
<PAGE>
SCHEDULE 7.2 TO CREDIT AND SECURITY AGREEMENT
PERMITTED INDEBTEDNESS AND GUARANTEES
INDEBTEDNESS
<TABLE>
<CAPTION>
CREDITOR PRINCIPAL MATURITY MONTHLY COLLATERAL
AMOUNT DATE PAYMENT
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
<S> <C> <C> <C> <C>
Fleet Bank (L/C) $1,807,907.51* 1/99 $16,000.00 INV/AR
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Fleet Bank (Term) $188,065.00* 1/99 $17,000.00 INV/AR
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Commerica $800,000.00 2/2004 $7,808.00 BLD
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Granite Bank (Mort) $1,374,909.55 8/2011 $15,437.90 BLD
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Danvers Bank $750,000.00 4/99 $7,000.00 BLD 2ND MORT
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Convertible Sub Debt $1,350,000.00 5/2001 $8,223.00
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Granite Bank (Lease) $309,221.05 8/2000 $2,400.00 MACHINERY
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
IBM $94,656.88 9/2000 $5,300.00 COMPUTER
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
NBD Bank (Hyundia) $42,695.27 9/2000 $2,218.09 MACHINERY
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
Commerica (Auto) $13,424.29 2/2002 $417.63 AUTO
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
CTI (Mazak) $314,068.71 11/2002 $8,313.79 MACHINERY
- -------------------------------- ----------------------- --------------- ------------------ ------------------------
</TABLE>
* All obligations to Fleet National Bank to be paid with the
first advance made by Lender to Borrower pursuant to the
within Agreement.
GUARANTEES
<TABLE>
<CAPTION>
PRIMARY OBLIGOR AMOUNT AND DESCRIPTION OF BENEFICIARY OF GUARANTY
OBLIGATION GUARANTEED
- ------------------------------- --------------------------------------------- ---------------------------------------
<S> <C> <C>
None None None
- ------------------------------- --------------------------------------------- ---------------------------------------
- ------------------------------- --------------------------------------------- ---------------------------------------
- ------------------------------- --------------------------------------------- ---------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.1(b)
DEMAND NOTE
$3,500,000.00 Boston, Massachusetts
February 11, 1999
For value received, the undersigned, Stocker & Yale, Inc., a
Massachusetts corporation (the "BORROWER"), hereby promises to pay ON DEMAND,
and if demand is not sooner made, then as provided in the Credit Agreement
(defined below), to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota
corporation (the "LENDER"), at its main office in Minneapolis, Minnesota, or at
any other place designated at any time by the holder hereof, in lawful money of
the United States of America and in immediately available funds, the principal
sum of Three Million Five Hundred Thousand ($3,500,000.00) Dollars or, if less,
the aggregate unpaid principal amount of all Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith (the "CREDIT
AGREEMENT") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Demand Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
STOCKER & YALE, INC.
By: /s/ MARK W. BLODGETT
----------------------------------------
Mark W. Blodgett, Chairman of the Board
and Chief Executive Officer
<PAGE>
Exhibit 10.1(c)
GUARANTY
Boston, Massachusetts
Dated as of February 11, 1999
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and to induce Norwest Business
Credit, Inc. (herein, with its participants, successors and assigns, called the
"LENDER"), at its option, at any time or from time to time to make loans or
extend other accommodations to or for the account of Stocker & Yale, Inc.
(herein called the "BORROWER") or to engage in any other transactions with the
Borrower, the undersigned hereby absolutely and unconditionally guaranties to
the Lender the full and prompt payment when due, whether at maturity or earlier
by reason of acceleration or otherwise, of any and all present and future debts,
liabilities and obligations owed by the Borrower to the Lender; and the
undersigned acknowledges and agrees with the Lender that:
1. The debts, liabilities and obligations guarantied hereby
(collectively referred to herein as the "INDEBTEDNESS") shall include, but shall
not be limited to, debts, liabilities and obligations arising out of loans,
credit transactions, financial accommodations, discounts, purchases of property
or other transactions with the Borrower or for the Borrower's account or out of
any other transaction or event, owed to the Lender or owed to others by reason
of participations granted to or interests acquired or created for or sold to
them by the Lender, in each case whether now existing or hereafter arising,
whether arising directly in a transaction or event involving the Lender or
acquired by the Lender from another by purchase or assignment or as collateral
security, whether owed by the Borrower as drawer, maker, endorser, accommodation
party, guarantor, principal, surety or as a member of any partnership,
syndicate, association or group or in any other capacity, whether absolute or
contingent, direct or indirect, primary or secondary, sole, joint, several or
joint and several, secured or unsecured, due or not due, contractual, tortious
or statutory, liquidated or unliquidated, arising by agreement or imposed by law
or otherwise.
2. No act or thing need occur to establish the liability of
the undersigned hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the undersigned
hereunder or modify, reduce, limit or release the liability of the undersigned
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
undersigned, whether or not all of the Indebtedness is paid in full, until this
guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Lender, and such revocation shall not be effective as
to the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Lender, or as to any renewals, extensions,
refinancings or refundings thereof. The death or incompetence of the undersigned
shall not revoke this guaranty, except upon actual receipt of written notice
thereof by the Lender and only prospectively, as to future transactions, as
herein set forth.
3. If the undersigned shall die or shall be or become
insolvent (however defined), then the Lender shall have the right to declare
immediately due and payable, and the undersigned will forthwith pay to the
Lender, the full amount of all of the Indebtedness whether due and payable
-1-
<PAGE>
or unmatured. If the undersigned voluntarily commences or there is commenced
involuntarily against the undersigned a case under the United States Bankruptcy
Code, the full amount of all of the Indebtedness, whether due and payable or
unmatured, shall be immediately due and payable without demand or notice
thereof.
4. The undersigned shall be liable for all of the
Indebtedness, without limitation as to amount, plus accrued interest thereon and
all attorneys' fees, collection costs and enforcement expenses referable
thereto. The Indebtedness may be created and continued in any amount, whether or
not in excess of such principal amount, without affecting or impairing the
liability of the undersigned hereunder, and the Lender may pay (or allow for the
payment of) the excess out of any sums received by or available to the Lender on
account of the Indebtedness from the Borrower or any other person (except the
undersigned), from their properties, out of any collateral security or from any
other source, and such payment (or allowance) shall not reduce, affect or impair
the liability of the undersigned hereunder. If the liability of the undersigned
is limited to a stated amount pursuant to this paragraph 4, any payment made by
the undersigned under this guaranty shall be effective to reduce or discharge
such liability only if accompanied by a written transmittal document, received
by the Lender, advising the Lender that such payment is made under this guaranty
for such purpose.
5. The undersigned will not exercise or enforce any right of
contribution, reimbursement, exoneration, recourse or subrogation available to
the undersigned as to any of the Indebtedness, or against any person liable
therefor, or as to any collateral security therefor, unless and until all of the
Indebtedness shall have been fully paid and discharged.
6. The undersigned will pay or reimburse the Lender for all
costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
guaranty.
7. The Lender shall not be obligated by reason of its
acceptance of this guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the undersigned and
the Borrower has been changed or ended and whether or not this guaranty has been
revoked, the Lender may enter into transactions resulting in the creation or
continuance of the Indebtedness and may otherwise agree, consent to or suffer
the creation or continuance of any of the Indebtedness, without any consent or
approval by the undersigned and without any prior or subsequent notice to the
undersigned. The liability of the undersigned shall not be affected or impaired
by any of the following acts or things (which the Lender is expressly authorized
to do, omit or suffer from time to time, both before and after revocation of
this guaranty, without consent or approval by or notice to the undersigned): (a)
any acceptance of collateral security, guarantors, accommodation parties or
sureties for any or all of the Indebtedness; (b) one or more extensions or
renewals of the Indebtedness (whether or not for longer than the original
period) or any modification of the interest rates, maturities, if any, or other
contractual terms applicable to any of the Indebtedness or any amendment or
modification of any of the terms or provisions of any loan agreement or other
agreement under which the Indebtedness or any part thereof arose; (c) any waiver
or indulgence granted to the Borrower, any delay or lack of diligence in the
enforcement of the Indebtedness or any failure to institute proceedings, file a
claim, give any
-2-
<PAGE>
required notices or otherwise protect any of the Indebtedness; (d) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrower or any guarantor or other person liable in respect of any of the
Indebtedness; (e) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (f) any failure to obtain collateral security (including
rights of setoff) for the Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority thereof, or to
preserve, protect, insure, care for, exercise or enforce any collateral
security; or any modification, alteration, substitution, exchange, surrender,
cancellation, termination, release or other change, impairment, limitation, loss
or discharge of any collateral security; (g) any collection, sale, lease or
disposition of, or any other foreclosure or enforcement of or realization on,
any collateral security; (h) any assignment, pledge or other transfer of any of
the Indebtedness or any evidence thereof; (i) any manner, order or method of
application of any payments or credits upon the Indebtedness; and (j) any
election by the Lender under Section 1111(b) of the United States Bankruptcy
Code (Title 11 of the United States Code entitled "Bankruptcy"). The undersigned
waives any and all defenses and discharges available to a surety, guarantor or
accommodation co- obligor.
8. The undersigned waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor, pertaining to the
Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the undersigned will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The undersigned expressly agrees that the undersigned
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the undersigned shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or other similar event or proceeding affecting,
the Borrower or any of its assets. The undersigned will not assert, plead or
enforce against the Lender any claim, defense or setoff available to the
undersigned against the Borrower.
9. The undersigned waives presentment, demand for payment,
notice of dishonor or nonpayment and protest of any instrument evidencing the
Indebtedness. The Lender shall not be required first to resort for payment of
the Indebtedness to the Borrower or other persons, or their properties, or first
to enforce, realize upon or exhaust any collateral security for the
Indebtedness, before enforcing this guaranty.
10. If any payment applied by the Lender to the Indebtedness
is thereafter set aside, recovered, rescinded or required to be returned for any
reason (including, without limitation, the bankruptcy, insolvency or
reorganization of the Borrower or any other obligor), the Indebtedness
-3-
<PAGE>
to which such payment was applied shall for the purpose of this guaranty be
deemed to have continued in existence, notwithstanding such application, and
this guaranty shall be enforceable as to such Indebtedness as fully as if such
application had never been made.
11. The liability of the undersigned under this guaranty is in
addition to and shall be cumulative with all other liabilities of the
undersigned to the Lender as guarantor, surety, endorser, accommodation
co-obligor or otherwise of any of the Indebtedness or obligation of the
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
12. The undersigned will provide to the Lender annually a
personal financial statement prepared as of December 31 listing all assets,
liabilities and net worth of the undersigned. The statement will be signed and
dated and will be forwarded to the Lender no later than the following January
31.
13. The undersigned acknowledges and agrees that the Lender
(a) has not made any representations or warranties with respect to, (b) does not
assume any responsibility to the undersigned for, and (c) has no duty to provide
information to the undersigned regarding, the enforceability of any of the
Indebtedness or the financial condition of the Borrower or any guarantor. The
undersigned has independently determined the creditworthiness of the Borrower
and the enforceability of the Indebtedness and until the Indebtedness is paid in
full will independently and without reliance on the Lender continue to make such
determinations.
14. This guaranty shall be effective upon delivery to the
Lender, without further act, condition or acceptance by the Lender, shall be
binding upon the undersigned and the heirs, representatives, successors and
assigns of the undersigned and shall inure to the benefit of the Lender and its
participants, successors and assigns. Any invalidity or unenforceability of any
provision or application of this guaranty shall not affect other lawful
provisions and application thereof, and to this end the provisions of this
guaranty are declared to be severable. This guaranty may not be waived,
modified, amended, terminated, released or otherwise changed except by a writing
signed by the undersigned and the Lender. This guaranty shall be governed by and
construed in accordance with the substantive laws (other than conflict laws) of
the Commonwealth of Massachusetts. The undersigned waives notice of the Lender's
acceptance hereof. The undersigned irrevocably (a) agrees that any suit, action
or other legal proceeding arising out of or relating to this guaranty may be
brought in a court of record in the counties of Suffolk or Middlesex in the
Commonwealth of Massachusetts or in the Courts of the United States located in
the Commonwealth of Massachusetts, (b) consents to the jurisdiction of each such
court in any suit, action or proceeding, (c) waives any objection which it may
have to the laying of venue of any such suit, action or proceeding in any such
courts and any claim that any such suit, action or proceeding has been brought
in an inconvenient forum, and (d) agrees that a final judgment in any such suit,
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
-4-
<PAGE>
15. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED ON
OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this guaranty has been duly executed by
the undersigned under seal the day and year first above written.
/s/ [SIGNATURE ILLEGIBLE] /s/ MARK W. BLODGETT
- ------------------------------- ----------------------------------------
Witness Mark W. Blodgett
Address: 37 Chestnut Street
Salem, Massachusetts 01970
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. February 11, 1999
Then personally appeared the above-named, Mark W. Blodgett, and
acknowledged the foregoing instrument to be his free act and deed, before me,
/s/ MICHAEL J. RUBERTO
----------------------------------------
Michael J. Ruberto, Notary Public
My commission expires: June 15, 2001
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<PAGE>
EXHIBIT 10.2(a)
CLS LOAN
MORTGAGE NOTE
DATE: January 21, 1999
AT: Boston, Massachusetts
FOR VALUE RECEIVED the undersigned promise(s) to pay to the order of
COMERICA BANK, a Michigan Banking Corporation, the principal sum of EIGHT
HUNDRED TWENTY-FOUR THOUSAND AND NO/100 DOLLARS ($824,000.00) plus interest
thereon on any part thereof at any time disbursed and unpaid at the rate set
forth below.
The outstanding principal balance owing on this Note shall bear
interest until maturity (whether by acceleration or otherwise) AT THE RATE EQUAL
TO THE BANK'S PRIME RATE PER ANNUM (calculated for the actual number of days
outstanding on the basis of a Three Hundred Sixty (360) day year) (as
hereinafter defined), which is herein defined as "Variable Rate Basis", but in
no event to exceed the maximum rate of interest permitted by law.
The Bank's Prime Rate is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. The rate of
interest hereunder shall change as and when the Bank's Prime Rate changes.
The principal and interest shall be payable at the office of said Bank
in Detroit, Michigan, or such other place as Note holder may designate, in
monthly installments of SEVEN THOUSAND EIGHT HUNDRED EIGHT AND 57/100 DOLLARS
($7,808.57) or more or less, dependent upon the Variable Interest Rate then in
effect as provided by this Note commencing on March 1, 1999 and monthly
thereafter, at the rate aforesaid until the principal and interest are fully
paid; said installments are to be applied first upon interest and the balance on
principal. The undersigned will pay a "late charge" of five percent (5%) of any
installment of principal and interest when paid more than ten (10) days after
the due date thereof. Notwithstanding anything contained in this Note to the
contrary, the final payment will be the remaining principal plus all accrued
interest then outstanding, if not sooner paid or payable, and shall be due and
payable on FEBRUARY 1, 2004 (THE MATURITY DATE).
The monthly installment set forth above for the Loan on the above
Variable Rate Basis is calculated on an interest rate of SEVEN AND
THREE-QUARTERS PERCENT (7.75%) per annum and the monthly installments are
calculated to repay the loan over a FIFTEEN (15) YEAR amortized term. In the
event that the Bank's Prime Rate changes, the Bank, at its sole option, may from
time to time recalculate the monthly payment so that the monthly installment
will amortize the remaining loan balance within the remaining amortized loan
term in equal monthly installments at the interest rate then being charged
hereunder and the undersigned agrees to pay the monthly installment as
recalculated by the Bank.
<PAGE>
If so requested in writing by the undersigned at least ten (10) days
prior to the requested effective date(s) thereof, the undersigned shall have the
right to select a Fixed Rate of interest, as hereinafter defined, so long as the
Fixed Rate of interest applies to the entire principal balance of the Loan for a
period that shall extend to the maturity date; provided, however, that no
default has occurred hereunder or under any other instrument securing this Note.
The Fixed Rate of interest shall be a rate mutually acceptable to the
undersigned and the Bank (the "Fixed Rate").
After conversion to a Fixed Rate, payments on the Loan shall continue
to be payable in monthly installments to be applied first upon interest and the
balance on principal.
Except at such time as the Fixed Rate is in effect, the rate of
interest which shall be applicable to the outstanding principal under this Note
shall be the Variable Rate.
From and after maturity, or default, if such default should occur prior
to maturity, the outstanding principal balance hereunder and accrued interest
thereon shall bear interest at a rate which is either three (3%) percent above
the Variable Interest Rate which would otherwise be in effect, or Three (3%)
percent above the Fixed Rate which would otherwise be in effect (the "Default
Rate").
Notwithstanding anything to the contrary contained herein, at no time
shall the interest payable be greater than the maximum permitted by law.
On either of the interest rate bases, the amount of the monthly
installment payment will be based on a fifteen (15) year amortization schedule
calculated from the day of execution of this Note. A "Balloon" payment of the
balance of principal and unpaid interest will be payable at maturity.
The undersigned may, at its option, prepay the entire principal of this
Note at any time at least five (5) business days after the holder receives
written notice of its intention to do so, subject to payment of the following
prepayment premium.
(1) So long as interest is calculated on a variable rate basis, the
undersigned may prepay the principal balance due hereunder, in whole or in part,
such prepayment to be applied on installment of last maturity, without payment
of a prepayment premium.
(2) Under the fixed rate basis, the Bank does not have to accept any
prepayment of principal under, this Note except as described below or as
required under applicable law. The undersigned may prepay principal of this Note
in increments of $10,000.00 at any time as long as the Bank is provided written
notice of the prepayment at least five business days prior to the date of
prepayment. The notice of prepayment shall contain the following information:
(a) the date of prepayment (the "Prepayment Date") and (b) the amount of
principal to be prepaid. On the Prepayment Date, the undersigned will pay to the
Bank, in addition to the other amounts then due on this Note, the Prepayment
Amount described below. The Bank, in its sole discretion, may accept any
prepayment of principal even if not required to do so under this Note
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<PAGE>
and may deduct from the amount to be applied against principal the other amounts
required as part of the Prepayment Amount.
The Prepaid Principal Amount (as defined below) will be applied to this
Note in the reverse order of which the principal payments would have been due
under this Note's principal amortization schedule. In other words, if this Note
requires multiple principal payments, then as opposed to prepaying the next
principal payment due, the Prepaid Principal Amount will be applied beginning
with the final principal payment due on this Note.
If the Bank exercises its right to accelerate the payment of the Note
prior to maturity, the undersigned will pay to the Bank, in addition to the
other amounts then due on this Note, on the date specified by the Bank as the
Prepayment Date, the Prepayment Amount.
The Bank's determination of the Prepayment Amount will be conclusive in
the absence of obvious error or fraud. If requested in writing by the
undersigned, the Bank will provide the undersigned a written statement
specifying the Prepayment Amount.
The following (the "Prepayment Amount") shall be due and payable in
full on the Prepayment Date:
(a) If the face amount of this Note exceeds Seven Hundred
Fifty Thousand Dollars ($750,000) (regardless of what
the outstanding principal balance may be on the
Prepayment Date) then the Prepayment Amount is the
sum of: (i) the amount of principal which the
undersigned has elected to prepay or the amount of
principal which the Bank has required the undersigned
to prepay because of acceleration, as the case may be
(the "Prepaid Principal Amount"), (ii) interest
accruing on the Prepaid Principal amount up to, but
not including, the Prepayment Date, (iii) Five
Hundred Dollars ($500) plus (iv) the present value,
discounted at the Reinvestment Rates (as defined
below), of the positive amount by which (A) the
interest the Bank would have earned had the Prepaid
Principal Amount been paid according to the Note's
amortization schedule at the Note's interest rate
exceeds (B) the interest the Bank would earn by
reinvesting the Prepaid Principal Amount at the
Reinvestment Rates.
(b) If the face amount of this Note is Seven Hundred
Fifty Thousand Dollars ($750,000) or less (regardless
of what the outstanding principal balance may be on
the Prepayment Date), then the Prepayment Amount is
the sum of: (i) the amount of principal which the
undersigned has elected to prepay or the amount of
principal which the Bank has required the undersigned
to prepay because of acceleration, as the case may be
(the "Prepaid Principal Amount"), (ii) interest
accruing on the Prepaid Principal Amount up to, but
not including, the Prepayment Date, plus (iii) an
amount equal to one percent (1%) of the Prepaid
Principal Amount multiplied by the number of calendar
years remaining until the maturity
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<PAGE>
date of this Note, but in no event less than two
percent (2%) of the Prepaid Principal Amount. For
purposes of this computation, any portion of a
calendar year remaining until the maturity date of
this Note shall be deemed to be a full calendar year.
"Reinvestment Rates" mean the per annum rates of interest equal to
one-half percent (1/2%) above the rates of interest reasonably determined by the
Bank to be in effect not more than seven days prior to the Prepayment Date in
the secondary market for United States Treasury Obligations in amount(s) and
with maturity(ies) which correspond (as closely as possible) to the principal
installment amount(s) and the payment date(s) against which the Prepaid
Principal Amount will be applied.
This Note, and any extensions, renewals, modifications, or replacements
thereof, is secured by a mortgage and other instruments of even date herewith,
the terms and provisions of all of which are hereby incorporated herein by
reference. Any default under said mortgage, or any other instruments securing
this Note, and any extensions, renewals, modifications, or replacements thereof,
shall be a default hereunder entitling the holder to accelerate the indebtedness
hereunder. Upon default in the payment of any installment under this Note, and
any extensions, renewals, modifications, or replacements thereof, or any part
thereof, or in any of the covenants or conditions in said mortgage and other
instruments securing this Note, and any extensions, renewals, modifications, or
replacements thereof, the holder hereof may, at its option and without notice,
declare the entire unpaid balance of principal of this Note and accrued interest
thereon immediately due and payable, and any failure to exercise this option
shall not constitute a waiver of the right to exercise the same at any
subsequent time.
The Note is subject to the condition that in no event shall the
interest received, charged, or agreed to be paid, including any amounts provided
for in this section that may be deemed to constitute interest, exceed the amount
permitted by applicable law, in the event that the obligation to pay interest
imposed hereunder shall cause the amount of interest to exceed the highest rate
permitted by applicable law, and if the Bank shall ever require as interest an
amount in excess of the permitted rate, such excess interest shall be applied
automatically to the unpaid portion of principal next due and payable, and in
the event that the principal has been paid in full by the Borrower, shall be
refunded to the Borrower.
The undersigned agree to pay any and all costs and expenses (including
but not limited to reasonable attorney's fees) in connection with enforcement of
the undersigned's obligations under this Note.
It is agreed that the undersigned shall not be released from liability
hereon by reason of forbearance or extension of time granted any present or
subsequent owner of the mortgaged property.
If this Note is signed by two or more parties (whether by all as makers
or by one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind
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<PAGE>
the undersigned, and the undersigned's respective heirs, personal
representative, successors and assigns.
As to this Note and the mortgage and any other instruments securing the
indebtedness, the undersigned and any endorsers severally waive all applicable
exemption rights, whether under the state Constitution, Homestead laws or
otherwise, and also severally waive valuation and appraisement, presentment,
protest and demand, notice of protest, demand and dishonor and nonpayment of
this Note, and expressly agree that the maturity of this Note, or any payment
hereunder, may be extended from time to time without in any way affecting the
liability of the undersigned or said endorsers.
Every signer hereof hereby waives demand, protest, presentment and
notice of nonpayment.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED 25%, OF THE HIGHEST
APPLICABLE USURY CEILING, WHICHEVER IS LESS.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
Property located at:
34775 Commerce Rd.
Fraser, Michigan
STOCKER & YALE, INC.,
A MASSACHUSETTS CORPORATION
By: /s/ SUSAN SUNDELL
Its: Sr. Vice President and Treasurer
T:\GENERAL\DOCS\STOCKER.PPM
5
<PAGE>
EXHIBIT 10.2(b)
COMERICA Continuing Collateral Mortgage
(This is a Future Advance Mortgage) CLS LOAN
This Continuing Collateral Mortgage ("Mortgage") is made as of
January 21, 1999, by STOCKER & YALE, INC., A MASSACHUSETTS CORPORATION
(individually and collectively if more than one party ("Mortgagor"), located
at 32 Hampshire Road, Salem, New Hampshire 03079 to COMERICA BANK, a Michigan
Banking Corporation ("Mortgagee"), located at 500 Woodward Avenue, Detroit,
Michigan 48226. As security for the purposes stated in this Mortgage,
Mortgagor mortgages, warrants, and assigns to Mortgagee, its successors and
assigns, the real property in the County of MACOMB, State of Michigan,
legally described as:
North I foot of Lot 92 and all of Lots 93 to 99, inclusive, FRASER
INDUSTRIAL SUBDIVISION, according to the recorded plat thereof, as recorded in
Plat Liber 58, Pages 43 and 44, Macomb County Records.
Tax Code Number: 11-32-126-007
Commonly Known As: 34775 Commerce Rd., Fraser, Michigan
together with: (a) all related easements, hereditaments, appurtenances,
rights, licenses and privileges; (b) all buildings and improvements now or later
situated under, upon or over any of the above described land; (c) all the rents,
issues, profits, revenues, accounts and general intangibles arising from the
above described land, or relating to any business conducted by Mortgagor on it,
under present or future leases, licenses or otherwise, including, without limit,
all rights conferred by Act No. 210 of the Michigan Public Acts of 1953, as
amended; (d) all machinery, equipment, goods, fixtures, and articles of personal
property of every kind and nature (other than Household Goods, as defined by
12 CFR 227.12, as amended from time to time, unless such goods were purchased
with the proceeds of any loan secured by this Mortgage), now or later located
upon the above described land and useable in connection with any present or
future operation on the land (individually and collectively the "equipment")
including, without limit, all lighting, heating, cooling, ventilating,
air-conditioning, incinerating, refrigerating, plumbing, sprinkling,
communicating and electrical systems. It is agreed that all equipment shall
for the purposes of this Mortgage, unless Mortgagee shall otherwise elect, be
deemed conclusively to be real estate and mortgaged under this Mortgage; and
(e) all awards or payments, and interest on them, made with respect to the
Premises as a result of (i) any eminent domain proceeding, (4) any street
grade alteration, (iii) any loss of or damage to any building or other
improvement, (iv) any other injury to or decrease in the value of the
Premises, (v) any refund due on account of the payment of real estate taxes,
assessments or other charges levied against the Premises or (vi) any refund
of utility deposits or right to any tenant deposit (all of the above
individually and collectively the "Premises"). Unless otherwise indicated, a
reference to the "Premises" means all and/or any
<PAGE>
part of the Premises, but excluding inventory, manufacturing machinery and
equipment, office equipment and furniture and all other goods used or useful by
Mortgagor In its manufacturing activities and business operations and not
constituting real estate fixtures used or useful in the care or maintenance of
the buildings.
This Mortgage is made to secure when due, whether by stated maturity,
demand, acceleration or otherwise, all existing and future indebtedness
("Indebtedness") to Mortgagee of STOCKER & YALE, INC., A MASSACHUSETTS
CORPORATION ("Borrower") and/or Mortgagor, including without limit payment of
EIGHT HUNDRED TWENTY-FOUR THOUSAND AND NO/100 DOLLARS, ($824,000.00) according
to certain evidence of indebtedness of even date. This reference to a dollar
amount does not limit the dollar amount secured by, this Mortgage. Indebtedness
includes, without limit, any and all obligations or liabilities of whatever
amount of Borrower and/or Mortgagor to Mortgagee, whether absolute or
contingent, direct or indirect, voluntary or involuntary, liquidated or
unliquidated, joint or several, known or unknown; any and all indebtedness,
obligations or liabilities for which Borrower and/or Mortgagor would otherwise
be liable to Mortgagee were it not for the invalidity, irregularity or
unenforceability of them by reason of any bankruptcy, insolvency or other law or
order of any kind, or for any other reason; any and all amendments,
modifications, renewals and/or extensions of any of the, above; all costs
incurred by Mortgagee in establishing, determining, continuing, or defending the
validity or priority of its lien security interest, or to protect the value of
the Premises, or for any appraisal, environmental audit, title examination or
title insurance policy relating to the Premises, or in pursuing its rights and
remedies under this Mortgage or under any other agreement between Mortgagee and
Borrower and/or Mortgagor; all costs incurred by Mortgagee in connection with
any suit or claim involving or against Mortgagee in any way related to the
Premises, the Indebtedness or this Mortgage; and all costs of collecting
Indebtedness; all of the above costs including, without limit, attorney fees
incurred by Mortgagee. Mortgagor agrees to pay Mortgagee, upon demand, all costs
incurred by Mortgagee which are Indebtedness, and until paid all costs shall
bear interest from the time incurred at the highest per annum rate applicable to
any of the Indebtedness, but not in excess of the maximum rate permitted by law.
Any reference in this Mortgage to attorney fees shall be deemed a reference to
all reasonable fees, charges, costs and expenses of both in-house and outside
counsel and paralegal, whether or not a suit or action is instituted, and to
court costs if a suit or action is instituted, and whether attorney fees or
court costs are incurred a the trial court level, on appeal, in a bankruptcy,
administrative or probate proceeding or otherwise. Notwithstanding the
foregoing, this Mortgage shall not secure that part of the Indebtedness, if any,
which constitutes a consumer loan, other than a consumer loan made at the same
time as this Mortgage and specifically referenced as being secured by this
Mortgage (and all extensions, renewals, modifications or replacement thereof).
If (and only if) this Mortgage is a Residential Future Advance
Mortgage, as defined by Michigan Compiled Laws, section 565.901 et seq., as
amended from time to time (the "Act"), then the following provision shall apply:
THIS MORTGAGE SECURES A MAXIMUM PRINCIPAL AMOUNT OF ________________ DOLLARS
($____________) ) plus the sum
2
<PAGE>
of any Protective Advance(s) (as defined by the Act), including without
limitation any advances made by Mortgagee to preserve the priority of the
Mortgage or the value of the Premises or for attorney fees, collection costs or
other expenses which Mortgagor has agreed to pay, plus all interest on all of
the above. IF THE BLANK LINES FOR THE DOLLAR AMOUNT IN THIS PARAGRAPH ARE NOT
COMPLETED, THEN THE MAXIMUM PRINCIPAL AMOUNT SHALL BE DEEMED TO BE FIVE (5)
TIMES THE DOLLAR AMOUNT FIRST REFERENCED ABOVE.
Mortgagor, on a continuing basis, warrants, covenants and agrees to and
with Mortgagee, which covenants, warranties and agreements, to the extent
permitted by law, shall be deemed to run with the land, as follows:
1. Mortgagor will pay to Mortgagee all Indebtedness according to the
terms of the relevant instruments evidencing it, and Mortgagor agrees that this
Mortgage is a continuing mortgage securing the payment of the Indebtedness.
2. Mortgagor has good, and indefeasible title, to the entire Premises
in fee simple and with full power to sell, mortgage and convey it; the Premises
are free of all easements, restrictions, liens, leases and encumbrances whether
now existing or later created, except those matters listed on attached Schedule
A (if any) to which this Mortgage is expressly subject, and Mortgagor will
warrant and defend the Premises against all other claims, Mortgagee shall have
the right, at its option and at such times as it, in its sole discretion deems
necessary, to take whatever action it may deem necessary to defend or uphold the
lien of this Mortgage or otherwise enforce any of its rights under this Mortgage
or any obligation secured by this Mortgage including, without limit, the right
to institute appropriate legal proceedings for these purposes. With respect to
the right, title, or lien of any person or entity which is superior to the lien
of this Mortgage, Mortgagee has the right, but not the obligation, to acquire
and/or pay off the holder of such right, title, or lien and add the amount so
paid to the Indebtedness.
3. Mortgagor shall not mortgage or pledge the Premises as security for
any other indebtedness or obligations. Mortgagor shall pay when due, and before
any interest, collection fees or penalties accrue or default occurs, all
payments required under any mortgages on the Premises, and all taxes,
assessments, and other charges and impositions levied, assessed or existing with
respect to (i) the Premises or (ii) the execution, delivery or recordation of
this Mort age or any note or other instrument evidencing or securing repayment
of the Indebtedness or the interest of Mortgagee in the Premises, and will
deliver to Mortgagee without demand official receipts showing these payments. If
Mortgagor fails to pay these mortgage payments, taxes, assessments, other
charges or impositions when due, or if Mortgagor fails to pay all interest,
collection fees and penalties accrued on them, Mortgagee, at its sole option,
may (but is not obligated to) pay them and the monies paid shall be added to the
Indebtedness. Mortgagor shall pay (before the same become liens or encumbrances
against the Premises) any and all obligations or liabilities for repairs or
improvements to the Premises or for any other goods, services, or utilities to
the Premises. At the sole option of Mortgagee, Mortgagor shall pay to Mortgagee
on the first day of each month a pro rata portion of all taxes, assessments,
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<PAGE>
liens, mortgages, and other charges levied, assessed or existing on the Premises
in an amount sufficient to pay them when due, plus payments (based on single
item or aggregate analysis, as determined by Mortgagee under applicable law)
sufficient to maintain an additional balance of not more than one-sixth of that
amount, all as estimated by Mortgagee. In the event that sufficient funds have
been deposited with Mortgagee to cover the amount of these taxes, assessments,
liens, mortgages, and other charges when they become due and payable, Mortgagee
shall pay them. In the event that sufficient funds have not been deposited to
cover the amount of these taxes, assessments, liens, mortgages and other charges
at least fifteen (15) days prior to the time when they become due and payable,
Mortgagor shall immediately upon request by Mortgagee pay the amount of the
deficiency to Mortgagee. Mortgagee shall not be required to keep in a separate
account or to pay Mortgagor any interest or earnings whatever on the funds held
by Mortgagee for the payment of taxes, assessments, liens, mortgages, or other
charges pursuant to this paragraph or for the payment of insurance premiums
under paragraph (4) below, or on any other funds deposited, with Mortgagee in
connection with this Mortgage. If an Event of Default occurs under this
Mortgage, any funds then remaining on deposit with Mortgagee may be applied
against the Indebtedness immediately upon or at any time after the Event of
Default occurs, and without notice to Mortgagor. No lien holder junior to this
Mortgage may exercise any rights with respect to the Premises, and all rents and
other proceeds from the Premises shall be held in trust by the junior lienholder
as the property of Mortgagee, until satisfaction in full of the Indebtedness.
Nothing in this paragraph shall be considered a consent by Mortgagee to any
lien, mortgage or encumbrance, on the Premises unless set forth on attached
Schedule A, if any.
4. Mortgagor shall keep the buildings and all other improvements now or
later existing on the Premises constantly insured for the benefit of Mortgagee
against fire and other hazards and risks, including without limit vandalism and
malicious mischief, as Mortgagee may require and shall further provide flood
insurance (if the Premises are situated in a special flood hazard area as
determined by the Director of the Federal Emergency Management Agency or other
governing agency), loss of rents insurance, public, liability and product
liability insurance and any other insurance Mortgagee may require from time to
time, all in amounts and in forms and with companies as are satisfactory to
Mortgagee. Mortgagor shall deliver to Mortgagee the policies evidencing the
required insurance with premiums fully paid for one year in advance and with
standard mortgagee clauses satisfactory to Mortgagee. Renewals of the required
insurance (together with evidence of premium prepayment for one year in advance)
shall be delivered to Mortgagee at least thirty (30) days before the expiration
of any existing policies. All policies and renewals shall provide that they may
not be canceled or amended without giving Mortgagee thirty (30) days prior
written notice of cancellation or amendment. All policies and renewals shall be
held by, and are pledged to, Mortgagee, going with insurance premium rebates, as
additional security for the Indebtedness. Should Mortgagor fail to insure or
fail to pay the premiums on any required insurance or fail to deliver the
policies or renewals of them as provided above, Mortgagee may (but is not
obligated to) have the insurance issued or renewed (and pay the premiums on it,
for the account of Mortgagor) in amounts and with companies and at premiums as
Mortgagee deems appropriate. If Mortgagee elects to have insurance issued or
renewed to insure Mortgagee's
4
<PAGE>
interest, Mortgagee shall have no obligation to also insure Mortgagor's interest
or to notify Mortgagor of Mortgagee's actions. Any sums paid by Mortgagee for
insurance as provided above shall be added to the Indebtedness. In the event of
loss or damage, the proceeds of all required insurance shall be paid to
Mortgagee alone. No loss or damage shall itself reduce the Indebtedness.
Mortgagee and any of Mortgagee's employees is each irrevocably appointed
attorney-in-fact for Mortgagor and is authorized to adjust and compromise each
loss without the consent of Mortgagor, to collect, receive and receipt for the
insurance proceeds in the name of Mortgagee and Mortgagor and to endorse
Mortgagor's name upon any check in payment of the loss. The proceeds shall be
applied first toward reimbursement of all posts and expenses of Mortgagee in
collecting the proceeds (including, without limit, attorneys' fees) and then
toward payment of the indebtedness or any portion of it, whether or not then due
or payable and in whatever order of maturity as Mortgagee may elect, or
Mortgagee, at its option, may apply any or all the insurance proceeds to the
repair or rebuilding of the Premises. Application of proceeds by Mortgagee
toward later maturing installments of the Indebtedness shall not excuse
Mortgagor from making the regularly scheduled installment payments nor shall
such application extend the due date or reduce the amount of any of these
payments. Application of proceeds by Mortgagee toward payment of the
indebtedness shall constitute an acceleration and prepayment and shall subject
Mortgagor to any applicable prepayment premium or formula. In the event of a
foreclosure of this Mortgage, or the giving of a deed in lieu of foreclosure,
the purchaser or grantee of the Premises shall succeed to all of the rights of
Mortgagor under said insurance policies. At sole option of Mortgagee, Mortgagor
shall pay to Mortgagee on the first day of each month a pro rata portion of the
annual premiums (as estimated by Mortgagee) for the required insurance in an
amount sufficient to pay them when due, plus payments (based on single item or
aggregate analysis, as determined by Mortgagee under applicable law) sufficient
to maintain an additional balance of not more than one-sixth of that amount. In
the event that sufficient funds have been deposited with Mortgagee to cover the
amount of the insurance premium for required insurance when the premiums become
due and payable, Mortgagee shall pay the premiums. In the event that sufficient
funds have been deposited with Mortgagee to cover the amount of the insurance
premiums for required insurance when the premiums become due and payable,
Mortgagee shall pay the premiums. In the event that sufficient funds have not
been deposited with Mortgagee to pay the insurance premiums at least fifteen
(15) days prior to the time when they become due and payable, Mortgagor shall
immediately upon request pay the amount of this deficiency to Mortgagee.
Mortgagor shall promptly repair, replace or rebuild each part of the Premises
which may be damaged or destroyed by fire or other casualty or which may be
affected by any eminent domain proceedings, notwithstanding application by
Mortgagee of the insurance proceeds or eminent domain award to payment of the
Indebtedness.
5. Mortgagor shall abstain from commission of waste upon the Premises,
keep the Premises in good repair, and promptly comply with all laws, regulations
and requirements of all governmental bodies affecting the Premises. If Mortgagee
determines that the Premises requires inspection, testing, appraisal, repair,
care, alteration or attention of any kind, Mortgagee or its representatives may
(but is not obligated to) enter upon the Premises, and inspect, test, appraise,
repair, alter or maintain the Premises as Mortgagee may deem
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<PAGE>
necessary, and Mortgagor shall reimburse Mortgagee upon demand for all resulting
costs and expenses incurred by Mortgagee. Any inspection, audit, appraisal or
examination by Mortgagee or its representative of the Premises or of information
or documents pertaining to the Premises is for the sole purpose of protecting
Mortgagee's interests under this Mortgage and is not for the benefit or
protection of Mortgagor or any third party. Mortgagee has no obligation to
provide Mortgagor or any third party with information concerning, or results of,
any inspection, audit, appraisal or examination by Mortgagee or its
representatives. If Mortgagee, in its sole discretion, discloses information to
Mortgagor this disclosure is for the sole protection of Mortgagee, does not
constitute an agreement to further disclosure and does not create a warranty by
Mortgagee as to the accuracy, sufficiency or any other aspect of the disclosure.
Mortgagee may spend money as Mortgagee deems essential to protect the value of
the Premises. Mortgagor shall not make or permit any other party to make any
material alterations, additions or improvements of any type to the Premises
(individually and collectively the "Improvements"), regardless of whether the
Improvements would increase the value of the Premises, without Mortgagee's prior
written consent. This consent may be withheld by Mortgagee in its sole
discretion. If Mortgagee consents to the making of any Improvements and the
Improvements are not completed with due diligence in accordance with the plans
and specifications approved in writing by Mortgagee, or if construction of the
Improvements should cease before completion for a period of thirty (30) days,
then and in either event it shall be an Event of Default under this Mortgage and
Mortgagee shall have all the rights and remedies provided in this Mortgage,
including without limitation, the right (but not the obligation) to enter or
cause entry to be made upon the Premises and complete the Improvements and its
costs shall be added to the Indebtedness. If any action is threatened or
commenced which affects Mortgagee's interest in the Premises, including, without
limit, building, environmental or zoning proceedings, Mortgagee may take such
action as it deems necessary to protect its interest and its costs shall be
added to the Indebtedness.
6. In the event the Premises is taken under power of eminent domain, or
by condemnation, the entire proceeds of the award shall be paid directly to
Mortgagee and applied toward reimbursement of all Mortgagee's costs and expenses
incurred in connection with collecting the award (including, without limit,
attorney fees), and the balance applied upon the Indebtedness whether or not
then due or payable in whatever manner Mortgagee deems advisable. Application by
Mortgagee of any condemnation award or portion of it toward the last maturing
installments of the Indebtedness shall not excuse Mortgagor from making the
regularly scheduled payments nor extend the due date or reduce the amount of
these payments. Application of any condemnation award by Mortgagee toward
payment of the Indebtedness shall constitute an acceleration and a prepayment
and shall subject Mortgagor to any applicable prepayment premium or formula.
Mortgagee or any of Mortgagee's employees is irrevocably appointed
attorney-in-fact and is duly authorized and empowered to receive, receipt for,
discharge and satisfy any condemnation award and judgment, whether joint or
several, on behalf of Mortgagor. Mortgagee shall not be liable for failure to
collect any condemnation award, regardless of the cause of such failure.
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<PAGE>
7. The Indebtedness shall become due and payable immediately, without
notice, at the option of Mortgagee, if Mortgagor shall convey, assign or
transfer the Premises by deed, land contract or other instrument, or if title to
the Premises shall become vested in any other person or party in any manner
whatsoever or if there is any disposition (through one or more transactions) of
legal or beneficial title to a controlling interest of Mortgagor. In the event
ownership of the Premises becomes vested in a person or persons other than
Mortgagor (with or without the prior written approval of Mortgagee), Mortgagee
may (but shall not be obligated to) deal with and may enter into any contract or
agreement with the successor(s) in interest with reference to this Mortgage in
the same manner as with Mortgagor, without in any manner discharging or
otherwise affecting the lien of this Mortgage or Mortgagor's liability under
this Mortgage or upon the Indebtedness.
8. This Mortgage shall, as to any personal property covered by it, be
deemed to grant a security interest in the personal property pursuant to the
Uniform Commercial Code. Mortgagor agrees, upon request of Mortgagee from time
to time, to promptly furnish a list of personal property subject to this
Mortgage and, upon request by Mortgagee, to immediately execute, deliver and/or
file any mortgage, security agreement or financing statement to include
specifically this list of personal property. Upon the occurrence of any Event of
Default under this Mortgage, Mortgagee shall have all of the rights and remedies
of a secured party under the Uniform Commercial Code otherwise provided by law
or by this Mortgage including, without limit, the right to require Mortgagor to
assemble the personal property and make it available to Mortgagee at a place to
be designated by Mortgagee which is reasonably convenient to both parties, the
right to take possession of the personal property with or without demand and
with or without process of law and the right to sell and dispose of it and
distribute the proceeds according to law. Mortgagor agrees that any requirement
of reasonable notice shall be met if Mortgagee sends notice to Mortgagor at
least five (5) days prior to the date of sale, disposition or other event giving
rise to the required notice. Mortgagor agrees that the proceeds of any
disposition of the personal property may be applied by Mortgagee first to
Mortgagee's reasonable expenses in connection with the disposition including,
without limit, attorney fees, and then to payment of the Indebtedness.
9. As additional security for the payment and performance of the
Indebtedness, Mortgagor grants a security interest to Mortgagee in all deposit
or other accounts with Mortgagee and Mortgagor assigns to Mortgagee all its
right, title and interest in all written and oral leases and occupancy
agreements, now or later existing, covering the Premises (but without an
assumption by Mortgagee of liabilities of Mortgagor under any of these leases or
occupancy agreements by virtue of this assignment), and Mortgagor assigns to
Mortgagee the rents, issues and profits of the Premises. If an Event of Default
occurs under this Mortgage, Mortgagee may receive and collect the rents, issues
and profits personally or through a receiver so long as the Event of Default
exists and during the pendency of any foreclosure proceedings and during any
redemption period. Mortgagor agrees to consent to the appointment of a receiver
if this is believed necessary or desirable by Mortgagee to enforce its rights
under this Mortgage. Mortgagee shall at no time have any obligation to attempt
to collect rent or other amounts from any tenant or occupier of the Premises.
Mortgagee shall at
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<PAGE>
no time have any obligation to enforce any other obligations owed by tenants or
occupiers of the Premises to Mortgagor. No action taken by Mortgagee under this
Mortgage shall make Mortgagee a "mortgagee in possession." Mortgagor shall at no
time collect advance rent under any lease or occupancy agreement pertaining to
the Premises in excess of one month (other than as a security deposit) and
Mortgagee shall not be bound in any respect by any rent prepayment in violation
of this prohibition. The assignment of licenses and permits under this Mortgage
shall not be construed as a consent by Mortgagee to any license or permit so
assigned, or to impose upon Mortgagee any obligations with respect to them.
Mortgagor shall not cancel or amend any of the licenses and permits assigned
(nor permit any of them to terminate if they are necessary or desirable for the
operation of the Premises) without first obtaining the written approval of
Mortgagee. This paragraph shall not be applicable to any license or permit that
terminates if it is assigned without the consent of another party (other than
Mortgagor), unless this consent has been obtained nor shall this paragraph be
construed as a present assignment of any license or permit that Mortgagor is
required by law to hold. Mortgagor shall comply with and perform as required all
obligations and restrictions imposed upon Mortgagor or the Premises under
applicable deed restrictions, restrictive covenants, easements, leases, land
contracts, condominium or planned unit development documents, or other
agreements affecting the Premises, but this is not a consent by Mortgagee to
take subject to any of these agreements unless specifically set forth on
attached Schedule A, if any, and Mortgagee does not assume any obligations under
these agreements. Mortgagor shall promptly provide Mortgagee with certificates
of occupancy, licenses, rent rolls, income and expense statements and other
documents and information pertaining to the Premises and its operations as
Mortgagee, from time to time, may request.
10. (a) Mortgagor represents and covenants that Mortgagor has not used
Hazardous Materials (as later defined) on or affecting the Premises in any
manner which violates Environmental Laws (as later defined), that there is no
condition concerning the Premises which could require remediation pursuant to
Environmental Laws, and that, to the best of Mortgagor's knowledge, no prior
owner of the Premises or any current or prior occupant has used Hazardous
Materials on or affecting the Premises in any manner which violates
Environmental Laws. Mortgagor covenants and agrees that neither it nor any
occupant shall use, introduce or maintain Hazardous Materials on the Premises
unless done in strict compliance with all Environmental Laws; (b) Mortgagor
shall conduct and complete all investigations, environmental audits, studies,
sampling and testing, and all remedial, removal and other actions necessary to
clean up and remove all Hazardous Materials on or affecting the Premises,
whether caused by Mortgagor or a third party, in accordance with all
Environmental Laws to the satisfaction of Mortgagee, and in accordance with the
orders and directives of all federal, state and local governmental authorities,
and Mortgagor shall notify Mortgagee in writing prior to taking, and continually
after that of the status of, all such actions. Mortgagor shall, promptly upon
Mortgagee's request, provide Mortgagee with copies of the results of all such
actions and all related documents and information. Any remedial, removal or
other action by Mortgagor shall not be deemed a cure or waiver of any breach of
this paragraph 10 due to the presence or use of Hazardous Materials on or
affecting the Premises. Additionally, Mortgagor shall defend, indemnify and hold
harmless Mortgagee, its employees, agents,
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<PAGE>
shareholders, officers and directors, from and against any and all claims,
demands, penalties, fines, liabilities, settlements, damages, costs or expenses
(including, without limit, attorney fees) of whatever kind arising out of or
related to (i) the presence, disposal, release or threatened release of any
Hazardous Materials on, from or affecting the Premises or the soil, water, air,
vegetation, buildings, personal property, persons or animals on the Premises,
(ii) any personal injury (including, without limit, wrongful death) or property
damage (real or personal) arising out of or related to these Hazardous
Materials, (iii) any lawsuit brought or threatened, settlement reached or
government order related to these Hazardous Materials, (iv) the cost of removal
of Hazardous Materials from any portion of the Premises, (v) taking necessary
precautions to protect against the release of Hazardous Materials on or
affecting the Premises, (vi) complying with all Environmental Laws and/or (vii)
any violation of Environmental Laws or requirements of Mortgagee, which are in
any way related to Hazardous Materials including, without limit, attorneys and
consultants' fees (the attorneys and consultants to be selected by Mortgagee),
investigation and laboratory fees and environmental studies required by
Mortgagee (whether prior to foreclosure, or otherwise). Upon the request of
Mortgagee, Mortgagor and any guarantor shall execute a separate indemnity
consistent with this paragraph; (c) Mortgagor has never received any notice
("Environmental Complaint") of any potential violation of Environmental Laws
with respect to Mortgagor or the Premises (and, within five (5) days of receipt
of any Environmental Complaint, Mortgagor shall give Mortgagee a copy of it),
and to the best of Mortgagor's knowledge, there have been no actions commenced
or threatened by any party with respect to Mortgagor or the Premises for
noncompliance with any Environmental Laws; (d) In the event this Mortgage is
foreclosed or Mortgagor tenders a deed in lieu of foreclosure, Mortgagor shall
deliver the Premises to Mortgagee, purchaser or grantee, as the case may be,
free of Hazardous Materials so that the condition of the Premises shall not be a
violation of any Environmental Laws; (e) Upon ten (10) days notice to Mortgagor
(except in an emergency or where not practical under applicable law, in which
case notice is waived), and without limitation of Mortgagee's other rights under
this Mortgage or elsewhere, Mortgagee has the right, but not the obligation, to
enter on the Premises and to take those actions as it deems appropriate to
investigate or test for, clean up, remove, resolve, minimize the impact of or
advise governmental agencies of the possible existence of any Hazardous
Materials upon Mortgagee's receipt of any notice from any source asserting the
existence of any Hazardous Materials or an Environmental Complaint pertaining to
the Premises which, if true, could result in an order, suit or other action
against Mortgagor or any part of the Premises which, in the, sole opinion of
Mortgagee, could jeopardize its security under this Mortgage. Any such actions
conducted by Mortgagee shall be solely for the benefit of and to protect the
interests of Mortgagee and shall not be relied upon Mortgagor or any third party
for any purpose. By conducting any such actions, Mortgagee does not assume
control over the environmental affairs or operations of Mortgagor nor assume any
liability of Mortgagor or any third party; (f) The provisions of this paragraph
10 shall be in addition to all other obligations and liabilities Mortgagor may
have to Mortgagee at common law or pursuant to any other agreement, and shall
survive, (i) the repayment of the Indebtedness, (ii) the satisfaction of all
other obligations of Mortgagor under this Mortgage and under the other loan
documents, (iii) the discharge of this Mortgage, and (iv) the foreclosure of
this Mortgage or acceptance of a deed in lieu of foreclosure; and (g) For
purposes of this
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Mortgage, (i) "Hazardous Materials" means each and all of the following:
hazardous materials and/or substances as defined in any Environmental Law,
asbestos, petroleum, petroleum by-products, natural gas, flammable explosives,
radioactive materials, and toxic materials, and (ii) "Environmental Laws" mean
any and all federal, state, local or other laws (whether under common law, by
legislative action or otherwise), rules, policies, ordinances, directives,
orders, statutes, or regulations an object of which is to regulate or improve
health, safety, or the environment.
11. Upon the occurrence of any of the following events (each an "Event
of Default"), Mortgagor shall be in default under this Mortgage: (a) Any failure
to pay the Indebtedness or any other indebtedness when due, by acceleration or
otherwise; (b) Any failure to comply with, or breach of, any term of this
Mortgage, or any other agreement between Borrower, Mortgagor, or any guarantor
of any of the Indebtedness ("guarantor") and Mortgagee; (c) Any warranty,
representation, or other information made, given or furnished to Mortgagee by or
on behalf of Borrower, Mortgagor, or any guarantor shall be, or shall prove to
have been, false or materially misleading when made, given, or furnished; (d)
Any loss, theft, substantial damage or destruction to or of any of the Premises,
or the issuance or filing of any attachment, levy, garnishment or the
commencement of any proceeding in connection with any of the Premises or of any
other judicial process of, upon or in respect of Borrower, Mortgagor, any
guarantor, or any of the Premises; (e) Sale or other disposition by Borrower,
Mortgagor, or any guarantor of any substantial portion of its assets or
property; or voluntary suspension of the transaction of business by Borrower,
Mortgagor, or any guarantor; or death, dissolution, termination of existence,
merger, consolidation, insolvency, business failure, or assignment for the
benefit of creditors of or by Borrower, Mortgagor, or any guarantor; or
commencement of any proceedings under any state or federal bankruptcy or
insolvency laws or laws for the relief of debtors by or against Borrower,
Mortgagor, or any guarantor; or the appointment of a receiver, trustee, court
appointee, sequestrator or otherwise, for all or any part of the property of
Borrower, Mortgagor, or any guarantor; (f) Default under any mortgage or
security agreement against any of the Premises; or (g) Mortgagee deems itself
insecure, in good faith believing that the prospect of payment of the
Indebtedness or performance of this Mortgage is impaired or shall fear
deterioration, removal, or waste of the Premises.
12. Acceleration of the Indebtedness as provided in this Mortgage shall
trigger any applicable prepayment premium or formula. Without limiting when a
prepayment premium may be due, it is agreed that, at any time after
acceleration, a tender of payment of the amount necessary to satisfy the entire
Indebtedness by or on behalf of Mortgagor or otherwise, must include any
applicable prepayment premium or formula.
13. Immediately upon the occurrence of any Event of Default, Mortgagee
shall have the option to do any or all of the following: (a) Declare the entire
unpaid amount of the Indebtedness, including, without limit, accrued and unpaid
interest on it and any applicable prepayment premium or formula, and all other
charges payable by Mortgagor to Mortgagee, to be immediately due and payable
and, at Mortgagee's option, (i) to bring suit for the same, or (ii) to take all
steps and institute all other proceedings that Mortgagee deems necessary to
10
<PAGE>
enforce payment of the Indebtedness and performance under this Mortgage and to
protect the lien of this Mortgage; (b) Commence foreclosure proceedings against
the Premises through judicial proceedings or by advertisement, at the option of
Mortgagee. The commencement by Mortgagee of foreclosure proceedings shall be
deemed an exercise by Mortgagee of its option to accelerate the Indebtedness,
unless such proceedings on their face specifically indicate otherwise. Mortgagor
grants power to Mortgagee to sell the Premises or to cause the same to be sold
at public sale, and to convey the same to the purchaser, in a single parcel or
in several parcels at the option of Mortgagee; (c) Procure new or cause to be
updated abstracts, tax histories, title insurance, or title reports; (d) Obtain
a receiver to manage the Premises and collect the rents, profits and income from
it; (e) Contest the amount or validity of any taxes applicable to the Premises
by appropriate proceedings either in Mortgagee's name, Mortgagor's name or
jointly with Mortgagor. Mortgagor shall execute and deliver to Mortgagee, upon
demand, whatever documents and information Mortgagee determines may be necessary
or proper to so contest the taxes or to secure payment of any resulting refund.
Mortgagor shall reimburse Mortgagee for all costs and expenses, including,
without limit, attorney fees, incurred in connection with each tax contest
proceeding. All refunds resulting from each tax contest proceeding shall belong
to Mortgagee to be applied against the Indebtedness with the surplus, if any, to
be paid to Mortgagor. Mortgagee and any of its employees is each irrevocably
appointed attorney-in-fact for Mortgagor and is authorized to execute and
deliver in the name of Mortgagor those documents deemed necessary or proper by
Mortgagee to carry out any tax contest proceeding or receive any resulting
refunds; and/or (f) In the event of any sale of the Premises by foreclosure,
through judicial proceedings, by advertisement or otherwise, apply the proceeds
of any such sale in the following order or such other order as Mortgagee may
elect: to (i) all expenses incurred for the collection of the Indebtedness and
the foreclosure of this Mortgage including, without limit, attorney fees; (ii)
all sum expended or incurred by Mortgagee directly or indirectly in carrying out
terms, covenants and agreements of or under this Mortgage or any related
document, together with interest as provided in this Mortgage; (iii) all accrued
and unpaid interest and late payment charges upon the Indebtedness; (iv) any
applicable prepayment premium or formula; (v) the unpaid principal amount of the
Indebtedness; and (vi) the surplus, if any, paid to Mortgagor unless a court of
competent jurisdiction decrees otherwise.
WARNING: THIS MORTGAGE CONTAINS A POWER OF SALE AND UPON DEFAULT MAY BE
FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE RELATED
SALE OF THE PREMISES, NO HEARING IS REQUIRED AND THE ONLY NOTICE REQUIRED IS TO
PUBLISH NOTICE IN A LOCAL NEWSPAPER AND TO POST A COPY OF THE NOTICE ON THE
PREMISES. MORTGAGOR WAIVES ALL RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE
UNITED STATES AND THE STATE OF MICHIGAN TO A HEARING PRIOR TO SALE IN CONNECTION
WITH FORECLOSURE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT AS SET
FORTH IN THE MICHIGAN STATUTE PROVIDING FOR FORECLOSURE BY ADVERTISEMENT.
11
<PAGE>
14. No single or partial exercise, or delay in the exercise, of any
right or power under this Mortgage, shall preclude other or further exercise of
the rights and powers under this Mortgage. The unenforceability of any provision
of this Mortgage shall not affect the enforceability of the remainder. This
Mortgage constitutes the entire agreement of Mortgagor and Mortgagee with
respect to the subject matter of this Mortgage. No amendment of this Mortgage
shall be effective unless the same shall be in writing and signed by Mortgagor
and an authorized officer of Mortgagee. If there is more than one Mortgagor, all
undertakings, warranties and covenants made by Mortgagor and all rights and
powers given to Mortgagee are made or given jointly and severally. This Mortgage
shall be binding on Mortgagor and Mortgagee and on Mortgagor's and Mortgagee's
heirs, legal representatives, successors and assigns including, without limit,
any debtor in possession or trustee in bankruptcy for Mortgagor. This shall not
be deemed a consent by Mortgagee to a conveyance by Mortgagor of all or part of
the Premises or of any ownership interest in Mortgagor. Mortgagee may sell,
assign or grant participations in any of the Indebtedness and any related
obligations, including, without limit, this Mortgage. Mortgagee may provide
information relating to this Mortgage or relating to Mortgagor to Mortgagee's
parent, affiliates, subsidiaries, service providers, assignees and participants.
In the event of foreclosure of this Mortgage or the enforcement by Mortgagee of
any other remedies under this Mortgage, Mortgagor waives any right otherwise
available in respect to marshalling of assets which secure the Indebtedness or
to require Mortgagee to pursue its remedies against any other assets or any
other party. Upon full and final payment of the Indebtedness and performance by
Mortgagor of all its other obligations under this Mortgage, except as otherwise
provided in paragraphs 10(f) and 20, the parties shall automatically each fully
and finally release and discharge the other from any claim, liability or
obligation in connection with this Mortgage and the Indebtedness. This Mortgage
shall in all respects be governed by and construed in accordance with the laws
of the State of Michigan.
15. Promptly upon the request of Mortgagee, Mortgagor shall execute,
acknowledge and deliver all further documents, and do all further acts as
Mortgagee may require in its sole discretion to confirm and protect the lien of
this Mortgage or otherwise to accomplish the purposes of this Mortgage.
16. Nothing in this Mortgage shall be construed to preclude Mortgagee
from pursuing any available remedy provided by law for the collection of the
Indebtedness or enforcement of its rights upon an Event of Default. Nothing in
this Mortgage shall reduce or release any rights or security interests of
Mortgagee contained in any existing agreement between Borrower, Mortgagor, or
any guarantor and Mortgagee. No waiver of default or consent to any act by
Mortgagor shall be effective unless in writing and signed by an authorized
officer of Mortgagee. No waiver of any default or forbearance on the part of
Mortgagee in enforcing any of its rights under this Mortgage shall operate as a
waiver of any other default or of the same default on a future occasion or of
any rights.
17. At the sole option of Mortgagee, this Mortgage shall become
subordinate, in whole or in part (but not with respect to priority as to
insurance proceeds or any eminent domain award) to any or all leases and/or
occupancy agreements of the Premises upon the
12
<PAGE>
execution by Mortgagee, and recording in the appropriate official county records
where the premises are located, of a unilateral declaration to that effect.
18. All notices and demands required or permitted to be given to
Mortgagor shall be deemed given when delivered to Mortgagor or when placed in an
envelope addressed to Mortgagor at the address above, or at such other address
as Mortgagee may have on its records, and deposited, with postage, in a
depository under the custody of the United States Postal Service or delivered to
an overnight delivery courier. The mailing may be certified, first class or
overnight delivery mail.
19. To the extent that any of the Indebtedness is payable upon demand,
nothing contained in this Mortgage shall modify the terms and conditions of that
Indebtedness nor prevent Mortgagee from making demand, without notice and with
or without reason, for immediate payment of any or all of that Indebtedness at
any time(s), whether or not an Event of Default has occurred.
20. Notwithstanding any prior revocation, termination or discharge of
this Mortgage, (except as to the rights of subsequent intervening bona fide
purchasers or lienholders) the effectiveness of this Mortgage shall
automatically continue or be reinstated in the event that (a) any payment
received or credit given by Mortgagee in respect of the Indebtedness is
returned, disgorged or rescinded as a preference, impermissible setoff,
fraudulent conveyance, diversion of trust funds, or otherwise under any
applicable law, in which case this Mortgage shall be enforceable as if the
returned, disgorged or rescinded payment or credit had not been received or
given, whether or not Mortgagee relied upon this payment or credit or changed
its position as a consequence of it; or (b) any liability is sought to be
imposed against Mortgagee relating to any matter as to which Mortgagor agreed to
indemnify Mortgagee under this Mortgage, including, without limit, as to the
presence of Hazardous Materials on, in or about the Premises, whether this
matter is known or unknown, now or later exists (excluding only matters which
arise after any acquisition by Mortgagee of the Premises, by foreclosure, deed
in lieu of foreclosure or otherwise, to the extent due to the wrongful act or
omission of Mortgagee), in which case this Mortgage shall be enforceable to the
extent of all liability, costs and expenses (including, without limit, attorney
fees) incurred by Mortgagee as the direct or indirect result thereof. In the
event of continuation or reinstatement of this Mortgage, Mortgagor agrees upon
demand by Mortgagee to execute and deliver to Mortgagee those documents which
Mortgagee determines are appropriate to further evidence (in the public records
or otherwise) this continuation or reinstatement, although the failure of
Mortgagor to do so shall not affect in any way the reinstatement or
continuation. If Mortgagor does not execute and deliver to Mortgagee upon demand
such documents, Mortgagee and each employee is irrevocably appointed (which
appointment is coupled with an interest) the true and lawful attorney of
Mortgagor (with full power of substitution) to execute and deliver such
documents in the name and on behalf of Mortgagor.
21. MORTGAGOR AND MORTGAGEE ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY
IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.
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<PAGE>
EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL
BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE, OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS MORTGAGE OR
THE INDEBTEDNESS.
22. Additional provisions:
Mortgagor will be required to provide Mortgagee with annual CPA
prepared financial statements prepared on an audited basis due within 90 days of
each fiscal year end, and provide annual personal financial statements of
personal Guarantor due within 90 days of each year end.
IN WITNESS WHEREOF, Mortgagor has signed and delivered this Mortgage
the day and year first written above.
RECORDING REQUIREMENTS: Two witnesses are required for each Mortgagor.
Type or print name of each Mortgagor, Witness and Notary beneath the respective
signature line.
WITNESSES: MORTGAGOR
STOCKER & YALE, INC., A
MASSACHUSETTS CORPORATION
/s/ J. Evan Jones By: /s/ Susan Sundell
- ---------------------- --------------------------------------
/s/ Joseph A. Berry Its: Senior Vice President and Treasurer
- ---------------------- --------------------------------------
STATE OF MA
COUNTY OF SUFFOLK
The foregoing instrument was acknowledged before me on January 21,
1999, by Susan Sundell of STOCKER & YALE, INC., A MASSACHUSETTS CORPORATION, on
behalf of said corporation.
/s/ Terry J. Romonisk
Notary Public Suffolk County, MA
My commission expires: 3/10/2000
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<PAGE>
Prepared by and when recorded return to:
Peter P. Moros (MC:3226)
COMERICA BANK
P.O. BOX 75000
DETROIT, MICHIGAN 48275-3226
15
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Lasiris Holdings, Inc.
Radiant Asiatec Pte. Ltd.
Stocker & Yale Foreign Sales Corporation
Stocker & Yale Hong Kong, Ltd.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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0
0
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<INCOME-TAX> (130,866)
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<NET-INCOME> (10,005,896)
<EPS-PRIMARY> (3.25)
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</TABLE>
