SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission file number 0-3498
ended May 31, 1998
(as specified in its charter)
TAYLOR DEVICES, INC.
(Exact name of small business issuer as specified in its charter)
New York 16-0797789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Taylor Drive, P.O. Box 748, North Tonawanda, New York 14120-0748
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (716) 694-0800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.025 par value)
(Title of class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 1O-KSB or any amendment to Form 10-KSB [ X ]
Issuer's revenues for its most recent fiscal year are $10,234,022.
<PAGE>
The aggregate market value of the Common Stock held by non-affiliates
(as affiliates are defined in Rule 12b-2 of the Exchange
Act) of the issuer, computed by reference to the average of the bid
and asked price on August 25, 1998 was $4,677,226. In addition to
shares excluded by affiliates, this calculation also excludes
shares of the issuer's common stock that are held by Schedule 13D
filers.
The number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.
Class Outstanding at August 25, 1998
Common Stock, $.025 par value 2,771,925
<PAGE>
TAYLOR DEVICES, INC.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-KSB Reference
Form 10-KSB Part I, Items 1-4
Part II, Items 5-8 and
Part III, Item 13
Proxy Statement Part III, Items 9-12
FORM 10-KSB INDEX
PAGE
PART I 4
ITEM 1. DESCRIPTION OF BUSINESS 4
ITEM 2. DESCRIPTION OF PROPERTY 7
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
PART II 12
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 13
ITEM 7. FINANCIAL STATEMENTS 15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE 16
PART III 16
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a)OF THE EXCHANGE ACT 16
ITEM 10. EXECUTIVE COMPENSATION 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 16
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company was incorporated in the State of New York on July
22, 1955 and is engaged in the design, development, manufacture and
marketing of shock absorption, rate control, and energy storage
devices for use in various types of machinery, equipment and
structures. In addition to manufacturing and selling existing
product lines, the Company continues to develop new and advanced
technology products. The Company continues to achieve excellent
growth in the rapidly developing seismic protection field and in
the isolation of wind-induced vibrations.
Principal Products
The Company has six major product lines; namely, (1) Seismic
Dampers, (2) Fluidicshoks, (3) Crane and Industrial Buffers, (4)
Self-Adjusting Shock Absorbers, (5) Liquid Die Springs, and (6)
Vibration Dampers. The following is a summary of the capabilities
and applications for these product lines:
Seismic Dampers are designed to ameliorate the effects of
earthquake tremors on structures, and represent a substantial part
of the business of the Company. Fluidicshoks are small, extremely
compact shock absorbers with up to 19,200 inch-pound capacities,
which are produced in 15 standard sizes for primary use in the
defense, aerospace and commercial industry. Crane and industrial
buffers are larger versions of the Fluidicshoks with up to
60,000,000 inch-pound capacities, produced in more than 60 standard
sizes for industrial application on cranes, ships, container ships,
railroad cars, truck docks, ladle and ingot cars, ore trolleys and
car stops. Self-adjusting shock absorbers, which include versions
of Fluidicshoks and crane and industrial buffers, automatically
adjust to different impact conditions, and are designed for high
cycle application primarily in heavy industry. Liquid die springs
are used as component parts of machinery and equipment used in the
manufacture of tools and dies. Vibration dampers are used
primarily by the aerospace and defense industries to control the
response of electronics and optical systems subjected to air, ship,
or spacecraft vibration.
Distribution
The Company utilized the services of more than 50 sales
representatives and distributors in the United States and Canada.
Specialized technical sales in aerospace and custom marketing
activities are serviced by three sales agents, with the assistance
and under the direction of Douglas P. Taylor, the Company's
President. Sales representatives typically have non-exclusive,
yearly agreements with the Company, which, in most instances,
provide for payment of commissions on sales at 10% of the product's
net aggregate selling price. Distributors also have non-exclusive,
<PAGE>
yearly agreements with the Company, whereby products are purchased
from the Company for resale purposes.
Competition
The Company faces no significant competition with respect to
most of its products, many of which are patented. However, on
mature aerospace and defense programs, competitors have qualified
conventional products where government specifications have been
reduced. Two other competitors are foreign companies, both of
which produce crane buffers.
In connection with products produced for the aerospace and
commercial aerospace industries, the Company's principal
competitors are Cleveland Pneumatic Tool Company in Cleveland,
Ohio, and Menasco Manufacturing Company in Burbank, California.
While the Company is competitive with these companies in the areas
of pricing, warranty and product performance, it cannot compete
with Cleveland Pneumatic and Menasco in the area of volume
production due to the Company's limited financing and facilities.
The Company generally competes directly against two other
firms capable of supplying seismic damping devices. However,
numerous other firms compete in alternative seismic protection
technologies. The Company remains the only supplier of seismic
fluid dampers that have met specifications set forth by
California's Office of State Wide Health Planning and Development.
Raw Materials and Supplies
The principal raw materials and supplies used by the Company
in the manufacture of its products are provided by numerous U.S.
suppliers, the loss of any one of which would not materially affect
the Company's operations.
Patents, Trademarks and Licenses
Under a License Agreement ("License Agreement") dated November
1, 1959, between the Company and Tayco Developments, Inc.
("Developments"), the Company was granted preferential rights to
market, in the United States and Canada, all existing and future
inventions and patents developed by Developments. The term of this
License Agreement is the life of the last-to-expire patent on which
the Company is paying royalties, which is the year 2014. During
the life of the patent, the Company pays Developments a 5% royalty
on sales of items sold and shipped. During FY98, the Company
incurred royalties to Developments of $138,368. Payments are
required to be made quarterly without interest; payments are
current.
The License Agreement also provides for Developments to pay
the Company 10% of the gross royalties received from third parties
who are permitted to make, use and sell machinery and equipment
<PAGE>
under patents not subject to the License Agreement, as well as on
apparatus and equipment subject to the License Agreement but
modified by the Company, with rights to such modification having
been assigned to Developments. No royalties were received in FY98;
royalties, if any, are paid quarterly.
Although the Company and Developments share common management
and a close business relationship, as separate corporations
responsible to their own shareholders, interests may diverge
regarding development and licensing of future inventions and
patents. In that case, Developments would be permitted to license
future inventions and patents to parties other than the Company,
rendering the Company's option on future inventions and patents
under its License Agreement only minimally beneficial.
Terms of Sale
The Company does not carry significant inventory for rapid
delivery to customers, and goods are not normally sold with return
rights such as are available for consignment sales. No extended
payment terms are offered. During FY98, delivery time after
receipt of orders averaged 12 to 14 weeks for the Company's
standard products. Due to the volatility of construction and
aerospace/defense programs, progress payments are usually required
for larger projects utilizing custom designed components of the
Company.
Dependence Upon Customers\Government Contracts
In FY98, shipments to one aerospace/defense customer totaled
$1,268,078, approximately 12.5% of revenues. This figure
represented the value of several different products shipped to
several of the customer's locations. For FY99, the Company
anticipates that the value of shipments for FY98 will be
approximated by additional shipments to this same customer.
Contracts between the Company and the federal government or
its independent contractors, are subject to termination at the
election of the federal government. Contracts are generally
entered into on a fixed price basis. From time to time, the
Company has also entered into a cost plus defense contract. If the
federal government should further limit defense spending, these
contracts could be reduced or terminated, which could have a
materially adverse effect on the Company.
Research and Development
The Company does not normally engage in any major product
research and development activities in connection with the design
of its products, except when funded by aerospace customers or the
government. See Item 01. Business, "Patents, Trademarks and
Licenses". The Company, however, engages in research testing of
its products. For the fiscal years ended May 31, 1998 and May 31,
1997, the Company expended $139,805 and $128,525 respectively, on
<PAGE>
manufacturing research through its affiliate, Developments. The
Company spent $165,590 and $186,283 on research and development in
FY98 and FY97, respectively. For FY98 and FY97, defense sponsored
research and development totaled $55,257 and $45,340, respectively.
Government Regulation
Compliance with federal, state and local laws and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment has had no material effect on the
Company, and the Company believes that it is in substantial
compliance with such provisions.
The Company is subject to the Occupational Safety and Health
Act, ("OSHA") and the rules and regulations promulgated thereunder,
which establishes strict standards for the protection of employees,
and imposes fines for violations of such standards. The Company
believes that it is in substantial compliance with OSHA provisions
and does not anticipate any material corrective expenditures in the
near future.
The Company is also subject to regulations relating to
production of products for the federal government. These
regulations allow for frequent governmental audits of the Company's
operations and fairly extensive testing of Company products. The
Company believes that it is in substantial compliance with these
regulations and does not anticipate corrective expenditures in the
future. The Company is currently incurring only moderate costs
with respect to disposal of hazardous waste and compliance with
OSHA regulations.
Employees
Exclusive of Company sales representatives and distributors,
as of May 31, 1998, the Company had 79 full time and 3 part time
employees, not including 3 executive officers. The Company has
good relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's production facilities are comprised of four
interconnected buildings and one adjacent building located on
approximately six acres on Tonawanda Island, New York. Production
facilities consist of a small parts plant (approximately 4400
square feet), large parts plant (approximately 10,000 square feet),
including a facility of approximately 7,000 square feet constructed
in 1995 (see below), a testing facility, storage area, pumping area
and the Company's general offices. The adjacent building is an
8,500 square foot seismic assembly test facility constructed in
1998. Total square footage of these facilities is more than 33,000
square feet. The Company has two separate remote testing
facilities used for shock
<PAGE>
testing. One facility is 800 square feet and a newer state-of-the-art
test facility is of 1,225 square feet. The small parts plant
consists of a complete small machine shop and tool room and
produces all of the Company's product items which are less than two
inches in diameter. The large parts plant consists of a complete
large machine shop and tool room. Both plants contain custom built
machinery for boring, deep hole drilling and turning of parts.
In November 1994, as part of certain tax-exempt bond financing
arrangements, the Company and the Niagara County Industrial
Development Agency ("NCIDA") entered into a 15 year Series Lease by
the Company of approximately 7,000 square feet of manufacturing
space adjacent to the Company's existing large machine shop. The
expansion partially accommodated the Company's increased need for
additional manufacturing space for its seismic damper devices.
Rental payments, equivalent to payments of principal and
interest due, are made quarterly by the Company over the term of
the Lease, and are sufficient to amortize the $1,250,000 tax-exempt
industrial development revenue Series A Bonds (the "Bond") issued
by the NCIDA. The payments reimburse Marine Midland Bank
("Marine"), as issuer of the five (5) year direct-pay irrevocable
letter of credit, which is drawn upon by Bankers Trust Company, as
Trustee, for the benefit of the bondholders. The Bond bears
interest at the Marine Midland Adjustable Rate Service ("MMARS")
rate, plus an incremental amount designated by Marine Midland
Securities, Inc. (the "Remarketing Agent"). The MMARS rate
reflects the current bid-side yield of the highest rate short-
term, federally tax exempt obligations currently being traded,
announced weekly by the Remarketing Agent, not to exceed 15% per
annum, and is the minimum rate of interest necessary to enable the
Remarketing Agent to remarket the Bond at par. Annual principal
payments by the Company in June of each year range from $25,000 to
$150,000, including a final principal payment of $45,000 upon
maturity on June 1, 2009. The Bond may be redeemed in whole, or in
part, on any quarterly interest payment date, without penalty or
premium. The principal amount outstanding on the Bond as of May
31, 1998 is $910,000. All payments are current.
Rental payments are secured by the liens of the Master
Indenture between the NCIDA and the Trustee, the Series
Supplemental Indenture between the NCIDA and the Trustee, and the
Series Mortgage from the NCIDA, the Company, and Tayco Realty
Corporation ("Tayco Realty") to Marine, as well as by other
collateral security arrangements. When the Bond matures on June 1,
2009, the Company must purchase the Facility from the NCIDA for
$1.00.
A renewal note dated June 1, 1998 due June 1, 2008 in the face
amount of $174,778 is held by Marine Midland Bank, N.A., Buffalo,
New York, on property located at 90 Taylor Drive, North Tonawanda,
<PAGE>
New York 14120, with an interest rate equal to the bank's prime
interest rate plus 1%. A monthly payment of $1,444 plus interest
is due on the first of each month. The principal balance at May
31, 1998 is $174,778. All payments are current.
A mortgage note dated January 1998 due January 1, 2013 in the
face amount of $400,000 is also held by Marine Midland Bank, N.A.,
Buffalo, New York, on property located at 90 Taylor Drive, North
Tonawanda, New York 14120 with an interest rate equal to the bank's
private interest rate plus 1%. A monthly payment of $2,222.22 is
due on the first of each month. The principal balance at May 31,
1998 is $393,333. All payments are current.
Except for the premises leased from the NCIDA, the Company
leases portions of both the building and the property on which it
is located from Tayco Realty, an affiliate. Pursuant to the Lease
Agreement between the Company and Tayco Realty, rental payments
from June 1, 1997 to May 31, 1998 totaled $164,827 with standard
terms and conditions, renewed on November 1, 1995 for a term of ten
years. The annual rental amount is renegotiated by management of
the two companies. The total rent paid by the Company is
determined by a base rate and is subject to adjustment for
increases in taxes, maintenance costs and for utilization of
additional space by the Company. The Company also pays for certain
expenses incurred for the operation of the facilities. In
addition, the Company leases a separate warehouse for storage from
an unrelated third-party, consisting of approximately 3,600 square
feet at $825 per month. The warehouse is located approximately
one-half mile from the above-referenced production facilities and
office space. The actual rental expense incurred by the Company
for fiscal 1998 was $9,900. Management believes that
transportation to and from production facilities is adequate, and
that all of the Company's properties are adequately covered by
insurance.
The following tables provide information regarding the
properties discussed in this Item 2. Description of Property.
<PAGE>
TAYLOR DEVICES, INC. AND SUBSIDIARY
DISCLOSURE FOR REG. 228.102(C) FOR FILING 10-KSB
5/31/98
Reg. 228.102(c)-Real Estate
ACCUM. NET
DEPREC. BOOK
5/31/98 VALUE
PROPERTY LOCATION COST (BOOK) 5/31/98
- ----------------- ---- ------- -------
90 & 100 Taylor Drive
N. Tonawanda, NY 14120
(see below)
Land $ 141,483 N/A $ 141,483
Buildings $1,154,353 $501,069 $ 653,284
Improvements $1,566,953 $302,424 $1,264,529
---------- -------- ----------
TOTAL $2,862,789 $803,493 $2,059,296
========== ======== ==========
ACCUM. NET PERCENT-
DEPREC. BOOK AGE OF
5/31/98 VALUE TOTAL
PROPERTY LOCATION COST (BOOK) 5/31/98 ASSETS
- ----------------- ---- ------- ------- --------
90 Taylor Dr.
N. Tonawanda, NY 14120
Land $ 107,363 N/A $ 107,363
Building $ 428,506 $368,024 $ 60,482
Building Improve-Realty $ 54,535 $ 27,720 $ 26,815
Building Improve-Devices $1,512,418 $274,704 $1,237,714
---------- -------- ----------
TOTAL $2,102,822 $670,448 $1,432,374 14.2%
========== ======== ========== =====
100 Taylor Dr.
N. Tonawanda, NY 14120
Land $ 34,120 N/A $ 34,120
Building $ 725,847 $133,045 $ 592,802
---------- -------- ----------
TOTAL $ 759,967 $133,045 $ 626,922 6.2%
========== ======== ========== ====
Taylor Devices, Inc. & Subsidiary
Total Assets as of May 31, 1998 $10,119,677
===========
<PAGE>
Reg. 228.102(c)(7)(vi)(A-D)
FEDERAL FEDERAL FEDERAL FEDERAL NET TAX
DEPREC. LIFE TAX ACCUM. BASIS
PROPERTY LOCATION METHODS CLAIM COST DEPREC. 5/31/98
- ----------------- ------- ----- ------- ------- -------
90 & 100 Taylor Dr.
N. Tonawanda, NY
14120 (see below)
STR.
LINE,
ACRS, 15-40
Building MACRS Yrs. $1,154,353 $538,670 $ 615,683
STR.
LINE,
Building ACRS, 7-40
Improvements MACRS Yrs. $1,566,953 $218,648 $1,348,305
---------- -------- ----------
$2,721,306 $757,318 $1,963,988
========== ======== ==========
SUPPORTING SCHEDULE
Reg. 228.102(c)(7)(vi)(A-D)
FEDERAL FEDERAL FEDERAL FEDERAL NET TAX
DEPREC. LIFE TAX ACCUM. BASIS
PROPERTY LOCATION METHODS CLAIMED COST DEPREC. 5/31/98
- ----------------- ------- ------- ------- ------- -------
90 Taylor Dr.
N. Tonawanda, NY
14120
STR.
LINE,
ACRS, 15-25
Building MACRS Yrs. $ 428,506 $368,024 $ 60,482
STR.
LINE,
Building ACRS, 7-31.5
Improve-Realty MACRS Yrs. $ 54,535 $ 27,720 $ 26,815
STR.
LINE,
Building ACRS, 15-40
Improve-Devices MACRS Yrs. $1,512,418 $190,928 $1,321,490
---------- -------- ----------
Total $1,995,459 $586,672 $1,408,787
========== ======== ==========
<PAGE>
100 Taylor Drive
N. Tonawanda, NY
14120
STR.
LINE, 19-40
ACRS,
Building MACRS Yrs. $ 725,847 $170,646 $ 555,201
========== ======== ==========
Reg. 228.102(c)(2)
The Company leases approximately 800 square feet of office and
research and development space to Developments pursuant to a three
year, annually reviewed, lease agreement between the Company and
Developments. Rental payments for fiscal 1998 totaled $10,000.
The lease is automatically renewed, unless canceled by written
notice each to the other party. The lease agreement has been
renewed for fiscal 1999 at a base rental of $10,000. The total
rent paid by Developments is determined in accordance with the base
rental, and is subject to adjustment for increases in taxes,
maintenance costs and for utilization of additional space by
Developments. The real property utilized by Developments is in
good condition and adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings
the resolution of which, management believes, will have a material
adverse effect on the Company's results of operations, or financial
condition and liquidity, or to any proceeding, other than routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock trades on the Small Cap market tier
of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol TAYD.
The high and low market prices noted below for the quarters of
FY97 and FY98 are obtained from NASDAQ.
<PAGE>
Fiscal 1998 Fiscal 1997
High Low High Low
First Quarter 5.014 4.961 4.048 3.510
Second Quarter 4.538 4.390 4.597 4.003
Third Quarter 4.492 4.111 6.296 5.764
Fourth Quarter 4.458 3.979 5.572 5.119
Holders
As of August 25, 1998, the approximate number of holders of
record of Common Stock of the Company was 1,434. Due to a
substantial number of shares of the Company's Common Stock held in
street name, the Company believes that the total number of
beneficial owners of its Common Stock exceeds 2,500.
Dividends
No cash or stock dividends have been declared during the last
two fiscal years. Under the terms of the Company's credit
arrangement with its major lender, the Company is prohibited from
issuing cash dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement
The Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for forward-looking statements. Information
included or incorporated by reference, and certain matters
discussed in this section and elsewhere in this Report, which are
not historical facts, are forward-looking statements. As such
these statements involve risks and uncertainties including, but not
limited to, economic conditions, product demand and industry
capacity, competition, pricing pressures, the need for the Company
to keep pace with customer needs and technological developments,
and other factors.
The Company recorded record revenues for the fifth consecutive
year in FY98, with net revenues of $10,234,022, a 2.3% increase
over FY97 revenues of $10,002,839. Within the product mix, sales
of seismic protection devices increased by $204,000 accounting for
the major portion of the increase in net sales. Net Income for
FY98 was $462,223 compared to $531,575 for FY97. This difference
was largely attributable to factors related to the marketing and
production of seismic protection products.
<PAGE>
In FY98, the Company responded to changing dynamics in the
seismic protection market. While there continued to be a strong
market for this product, both domestic and foreign, the nature of
the projects being built experienced a shift. The projects
requiring seismic protection tended to be smaller in scope
requiring fewer, but physically larger, units than the previous
requirements met by the Company. The Company addressed this shift
with the construction of a new facility capable of handling the
assembly and testing of these larger units. Concurrently, the
Company's engineering and manufacturing functions undertook the
steps necessary to adapt to the design and production requirements
of this new generation of seismic products. A significant factor
in FY98 was the increasing presence of competition, both foreign
and domestic, in the seismic market.
The FY98 Gross Margin of $3,715,047 or 36.3% of sales declined
slightly from $3,765,203 or 37.5% in FY97. Management believes
these figures reflect, to a large extent, the impact of the factors
referenced in the above paragraph, e.g., the absorption of start-up
expenses of the new facility. As mentioned in previous reports,
Gross Margin analysis on the Company's varied and shifting product
mix makes precise analysis difficult, but continuous reviews
indicate that the profitability of the standard product lines
remain good.
Selling, General and Administrative (SGA) expense of
$2,888,087 represented 28.2% which was a slight improvement over
28.6% for FY97. The Company was able to achieve the anticipated
savings in electronic data processing related fees and some
unanticipated savings in corporate insurance costs but maintained
aggressive marketing efforts resulting in some incrementally higher
costs in advertising, postage, travel and consulting fees.
Net Operating Income of $826,960 for FY98 is down from a
record figure of $908,148 for FY97, primarily as the result of the
Company's response in its engineering, manufacturing and
administrative functions to changes in the seismic market. Net
Other Expense increased from $78,939 in FY97 to $97,772 in FY98.
This represented the net of slightly higher interest expense
incurred primarily from the funding of the new test facility and a
difference of $13,486 in Miscellaneous Income created by the
recovery of a substantial bad debt in FY97.
Taxes for FY98 were computed to be $275,000, resulting in an
Income Before Equity in Earnings of Affiliates/Minority Interest of
$454,188 compared to $525,600 in FY97. The Net of Equity Earnings
and Minority Shareholders' Interest improved slightly between the
two fiscal years, $8,035 income in FY98 vs. $5,975 income in FY97
as both affiliates reported stable performances. Net Income for
FY98 was $462,223 or 4.5% of the Net Sales compared to $531,575 or
5.3% in FY97. Earnings per share for the two fiscal years were
$.17 and $.20, respectively.
<PAGE>
The Company's cash balance of $1,696,506 at May 31, 1998 is
the result of substantial customer prepayment deposits made late in
the fiscal year. This balance is expected to decline as the
Company procures the materiels required to meet the delivery
schedules of these projects. Trade Accounts Receivables increased
by $189,258 but is essentially offset by an increase of $336,758 in
the liability line entitled Billings in Excess of Costs and
Estimated Earnings. Other than one receivable item worth $52,000
which is in litigation, there are no collection issues.
Inventories showed a marked increase of $619,974 due primarily to
two factors: first, delays in the shipment of some seismic projects
caused by delays in the completion of the new
assembly/test facility; and second, a build up of quantities of
defense related items for shipment in early FY99. Management
anticipates inventories will return to normal levels by mid year of
FY99. On the liability side of the balance sheet, funding for the
new assembly/test facility is reflected in a $495,010 increase in
the Long-Term Debt figure.
Management believes that FY98 was another good year for the
Company, with a Net Income figure representing the fourth best
figure in the Company's existence. The Company's primary area for
growth is the seismic protection market which is continuing to
offer opportunities subject, however, to increasing competition.
Management believes it has taken the initial steps to respond to
these challenges and is prepared to continue to develop new
products and techniques to maintain the Company's position as a
major factor in this market.
Management believes the Company is prepared to meet the well
publicized "Year 2000" (Y2K) problem. With reference to internal
electronic data processing systems, the Company procured its
current system in 1994, at which time the Y2K problem had been
identified and resolved by the supplier. The Company's internal
software network incorporated a simple solution to the problem
which was applied in FY98. Certain departments use other non-
integrated data bases for internal reporting and analytical
requirements which are not, by themselves, considered crucial to
the Company's operations. These non-integrated databases will be either
adapted or replaced over the next year. At this time, the Company does
not participate with any vendor, supplier, financial institution or customer
on an EDI (Electronic Data Interchange) basis, thereby eliminating EDI as a
potential Y2K issue. The Company is currently undertaking a survey of its key
vendors to determine if they have responded to the Y2K issue. Most key items
used by the Company are multi-sourced and the Company will direct
purchases to those vendors who respond satisfactorily to the
survey.
ITEM 7. FINANCIAL STATEMENTS
For information concerning this Item, see the Company's
balance sheet and related financial statements at Item 13.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On April 9, 1998 the Company filed a Form 8-K with the SEC
reporting a change in accountants. The Board of Directors appointed
Lumsden & McCormick as independent accountants. After
recommendation from the Audit Committee and careful consideration
and review of accounting and auditing fees, the Company found it
was economically advantageous to obtain services from Lumsden &
McCormick. There have been no disagreements with the previous
auditors, J.D. Elliott & Co., on any matter of accounting
principles or practices, financial statement disclosure or auditing
scope or procedure or any reportable event.
PART III
The information required by Items 9, 10, 11 and 12 of this
part are presented in the Company's Proxy Statement issued in
connection with the Annual Meeting of Shareholders to be held on
November 6, 1998. The items to be found in the Proxy Statement are
incorporated by reference in the Annual Report. The Proxy
materials will be filed within 120 days after the Company's fiscal
year end.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
DOCUMENTS FILED AS PART OF THIS REPORT:
Index to Financial Statements:
(i) Consolidated Balance Sheets May 31, 1998 and 1997
(ii) Consolidated Statements of Stockholders' Equity for
the years ended May 31, 1998 and 1997
(iii) Consolidated Statements of Income for the years ended
May 31, 1998 and 1997
(iv) Consolidated Statements of Cash Flows for the years
ended May 31, 1998 and 1997
(v) Notes to Consolidated Financial Statements May 31,
1998
(vi) Independent Auditor's Report
<PAGE>
EXHIBITS:
(3) Articles of incorporation and by-laws
(i) Restated Certificate of Incorporation filed by
the New York Department of State on December 7, 1982,
incorporated by reference to exhibit (3) (i) of Annual
Report on Form 10-KSB, dated August 24, 1983.
(ii) Amendment to Certificate of Incorporation filed
by the New York Department of State on November 17,
1992, and incorporated by reference to exhibit (3) (iv)
to Form 8 [Amendment to Application or Report], dated
September 24, 1993.
(iii) By-laws of the registrant, as amended,
incorporated by reference to exhibit (3) (ii) of
Annual Report on Form 10-KSB, dated August 24, 1983.
(iv) Amendment to By-laws of the registrant
incorporated by reference to Current Report on
Form 8-KSB, dated October 21, 1988.
(v) Certificate of Merger of Tayco Technology,
Incorporated into the registrant, filed by the New
York Department of State on June 29, 1994, effective
as of July 1, 1994, incorporated by reference to
exhibit (3) (v) of Annual Report on Form 10-KSB,
dated August 26, 1994.
(vi) Amendments to By-laws of the registrant,
incorporated by reference to exhibit (3) (vi) of
Form 10-QSB, dated February 28, 1998.
(vii) Proxy Review Guidelines reconfirmed January 28,
1998, incorporated by reference to exhibit (3) (vii)
of Form 10-QSB dated February 28, 1998.
(4) Instruments defining rights of security holders,
including indentures
(i) Mortgage in the amount of $260,000 issued by
Marine Midland Bank dated May 28, 1993, incorporated
by reference to Exhibit (10) (vii) of Annual Report
on Form 10-KSB, dated September 10, 1993.
(ii) Master Indenture between Niagara County
Industrial Development Agency and Bankers Trust
Company, as Trustee, dated as of November 1, 1994
($1,250,000 Niagara County Industrial Development
Agency, 1994 Adjustable Rate Demand, Industrial
Development Revenue Bonds, Series A [MMARS Second
Program]). Incorporated by reference to Exhibit (4)
(iv) to the Annual Report on Form 10-KSB, dated August
25, 1995.
<PAGE>
(iii) Series Supplemental Indenture between Niagara
County Industrial Development Agency and Bankers Trust
Company, as Trustee, ($1,250,000 Niagara County
Industrial Development Agency, 1994 Adjustable Rate
Demand, Industrial Development Revenue Bonds, Series A
[MMARS Second Program]). Incorporated by reference to
Exhibit (4) (v) to the Annual Report on Form 10-KSB,
dated August 25, 1995.
(iv) Series Mortgage from Niagara County Industrial
Development Agency, Tayco Realty, Inc. and registrant
to Marine Midland Bank, as Letter of Credit Bank, dated
as of November 1, 1994. Incorporated by reference to
Exhibit (4) (vi) to the Annual Report on Form 10-KSB,
dated August 25, 1995.
(v) Mortgage from Niagara County Industrial
Development Agency, Tayco Realty, Inc. and registrant
to Marine Midland Bank, in the amount of $400,000 dated
January 3, 1998, attached and incorporated by
reference to this Annual Report on Form 10-KSB.
(10) Material contracts
(i) Incentive Stock Option Plan, approved December 3,
1982, incorporated by reference to exhibit (10) (ii)
of Annual Report on Form 10-KSB, dated August 24, 1983.
(ii) Non-Statutory Stock Option Plan, approved
December 3, 1982, incorporated by reference to exhibit
(10) (iii) of Annual Report on Form 10-KSB, dated August
24, 1983.
(iii) The 1994 Taylor Devices, Inc. Stock Option Plan,
approved October 28, 1994, incorporated by reference to
Exhibit 4.1 of Form S-8 Registration Statement No. 33-
88152, as filed on December 30, 1994.
(iv) License Agreement between the registrant and
Tayco Developments, Inc., dated November 1, 1959,
incorporated by reference to exhibit (10) (i) of Annual
Report on Form 10-KSB, dated August 27, 1982.
(v) Employee Stock Purchase Plan, approved October
29, 1984, incorporated by reference to Exhibit 4.1 of
Registration Statement No. 2-94754.
(vi) Employee Stock Purchase Plan, approved October
28, 1994, incorporated by reference to Exhibit 4.1 to
Form S-8 Registration Statement No. 33-88154, filed
December 30, 1994.
<PAGE>
(vii) Loan Agreements between the registrant and Marine
Midland Bank dated December 2, 1992 establishing a
$940,000 term loan, incorporated by reference to exhibit
(10) (viii) of Annual Report on Form 10-KSB, dated
September 10, 1993.
(viii) Series Lease between Niagara County Industrial
Development Agency and registrant, dated as of November
1, 1994 ($1,250,000 Niagara County Industrial
Development Agency, 1994 Adjustable Rate Demand,
Industrial Development Revenue Bonds, Series A [MMARS
Second Program]), incorporated by reference to Exhibit
(10) (ix) of Annual Report on Form 10-KSB, dated
August 21, 1995.
(ix) Lease Agreement between registrant and Tayco
Realty Corporation dated November 1, 1995 for a 10 year
term, incorporated by reference to Exhibit (10) (ix) of
Annual Report on Form 10-KSB, dated August 26, 1996.
(x) Form of Indemnity Agreement between the Company
and certain officers and directors, approved November 8,
1996, incorporated by reference to exhibit (10) (x) on
Form 10-QSB, dated February 1997.
(xi) Rental Agreement dated July 1, 1997 between the
Company and Tayco Developments, Inc., incorporated by
reference to exhibit (10) (xi) on Form 10-KSB dated
August 27, 1997.
<PAGE>
(11) Statement re: Computation of per share earnings
REG.228.601(A)(11)STATEMENT RE: COMPUTATION OF PER SHARE
EARNINGS
WEIGHTED AVERAGE OF COMMON STOCK OUTSTANDING
- F/Y/E 5/31/98
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 2,727,246
COMMON SHARES ISSUABLE UNDER STOCK OPTION
PLANS USING TREASURY STOCK METHOD 27,468
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION 2,754,714
==========
NET INCOME F/Y/E 5/31/98 (1) $ 462,223
WEIGHTED AVERAGE COMMON STOCK (2) 2,727,246
BASIC EARNINGS PER COMMON SHARE
(1) DIVIDED BY (2) $ 0.17
==========
NET INCOME F/Y/E 5/31/98 (3) $ 462,223
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION (4) 2,754,714
DILUTED EARNINGS PER COMMON SHARE
(3) DIVIDED BY (4) $ 0.17
==========
WEIGHTED AVERAGE OF COMMON STOCK OUTSTANDING
- F/Y/E 5/31/97
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 2,669,626
COMMON SHARES ISSUABLE UNDER STOCK OPTION
PLANS USING TREASURY STOCK METHOD 39,640
----------
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION 2,709,266
==========
NET INCOME F/Y/E 5/31/97 (1) $ 531,575
WEIGHTED AVERAGE COMMON STOCK (2) 2,669,626
BASIC EARNINGS PER COMMON SHARE
(1) DIVIDED BY (2) $ 0.20
==========
NET INCOME F/Y/E 5/31/97 (3) $ 531,575
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
ASSUMING DILUTION (4) 2,709,266
DILUTED EARNINGS PER COMMON SHARE
(3) DIVIDED BY (4) $ 0.20
==========
<PAGE>
(16) Letter on change in certifying accountant
Letter dated April 9, 1998 from Mr. Douglas P. Taylor,
President of registrant, to J.D. Elliott & Co., P.C.,
incorporated by reference to exhibit 16 (i) to Current
Report on Form 8-K filed April 9, 1998.
(21) Subsidiaries of the registrant
Tayco Realty Corporation is a New York corporation
organized on September 8, 1977, 58% owned by the
Company and 42% owned by Tayco Developments, Inc.
(23) Report and Consent of Independent Certified Public
Accountants
REPORTS ON FORM 8-K:
Current Report on Form 8-K, filed April 9, 1998, reporting
a change in auditors.
<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 by the undersigned,
thereunto duly authorized.
DATE: August 25, 1998
TAYLOR DEVICES, INC.
(Registrant)
By: /s/ Douglas P. Taylor
Douglas P. Taylor,
President and Director
(Principal Executive Officer)
and
By: /s/ Kenneth G. Bernstein
Kenneth G. Bernstein,
Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
By: /s/ Joseph P. Gastel By: /s/ Richard G. Hill
Joseph P. Gastel Richard G. Hill
Director, August 25, 1998 Director, August 25, 1998
By: /s/ Donald B. Hofmar By: /s/ Randall L. Clark
Donald B. Hofmar Randall L. Clark
Director, August 25, 1998 Director, August 25, 1998
<PAGE>
TAYLOR DEVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
Board of Directors of Taylor Devices, Inc.
We consent to the incorporation by reference in this Annual Report
on Form 10-KSB (Commission File Number 0-3498) of Taylor Devices,
Inc. of our report dated July 31, 1998, included in the May 31,
1998 Annual Report to Stockholders of Taylor Devices, Inc.
/s/Lumsden & McCormick, LLP
LUMSDEN & McCORMICK, LLP
Buffalo, New York
August 25, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Taylor Devices, Inc.
We have audited the accompanying consolidated balance sheet of
Taylor Devices, Inc. and Subsidiary as of May 31, 1998 and the
related consolidated statements of income, stockholders' equity,
and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Taylor
Devices, Inc. and Subsidiary as of May 31, 1997 were audited by
other auditors whose report dated August 5, 1997 expressed an
unqualified opinion on those statements.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above
present fairly, in all material respects, the financial position of
Taylor Devices, Inc. and Subsidiary as of May 31, 1998 and the
results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
July 31, 1998
<PAGE>
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
May 31, 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 1,696,506 $1,096,456
Restricted funds held by Trustee
(Note 7) 113,193 108,041
Receivables (Note 2) 1,613,087 1,423,829
Inventory (Note 3) 3,032,239 2,412,265
Prepaid expenses 65,308 130,258
Deferred income taxes 111,400 57,630
----------- ----------
6,631,733 5,228,479
----------- ----------
Property and equipment, net 2,917,808 2,564,613
(Note 4)
Investment in affiliate, at equity
(Note 5) 222,392 194,922
Other:
Cash value of life insurance, net 185,497 167,328
Goodwill, net 67,005 73,050
Deferred financing costs, net 92,039 108,622
Deferred income taxes - 569
Other, net 3,203 3,501
----------- ----------
347,744 353,070
----------- ----------
$10,119,677 $8,341,084
=========== ==========
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt
(Note 7) $ 327,287 $ 352,685
Payables - trade 1,226,035 989,077
Payables - affiliate 117,349 69,487
Accrued income taxes 165,481 99,462
Accrued expenses 476,857 449,329
Billings in excess of costs and
estimated earnings 756,659 419,901
----------- ----------
3,069,668 2,379,941
----------- ----------
Long-term debt (Note 7) 1,952,724 1,457,714
Deferred income taxes 20,900 -
Minority stockholder's interest 264,436 245,001
Stockholders' Equity:
Common stock, $.025 par value,
Authorized 8,000,000 shares,
issued 2,765,130 and 2,741,445
shares 69,129 68,536
Paid-in capital 2,562,654 2,468,888
Retained earnings 2,263,319 1,801,096
----------- ----------
4,895,102 4,338,520
Treasury stock - 28,432 shares
and 27,859 shares at cost (83,153) ( 80,092)
----------- ----------
4,811,949 4,258,428
----------- ----------
$10,119,677 $8,341,084
=========== ==========
See accompanying notes.
<PAGE>
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the years ended May 31, 1998 1997
Sales, net (Note 8) $10,234,022 $10,002,839
Cost of sales 6,518,975 6,237,636
----------- -----------
Gross profit 3,715,047 3,765,203
Selling, general and
Administrative expenses 2,888,087 2,857,055
----------- -----------
Operating income 826,960 908,148
Other income (expense):
Rental income - affiliate
(Note 11) 10,000 10,000
Interest, net (110,839) (105,492)
Miscellaneous 3,067 16,553
----------- -----------
(97,772) (78,939)
----------- -----------
Income before provision for
income taxes, equity in net
income of affiliate and
minority stockholder's
interest 729,188 829,209
Provision for income taxes
(Note 9) 275,000 303,609
----------- -----------
Income before equity in net
income of affiliate and
minority stockholder's
interest 454,188 525,600
Equity in net income of affiliate
(Note 5) 27,470 26,471
----------- -----------
Income before minority
stockholder's interest 481,658 552,071
Minority stockholder's interest (19,435) (20,496)
----------- -----------
Net income $ 462,223 $ 531,575
=========== ===========
Basic and diluted earnings per
Common share (Note 10) $ .17 $ .20
=========== ===========
See accompanying notes.
<PAGE>
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the years ended May 31, 1998 and 1997
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
------ ------- -------- --------
Balance, June 1, 1996 $66,924 $2,258,725 $1,269,521 $(48,344)
Net income for the
year ended May 31, 1997 - - 531,575 -
Common stock issued for
employee stock purchase
plan (Note 13) 444 79,570 - -
Stock options exercised
(Note 14) 1,168 60,518 - -
Tax benefit related to
stock option plan (Note 9) - 70,075 - -
Treasury stock acquired
(Note 14) - - - (31,748)
------- ---------- ---------- ---------
Balance, May 31, 1997 68,536 2,468,888 1,801,096 (80,092)
Net income for the year
ended May 31, 1998 - - 462,223 -
Common stock issued for
employee stock purchase
plan (Note 13) 500 90,798 - -
Stock options exercised
(Note 14) 93 2,968 - -
Treasury stock acquired - - - (3,061)
(Note 14)
________________________________________
Balance, May 31, 1998 $69,129 $2,562,654 $2,263,319 $(83,153)
========================================
See accompanying notes.
<PAGE>
TAYLOR DEVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended May 31, 1998 1997
Cash flows from operating activities:
Net income $ 462,223 $ 531,575
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 298,836 269,811
Equity in net income of affiliate (27,470) (26,471)
Deferred income taxes (32,301) 20,514
Tax benefit - stock option plan - 70,075
Minority stockholder's interest 19,435 20,496
Interest income - funds held by trustee (1,402) (1,402)
Changes in other current assets and
current liabilities:
Receivables (189,258) (213,394)
Inventory (619,974) (3,502)
Prepaid expenses 64,950 585
Payables - trade 236,958 28,067
Payables - affiliate 47,862 1,747
Accrued income taxes 66,019 36,880
Accrued expenses 27,528 127,742
Billings in excess of costs
and estimated earnings 336,758 (36,090)
---------- ----------
Net cash flows from operating
activities 690,164 826,633
---------- ----------
Cash flows from investing activities:
Proceeds from sale of tax free money
fund held by trustee 108,041 106,680
Cash received from trustee 26,959 28,320
Cash remitted to trustee (138,750) (135,000)
Acquisition of property and equipment (629,105) (336,756)
Increase in cash value of life insurance (18,169) (16,142)
---------- ----------
Net cash flows for investing
activities (651,024) (352,898)
---------- ---------
Cash flows from financing activities:
Financing costs paid - (11,139)
Borrowings - long-term debt 814,000 -
Repayments - long-term debt (344,388) (370,626)
Proceeds from issuance of common stock
-employee stock purchase plan 91,298 80,014
-exercise of stock options - 11,188
---------- ---------
Net cash flows from (for)
financing activities 560,910 (290,563)
--------- ---------
Net increase in cash and cash
equivalents 600,050 183,172
Cash and cash equivalents -
beginning 1,096,456 913,284
---------- ---------
Cash and cash equivalents -
ending $1,696,506 $1,096,456
========== ==========
See accompanying notes.
<PAGE>
TAYLOR DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Nature of Operations:
Taylor Devices, Inc. (the Company) is primarily engaged in the
manufacture and sale of tension control, energy storage and shock
absorption devices for use in various types of machinery, equipment
and structures, primarily to customers which are located throughout
the United States and several foreign countries.
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and its 58% owned subsidiary, Tayco Realty
Corporation (Realty). Minority stockholder's interest represents
Tayco Developments, Inc.'s (Developments) 42% ownership interest in
Realty. All intercompany transactions and balances have been
eliminated.
The Company's investment in its minority-owned affiliate,
Developments, is reported on the equity method (see Note 5).
Cash and Cash Equivalents:
The Company includes all highly liquid investments with original
maturities of three months or less in cash and cash equivalents on
the accompanying balance sheets. Cash equivalents consist
primarily of investments in money market funds.
Cash and cash equivalents in financial institutions may exceed
insured limits at various times during the year and subject the
Company to concentrations of credit risk.
Inventory:
Inventory is stated at the lower of first-in, first-out cost or
market.
Property and Equipment:
Property and equipment is stated at cost net of accumulated
depreciation. Deprecation is provided primarily using the
straight-line method for financial reporting purposes, and
accelerated methods for income tax reporting purposes. Estimated
useful lives range from 3 to 39 years. Maintenance and repairs are
charged to operations as incurred; significant improvements are
capitalized.
Cash Value of Life Insurance:
Cash value of life insurance is stated at the surrender value of
the contracts less outstanding policy loans.
<PAGE>
Financing Costs:
Costs associated with obtaining new financing are capitalized and
amortized over the repayment terms of the related debt obligations.
Goodwill:
Goodwill represents the excess of the cost to obtain ownership
interests in a merged subsidiary over its net assets at
acquisition, and is amortized on a straight-line basis over 15
years.
Revenue Recognition:
Sales are recognized when units are delivered or services are
performed. Sales under fixed-price contracts are recorded as
deliveries are made at the contract sales price of the units
delivered. Sales under certain fixed-price contracts requiring
substantial performance over several periods prior to commencement
of deliveries, are accounted for under the percentage-of-completion
method of accounting whereby revenues are recognized based on
estimates of completion prepared on a ratio of cost to total
estimated cost basis. Costs include all material and direct and
indirect charges related to specific contracts. Other expenses are
charged to operations as incurred. Adjustments to cost estimates
are made periodically, and losses expected to be incurred on
contracts in progress are charged to operations in the period such
losses are determined.
For financial statement presentation purposes, the Company nets
progress billings against the total costs incurred on uncompleted
contracts. The asset, "costs and estimated earnings in excess of
billings," represents revenues recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated
earnings," represents billings in excess of revenues recognized.
Income Taxes:
The provision for income taxes is based on pretax financial
accounting income. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary
differences between the tax and financial statements bases of
assets and liabilities. Temporary differences arise from using
different methods of accounting for bad debts, inventory,
depreciation and accrued expenses. Deferred taxes are based on tax
laws currently enacted with tax rates expected to be in effect when
the taxes are actually paid or recovered.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
<PAGE>
2. Accounts Receivable:
1998 1997
Trade receivables $1,645,087 $1,435,829
Less allowance for doubtful
Accounts 32,000 12,000
---------- ----------
$1,613,087 $1,423,829
========== ==========
3. Inventory:
1998 1997
Raw materials $ 282,309 $ 212,004
Work-in-process 602,548 516,517
Finished goods 2,147,382 1,683,744
---------- ----------
$3,032,239 $2,412,265
========== ==========
The Company's inventory is particularly sensitive to technological
obsolescence in the near term due to its use in industries
characterized by the continuous introduction of new product lines,
rapid technological advances and product obsolescence. Therefore,
management of the Company has recorded an allowance for potential
inventory obsolescence of $120,000 and $75,000 at May 31, 1998 and
1997.
4. Property and Equipment:
1998 1997
Land $ 141,483 $ 141,483
Buildings and improvements 2,693,600 2,180,105
Machinery and equipment 2,726,637 2,639,322
Office furniture and equipment 452,237 440,576
Autos and trucks 68,346 59,905
---------- ----------
6,082,303 5,461,391
Less accumulated depreciation 3,164,495 2,903,471
---------- ----------
2,917,808 2,557,920
Construction in progress - 6,693
---------- ----------
$2,917,808 $2,564,613
========== ==========
Depreciation expense was $278,112 and $242,265 for the years ended
May 31, 1998 and 1997.
The following is a summary of property and equipment included above
which is held under capital leases:
1998 1997
Buildings and improvements $ 806,707 $ 806,707
Machinery and equipment 591,915 591,915
Office furniture and equipment 92,585 108,654
---------- ----------
1,491,207 1,507,276
Less accumulated amortization 380,325 294,587
---------- ----------
$1,110,882 $1,212,689
========== ==========
<PAGE>
Minimum future lease payments under capital leases as of May 31,
1998 for each of the next five years and in the aggregate are
included in long-term debt (see Note 7).
Amortization of property and equipment under the capital leases
included in depreciation expense is $99,945 and $105,348 for the
years ended May 31, 1998 and 1997.
5. Investment in Affiliate:
Investment in affiliate consists of the Company's 23% ownership
interest in common shares of Developments acquired at a cost of
$85,619, plus the Company's cumulative equity in the net income of
Developments of $136,773 and $109,303 through the years ended May
31, 1998 and 1997.
The Company's share of the underlying book value of net assets of
Developments at the date of original purchase exceeded the amount
paid for these shares by $79,018. This excess ($66,507 at May 31,
1998) is being amortized to income on the straight-line method over
40 years and is recorded as an addition to equity in net income of
the affiliate.
6. Short-Term Borrowings:
The Company has a $1,000,000 bank demand line of credit with
interest payable at prime plus 3/4%. The line is secured by
accounts receivable, equipment, inventory, and general intangibles.
As of May 31, 1998 and 1997, no amounts were outstanding under this
line.
7. Long-Term Debt:
1998 1997
Bank term note, monthly
principal payments of $8,512
plus interest at the bank's
prime rate plus 1%(9.5% at
May 31,1998), secured by
substantially all assets of the
Company, with the remaining
unpaid principal balance
payable in February 2005. (1) $ 689,464 $ 422,500
Bank mortgage note, monthly
principal payments of $1,444
plus interest at the bank's
prime rate plus 1% (9.5% at
May 31, 1998), secured by
related property, with the
remaining unpaid principal
balance payable in June 2008. (1) 174,778 192,111
Industrial Revenue Development
Bonds, annual principal
payments ranging from
$25,000 to $150,000 through
June 2009 plus interest at
variable rates based on the
highest rated short term,
federally tax exempt
obligations (4.10% at May 31,
1998). (2) 910,000 1,045,000
<PAGE>
Bank mortgage, monthly
principal payments of $2,222
plus interest at the bank's
prime rate plus 1%(9.5% at
May 31, 1998), secured by
substantially all assets of the
Company, due February 2013. 393,333 -
Capital lease and other
obligations with varying
maturities and interest rates,
secured by related assets. 112,436 150,788
---------- ----------
2,280,011 1,810,399
Less current portion 327,287 352,685
---------- ----------
$1,952,724 $1,457,714
========== ==========
(1) The term note and mortgage note were refinanced during the
year ended May 31, 1998. The term note previously required monthly
principal payments of $13,500 and matured in December 1999. An
additional $414,000 was added to this note during the year. The
unpaid balance of the mortgage note was previously due in June
1998. It has been refinanced over ten years requiring the same
monthly principal payment.
(2) In November 1994, the Company entered into a capital lease
agreement with the Niagara County Industrial Development Agency
(NCIDA) to finance certain construction costs for additions to its
manufacturing/testing facilities and for the acquisition of
machinery and equipment. To finance the project, NCIDA authorized
the sale of its Industrial Revenue Development Bonds, in the
aggregate principal amount of $1,250,000, under a trust indenture
with Bankers Trust Company as trustee. The capital lease
obligation is secured by a first mortgage on real estate, project
machinery and equipment, and guaranteed by an irrevocable bank
letter of credit in the amount of $956,747 as of May 31, 1998.
As of May 31, 1998, $113,193 of funds were held by a trustee,
representing an interest bearing tax free money fund restricted for
principal reduction payments of the Industrial Revenue Development
Bond during fiscal year ending May 31, 1999.
The aggregate maturities of long-term debt subsequent to May 31,
1998 are:
1999 $ 327,287
2000 334,876
2001 327,480
2002 302,554
2003 231,143
Thereafter 756,671
----------
$2,280,011
==========
<PAGE>
8. Sales:
Net sales consist of the following industry segments:
1998 1997
Commercial and other Industries $ 4,689,175 $ 6,108,705
Aerospace and defense industries 5,261,198 3,339,335
Government agencies 283,649 554,799
----------- -----------
$10,234,022 $10,002,839
=========== ===========
Sales to aerospace and defense industries include sales to a
customer totaling $1,268,078 for the year ended May 31, 1998.
Sales to commercial industries include sales to a customer totaling
$2,277,727 for the year ended May 31, 1997.
9. Income Taxes:
1998 1997
Current tax provision:
Federal $284,500 $262,379
State 22,800 20,716
-------- --------
307,300 283,095
Deferred tax provision:
Federal (33,000) 18,605
State 700 1,909
-------- --------
(32,300) 20,514
-------- --------
$275,000 $303,609
======== ========
A reconciliation of provision for income taxes at the statutory
rate to income tax provision at the Company's effective rate is as
follows:
1998 1997
Computed tax provision at the
expected statutory rate $247,924 $281,931
State income tax - net of Federal
tax benefit 15,510 14,933
Other 11,566 6,745
-------- --------
$275,000 $303,609
======== ========
<PAGE>
Significant components of the Company's deferred tax assets and
liabilities consist of the following:
1998 1997
Deferred tax assets
Current:
Allowance for doubtful
receivables $ 11,600 $ 4,357
Tax inventory adjustment 19,000 4,399
Allowance for obsolete
Inventory 44,000 27,233
Accrued stock appreciation
Rights 17,800 -
Accrued vacation 19,000 21,641
-------- --------
111,400 57,630
Noncurrent:
AMT credit carryforwards - 4,515
-------- --------
- 4,515
Deferred tax liabilities
Excess tax depreciation 20,900 3,946
-------- --------
Noncurrent, net (20,900) 569
-------- --------
Net deferred tax assets $ 90,500 $ 58,199
======== ========
The Company reported a Federal and State current tax benefit as a
contribution to capital in the amount of $70,075 for stock option
compensation expense deductible for income tax purposes but not
reported as compensation expense in the statement of income for the
year ended May 31, 1997.
The Company and its subsidiary file separate Federal and State
income tax returns. As of May 31, 1998, the Company had State
investment tax credit carryforwards of approximately $190,000
expiring through May 2008.
10. Earnings Per Common Share:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128)
Earnings per Share, which is effective for financial statements for
periods ending after December 15, 1997 and requires that all prior
period earnings per share data be restated. The new standard
eliminates primary and fully diluted earnings per common share and
requires presentation of basic and, if applicable, diluted earnings
per common share. Basic earnings per common share is computed by
dividing income available to common shareholders by the weighted
average common shares outstanding for the period. Diluted earnings
per common share reflects the weighted-average common shares
outstanding and dilutive potential common shares, such as stock
options. A reconciliation of weighted-average common shares
outstanding to weighted-average common shares outstanding assuming
dilution is as follows:
<PAGE>
1998 1997
Average common shares
Outstanding 2,727,246 2,669,626
Common shares issuable under
stock option plans 27,468 39,640
--------- ---------
Average common shares
outstanding assuming dilution 2,754,714 2,709,266
========= =========
11. Related Party Transactions:
Included in cost of sales are research and development expenses
charged by Developments for services performed by their research
engineers in the amount of $296,116 and $223,050 for the years
ended May 31, 1998 and 1997.
Included in selling, general and administrative expenses is royalty
expense charged by Developments for the use of patents in the
Company's manufacturing operations in the amount of $138,368 and
$179,744 for the years ended May 31, 1998 and 1997.
The Company leases certain office and laboratory facilities to
Developments for a current annual rental of $10,000.
12. Preferred Stock:
The Company has 2,000,000 authorized but unissued shares of
preferred stock which may be issued in series. The shares of each
series shall have such rights, preferences, and limitations as
shall be fixed by the Board of Directors.
13. Employee Stock Purchase Plan:
The Company has reserved 200,000 shares of common stock for
issuance pursuant to a non-qualified employee stock purchase plan.
Participation in the employee stock purchase plan is voluntary for
all employees of the Company. Purchase of common shares can be
made by employee contributions through payroll deductions with a
matching contribution by the Company of a specified percentage of
the employees' contributions based on length of continuous
participation in the stock purchase plan. At the end of each
calendar quarter, the employer/employee contributions will be
applied to the purchase of common shares at fair market value which
are then held in the name of the Company as custodian for the
employees' shares. These shares are distributed to the employees
at the end of each calendar year or upon withdrawal from the plan.
During the years ended May 31, 1998 and 1997, 20,010 ($4.22 to
$5.09 price per share) and 17,770 ($3.63 to $5.13 price per share)
common shares, respectively, were issued to employees. As of May
31, 1998, there were 55,582 shares reserved for further issue. The
amount of Company matching expense was $23,985 and $20,749 for the
years ended May 31, 1998 and 1997.
14. Stock Option Plans:
In 1994, the Company established both a non-qualified and incentive
stock option plan. The incentive stock option plan qualifies for
preferential treatment under the Internal Revenue Code. Under
these plans 125,000 shares of common stock have been reserved for
grant to key employees and directors of the Company. Under both
plans the option price may not be less than the fair market value
of the stock at the time the options are granted. Options expire
five to ten years from the date of grant.
<PAGE>
Options granted under the Company's previous non-qualified and
incentive stock option plans, which terminated in a prior year,
expire ten years from the date of grant and are exercisable over
the period stated in each option. The stock appreciation rights
(SAR's) granted under the non-qualified option plan enable the
option holders to exercise their right, in lieu of purchasing the
shares subject to their options, to relinquish the options and
receive an amount of cash or common stock equal to the excess of
the fair market value of the shares at the date of exercise over
the option price for such shares. As of May 31, 1998, $49,460 has
been accrued for unexercised stock appreciation rights.
The Company applies APB Opinion 25 Accounting for Stock Issued to
Employees and related interpretations in accounting for its stock
option plans. Accordingly, no compensation cost has been
recognized for its stock option plans. The Company has adopted the
disclosure method of SFAS No. 123 Accounting for Stock-Based
Compensation. The Black-Scholes Option valuation model was used in
estimating the fair value of traded options which have no vesting
restrictions.
SFAS No. 123 is effective for options granted by the Company during
fiscal years ended May 31, 1998 and 1997. Using the Black-Scholes
option valuation model, the estimated fair values of each option
granted during 1998 and 1997 was $2.42 and $2.76. Principal
assumptions used in applying the Black-Scholes model to options at
date of grant were as follows:
1998 1997
Risk-free interest rate 5.48% 6.13%
Expected life in years 4.5 4.5
Expected volatility .60 .569
Expected dividend yield 0% 0%
Had compensation cost for the Company's stock options plans been
determined based on the fair value at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the
Company's net income and earnings per share would have been reduced
to the proforma amounts indicated below:
1998 1997
Net income:
As reported $462,223 $531,575
======== ========
Proforma $421,573 $473,655
======== ========
Basic and diluted earnings per
common share:
As reported $ .17 $ .20
======== ========
Proforma $ .15 $ .18
======== ========
<PAGE>
The following is a summary of stock option activity:
1998 1997
Outstanding, beginning of year 120,352 138,702
Options granted 25,000 33,000
Options exercised (3,675) (41,350)
Stock appreciation rights
exercised (3,675) (10,000)
-------- --------
Outstanding, end of year (at
prices ranging from $.56 to
$5.56 per share) 138,002 120,352
======== ========
The option holders exercised 3,675 SAR's for the year ended May 31,
1998 for cash reimbursement of personal withholding taxes. In
addition, the option holders exercised 10,000 SAR's and received
5,357 shares ($1.88 price per share) of the Company's common stock
in lieu of cash for the year ended May 31, 1997.
The Company received 583 common shares and 5,252 common shares of
its own stock as treasury stock at fair market value in lieu of
cash payment from the option holders, for the years ended May 31,
1998 and 1997. These treasury shares were received from the option
holders as payment for the purchase price of 3,675 options and
20,350 options exercised under the incentive and non-qualified
stock option plans for the years ended May 31, 1998 and 1997.
15. Retirement Plan:
The Company maintains a retirement plan pursuant to Section 401(k)
of the Internal Revenue Code for essentially all full-time
employees. The Company matches 10% of employee voluntary salary
deferrals up to a maximum of 1% of each participant's eligible
compensation. The Company may also make discretionary
contributions as determined annually by the Company's Board of
Directors. The amount expensed under the plan was $17,116 and
$18,397 for the years ended May 31, 1998 and 1997.
16. Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, restricted funds
held by trustee, accounts receivable, accounts payable, and other
accrued liabilities approximate fair value because of the short
maturity of these instruments.
The carrying amount of debt approximates fair value because the
interest rates on these instruments fluctuate with market interest
rates and are based on current rates offered to the Company for
debt with similar terms and maturities.
17. Cash Flows Information:
1998 1997
Cash paid during the year for:
Interest $151,578 $135,716
======== ========
Income taxes $221,117 $176,140
======== ========
<PAGE>
Schedule of Noncash Investing and
Financing Activities
Property and equipment acquired:
Cost $629,105 $401,195
Noncash borrowings - long-term
debt - (64,439)
-------- --------
Cash payments for property
and equipment $629,105 $336,756
======== ========
Common stock issued - stock
options plan $ 3,061 $ 61,686
Treasury stock received as
payment for stock options (3,061) (31,748)
Common stock issued, charged
to accrued compensation expense - (18,750)
Net cash proceeds from
Exercise of stock options $ - $ 11,188
======== ========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,696,506
<SECURITIES> 0
<RECEIVABLES> 1,645,087
<ALLOWANCES> 32,000
<INVENTORY> 3,032,239
<CURRENT-ASSETS> 6,631,733
<PP&E> 6,082,303
<DEPRECIATION> 3,164,495
<TOTAL-ASSETS> 10,119,677
<CURRENT-LIABILITIES> 3,069,668
<BONDS> 1,333,111
0
0
<COMMON> 69,129
<OTHER-SE> 4,742,820
<TOTAL-LIABILITY-AND-EQUITY> 10,119,677
<SALES> 10,234,022
<TOTAL-REVENUES> 10,234,022
<CGS> 6,518,975
<TOTAL-COSTS> 2,888,087
<OTHER-EXPENSES> (13,067)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,839
<INCOME-PRETAX> 729,188
<INCOME-TAX> 275,000
<INCOME-CONTINUING> 454,188
<DISCONTINUED> 0
<EXTRAORDINARY> 8,035
<CHANGES> 0
<NET-INCOME> 462,223
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
Exhibit (4) (v) to 10-KSB98
MORTGAGE
NIAGARA COUNTY INDUSTRIAL DEVELOPMENT AGENCY ("NCIDA")
TAYCO REALTY CORPORATION ("Owner")
and
TAYLOR DEVICES, INC. ("Borrower")
to
MARINE MIDLAND BANK ("Lender")
Dated As of January __, 1998
Prepared By:
PHILLIPS, LYTLE, HITCHCOCK, BLAINE & HUBER LLP
3400 Marine Midland Center
Buffalo, New York 14203
<PAGE>
MORTGAGE
THIS MORTGAGE, dated as of January 1998, by NIAGARA
COUNTY INDUSTRIAL DEVELOPMENT AGENCY, a corporate governmental
agency constituting a body corporate and politic and a public
benefit corporation of the State of New York, whose address is
2055 Niagara Falls Boulevard, Suite One, Niagara Falls, New
York 14304 ("NCIDA"), TAYCO REALTY CORPORATION, a New York
corporation, whose address is 90 Taylor Drive, North Tonawanda,
New York 14120 ("Owner"), and TAYLOR DEVICES, INC., a New York
corporation, whose address is 90 Taylor Drive, North Tonawanda,
New York 14120 ("Borrower"), to MARINE MIDLAND BANK, a banking
corporation organized under the laws of the State of New York,
whose address is Commercial Banking Department, One Marine
Midland Center, Lobby Level, Buffalo, New York 14203 ("Lender"),
evidences:
ARTICLE I. DEFINITIONS
The following terms shall have the following respective
meanings when used herein.
1.1 Awards: Any and all awards heretofore or
hereafter made by any federal, state, county, municipal or other
governmental authority, or by whomsoever made in any
condemnation, eminent domain, or equivalent proceeding, to the
present or subsequent owners of any interest encumbered by this
Mortgage for the acquisition for public purposes of said
interest, or any portion thereof, and for severance and
consequential damages on account thereof, including any award for
any change of grade of any street affecting said interest, and
also any award for any damage to said interest; and all proceeds
of insurance on or in connection with the Real Property, the
Personal Property, and the Improvements.
1.2 Collateral Documents:
A. Security Agreement from NCIDA, Owner, and
Borrower to Lender of even date herewith;
B. Assignment of Leases and Rents from NCIDA,
Owner and Borrower to Lender of even date herewith; and
C. Any other document given by or on behalf of
NCIDA, Owner, and/or Borrower to secure the Note.
1.3 Improvements: All buildings and other
improvements now or hereafter on the Real Property.
1.4 Indebtedness: All amounts due to Lender from
Borrower from time to time pursuant to the terms of the Note,
this Mortgage, and the Collateral Documents; provided, however,
that the principal amount secured by this Mortgage does not, and
shall not under any contingency, exceed FOUR HUNDRED THOUSAND AND
00/100 U.S. DOLLARS ($400,000.00).
1.5 Indemnitee: Lender, its participants, all
subsequent holders of the Mortgage securing the Indebtedness,
their respective successors and assigns and their respective
officers, directors, employees, agents, representatives,
contractors and subcontractors and any subsequent owner of the
Premises who acquires title thereto from or through Lender.
<PAGE>
1.6 Intangible Assets: means (1) all loans or
advances to, and other receivable owing from, any officers,
employees, subsidiaries and other affiliates, (2) all
investments, whether in a subsidiary or otherwise, (3) goodwill,
(4) any other assets deemed intangible under generally accepted
accounting principles, and (5) any other assets determined to be
intangible by Lender in its reasonable credit judgment.
1.7 Master Indenture: Master Indenture between NCIDA
and Bankers Trust Company dated as of November 1, 1994 with
respect to the NCIDA's 1994 Adjustable Rate Demand Industrial
Development Revenue Bonds, Letter Series (MMARS Second Program).
1.8 Net Working Capital: means the amount by which
current assets (excluding any Intangible Assets as herein
defined) exceed current liabilities, all determined in accordance
with generally accepted accounting principles consistently
applied.
1.9 Note: Borrower's promise of even date herewith to
pay to the order of Lender the maximum principal sum of
$400,000.00, plus interest and other sums as provided therein,
and all extensions, modifications, renewals and replacements
thereof.
1.10 Personal Property: All fixtures and articles of
personal property now or hereafter used or installed on, in, or
in connection with the Real Property or the Improvements,
including without limitation, heating, ventilation, air
conditioning, plumbing, gas and electric fixtures and equipment;
engines, motors, incinerators, pumps, fire prevention equipment,
floor coverings, and all renewals and replacements thereof and
articles in substitution therefor.
1.11 Premises: The Real Property, Improvements,
Personal Property, and Awards.
1.12 Real Property: The land described on Schedule A
attached hereto; all appurtenances thereto; all the right, title,
and interest of NCIDA, Owner and/or Borrower in and to all
streets, alleys, highways, public ways, and waterways adjacent
thereto; all public and private easements and rights of way now
or hereafter benefitting, existing, or used in connection
therewith.
1.13 Tangible Net Worth: means the sum of
stockholders' equity plus the principal balance of any debt that
is subordinated to Lender in a manner satisfactory to Lender,
minus the book value of Intangible Assets (as defined herein),
all determined in accordance with generally accepted accounting
principles consistently applied.
1.14 Taylor: Owner and Borrower collectively.
ARTICLE II. GRANT OF MORTGAGE
To secure the payment of the Indebtedness to Lender,
NCIDA and Owner hereby mortgage the Premises to Lender; provided,
however, that nothing herein shall be construed as a mortgage by
NCIDA of any of the Agency's Reserved Rights, as defined in the
Master Indenture ("Reserved Rights"), the enforceability of which
by NCIDA shall be unaffected hereby.
<PAGE>
ARTICLE III. COVENANTS AND REPRESENTATIONS OF OWNER,
BORROWER AND NCIDA
Taylor, and only when expressly so set forth herein,
NCIDA, each for itself, covenants and agrees with, and represent
to, Lender as follows:
3.1 Payment of Indebtedness: Borrower will pay the
Indebtedness when and as due.
3.2 Payment of Taxes and Assessments: Borrower will
pay prior to the addition of any penalty or interest thereon all
taxes, payments in lieu of taxes, assessments, charges, and water
rates, levied against the Premises and provide Lender with copies
of receipts for the payment thereof.
3.3 Insurance: Owner will: (a) Keep all buildings of
the Premises insured for the benefit of and by insurers
acceptable to Lender and against such hazards and in such form
and amount as Lender may from time to time require; (b) Have
endorsed on the insurance policies the standard New York
mortgagee clause in the name of Lender; and (c) Deliver original
binders or declaration pages and copies of the policies to
Lender. In the event of a failure to comply with (a), (b) or (c)
above, Lender may procure such insurance or insurances covering
the Lender's interest and Owner shall reimburse Lender for the
cost thereof with interest thereon, on demand. The acceptance by
Lender of any insurance policy shall not be deemed as an approval
by Lender of the insurer, or of the coverage, form, amount or
sufficiency of the policy or insurance.
3.4 Statement of Amount Due: Borrower will within ten
(10) days of receipt of Lender's request, furnish a written
statement duly acknowledged of the amount due on this Mortgage
and whether any offsets or defenses exist against the
Indebtedness.
3.5 Notice of Transfer or Casualty: Owner will give
immediate notice to Lender of any damage by fire or other
casualty to the Premises or of any conveyance, transfer or change
of ownership of the Premises or any part thereof or interest
therein. Should Owner receive any proceeds of insurance with
respect to the Premises, the amount thereof shall be applied
toward the repair or restoration of the buildings on the Premises
or to the payment of the Indebtedness, at Lender's option,
provided, however, Lender will advance to Owner any such
insurance proceeds necessary to restore portions of the buildings
on the Premises which in Lender's reasonable judgment will be
restored (i) within the term of the Note and (ii) at a cost not
to exceed such proceeds, unless any such excess is deposited with
Lender for that purpose. Owner appoints as Owner's attorney-in-fact
to make any claim for, receive payment for, and execute and
endorse any documents, checks or other instruments in payment for
loss, theft, or damage under any such insurance policy.
3.6 Demolition or Alteration: Neither NCIDA nor Owner
will remove, demolish or structurally alter any of the
Improvements or Personal Property without the prior written
consent of the Lender.
<PAGE>
3.7 Inspection: NCIDA and Owner will permit Lender
and its agents to inspect the Premises from time to time at any
reasonable hour of the day upon reasonable notice to Borrower
when possible.
3.8 Rents: NCIDA and Owner represent that no rental
for the Premises or any portion thereof has been paid by any of
the tenants or occupants thereof except rental which has become
due prior to the date hereof; that there is no pledge or
assignment of any of the rents, issues or profits of the Premises
or of any portion thereof except to Lender; and that Owner will
make no such pledge or assignment, except to Lender, as long as
any portion of the Indebtedness remains unpaid.
3.9 Tenancies: Neither NCIDA nor Owner will cancel,
abridge or otherwise modify tenancies, subtenancies, leases or
subleases of the Premises nor accept prepayments of installments
of rent, and reference is hereby made to Section 291(f) of the
Real Property Law of the State of New York.
3.10 Consent: Taylor represents that neither Owner's
nor Borrower's respective certificates of incorporation nor any
amendments thereto nor their respective bylaws require the
consent of the shareholders to the execution and delivery of this
Mortgage and the execution and delivery of this Mortgage have
been duly authorized by their respective Board of Directors.
3.11 INTENTIONALLY OMITTED.
3.12 Partial Payments: Borrower agrees that any
payment or part payment of principal or interest or of any other
sum or sums due or to become due hereunder or the doing of any
act or acts under the terms hereof by any then owner of the
Premises or person liable upon the Indebtedness shall for the
purpose of the Statute of Limitations be deemed to be a payment
by or act of every person included in the term Borrower.
3.13 Protection of Premises; Cure of Defaults: NCIDA
and Owner agree that if, in the opinion of Lender, the Premises
are in danger of destruction or deterioration, Lender may enter
upon the Premises and perform such acts thereon or with respect
thereto as it may deem suitable for preservation or protection of
the Premises, and may thereafter remove Owner and/or Borrower
from the Premises or hold possession thereof at its option.
Lender may also perform such acts and make such expenditures as
Lender may deem appropriate or desirable to cure defaults in any
agreement affecting the Premises.
3.14 Change of Law: Borrower agrees that in the event
of the passage of any law changing in any way the laws for the
taxation of mortgages or debts secured by mortgages, for state or
local purposes, or the manner of collection of any such taxes, so
as to affect this Mortgage, Lender shall have the right to give
thirty (30) days written notice to Borrower requiring the payment
of the Indebtedness or payment by Borrower of any such additional
taxes imposed, at Borrower's option. If such notice is given,
the Indebtedness or such additional taxes shall become
immediately due and payable at the expiration of said thirty
(30) days.
<PAGE>
3.15 Reimbursement of Expenses: Borrower agrees to
reimburse Lender for the following expenses, if paid by Lender,
within thirty (30) days of receipt of Lender's demand therefor:
A. Payment of taxes, payments in lieu of taxes,
assessments, water charges, utilities, and insurance premiums not
paid when due by Borrower;
B. Expenses of preserving, protecting or
securing the Premises;
C. Expenses of curing defaults under this
Mortgage or any other agreement affecting the Premises; and
D. Expenses of enforcing this Mortgage and
defending the security thereof, including without limitation, the
reasonable fees and disbursements of accountants, appraisers,
consultants, and attorneys.
3.16 Maintain Premises: Owner will maintain the
Premises in good repair and condition and cause or permit no
waste thereof.
3.17 Financial Covenants: So long as the Indebtedness,
or any portion thereof, remains unpaid, Borrower shall:
(a) Use all proceeds advanced hereunder solely
for the purpose of financing the improvements on the
Premises;
(b) Maintain Net Working Capital of at least
$1,000,000 during the term of this Mortgage or the Note
secured hereby;
(c) Maintain a minimum Tangible Net Worth of
$2,000,000 during the term of this Mortgage or the Note
secured hereby;
(d) Report to Lender in writing any litigation
against Borrower or Owner for more than $100,000
immediately upon receiving notice of such litigation;
and
(e) Not make annual capital expenditures in excess of
$300,000 without the prior written consent of Lender.
3.18 Books and Records: Taylor shall at all times
maintain accurate books and records with respect to the
Indebtedness and the Premises, which books and records shall
reflect the consistent application of accepted accounting
principles, and to make such books and records available at
reasonable times for inspection and copying by Lender or its
agent.
3.19 Future Financial Statements: Taylor shall
furnish to Lender the current financial statements of Borrower
and Owner within one hundred twenty (120) days after the end
of each of their respective fiscal years. Such statements
shall be prepared by an independent certified public
accounting firm acceptable to
Lender; and shall consist of a balance sheet, an income
statement, rent rolls (if applicable), cash flow statement, and
statement of contingent liabilities; and shall be certified to be
<PAGE>
correct. Taylor shall also furnish Lender with internally
prepared, interim financial statements of Borrower and Owner on a
quarterly basis; and, within fifteen (15) days after filing same,
a copy of Owner's income tax return. Taylor shall also furnish
Lender with such other financial information with respect
Borrower and Owner as Lender may request.
3.20 Future Operating Statements: Borrower shall
furnish Lender with copies of the annual operating statements for
the Premises within thirty (30) days after the end of each fiscal
year of Borrower.
3.21 Annual Reports and Shareholder Communications:
Borrower shall furnish Lender, within ten (10) days of filing
same, annual and quarterly Form 10-K reports any intervening Form
8-K reports; and shall furnish Lender, within ten (10) days of
mailing, any shareholder communications.
3.22 Comply With Covenants: Taylor will not use the
Premises in any manner which will violate an enforceable
restrictive covenant affecting the same.
3.23 Other Acts: At Lender's request, Taylor will
execute and deliver to Lender all further documents and perform
all other acts which Lender reasonably deems necessary or
appropriate to perfect or protect its security for the
Indebtedness.
IV. EVENTS OF DEFAULT
The existence of any of the following conditions or the
occurrences of any of the following events shall constitute
events of default hereunder ("Events of Default"):
4.1 Failure to Pay Indebtedness: Failure by Borrower
to pay the Indebtedness when due;
4.2 Default Under Other Documents: Any Event of
Default as defined in the Note, or any of the Collateral
Documents (after any applicable cure period set forth therein)
and not otherwise specifically set forth herein;
4.3 Sale or Transfer: Sale or transfer of the
Premises or any part thereof, or of any legal or equitable
interest therein, without the prior written consent of Lender;
4.4 Other Liens: The existence of any mortgage,
encumbrance, or lien to secure debt (other than in favor of
Lender) affecting all or any of the Premises without Lender's
prior written consent;
4.5 Default Under Other Credit Facilities: Any Event
of Default under any credit facility given by Lender to Borrower;
4.6 Failure to Perform Other Covenants: Failure by or
on behalf of Taylor to perform any other covenant or agreement
herein, which failure continues for ten (10) days after receipt
by Taylor of Lender's demand for cure of the same; or
<PAGE>
4.7 Default Under Other Mortgages: Default in the
performance of any other mortgage or encumbrance to which Lender
has consented affecting all or any of the Premises.
4.8 Failure to Comply with Laws: Failure of Taylor to
comply promptly with all requirements of the federal, state,
county, municipal and other governmental authorities having
jurisdiction, or use of the Premises in any way that violates any
governmental law, ordinance, rule, regulation or requirement;
4.9 Assumption of Mortgage: Assumption of this
Mortgage by a third party without the prior written consent of
Lender; or
4.10 False Statements: If any certificate, statement,
warranty or audit representation heretofore or hereafter
furnished by or on behalf of Taylor pursuant to or in connection
with this Mortgage (including, without limitation,
representations and warranties contained herein) proves to have
been false or to have omitted any substantial contingent or
unliquidated liability or claim against Taylor.
V. REMEDIES
Upon the occurrence of an Event of Default, Lender
shall have the absolute right, at is option and election and in
its sole discretion, to exercise alternatively or cumulatively
any or all of the following remedies:
5.1 Accelerate Indebtedness: Declare the Indebtedness
immediately due and payable;
5.2 Foreclose Mortgage: Institute judicial or
non-judicial proceedings to foreclose the lien of this Mortgage;
5.3 Take Possession of Premises: Enter into and take
possession of all or any of the Premises (and NCIDA and Taylor
agree to peaceably surrender the same immediately upon receipt of
Lender's demand therefor); lease and re-lease all or any of the
Premises; collect the rents, income and profits therefrom and
apply the same against the Indebtedness; collect reasonable rent
from Taylor if Taylor remains in possession after Lender's demand
to surrender; dispossess by summary proceeding any tenant
(including Taylor) defaulting in the payment of rent; provided,
however, that no such acts by or on behalf of Lender shall
constitute Lender a "mortgagee in possession." The rights
enumerated herein shall inure to the benefit of any receiver
appointed respecting the Premises;
5.4 Receiver: Obtain the appointment of a receiver of
rents and profits without notice and whether or not in connection
with an action to foreclose this Mortgage;
5.5 Sell in One or More Parcels: In the event of a
foreclosure hereof, cause the Premises to be sold in one or more
parcels, any provision of law to the contrary notwithstanding;
and
5.6 Other: Exercise any other remedy and obtain any
other relief as may be available to Lender in law or equity.
<PAGE>
VI. MISCELLANEOUS
6.1 Releases: Lender may, without the consent of
NCIDA or Taylor, or any other person liable for the payment of
the Indebtedness, release any portion or portions of or interest
or interests in the Premises from the lien of this Mortgage,
either with or without consideration, and may release or
discharge in whole or in part any other property which it may at
any time hold as security for payment of the Indebtedness or any
part thereof and may take any other bond, note or obligation as
evidence of the Indebtedness, payable at such time and on such
terms as Lender may approve.
6.2 Application of Payments: If Lender receives from
or on behalf of Borrower any sum less than the full amount then
due and payable, Lender may, but shall not be obligated to,
accept the same and if it elects to accept any such payment, it
may hold the same or any part thereof, without liability for
interest, in a special account and may from time to time apply
the same or any part thereof to the Indebtedness or to the
payment of any taxes, assessments, sewer or water charges or
insurance premiums which Lender deems desirable to maintain the
lien of this Mortgage, or to any expenses, including costs and
reasonable attorneys' fees and disbursements, incurred by Lender
in attempting to collect any amount owing on the Indebtedness and
in bringing foreclosure proceedings with respect to this
Mortgage.
6.3 Notice: All notices, elections or demands
permitted or required herein shall be in writing, signed by the
party giving such notice, election or demand, and given
personally or by mail, addressed to the appropriate party at the
address designated for such party in the heading of this
Mortgage, or such other address in the continental United States
as the party who is to receive such notice may designate by
notice to the other party. Notice by mail shall be by registered
or certified United States mail, addressed to the party to be
notified, and with the proper amount of postage affixed thereto.
The effective date of the notice, election or demand shall be the
date of personal delivery or the third business day following the
date of mailing, as the case may be. Rejection or other refusal
to accept, or inability to deliver because of a change of address
of which no notice was given shall be deemed to be receipt of the
notice, election or demand sent. Any notice to be delivered to
Taylor shall be deemed effective if delivered pursuant to this
paragraph to either Owner or Borrower.
6.4 Parties: Except as provided in Section 6.11
hereof, if more than one party join in the execution of this
Mortgage, the covenants and agreements herein contained shall be
the joint and several obligation of each and all of them and of
their respective heirs, executors, administrators, successors and
assigns, and relative words herein shall be read as if written in
the plural when appropriate. Any reference herein to Lender
shall be deemed to include and apply to every subsequent holder
of this Mortgage and any reference herein to Taylor, Owner or
Borrower shall be deemed to include and apply to every subsequent
owner of the Premises and every person liable upon the
Indebtedness, unless the language or circumstances clearly
requires the contrary. Words of masculine or neuter import shall
be read as if written in the neuter or masculine or feminine when
appropriate.
<PAGE>
6.5 Waiver: No course of dealing and no delay or
omission by Lender in exercising any right or remedy hereunder or
with respect to any indebtedness of Borrower to Lender shall
operate as a waiver thereof or of any other right or remedy and
no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right or
remedy. Lender may remedy any default by Taylor to Lender or any
other person, firm or corporation in any reasonable manner
without waiving the default remedied and without waiving any
other prior or subsequent default by Taylor and shall be
reimbursed for any and all of its expenses in so remedying such
default. All rights and remedies of Lender hereunder are
cumulative.
6.6 Environmental Rider: The terms, provisions and
conditions of the environmental rider attached hereto as Schedule
B are hereby incorporated into this Mortgage.
6.7 Trust Fund Provisions: This Mortgage is subject
to the trust fund provisions of Section 13 of the Lien Law of the
State of New York.
6.8 Governing Law: This Mortgage, and the rights and
obligations of the parties hereto, shall be construed and
interpreted in accordance with the internal laws of the State of
New York, without regard to principles of conflicts of laws.
6.9 Jurisdiction: NCIDA AND TAYLOR AGREE THAT ANY
ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS MORTGAGE
MAY BE COMMENCED IN THE SUPREME COURT OF NEW YORK IN NIAGARA
COUNTY, OR IN THE DISTRICT COURT OF THE UNITED STATES IN THE
WESTERN DISTRICT OF NEW YORK, AND NCIDA AND TAYLOR WAIVE PERSONAL
SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT
COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE
PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED
BY REGISTERED MAIL TO NCIDA AND TAYLOR AT THE ADDRESS SPECIFIED
IN THE HEADING OF THIS MORTGAGE, OR AS OTHERWISE PROVIDED BY THE
LAWS OF THE STATE OF NEW YORK OR THE UNITED STATES.
6.10 Waiver of Jury Trial: NCIDA AND TAYLOR HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO
TRIAL BY JURY NCIDA AND TAYLOR MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS MORTGAGE
OR THE TRANSACTIONS RELATED HERETO. NCIDA AND TAYLOR REPRESENT
AND WARRANT THAT NO REPRESENTATIVE OR AGENT OF LENDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WILL NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER.
NCIDA AND TAYLOR ACKNOWLEDGE THAT LENDER HAS BEEN INDUCED TO
ENTER INTO THIS MORTGAGE BY, AMONG OTHER THINGS, THE PROVISIONS
OF THIS SECTION.
6.11 No Pecuniary Liability of NCIDA:
(a) Any obligation of NCIDA under this Mortgage
shall not create a debt of the State of New York or of Niagara
County and neither the State of New York nor Niagara County shall
be liable on any obligation so incurred.
<PAGE>
(b) With respect to NCIDA, it is agreed that
NCIDA and its officers, members, employees, agents and directors
shall have no personal liability hereunder, nor in their capacity
as officers, members, employees, agents and directors. NCIDA has
executed this Mortgage to subject its interest in the Premises to
the lien of this Mortgage, however Lender shall not have any
recourse to NCIDA other than to its interest in the Premises. No
provision, covenant or agreement contained in this Mortgage or
any obligation herein imposed upon NCIDA or the breach thereof
shall constitute or give rise to or impose upon NCIDA a pecuniary
liability or a charge upon its general credit. In making the
agreements set forth in this Mortgage, NCIDA has not obligated
itself except with respect to the Premises. All covenants,
stipulations, promises, agreements and obligations of NCIDA
contained herein shall be the covenants, stipulations, promises,
agreements and obligations of NCIDA and not of any member,
director, employee, officer or agent of NCIDA in his or her
individual capacity, and no recourse shall be had for the
principal of any debt or interest thereon or for any claim based
thereon or hereunder against any member, director, officer,
employee or agent of NCIDA or any natural person executing this
Mortgage on behalf of NCIDA.
6.12 Subordination to Existing Mortgage: This Mortgage
is made subject, subordinate and junior to the Series Mortgage in
the original principal amount of $1,250,000.00 from NCIDA,
Borrower and Owner to Lender dated as of November 1, 1994 and
recorded on November 18, 1994 in the Niagara County Clerk's
Office in Liber 3007 of Mortgages at Page 68.
6.13 Successor and Assigns: This Mortgage shall inure
to the benefit of, and be binding on, the parties hereto, and
their successors and assigns.
IN WITNESS WHEREOF, NCIDA, Owner and Borrower have duly
executed this Mortgage.
TAYCO REALTY CORPORATION
By: ______________________________
Name:
Title:
TAYLOR DEVICES, INC.
By: ______________________________
Name: Douglas P. Taylor
Title: President
NIAGARA COUNTY INDUSTRIAL
DEVELOPMENT AGENCY
By: ______________________________
Name:
Title:
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On this day of January, 1998, before me personally
came Douglas P. Taylor, to me known, who, being by me duly sworn,
did depose and say that he resides at 375 Belmont Court E., North
Tonawanda, NY 14150, that he is President of TAYLOR DEVICES,
INC., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
______________________________
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF )
On this day of , 19 , before me
personally came , to me
known, who, being by me duly sworn, did depose and say that (s)he
resides at
, that (s)he is of
TAYCO REALTY CORPORATION, the corporation described in and which
executed the foregoing instrument; and that (s)he signed h___
name thereto by order of the Board of Directors of said
corporation.
______________________________
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this ____ day of January, 1998 before me personally
came _________________________, to me known, who, being by me
duly sworn, did depose and say that he resides at
, that he is the
____________________ of NIAGARA COUNTY INDUSTRIAL DEVELOPMENT
AGENCY, the corporation described in and which executed the
foregoing Instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
Notary Public
IBcw/466535.2
<PAGE>
SCHEDULE A
(Legal Description)
SCHEDULE B
RIDER TO MORTGAGE
Environmental Agreement
1. Definitions: As used in this Schedule, the
following capitalized terms shall have the meanings set forth
below:
"Disposal" means the intentional or unintentional
abandonment, discharge, deposit, injection, dumping, spilling,
leaking, storing, burning, thermal destruction or placing of any
substance so that it or any of its constituents may enter the
Environment.
"Environment" means any water including but not limited
to surface water and ground water or water vapor; any land
including land surface or subsurface; stream sediments; air;
fish, wildlife, plants; and all other natural resources or
environmental media.
"Environmental Laws" means all federal, state and local
environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances, regulations, codes and
rules relating to the protection of the Environment and/or
governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of
Hazardous Substances and the policies, guidelines, procedures,
interpretations, decisions, orders and directives of federal,
state and local governmental agencies and authorities with
respect thereto.
"Environmental Permits" means all licenses, permits,
approvals, authorizations, consents or registrations required by
any applicable Environmental Laws and all applicable judicial and
administrative orders in connection with ownership, lease,
purchase, transfer, closure, use and/or operation of the Property
and/or as may be required for the storage, treatment, generation,
transportation, processing, handling, production or disposal of
Hazardous Substances.
"Environmental Questionnaire" means one or more
questionnaires and all attachments thereto concerning: 1)
activities and conditions affecting the Environment at the
Property or 2) the enforcement or possible enforcement of any
Environmental Law against Mortgagor.
"Environmental Report" means a written report and all
attachments and amendments thereto prepared for Lender by an
environmental consulting or environmental engineering firm
acceptable to Lender.
<PAGE>
"Hazardous Substances" means, without limitation, any
explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or
toxic substances and any other material defined as a hazardous
substance in Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601(14).
"Mortgagor" means Taylor Devices, Inc. and Tayco Realty
Corporation, their respective heirs, personal representatives,
successors and/or assigns.
"Mortgagee" means Marine Midland Bank, its affiliates,
successors and/or assigns.
"Mortgage" means the mortgage from Mortgagor to
Mortgagee dated of even date herewith to which this Schedule is
attached.
"Property" means the premises covered by the Mortgage.
"Release" has the same meaning as given to that term in
Section 101(22) of the Comprehensive, Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601(22), and the regulations promulgated thereunder.
2. Mortgagor represents and warrants that:
(i) The Environmental Questionnaire previously
provided to Mortgagee was and is accurate and complete and does
not omit any material fact the omission of which would make the
information contained therein materially misleading.
(ii) No asbestos or urea formaldehyde foam
insulation is located in any of the buildings or structures
improving the Property.
(iii) No above ground or underground storage tanks
containing Hazardous Substances are or have been located on the
Property.
(iv) Radon gas is not present in buildings on the
Property in concentrations exceeding 4 pCi/1.
(v) No electrical transformers, capacitors,
lighting ballasts or other electric equipment on the Property
contain polychlorinated biphenyls (PCBs) in concentrations
exceeding amounts allowed by any Environmental Law.
(vi) The Property is not and has not been used for
the Disposal of any Hazardous Substance or for the treatment,
storage or Disposal of Hazardous Substances.
(vii) No Release of a Hazardous Substance has
occurred or is threatened on, at, or from the Property.
<PAGE>
(viii) Neither Mortgagor nor the Property is subject
to any existing, pending or threatened suit, claim, notice of
violation or request for information under any Environmental Law.
(ix) Mortgagor is in compliance with all
Environmental Laws applicable to its operations at the Property.
3. Mortgagor covenants and agrees with Mortgagee that
so long as this Mortgage remains a lien on the Property that:
(i) Mortgagor shall comply with all Environmental
Laws in connection with its ownership or use of the Property or
any related property.
(ii) Mortgagor shall not suffer, cause or permit
the Disposal of Hazardous Substances at the Property.
(iii) Mortgagor shall not suffer, cause or permit
the generation, handling, processing, use, or storage of
Hazardous Substances on the Property except in compliance with
all Environmental Laws.
(iv) Mortgagor shall promptly notify Mortgagee in
the event of the Disposal any Hazardous Substance at the
Property, or any Release, or threatened Release, of a Hazardous
Substance, from the Property.
(v) Mortgagor shall allow Mortgagee and its agent
access to the Property at all times and permit such inspections,
tests, drilling of monitoring wells, soil borings or other
analysis of the Property as Mortgagee may reasonably require.
(vi) Mortgagor, at its expense and at Mortgagee's
request, shall provide to Mortgagee, updated Environmental
Questionnaires and/or Environmental Reports concerning the
Property.
(vii) Mortgagor shall deliver promptly to Mortgagee
(a) copies of any documents received from the United States
Environmental Protection Agency or any state, county or municipal
environmental or health agency concerning Mortgagor's operations
at the Property and (b) copies of any documents submitted by
Mortgagor to the United States Environmental Protection Agency or
any state, county or municipal environmental or health agency
concerning its operations at the Property.
4. Mortgagor agrees to indemnify, defend, and hold
harmless Mortgagee from and against any and all liabilities,
claims, damages, penalties, expenditures, losses, or charges,
including, but not limited to, all costs or investigation,
monitoring, legal representation, remedial response, removal,
restoration or permit acquisition, which may now or in the future
be undertaken, suffered, paid, awarded, assessed, or otherwise
incurred by Mortgagee or any other person or entity as a result
of the presence of, Release of or threatened Release of Hazardous
Substance on, in, under or near the Property. The liability of
Mortgagor to Mortgagee under the covenants of this Section is not
limited by any exculpatory provisions in the note or in the other
documents securing the loan and shall survive any foreclosure of
this Mortgage, transfer of the Property by deed in lieu of
foreclosure or any other transfer or termination of this Mortgage
regardless of the means of such transfer or termination.
<PAGE>
5. If Mortgagor defaults on any of its obligations
pursuant to this Mortgage, the note or any other document
securing the loan, Mortgagee or its designee shall have the
right, to enter upon the Property and conduct such tests,
investigation and sampling, including but not limited to,
installation of monitoring wells, as shall be reasonably
necessary for Mortgagee to determine whether any Disposal of
Hazardous Substances has occurred on, at or near the Property.
The costs of all such tests, investigations and samplings shall
be added to the balance of the loan.
6. Mortgagor agrees that Mortgagee shall not be
liable in any way for the completeness or accuracy of any
Environmental Report or the information contained therein.
Mortgagor further agrees that Mortgagee has no duty to warn
Mortgagor or any other person or entity about any actual or
potential environmental contamination or other problem that may
have become apparent or will become apparent to Mortgagee.
TAYCO REALTY CORPORATION
By: ______________________________
Name:
Title:
TAYLOR DEVICES, INC.
By: ______________________________
Name:
Title:
<PAGE>
SCHEDULE A
PARCEL A
ALL THAT TRACT OR PARCEL OF LAND, situate in the City
of North Tonawanda, County of Niagara and State of New York,
being part of Tonawanda Island as shown on Map entitled "Map of
Tonawanda Island, North Tonawanda, N.Y." made by T.W. Barrally,
C.E., in 1922 and filed in the Niagara County Clerk's Office on
April 4, 1923 under Cover No.459, subsequently in Book 24 of Maps
at page 485, now in Book 18 of microfilmed Maps at Pages 1758 and
1759, bounded and described as follows:
BEGINNING at a point in the easterly line of Michigan
Street (as widened to 80 feet by Deed recorded in the Niagara
County Clerk's Office in Liber 1357 of Deeds at Page 383),
distant 165.03 feet south of the north liine of lands conveyed to
Tayco Realty Corporation by Deed recorded in the Niagara County
Clerk's Office in Liber 1629 of Deeds at Page 57;
THENCE easterly, forming an exterior angle of 89
degrees 59 feet21 inches with the said easterly line of said
Michigan Street, 175 feet;
THENCE southerly, and parallel with the easterly line
of said Michigan Street, 70 feet;
THENCE westerly, with the first described course, 175
feet to the said easterly line of Michigan Street, 80 feet wide;
THENCE northerly, along the said easterly line of
Michigan Street, 70 feet to the point and place of beginning.
PARCEL B
ALL THAT TRACT OR PARCEL OF LAND, situate in the City
of North Tonawanda, County of Niagara and State of New York,
being part of Tonawanda Island as shown on Map entitled "Map of
Tonawanda Island, North Tonawanda, N.Y." made by T.W. Barrally,
C.E., in 1922 and filed in the Niagara County Clerk's Office on
April 4, 1923 under Cover No. 459, subsequently in Book 24 of
Maps at Page 485, now in Book 18 of Microfilmed Maps at Pages
1758 and 1759, bounded and described as follows:
BEGINNING at a point located on the easterly line of
Michigan Street (as widened to 80 feet by Deed recorded in the
Niagara County Clerk's Office in Liber 1357 of Deeds at Page
383), said point being 117.0 feet southerly from the
southwesterly corner of lands conveyed to Tayco Realty
Corporation by Deed recorded in the Niagara County Clerk's Office
in Liber 1629 of Deeds at Page 57; as measured along said easterly
line of said Michigan Street recorded in Liber 1357 of Deeds at
Page 383, said point also being located on the southerly line of
Taylor Drive (66.0 feet wide);
THENCE continuing southerly, along the formerly
easterly line of Michigan Street recorded in Liber 1357 of Deeds
at Page 383, a distance of 308.0 feet to the northerly line of
Bridge Street (60.0 feet wide);
THENCE westerly, along the northerly line of Bridge
Street, 143.16 feet;
THENCE northeasterly, forming an interior angle of 74
degrees 02 feet 19 inches and along (New) Michigan Street, as now
laid out (66.0 feet wide), 316.24 feet;
<PAGE>
THENCE easterly, forming an interior angle of 111
degrees 23 feet 41 inches , a distance of 27.16 feet to the point
and place of beginning.
PARCEL C
ALL THAT TRACT OR PARCEL OF LAND, situate in the City
of North Tonawanda, county of Niagara and State of New York,
shown on a map entitled "Map of Tonawanda Island, North
Tonawanda, NY" made by T.T. Barrally, C.E., in 1922 and filed
in the Niagara County clerk's Office on April 4, 1923 under Cover
No. 459, subsequently in Book 24 of Maps at Page 485, now in book
18 of Microfilmed Maps at pages 1758 and 1759 and known as part of
Tonawanda Island in said City, and more particularly bounded and
described as follows:
BEGINNING at the intersection of the easterly line of
Michigan Street (as widened to 80 feet by Deed recorded in the
Niagara County clerk's Office in Liber 1357 of Deeds at Page 383)
ane the northerly line of Taylor Drive (66 feet) as now laid
out;
THENCE easterly along the said northerly line of Taylor
Drive, 218.96 feet;
THENCE northerly at right angles to said northerly line
of said Taylor Drive, 30.17 feet;
THENCE northeasterly at an exterior angle of 135
degrees 04 feet 41 inches, 161.97 feet;
THENCE easterly at an exterior angle of 129 degrees 29
feet 13 inches and along the northerly line of lands conveyed to
the Outboard Boating Club of Tonawandas, Inc. by Deed recorded in
the Niagara County Clerk's Office in Liber 1553 of Deeds at Page
1194, 200 feet to the westerly line of the Niagara River or
Little Niagara River or Inner Harbor, so called;
THENCE northerly along the said westerly line of the
Niagara River, 275 feet, more or less, to the southerly line of
lands conveyed to Smith Boys, Inc. by Deed recorded in the
Niagara County Clerk's Office in liber 1552 of Deeds at Page 428;
THENCE westerly and along a southerly line of said
Smith Boys, Inc. lands, 100 feet;
THENCE northerly parallel with the east line of
Michigan Street, 123 feet to an angle in said lands of Smith
Boys, Inc.;
THENCE westerly along the northerlymost southerly
course of said lands of Smith Boys, Inc. a distance of 432 feet
to said easterly line of Michigan Street;
THENCE southerly, along the said easterly line of
Michigan Street 165.03 feet;
THENCE easterly at an interior angle of 89 degrees 59
feet 21 inches, 175 feet;
THENCE southerly parallel with the said easterly line
of michigan Street, 70 feet;
THENCE westerly along a line forming an interior angle of
90 degrees 01 feet 39 inches with the said eaterly line of said
Michigan Street, 175 feet;
THENCE southerly along the said easterly line of Michigan
Street, 287.94 feet, to the point and place of beginning.
