-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SedtAo74DBrqzn7UUEJjzyzWuHr04Nvd2kTO7VxslKidtolJeaNc437o/rgcvOBz ROIeohBrRdil4yRtDJ/83Q== 0000950152-00-002572.txt : 20000331 0000950152-00-002572.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950152-00-002572 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVOTRONICS INC /DE/ CENTRAL INDEX KEY: 0000089140 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 160837866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 001-07109 FILM NUMBER: 588520 BUSINESS ADDRESS: STREET 1: 1110 MAPLE ST CITY: ELMA STATE: NY ZIP: 14059 BUSINESS PHONE: 7166335990 MAIL ADDRESS: STREET 1: P O BOX 300 STREET 2: ELMA STATE: NY ZIP: 14059-0300 10KSB40 1 SERVOTRONICS, INC. 10KSB40 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 __ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________. Commission File No. 1-7109 SERVOTRONICS, INC. (Name of small business issuer as specified in its charter) Delaware 16-0837866 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 1110 Maple Street, Elma, New York 14059 (Address of principal executive offices) (Zip Code) Issuer's telephone number: 716-655-5990
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered Common Stock, $.20 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x . No . Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for its most recent fiscal year: $16,165,000. As of March 14, 2000 the aggregate market value of the voting common stock held by non-affiliates of the registrant was $7,882,459.97 based on the average of sales prices reported by the American Stock Exchange on that day. As of March 14, 2000 the number of $.20 par value common shares outstanding was 2,405,488. DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-KSB -------- ------------------- 2000 Proxy Statement Part III
Transitional Small Business Disclosure Format. Yes / /. No /x/. 2 PART I Item 1. Description of Business General Servotronics, Inc. and its subsidiaries (collectively the "Registrant" or the "Company") design, manufacture and market advanced technology products consisting primarily of control components and consumer products consisting of knives and various types of cutlery. The Registrant was incorporated in New York in 1959. In 1972, the Registrant was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Registrant's state of incorporation from New York to Delaware. Products Advanced Technology Products The Registrant designs, manufactures and markets a variety of servo-control components which convert an electrical current into a mechanical force or movement and other related products. The principal servo-control components produced include torque motors, electromagnetic actuators, proportional solenoids, hydraulic valves, pneumatic valves and similar devices, all of which perform the same general function. These are sold principally to the commercial, aerospace, missile, aircraft and government related industries. To fill most of its orders for components, the Registrant must either modify a catalog model or design a new item in order to satisfy the customer's particular requirements. The Registrant also produces unique products based on specifications provided by its customers. The Registrant produces under long-term contracts and other types or orders. The Registrant also produces metallic seals of various cross-sectional configurations. These seals fit between two surfaces, usually metal, to produce a more secure and leak-proof joint. They are generally designed for use under circumstances in which more conventional seals and gaskets do not perform adequately, such as exposure to extremes of temperature, high pressures, vacuums, radiation or corrosive atmospheres. The Registrant manufactures these seals to close tolerances from standard and special alloy steels. Ductile coatings are often applied to the seals in order to increase their effectiveness. -2- 3 From time to time, the Registrant has also produced other products of its own and/or of a given design to meet customers' requirements. Consumer Products The Registrant designs, manufactures and sells a variety of cutlery products. These products include a wide range of knives such as steak, carving, bread, butcher and paring knives for household use and for use in restaurants, government installations, institutions and private industry and pocket and other types of knives for hunting, fishing and camping. The Registrant also produces and markets other cutlery items such as carving forks, sharpeners and various specialty tools such as putty knives, linoleum sheet cutters and field knives. The Registrant manufactures its cutlery products from stainless or high carbon steel in numerous styles, designs, models and sizes. Substantially all of the Registrant's cutlery and cutlery related products are intended for the medium to premium priced markets. The Registrant sells many of its cutlery products under its own brand names including "Old Hickory" and "Queen." Sales, Marketing and Distribution Advanced Technology Products The Registrant's advanced technology products are marketed throughout the United States and are essentially nonseasonal in nature. These products are sold to the United States Government, government prime contractors and commercial manufacturers and end users. Sales are made primarily by the Registrant's professional staff. During the Registrant's last fiscal year, sales of advanced technology products pursuant to subcontracts with prime or subcontractors for various branches of the United States Government or pursuant to prime contracts directly with the government accounted for approximately 18% of the Registrant's total revenues. If the Registrant were deemed to be unqualified by the United States Government as a contractor or subcontractor, it would lose approximately 30% of its revenue of advanced technology products. In 1999 and 1998 sales of advanced technology products to Honeywell/AlliedSignal and United Technologies, through several of their subsidiaries and/or divisions, respectively, exceeded 10% of Registrant's total revenues. No other single customer represented more than 10% of the Company's revenues in any of these years. The Registrant's prime contracts and subcontracts with the Government are subject to termination for the convenience of the Government. In the event of such termination, the Registrant -3- 4 is ordinarily entitled to receive payment for its costs and profits on work done prior to termination. Since the inception of the Registrant's business, less than 1% of its government contracts have been terminated for convenience. Consumer Products The Registrant's consumer products are marketed throughout the United States. Consumer sales are moderately seasonal. Sales are to hardware, supermarket, variety, department, discount, gift and drug stores. The Registrant also sells its cutlery products (principally machetes, survival knives and kitchen knives) to various branches of the United States Government. The Registrant sells its products through its own sales personnel and through independent manufacturers' representatives. Business Segments Business segment information is presented in Note 12 of the accompanying consolidated financial statements. Intellectual Properties The Company has rights under certain copyrights and registered domain names. In the view of management, the Registrant's competitive position is not dependent on patent protection. Research Activities The amount spent by the Registrant in research and development activities during its 1999 and 1998 fiscal years was not significant. Environmental Compliance The Registrant does not anticipate that the cost of compliance with current environmental laws will be material. Manufacturing The Registrant manufactures its consumer products in Franklinville, New York and Titusville, Pennsylvania and its advanced technology products in Elma, New York. -4- 5 Raw Materials and Other Supplies The Registrant purchases raw materials and certain components for its products from outside vendors. The Registrant is not generally dependent upon a single source of supply for any raw material or component used in its operations. Competition Although no reliable industry statistics are available to enable the Registrant to determine accurately its relative competitive position with respect to any of its products, the Registrant believes that it is a significant factor with respect to certain of its servo-control components. The Registrant's share of the overall cutlery market is not significant. The Registrant encounters active competition with respect to its products from numerous companies, many of which are larger than it in terms of manufacturing capacity, financial resources and marketing organization. Its principal competitors vary depending upon the customer and/or the products involved. The Registrant believes that it competes primarily with more than 20 companies with respect to its consumer products, in addition to foreign imports. To the Registrant's knowledge, its principal competitors with regard to cutlery include ECKO Housewares, Inc., Russell Harrington Cutlery, Inc., W. R. Case & Sons Cutlery Company, Imperial Schrade Corporation and Camillus Cutlery Company. The Registrant has many different competitors with respect to servo-control components because of the nature of that business and the fact that these products also face competition from other types of control components which, at times, can accomplish the desired result. The Registrant markets most of its products throughout the United States. The Registrant believes that it competes in marketing its consumer products primarily on the basis of price, quality and delivery, and its control products primarily on the basis of operating performance, adherence to rigid specifications, quality, price and delivery. Employees The Registrant at December 31, 1999 had approximately 238 employees of which approximately 221 are full time. In excess of 87% of its employees are engaged in production, inspection, packaging or shipping activities. The balance are engaged in executive, engineering, administrative, clerical or sales capacities. -5- 6 Item 2. Description of Properties The Registrant's executive offices are located on premises leased by the Registrant at 1110 Maple Street, Elma, a suburb of Buffalo, New York. The Registrant owns and/or leases real property as set forth in the following table:
Number of Principal buildings and Approx. Approx. product type of floor area Location acreage manufactured construction (sq. feet) -------- ------- ------------ ------------ ---------- Elma, New York 38.4 Advanced 1-concrete block 82,000 technology and steel products Franklinville, 7.7 Cutlery products 1-tile and New York wood 85,000 Titusville, Pennsylvania .4 Cutlery products 2-brick 25,000
In Elma, New York, the Registrant leases approximately 38.4 acres of land and a facility from a local industrial development agency. The lease is accounted for as a capital lease and entitles the Registrant to purchase the property for a nominal amount. See the consolidated financial statements, including Note 10 thereto, for further information with respect to the Registrant's lease commitments. The Registrant possesses modern precision manufacturing and testing equipment suitable for the development, manufacture, assembly and testing of its advanced technology products. The Registrant designs and makes substantially all of the tools, dies, jigs and specialized testing equipment necessary for the production of the advanced technology products. The Registrant also possesses automatic and semi-automatic grinders, tumblers, presses and miscellaneous metal finishing machinery and equipment for use in the manufacture of consumer products. Item 3. Legal Proceedings There are no legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company. -6- 7 Item 4. Submission of Matters to a Vote of Security Holders Not applicable. -7- 8 PART II Item 5. Market for Common Equity and Related Stockholder Matters (a) Price range of common stock The following table shows the range of high and low prices for the Registrant's common stock as reported by the American Stock Exchange for 1999 and 1998.
High Low --------- ------- 1999 Fourth Quarter $ 6-1/8 $ 4-7/8 Third Quarter 7 3/8 4-3/4 Second Quarter 5-7/16 4-1/4 First Quarter 7 4-3/4 1998 Fourth Quarter $ 7-3/4 $ 6-5/8 Third Quarter 11 7-1/2 Second Quarter 13-3/8 8-3/8 First Quarter 10-1/2 7-5/16
(b) Approximate number of holders of common stock
Title Approximate number of of record holders (as of class December 31, 1999) ----- --------------------- Common Stock, $.20 par value 703
(c) Dividends on common stock No cash dividends were paid in 1999 or 1998. -8- 9 Item 6. Management's Discussion and Analysis or Plan of Operation Summary The following table sets forth for the periods indicated the percentage relationship of certain items in the consolidated statement of income to net revenues and the percentage increase or decrease of such items as compared to the indicated prior period:
PERIOD TO RELATIONSHIP TO PERIOD NET REVENUES YEAR INCREASE ENDED (DECREASE) DECEMBER 31, YEAR ENDED 1999 1998 1999-98 ---- ---- ---------- Net revenues: Advanced technology products 60.6% 62.4% (10.7)% Consumer products 39.4 37.6 (3.5) ------ ------ ------ 100.0 100.0 (8.0) Cost of goods sold 75.2 68.2 1.4 ------ ------ ------ Gross profit 24.8 31.8 (28.1) ------ ------ ------ Selling, general and administrative 20.0 18.1 1.3 Restructuring charge 5.3 0.0 0.0 Interest 2.1 1.8 10.3 Depreciation 4.2 3.6 6.2 ------ ------ ------ 31.6 23.5 17.8 ------ ------ ------ Income (loss) before income taxes and cumulative change in accounting principle and after restructure charge (6.7) 8.3 N/A Income tax provision (2.5) 3.4 N/A ------ ------ ------ Income (loss) before cumulative effect of a change in accounting principle and after restructure charge (4.2) 4.9 N/A Cumulative effect of a change in accounting principle (10.7) 0.0 0.0 ------ ------ ------ Net income (loss) (14.9)% 4.9% N/A ====== ====== ======
-9- 10 Management Discussion During the year ended December 31, 1999 and for the comparable period ended December 31, 1998, approximately 21% and 24% respectively of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors. The Company's business is performed under fixed price contracts. It is noted that the many uncertainties in today's global economy and the difficulty in predicting defense appropriations (both actual and proposed) preclude any guarantees or even assurances that current government and/or commercial programs will be continued or that programs in the prototype stages will ultimately result in production applications. It is because of such volatile uncertainties and because such adverse occurrences may not be counterbalanced with new programs or otherwise that cyclical downturns in operational performances are realistic expectations. See also Note 12 to the consolidated financial statements for information concerning business segment operating results. Results of Operations - Year 1999 as Compared to 1998 The Company's consolidated results of operations for the year ended December 31, 1999 showed an approximate 6.9% decrease in net revenues after excluding $210,000 of gross receipts recorded in 1998 on the settlement of disputes, as previously reported. This decrease is the result of stretch-outs of certain Advanced Technology Group's deliveries as well as the discontinuance of certain product lines in the Consumer Products Group (CPG). Operating income as a percentage of net revenues decreased from approximately 13.7% to 5% when compared to the same period in 1998 primarily due to write-off of costs incurred to start new programs at both the Advanced Technology and Consumer Products Groups. Selling, general and administrative costs increased by approximately 1% for the year ended December 31, 1999 when compared to the same period in 1998. This was primarily incurred to support certain new programs and contract commitments. Restructuring charges of $854,000 were recorded in 1999 in connection with the discontinuance of certain products in the CPG in an effort to restructure the overall business' strategic plan and to redirect the Company's efforts to target "niche" and core-products. (See also Note 2 to the consolidated financial statements.) No similar charges were incurred in 1998. Interest expense increased by approximately 10% for the year ended December 31, 1999 when compared to the same period in 1998 due to an increase in both institutional debt and fluctuations -10- 11 in interest rates on long-term debt. Depreciation expense increased due to an increase in capital expenditures. As the result of the early adoption of the newly enacted accounting pronouncements [Emerging Issues Task Force ("EITF") 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements " and timely adoption of Statement of Position No. 98-5 "Reporting on the Cost of Start-Up Activities" (SoP 98-5)] the Company wrote-off $1,727,000 after tax which were previously appropriately capitalized. The early adoption of these pronouncements resulted in the recognition of the related tax benefit of $1,013,000 in the December 31, 1999 financial statements. These charges were recorded as a cumulative effect of a change in accounting principle in the December 31, 1999 Consolidated Statement of Income. (See Note 4 to the consolidated financial statements.) No similar charges were incurred in 1998. Results of Operations - Year 1998 as Compared to 1997 The Company's consolidated results of operations for the year ended December 31, 1998 showed an approximate 10.6% increase in net revenues, which includes $210,000 of gross receipts on the settlement of disputes. Operating income as a percentage of net revenues increased from approximately 12.7% to 13.7% when compared to the same period in 1997. The increase in revenues is attributable to an approximate 15% increase in revenues at the Advanced Technology Group as the result of past and current engineering, marketing and other support efforts and new programs and applications, and an increase in revenues at the Consumer Products Group of approximately 4%. Income before income taxes increased $446,000 or 44.2% to $1,456,000 for the year ended December 31, 1998 from $1,010,000 for the year ended December 31, 1997. Selling, general and administrative costs increased by approximately 4% for the year ended December 31, 1998 when compared to the same period in 1997. This is primarily attributable to the increase in net revenues. Interest expense decreased by approximately 7% for the same comparable periods due to a decrease in interest rates and long-term debt while depreciation expense decreased due to a decrease in capital expenditures. Income taxes for the year ended December 31, 1998, as a percentage of income before taxes, increased when compared to the same period in 1997 because of the effects of variable state income taxes. -11- 12 Liquidity and Capital Resources The Company's primary liquidity and capital requirements relate to the working capital needs; primarily inventory, accounts receivable, capital investments in facilities, machinery, tools/dies and equipment and principal/interest payments on indebtedness. The Company's primary sources of liquidity have been from positive cash flows and from bank financing. During the year ended December 31, 1999, the Company expended $841,000 on capital expenditures. During the year ended December 31, 1998, the Company expended $471,000. The Company also has a $1,000,000 line of credit at December 31, 1999 on which there is $450,000 outstanding at December 31, 1999. There are no material commitments for capital expenditures at December 31, 1999. Year 2000 The Company's year 2000 computer compliance efforts were successful. The Company moved into the year 2000 without impact or interruption to its business as a result of year 2000 computer problems. Although no year 2000 computer problems have occurred or are anticipated, the Company continues to monitor the situation. Item 7. Financial Statements The financial statements of the Registrant which are included in this Form 10-KSB Annual Report are described in the accompanying Index to Consolidated Financial Statements on Page F1. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. -12- 13 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Information regarding directors and executive officers of the Registrant is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1999 fiscal year or such information will be included by amendment. Item 10. Executive Compensation Information regarding executive compensation is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1999 fiscal year or such information will be included by amendment. Item 11. Security Ownership of Certain Beneficial Owners and Management Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1999 fiscal year or such information will be included by amendment. Item 12. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1999 fiscal year or such information will be included by amendment. -13- 14 Item 13. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit number Presentation Reference ------- ------------ --------- 3(A)(1) Certificate of Incorporation Exhibit 3(A)(1) to 1996 Form 10-KSB* 3(A)(2) Amendments to Certificate Exhibit 3(A)(2) to 1996 of Incorporation dated Form 10-KSB* August 27, 1984 3(A)(3) Certificate of designation Exhibit 4(A) to 1987 regarding Series I Form 10-K* preferred stock 3(A)(4) Amendments to Certificate Exhibit 3(A)(4) to 1998 of Incorporation dated Form 10-K* June 30, 1998 3(B) By-laws Exhibit 3(B) to 1986 Form 10-K* 4.1(A) First amended and restated Exhibit 4(A) to 1993 term loan agreement with Form 10-KSB* Fleet Bank of New York dated October 4, 1993 4.1(B) Second amended and restated Filed herewith term loan agreement with Fleet Bank of New York dated February 26, 1999 4.1(C) First amendment to second Filed herewith amended and restated term loan agreement with Fleet Bank of New York dated December 17, 1999 4.2(A)(1) Letter of Credit Reimbursement Exhibit 4(B)(1) to Agreement with Fleet Bank 1994 10-KSB* dated December 1, 1994
- -------------------------------------------------------------- * Incorporated herein by reference (File No. 1-7109) ** Indicates management contract or compensatory plan or arrangement -14- 15
Exhibit number Presentation Reference ------- ------------ --------- 4.2(B) First Amendment and Extension Filed herewith to Letter of Credit and Reimbursement Agreement with Fleet Bank of New York dated as of December 17, 1999 4.2(B)(2) Agency Mortgage and Security Exhibit 4(B)(2) to Agreement dated as of 1994 10-KSB* December 1, 1994 from the Registrant and its subsidiaries 4.2(B)(3) Guaranty Agreement dated as Exhibit 4(B)(3) to of December 1, 1994 from the 1994 10-KSB* Registrant and its subsidiaries to the Erie County Industrial Development Agency ("ECIDA"), Norwest Bank Minnesota, N.A., as Trustee, and Fleet Bank 4.3 Shareholder Rights Plan Attachment B to Form dated as of August 13, 8-K filed August 17, 1992 1992* 10(A)(1) Employment contract** Exhibit 10(A) to 1986 Form 10-K* 10(A)(2) Amendment to employment Filed herewith contract** 10(A)(3) Amendment to employment Filed herewith contract** 10(B) Form of Indemnification Exhibit 10(E) to 1986 Agreement between the Form 10-K* Registrant and each of its Directors and Officers** 10(C)(1) Loan agreement between Exhibit 10(C)(1) the Company and its to 1991 Form 10-K* employee stock ownership trust, as amended 10(C)(2) Stock purchase agreement Exhibit 10(D)(2) to between the Company 1988 Form 10-K* and its employee stock ownership trust
- -------------------------------------------------------------- * Incorporated herein by reference (File No. 1-7109) ** Indicates management contract or compensatory plan or arrangement -15- 16
Exhibit number Presentation Reference ------- ------------ --------- 10(D)(1)(a) 1989 Employees Stock Exhibit A to Form Option Plan** 8: Amendment No. 1 to 1988 Form 10-K* 10(D)(1)(b) Amendment to 1989 Exhibit 10(D)(1)(b) Employees Stock Option to 1990 Form 10-K* Plan** 10(D)(1)(c) Amendment No. 2 to Exhibit 10(D)(1)(d) to 1989 Employees Stock 1991 Form 10-K* Option Plan** 10(D)(2) Stock Option Agreement Exhibit 10(D)(2) to 1998 for Donald W. Hedges Form 10-K* dated March 24, 1998** 10(D)(3)(a) Stock Option Agreement Exhibit D to Form for Nicholas D. 8: Amendment Trbovich, Sr. dated No. 1 to 1988 March 29, 1989** Form 10-K* 10(D)(3)(b) Stock Option Agreement Exhibit 10(D)(3)(b) to 1998 for Nicholas D. Form 10-K* Trbovich, Sr. dated March 24, 1998** 10(D)(4) Stock Option Agreement Exhibit 10(D)(4) to 1998 for William H. Duerig Form 10-K* dated March 24, 1998** 10(D)(5)(a) Stock Option Agreement Exhibit 10(D)(5) to 1990 for Nicholas D. Form 10-K* Trbovich, Jr. dated December 21, 1990** 10(D)(5)(b) Stock Option Agreement Exhibit 10(D)(5)(b) to 1998 for Nicholas D. Form 10-K* Trbovich, Jr. dated March 24, 1998** 10(D)(6)(a) Stock Option Agreement Exhibit 10(D)(6) to 1991 for Nicholas D. Form 10-K* Trbovich, Jr. dated October 17, 1991**
- -------------------------------------------------------------- * Incorporated herein by reference (File No. 1-7109) ** Indicates management contract or compensatory plan or arrangement -16- 17
Exhibit number Presentation Reference ------- ------------ --------- 10(D)(6)(b) Stock Option Agreement Exhibit 10(D)(6)(b) to 1998 for Nicholas D. Form 10-K* Trbovich, Jr. dated March 24, 1998** 10(D)(7)(a) Stock Option Agreement Exhibit 10(D)(7) to 1991 for Lee D. Burns dated Form 10-K* October 17, 1991** 10(D)(7)(b) Stock Option Agreement Exhibit 10(D)(7)(b) to 1998 for Lee D. Burns dated Form 10-K* March 24, 1998** 10(D)(8)(a) Stock Option Agreement Exhibit 10(D)(8) to 1991 for Raymond C. Zielinski Form 10-K* dated October 17, 1991** 10(D)(8)(b) Stock Option Agreement Exhibit 10(D)(8)(b) to 1998 for Raymond C. Zielinski Form 10-K* dated March 24, 1998** 10(D)(9) Land Lease Agreement between Exhibit 10(D)(9) to 1992 TSV, Inc. (wholly-owned Form 10-KSB* subsidiary of the Registrant) and the ECIDA dated as of May 1, 1992, and Corporate Guaranty of the Registrant dated as of May 1, 1992 10(D)(10) Amendment to Land Lease Exhibit 10(D) (11) to 1993 Agreement and Interim Form 10-KSB* Lease Agreement dated November 19, 1992 10(D)(11) Lease Agreement dated as of Exhibit 10(D)(11) to December 1, 1994 between 1994 10-KSB* County Industrial Development Agency ("ECIDA") and TSV, Inc. 10(D)(12) Sublease Agreement dated as Exhibit 10(D)(12) to of December 1, 1994 between 1994 10-KSB* TSV, Inc. and the Registrant
- -------------------------------------------------------------- * Incorporated herein by reference (File No. 1-7109) ** Indicates management contract or compensatory plan or arrangement -17- 18
Exhibit number Presentation Reference ------- ------------ --------- 21 Subsidiaries of the Filed herewith Registrant
The Registrant hereby agrees that it will furnish to the Securities and Exchange Commission upon request a copy of any instrument defining the rights of holders of long-term debt not filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1999. FORWARD-LOOKING STATEMENTS In addition to historical information, certain sections of this Form 10-KSB contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those pertaining to the Company's capital resources and profitability. Forward-looking statements involve numerous risks and uncertainties. The Company derives a material portion of its revenues from contracts with agencies of the U.S. Government or their prime contractors. The Company's business is performed under fixed price contracts and the following factors, among others discussed herein, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: uncertainties in today's global economy, global competition, difficulty in predicting defense appropriations, the vitality of the commercial aviation industry and its ability to purchase new aircraft, the willingness and ability of the Company's customers to fund long-term purchase programs and market demand and acceptance both for the Company's products and its customers' products which incorporate Company-made components. The success of the Company also depends upon the trends of the economy, including interest rates, income tax laws, governmental regulation, legislation, population changes and those risk factors discussed elsewhere in this Form 10-KSB. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. -18- 19 SIGNATURES In accordance with 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. SERVOTRONICS, INC. March 24, 2000 By /s/ Nicholas D. Trbovich, President ----------------------------------- Nicholas D. Trbovich President, Chief Executive Officer and Chairman of the Board In accordance with 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. /s/ Nicholas D. Trbovich President, Chief Executive March 24, 2000 - --------------------------- Officer, Chairman of the Nicholas D. Trbovich Board and Director /s/ Lee D. Burns Treasurer and Secretary March 24, 2000 - --------------------------- (Chief Financial Officer) Lee D. Burns /s/ Donald W. Hedges Director March 24, 2000 - --------------------------- Donald W. Hedges /s/ William H. Duerig Director March 24, 2000 - --------------------------- William H. Duerig /s/ Nicholas D. Trbovich Jr. Director March 24, 2000 - --------------------------- Nicholas D. Trbovich Jr.
-19- 20 SERVOTRONICS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of independent accountants F2 Consolidated balance sheet at December 31, 1999 F3 Consolidated statement of income for the years ended December 31, 1999 and 1998 F4 Consolidated statement of cash flows for the years ended December 31, 1999 and 1998 F5 Notes to consolidated financial statements F6-F20
Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. -F1- 21 Report of Independent Accountants To the Board of Directors and Shareholders of Servotronics, Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statement of income and of cash flows present fairly, in all material respects, the financial position of Servotronics, Inc. and its subsidiaries at December 31, 1999 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. 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 audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 4 to the Consolidated Financial Statements, effective January 1, 1999, the Company changed its method of accounting for pre-production and start-up activities in accordance with new accounting pronouncements. PricewaterhouseCoopers LLP Buffalo, New York March 24, 2000 -F2- 22 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 ($000'S OMITTED EXCEPT PER SHARE DATA) Assets Current assets: Cash $ 794 Accounts receivable 2,807 Inventories 6,168 Prepaid income taxes 766 Deferred income taxes 1,443 Other 1,296 -------- Total current assets 13,274 Property, plant and equipment, net 7,128 Other assets 613 -------- $ 21,015 ======== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 444 Demand loan 450 Accounts payable 1,146 Accrued employee compensation and benefit costs 826 Other accrued liabilities 305 Total current liabilities 3,171 -------- Long-term debt 6,488 Deferred income taxes 518 Other non-current liability 227 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,614,506 shares 523 Capital in excess of par value 13,358 Retained earnings 411 Accumulated other comprehensive income (24) -------- 14,268 Employee stock ownership trust commitment (2,640) Treasury stock, at cost 209,018 shares (1,017) -------- Total shareholders' equity 10,611 -------- $ 21,015 ========
See notes to consolidated financial statements -F3- 23 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME ($000'S OMITTED EXCEPT PER SHARE DATA)
Year Ended December 31, 1999 1998 -------- -------- Net revenues $ 16,165 $ 17,571 Costs and expenses: Cost of goods sold 12,149 11,983 Selling, general and administrative 3,230 3,188 Restructuring charge 854 0 Interest 344 312 Depreciation and amortization 671 632 -------- -------- 17,248 16,115 -------- -------- Income (loss) before income taxes (benefit) and cumulative change in accounting principle (1,083) 1,456 Income taxes (benefit) (401) 597 -------- -------- Income (loss) before cumulative change in accounting principle (682) 859 Cumulative effect of a change in accounting principle, net of taxes (benefit) (1,727) 0 -------- -------- Net income (loss) $ (2,409) $ 859 ======== ======== INCOME (LOSS) PER SHARE BASIC Income (loss) per share before cumulative effect of a change in accounting principle $ (0.38) $ 0.49 Cumulative effect per share of a change in accounting principle (0.95) 0.00 -------- -------- Net income (loss) per share $ (1.33) $ 0.49 ======== ======== DILUTED Income (loss) per share before cumulative effect of a change in accounting principle $ (0.38) $ 0.48 Cumulative effect per share of a change in accounting principle (0.95) 0.00 -------- -------- Net income (loss) per share $ (1.33) $ 0.48 ======== ========
See notes to consolidated financial statements -F4- 24 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($000'S OMITTED)
Year Ended December 31, 1999 1998 ------- ------- Cash flows related to operating activities: Net income (loss) $(2,409) $ 859 Adjustments to reconcile net income to net cash provided by operating activities - Cumulative effect of change in accounting principle 2,740 0 Depreciation and amortization 921 632 Deferred income taxes (892) 74 Tax benefit from stock options 34 55 Change in assets and liabilities - Accounts receivable (609) 4 Inventories 76 (956) Prepaid income taxes (751) 23 Other current assets 80 10 Other assets 17 15 Accounts payable 256 (140) Accrued employee compensation & benefit costs (104) 121 Other accrued liabilities 122 (76) Employee stock ownership trust payment 101 101 ------- ------- Net cash provided by (used in) operating activities (418) 722 ------- ------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (841) (471) ------- ------- Net cash used in investing activities (841) (471) ------- ------- Cash flows related to financing activities: Increase in demand loan 950 250 Payments on demand loan (500) (450) Acquisition of long-term debt 1,000 0 Principal payments on long-term debt (461) (250) Issuance of common stock 0 23 Net cash proceeds from exercise of stock options 55 0 ------- ------- Net cash provided by (used in) financing activities 1,044 (427) ------- ------- Net decrease in cash (215) (176) Cash at beginning of period 1,009 1,185 ------- ------- Cash at end of period $ 794 $ 1,009 ======= ======= Supplemental disclosures: Income taxes paid $ 207 $ 451 Interest paid $ 334 $ 314
See notes to consolidated financial statements -F5- 25 SERVOTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies The principal accounting policies of Servotronics, Inc. (the Company) and subsidiaries are as follows: Principles of consolidation The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries. Cash and cash equivalents The Company considers cash and cash equivalents to include all cash accounts and short-term investments purchased with a maturity of three months or less. Revenue recognition The Company incurred costs for certain contracts which are long term. These contracts are accounted for under the percentage of completion method (cost-to-cost) which recognizes revenue as the work progresses towards completion. Revenues on the remaining contracts are recognized when the terms of purchase orders are met. Included in other current assets is $875,000 of unbilled revenues which represents revenue earned under the percentage of completion method (cost-to-cost) not yet billable under the terms of the contracts. Inventories Inventories are stated generally at the lower of standard cost, which approximates actual cost (first-in, first-out), or market. -F6- 26 Property, plant and equipment Property, plant and equipment is carried at cost; expenditures for new facilities and equipment and expenditures which substantially increase the useful lives of existing plant and equipment are capitalized; expenditures for maintenance and repairs are charged directly to cost or expenses as incurred. Upon retirement or disposal of properties, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is included in income. Depreciation is provided on the basis of estimated useful lives of depreciable properties, primarily by the straight-line method for financial statement purposes and by accelerated methods for tax purposes. Depreciation expense includes the amortization of capital lease assets. The estimated useful lives of depreciable properties are generally as follows: Buildings and improvements 5-39 years Machinery and equipment 5-15 years Tooling 3-5 years
Income taxes The Company and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The Company follows the asset and liability approach to account for income taxes. This approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities. Employee stock ownership plan Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula. -F7- 27 Use of estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Restructuring Charges In the fourth quarter of 1999, the Company recorded restructuring charges of $854,000 in connection with the discontinuance of various product lines of the CPG to restructure the overall business' strategic plan and to redirect the Company's efforts to target "niche" and core-products. The $854,000 includes write-downs of capital assets related to the discontinued product lines of $418,000, product line rationalizations including write offs of inventory related to the discontinued product lines of $336,000, and $100,000 exiting costs of discontinued product line contracts and related expenses. 3. Inventories
December 31, 1999 ----------------- ($000's omitted) Raw materials and common parts $ 949 Work-in-process 5,197 Finished goods 258 ---------- 6,404 Less common parts expected to be used after one year (236) ---------- $ 6,168 ==========
4. Changes In Accounting Principles On January 1, 1999, the Company elected early adoption of Emerging Issues Task Force ("EITF") 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements". EITF 99-5 states that development and pre-production costs for products sold under long-term supply arrangements be expensed as incurred. On January 1, 1999, as required by the Accounting Standards Executive Committee, the Company also adopted the Statement of Position No. 98-5 "Reporting on the Cost of Start-Up Activities" (SoP 98-5). As a result of the early adoption of EITF 99-5 and adoption of SoP 98-5, the Company wrote off $1,727,000 of costs which were appropriately capitalized in prior years. These charges were recorded net of taxes of $1,013,000 as a cumulative effect of a change in accounting principle in the December 31, 1999 Consolidated -F8- 28 Statement of Income. Further, as a result of early adoption, costs incurred for development and pre-production during 1999 were expensed and reflected in 1999 as cost of goods sold. As a result of the above-mentioned early adoption of EITF 99-5, the Company was required to restate the previously issued quarterly financial statements to give effect of the adoption of EITF 99-5 as of January 1, 1999. The restated quarterly financial data are as follows:
March 31 June 30 September 30 -------- ------- ------------ ($000's omitted) Net Sales $ 3,591 $4,614 $3,862 Costs and expenses: Cost of goods sold 2,570 3,279 2,755 Selling, general and administrative 696 873 799 Interest 67 92 90 Depreciation and amortization 157 156 157 ------- ------ ------ 3,490 4,400 3,801 ------- ------ ------ Income (loss) before income taxes and cumulative change in accounting principle 101 214 61 Income tax provision 40 86 24 ------- ------ ------ Income (loss) before cumulative effect of a change in accounting principle 61 128 37 Cumulative effect of a change in accounting principle (1,727) 0 0 ------- ------ ------ Net income (loss) $(1,666) $ 128 $ 37 ======= ====== ======
5. Property, plant and equipment
December 31, 1999 ----------------- ($000's omitted) Land $ 11 Buildings and improvements 6,170 Machinery, equipment and tooling 9,036 -------- 15,217 Less accumulated depreciation (8,089) $ 7,128 ========
-F9- 29 6. Long-term debt
December 31, 1999 ----------------- ($000's omitted) Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (5.10% at December 31, 1999) $ 5,000 Term Loan; payable to a financial institution with interest on $393,000 at LIBOR plus 2% (7.88% at December 31, 1999) and interest on the remaining $500,000 at a current rate of 5.86%; quarterly principal payments of $35,714 through February 1, 2006 893 Various other secured term notes payable to government agencies 1,039 ------- 6,932 Less current portion (444) ------- $ 6,488 =======
Industrial Development Revenue Bonds were issued by a government agency to finance the construction of the Company's new headquarters/Advanced Technology facility. Annual sinking fund payments of $170,000 commence December 1, 2000 and continue through 2013, with a final payment of $2,620,000 due December 1, 2014. The Company has agreed to reimburse the issuer of the letter of credit if there are draws on that letter of credit. The Company pays the letter of credit bank an annual fee of 1% of the amount secured thereby and pays the remarketing agent for the bonds an annual fee of .25% of the principal amount outstanding. The Company's interest under the facility capital lease has been pledged to secure its obligations to the government agency, the bank and the bondholders. On February 26, 1999, the Company received a $1,000,000 loan from a financial institution payable in equal quarterly installments, maturing in 2006. The proceeds were used to pay off the unsecured term note as disclosed above and to finance purchases of equipment and working capital. The loan is collateralized by any and all equipment purchased with the proceeds of the term loan. The letter of credit reimbursement agreement, the unsecured term note agreement and the secured term notes contain, among other things, covenants relative to maintenance of working capital and tangible net worth and restrictions on capital expenditures, leases and additional borrowings. -F10- 30 Principal maturities of long-term debt are as follows: 2001 - $393,000; 2002 - $548,000; 2003 - $378,000, 2004 - $463,000, 2005 and thereafter $4,706,000. The Company also has a $1,000,000 line of credit on which there was $450,000 outstanding at December 31, 1999. 7. Employee benefit plans Employee stock ownership plan (ESOP) Under the Company's ESOP adopted in 1985, participating employees are awarded shares of the Company's common stock based upon salary levels and minimum service requirements. Upon inception of the ESOP, the Company borrowed $2,000,000 from a bank and lent the proceeds to the trust established under the ESOP to purchase shares of the Company's common stock. The Company's loan to the trust is at an interest rate approximating the prime rate and is repayable to the Company over a 40-year term ending in December 2024. During 1987 and 1988, the Company loaned an additional $1,942,000 to the trust under terms similar to the Company's original loan. Each year the Company makes contributions to the trust which the plan's trustees use to repay the principal and interest due the Company under the trust loan agreement. Shares held by the trust are allocated in the aggregate to participating employees in proportion to the amount of the loan repayment made by the trust to the Company. Since inception of the ESOP, approximately 318,000 shares have been allocated, exclusive of shares distributed to ESOP participants. At December 31, 1999 and 1998, approximately 563,000 and 594,000 shares, respectively, purchased by the ESOP remain unallocated. Related compensation expense associated with the Company's ESOP, which is equal to the principal reduction on the loans receivable from the trust, amounted to $101,000 in 1999 and 1998. Included as a reduction to shareholders' equity is the employee stock ownership trust commitment which represents the remaining indebtedness of the trust to the Company. Employees are entitled to vote allocated shares and the ESOP trustees are entitled to vote unallocated shares and those allocated shares not voted by the employees. Defined benefit plan A Consumer Products division subsidiary of the Company maintains a noncontributory defined benefit pension plan covering substantially all its employees. Plan benefits are based on stated amounts for each year of service; funding is in accordance with statutory requirements. Pension cost of $29,000 and $28,000 was recognized in 1999 and 1998, respectively, and was calculated -F11- 31 using a weighted-average discount rate of 7.5% and 6.5%, respectively, and weighted-average expected rate of return on plan assets of 8.0% for both years. The projected benefit obligation under the plan at December 31, 1999 was $89,000, net of $171,000 of plan assets at fair value. Deferred compensation program The Company maintains a deferred compensation program designed to achieve, among other things, benefit parity for an officer of the Company. During 1999 and 1998, no amount was accrued or expensed under this program. In 1999, $195,000 was paid from the amount previously accrued and expensed in prior periods which leaves a balance of $225,000 accrued in the December 31, 1999 consolidated balance sheet. 8. Income taxes The provision (benefit) for income taxes included in the consolidated statement of income consists of the following:
1999 1998 ------- ---- ($000's omitted) Current: Federal income tax (benefit) $ (543) $450 State income tax 21 73 ------- ---- (522) 523 Deferred: Federal income tax (benefit) (683) 62 State income tax (benefit) (209) 12 ------- ---- (892) 74 ------- ---- (1,414) 597 Tax benefit allocated to cumulative effect of a change in accounting principle (see Note 4) 1,013 0 ------- ---- $ (401) $597 ======= ====
The provision for income taxes does not include the tax benefit of $34,000 and $55,000 for 1999 and 1998, respectively, associated with the exercise of stock options which have been credited to capital in excess of par value. -F12- 32 The reconciliation of the difference between the Company's effective tax rate based upon the total income tax provision (benefit) and the federal statutory income tax rate is as follows:
1999 1998 ---- ---- Statutory rate 34% 34% Increase resulting from: State income taxes (less federal effect) 3% 5% Other --% 2 % -- -- 37% 41% == ==
At December 31, 1999, the deferred tax assets (liabilities) were comprised of the following:
($000's omitted) Inventory $ 956 Accrued vacation 163 State net operating losses 79 Accrued deferred compensation 76 Other 41 ------- Total deferred tax assets 1,315 Property, plant and equipment (345) Other liabilities (29) ------- Total deferred tax liabilities (374) ------- Net deferred tax asset $ 941 =======
Realization of the net deferred tax asset is dependent upon generating sufficient taxable income over the periods in which the temporary differences are anticipated to reverse. Although realization is not assured, management believes it is more likely than not that the net deferred tax asset will be realized. The amount of net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. At December 31, 1999, the Company has a New York State net operating loss carryforward of approximately $1,000,000 that begins to expire in 2019. The Company also has a State of Pennsylvania net operating loss carryforward of approximately $900,000 that begins to expire in 2006. -F13- 33 9. Common shareholders' equity
Common stock ------------ Accumulated Number Capital in other of shares excess of Retained Treasury Comprehensive comprehensive issued Amount par value earnings ESOP stock income income ------ ------ --------- -------- ---- ----- ------ ------ ($000's omitted) Balance December 31, 1997 2,614,506 $523 $13,269 $ 2,104 ($2,842) ($1,240) -- Comprehensive income Net income -- -- -- $ 859 -- -- $ 859 -- Other comprehensive income, net of tax -- -- -- -- -- -- -- -- Minimum pension liability adjustment -- -- -- -- -- -- (43) (43) ------- Other comprehensive income -- -- -- -- -- -- (43) -- ------- Comprehensive income -- -- -- -- -- -- $ 816 -- ------- Issuance of common stock -- -- -- (59) -- -- -- Compensation expense -- -- -- -- 101 -- -- Treasury stock -- -- -- -- -- 84 -- Exercise of stock options -- -- 55 -- -- -- -- --------- ---- ------- ------- ------- ------- ---- Balance December 31, 1998 2,614,506 $523 $13,324 $ 2,904 ($2,741) ($1,156) ($43) Comprehensive income Net loss -- -- -- $(2,409) -- -- $(2,409) -- Other comprehensive income, net of tax -- -- -- -- -- -- -- -- Minimum pension liability adjustment -- -- -- -- -- -- 19 19 ------- Other comprehensive income -- -- -- -- -- -- 19 -- ------- Comprehensive income -- -- -- -- -- -- $(2,390) -- ======= Issuance of common stock -- -- -- (84) -- -- -- Compensation expense -- -- -- -- 101 -- -- Treasury stock -- -- -- -- -- 139 -- Exercise of stock options -- -- 34 -- -- -- -- --------- ---- ------- ------- ------- ------- ---- Balance December 31, 1999 2,614,506 $523 $13,358 $ 411 ($2,640) ($1,017) ($24) ========= ==== ======= ======= ======= ======= ====
-F14- 34 Earnings per share Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.
Year Ended December 31, 1999 1998 ---- ---- Income (loss) including restructuring charge and before cumulative effect of a change in accounting principle $ (682) $ 859 Cumulative effect of a change in accounting principle (1,727) -- --------- --------- Net income (loss) $ (2,409) $ 859 ========= ========= Weighted average common shares outstanding (basic) 1,809 1,742 Incremental shares from assumed conversions of stock options 5 30 Weighted average common shares outstanding (diluted) 1,814 1,772 BASIC Income (loss) per share including a 1999 restructuring charge of $854,000 pretax or ($0.28) after tax per share and before cumulative effect of a change in accounting principle $ (0.38) $ 0.49 Cumulative effect per share of a change in accounting principle (0.95) 0.00 --------- --------- Net income (loss) per share $ (1.33) $ 0.49 ========= ========= DILUTED Income (loss) per share including a 1999 restructuring charge of $854,000 pretax or ($0.28) after tax per share and before cumulative effect of a change in accounting principle $ (0.38) $ 0.48 Cumulative effect per share of a change in accounting principle (0.95) 0.00 --------- --------- Net income (loss) per share $ (1.33) $ 0.48 ========= ---------
Comprehensive income The minimum pension liability adjustment of $24,000, net of tax of $16,000, is the only component of other comprehensive income for 1999. -F15- 35 Stock options Under the Servotronics, Inc. 1989 Employees Stock Option Plan (the Option Plan) and other separate agreements authorized by the Board of Directors, the Company has granted non-qualified options to its Directors and Officers. The Company applies APB Opinion No. 25 and related interpretations in accounting for the Option Plan and the separate option agreements. Accordingly, no compensation expense has been charged to earnings in 1999 or prior years as stock options granted have an exercise price equal to the market price on the date of grant. At December 31, 1999, 3,200 shares of common stock were available under the Option Plan. Options granted under the Option Plan have durations of ten years. A summary of the status of options granted under all employee plans is presented below:
Weighted Average Options Exercise Outstanding Price ----------- ----- Outstanding as of December 31, 1997 92,729 3.08 Granted in 1998 93,000 8.50 Exercised in 1998 (25,186) 2.32 Forfeited in 1998 -- -- Outstanding as of December 31, 1998 160,543 6.34 Granted in 1999 -- -- Exercised in 1999 (37,778) 2.32 Forfeited in 1999 -- -- Outstanding as of December 31, 1999 122,765 7.48
The following tables summarize information about options outstanding at December 31, 1999:
Weighted- Average Remaining Exercise Number contractual Options Prices ($) Outstanding Life Exercisable --------------------------------------------------------------------------- 2.07 12,593 1 years 12,593 5.95 17,172 1 years 17,172 8.50 93,000 8 years 62,500 ------ ------ Total 122,765 92,265 ======= ======
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). If the compensation -F16- 36 cost for these plans had been determined based on the Black-Scholes calculated values at the grant dates for awards consistent with the method prescribed by FAS 123, the pro forma effects on the years ended December 31, 1999 and 1998 are as follows:
1999 1998 ------------ ---------- Net income (loss): As reported (2,409,000) 859,000 Pro forma (2,497,000) 706,000 Earnings per common share: As reported - basic (1.33) .49 As reported - diluted (1.33) .48 Pro forma - basic (1.30) .41 Pro forma - diluted (1.30) .40
No options were granted in 1999. The Black-Scholes calculated estimated value of the options granted in 1998 was $5.48. The assumptions used to calculate this value include a risk-free interest rate of 5.63%, an expected term of 8 years, and an annual standard deviation (volatility) factor of 53%. The Black-Scholes option pricing model was developed for use in estimating values of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the use of highly subjective assumptions, including the expected stock price volatility. Because the Company's stock options are restricted and have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the calculated estimated values, in the Company's opinion the existing models do not necessarily provide a reliable measure of the value of the Company's stock options. The estimated value calculated by the Black-Scholes methodology is hypothetical and does not represent an actual tangible Company expense or an actual tangible monetary transfer to the optionee. Further, for the reasons stated above (among others) and especially because of the volatility factor used in the Black-Scholes calculations for the Company's 1998 options, the derived estimated value may be, in the Company's opinion, substantially higher than the value which may be realized in an arms-length transaction under the above stated and existing conditions. -F17- 37 Shareholders' rights plan During 1992, the Company's Board of Directors adopted a shareholders' rights plan (the "Rights Plan") and simultaneously declared a dividend of one Right for each outstanding share of the Company's common stock outstanding at August 28, 1992. The Rights do not become exercisable until the earlier of (i) the date of the Company's public announcement that a person or affiliated group other than Dr. Nicholas D. Trbovich or the ESOP trust (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 25% or more of the Company's common stock (excluding shares held by the ESOP trust) or (ii) ten business days following the commencement of a tender offer that would result in a person or affiliated group becoming an Acquiring Person. The exercise price of a Right has been established at $30.00. Once exercisable, each Right would entitle the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock. In the event that any person becomes an Acquiring Person, each Right would entitle any holder other than the Acquiring Person to purchase common stock or other securities of the Company having a value equal to three times the exercise price. The Board of Directors has the discretion in such event to exchange two shares of common stock or two one-hundredths of a share of preferred for each Right held by any holder other than the Acquiring Person. 10. Commitments The Company leases certain equipment pursuant to operating lease arrangements. Total rental expense in 1999 and 1998 and future minimum payments under such leases are not significant. 11. Litigation There are no legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company. 12. Business segments The Company operates in two business segments, Advanced Technology Products and Consumer Products. The Company's reportable segments are strategic business units that offer different products and services. The segments are separate corporations and are managed separately. Operations in Advanced Technology Products involve the design, manufacture, and marketing of servo-control components for government and commercial industrial applications. Consumer Products operations involve the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. The Company derives substantially all of its sales revenue from domestic customers. -F18- 38 Information regarding the Company's operations in these segments is summarized as follows:
Advanced Year ended Technology Consumer December 31, 1999 Products Products Consolidated ----------------- -------- -------- ------------ ($000's omitted) Revenues from unaffiliated customers $ 9,800 $ 6,365 $ 16,165 ============ ========= ============= Restructuring charge $ (854) $ (854) ========= Profit $ 1,194 $ 25 1,219 ============ ========= Depreciation expense $ (395) $ (276) (671) ============= ========= Interest expense (344) General corporate expense (433) ------------- Income (loss) including a restructuring charge and before income taxes and cumulative effect of a change in accounting principle $ (1,083) ============= Cumulative effect of a change in accounting principle, net of tax $ (1,727) ============= Identifiable assets $ 14,190 $ 5,134 $ 19,324 ============ ========= ============= Capital expenditures $ 586 $ 255 $ 841 ============ ========= =============
Advanced Year ended Technology Consumer December 31, 1998 Products Products Consolidated ----------------- -------- -------- ------------ ($000's omitted) Revenues from unaffiliated customers $ 10,972* $ 6,599 $ 17,571 ============ ========= ============= Profit $ 2,327** $ 282 $ 2,609 ============ ========= Depreciation expense $ (352) $(280) (632) ============ ========= Interest expense (312) Gross receipts on settlement of disputes $ 210 210 ============ General corporate expense (419) ------------- Income before income taxes $ 1,456 ============= Identifiable assets $ 14,572 $ 5,698 $ 20,270 ============ ========= ============= Capital expenditures $ 200 $ 271 $ 471 ============ ========= =============
*Includes $210,000 of gross receipts on the settlement of disputes. **Exclude $210,000 of gross receipts on the settlement of disputes -F19- 39 The Company engages in a significant amount of business with the United States Government through sales to its prime contractors and otherwise. Such contracts by the Advanced Technology segment accounted for revenues of approximately $2,940,000 in 1999 and $3,828,000 in 1998. Similar contracts by the Consumer Products segment accounted for revenues of approximately $467,000 in 1999 and $325,000 in 1998. Sales of advanced technology products to one prime contractor, including various divisions and subsidiaries of a common parent company, amounted to approximately 17% and 14% of total revenues in 1999 and 1998, respectively. Sales to another customer amounted to approximately 19% of total revenues in 1999 and 21% of total 1998 revenues respectively. No other single customer represented more than 10% of the Company's revenues in any of these years. -F20- EX-4.1.B 2 EXHIBIT 4.1(B) 1 PAGE 1 OF 31 EXHIBIT 4.1(B) SECOND AMENDED AND RESTATED TERM LOAN AGREEMENT THIS AGREEMENT, made the 26th day of February, 1999, by and between FLEET NATIONAL BANK, successor in interest to FLEET BANK OF NEW YORK, having an office and place of business at 10 Fountain Plaza, Buffalo, New York (hereinafter called "Bank") and SERVOTRONICS, INC., a corporation organized and existing under the laws of the State of Delaware, and having its principal office and place of business at 1110 Maple Road, Elma, New York 14059 (hereinafter called "Borrower"). W I T N E S S E T H: WHEREAS, the parties have entered into a Term Loan Agreement dated October 4, 1993 (the "Existing Loan Agreement") pertaining to a term loan in the original principal amount of $964,285.00 and having a current principal balance of approximately $206,630.17 (the "Existing Loan"); and WHEREAS, the Existing Loan was evidenced by Borrower's Promissory Note dated October 4, 1993 in the principal amount of $964,285.00; and WHEREAS, the parties desire to amend and restate the Existing Loan Agreement in its entirety by the substitution and replacement thereof by this Second Amended and Restated Term Loan Agreement to provide for, among other things, an additional loan to the Borrower from the Bank and to refinance the Existing Loan as provided in this Second Amended and Restated Term Loan Agreement. NOW, THEREFORE, it is agreed as follows: 1. DEFINITIONS. The following terms shall have the following meanings in this Agreement: 1.1. "ACCOUNTING TERMS" shall mean all accounting terms not specifically defined in this Agreement and shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.6. 1.2. "BORROWER DOCUMENTS" shall have the meaning ascribed to such term in Section 3.1(i) hereof. 1.3. "BUSINESS DAY" means a day on which commercial banks are not authorized or required to close in New York, New York; provided further that in the context of calculation of the amount or due date of a payment obligation which is calculated by reference to any LIBOR Based Rate, Business Day means a day on which commercial banks are not authorized or required to close in both New York and London. 2 Page 2 of 31 EXHIBIT 4.1(B) 1.4. "CONSOLIDATED SUBSIDIES" means Subsidiaries having accounts consolidated with the accounts of Borrower in the Borrower's consolidated financial statements prepared in accordance with GAAP. 1.5. "COST OF FUNDS" means the per annum rate of interest which Bank is required to pay, or is offering to pay, for wholesale liabilities, adjusted for reserve requirements and such other requirements as may be imposed by federal, state or local government and regulatory agencies, as determined by Fleet Treasury Group. 1.6. "CURRENT ASSETS" shall include those assets of Borrower and its consolidated subsidiaries classified as current in accordance with generally accepted accounting principles. 1.7. "CURRENT LIABILITIES" shall include those liabilities of Borrower and its consolidated subsidiaries classified as current in accordance with generally accepted accounting principles with adequate provisions for all accrued liabilities, including, without limitation, all federal and state taxes except those taxes for which offsetting carry forward net operating losses of the Borrower are available and those classified as deferred in accordance with generally accepted accounting principles. 1.8. "DEBT SERVICE COVERAGE RATIO" shall refer to the sum of Borrower's and Borrower's consolidated subsidiaries, net profits, depreciation, interest expense and non-cash charges for such period, compared to the sum of Borrower's and Borrower's consolidated subsidiaries' current maturities of long-term debt including leases that are capitalized, interest expense and capital expenditures not funded by long-term debt owing to Bank or incurred pursuant to and under the IDA Bond Issue and Related Financing, for such period. 1.9. "DEFAULT INTEREST RATE" means the Stated Prime Rate, as the same may change from time to time, plus four percent (4%) per annum, provided, however, that if any portion of the principal of the Term Notes bears interest calculated by reference to a LIBOR Based Rate at the time of maturity or acceleration, such principal shall bear interest at four percent (4%) over such rate until the end of the LIBOR Period then in effect and shall thereafter bear interest at the Stated Prime Rate plus four percent (4%) until paid. 1.10. "ESOP" shall refer to the Servotronics, Inc. Employee Stock Ownership Plan (the "Plan") executed May 15, 1985, effective as of January 1, 1985, as amended, which is a stock bonus plan qualified under Section 401(a) of the Internal Revenue Code of 1954 (the "Code"), as amended, and an employee stock ownership plan under Section 4975(e)(7) of the Code and Section 407(d)(6) of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. 1.11. "EVENT OF DEFAULT" means the occurrence of any of the events set forth in Section 6.1 hereof, including the giving of notice and the lapse of time as specified in Section 6.1. 3 Page 3 of 31 EXHIBIT 4.1(B) 1.12. "FIXED RATE" means the Cost of Funds on the date that the Linked Deposit Program shall become effective for the Term Loans plus one-half of one percent (1/2 of 1%) per year (computed on the basis of thE Cost of Funds plus two and one half percent per year reduced by two percent (2%) per year pursuant to the Linked Deposit Program). 1.13. "FIXED RATE TERM" means the two-year period during which the Linked Deposit Program shall be in effect in respect of the Term Loans, which period is anticipated to commence on February 26, 1999. 1.14. "FIXED RATE TRANCHE" means that portion of the principal amount of the Term Loans outstanding under Term Note B which bears interest at the Fixed Rate. 1.15. "GAAP" means generally accepted accounting principals in the United States of America. 1.16. "IDA BOND ISSUE AND RELATED FINANCING" means the Erie County Industrial Development Agency Industrial Development Revenue Bonds (1994 Servotronics, Inc. Project) together with related financing assisted by the Regional Economic Development Program and Industrial Access Program in the State of New York and all other financing assisted by governmental authorities and related to such Project. 1.17. "LIBOR" means, as applicable to the LIBOR Tranche, the rate per annum (rounded upward, if necessary, to the nearest 1/32 of one percent) as determined on the basis of the offered rates for deposits in U.S. dollars, for a period of time comparable to the corresponding LIBOR Period which appears on the Telerate page 3750 as of 11:00 a.m. London time on the day that is two London Banking Days preceding the first day of such LIBOR Period; provided, however, if the rate described above does not appear on the Telerate System on any applicable interest determination date, the LIBOR rate shall be the rate (rounded upwards as described on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London Time), on the day that is two (2) London Banking Days prior to the beginning of such LIBOR Period. "Banking Day" shall mean, in respect of any city, any date on which commercial banks are open for business in that city. If both the Telerate and Reuters system are unavailable, then the rate for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such LIBOR Period which are offered by four major banks in the London interbank market at approximately 11:00 a.m. London time, on the day that is two (2) London Banking Days preceding the first day of such LIBOR Period as selected by the Calculation Agent. The principal London office of each of the four major London banks will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. 4 Page 4 of 31 EXHIBIT 4.1(B) dollars to leading European banks for a period of time comparable to such LIBOR Period offered by major banks in New York City at approximately 11:00 a.m. New York City time, on the day that its two London Banking Days preceding the first day of such LIBOR Period. In the event that Bank is unable to obtain any such quotation as provided above, it will be deemed that LIBOR pursuant to a LIBOR Period cannot be determined and the outstanding principal amount of the Term Loans shall bear interest at the Stated Prime Rate commencing on the day on which any current LIBOR Period or Fixed Rate Term (as applicable) then in effect shall expire until the Bank using commercially reasonable efforts is able to obtain such a quotation as provided above. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR deposits of Bank then for any period during which such Reserve Percentage shall apply, LIBOR shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. 1.18. "LIBOR BASED RATE" means LIBOR plus two percent (2%). 1.19. "LIBOR PERIOD" means a period of time having a duration of 1, 2, 3, 6 or 12 months as selected by the Borrower in respect of each LIBOR Tranche, provided that each LIBOR Period selected must terminate on or before the date on which the final payment is due to the Bank under the corresponding Term Note. 1.20. "LIBOR TRANCHE" means that portion of the principal amount of debt evidenced by the Term Notes for which interest is computed on a LIBOR Based Rate for a LIBOR Period. 1.21. "LINKED DEPOSIT PROGRAM" means the New York State Excelsior Linked Deposit Program whereby interest on loans for specified borrowers is reduced in consideration for deposits maintained with the Bank by the State of New York. 1.22. "LIABILITIES" shall have the meaning usually given to that word in accordance with generally accepted accounting principles, and shall refer to the total liabilities of Borrower and its consolidated subsidiaries. 1.23. "NET WORKING CAPITAL" shall refer to the excess of Current Assets over Current Liabilities as those terms are defined in Sections 1.4 and 1.5. 1.24. "OBLIGATIONS" means all debts, liabilities and obligations of Borrower to Bank now existing or hereafter arising or created (including but not limited to all Obligations of Borrower under this Agreement and the Term Note), without limitation as to amount, and including without limitation all debts, liabilities and obligations which are direct or indirect, absolute or contingent, and any sums which Bank receives in payment of Obligations and is obligated by a Bankruptcy Court or other legal authority to repay and does so repay. 1.25. "PERMITTED ENCUMBRANCES" means: 5 Page 5 of 31 EXHIBIT 4.1(B) (a) liens imposed by law for taxes that are not yet due or are being contested by Borrower in good faith and by appropriate proceedings; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested by Borrower in good faith and by appropriate proceedings; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Consolidated Subsidiary; and (f) security interests granted to Bank and security interests granted as security for the payment of purchase money indebtedness permitted by Sections 5.1 and 5.5 hereof. 1.26. "RESERVE PERCENTAGE" means, with respect to a LIBOR Based Rate and a LIBOR Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such LIBOR Period under Regulation D of the Board of Governors of the Federal Reserve Board by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against "Eurocurrency Liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any regulatory change against (i) any category of liabilities which includes deposits by reference to which the LIBOR Based Rate for a LIBOR Tranche is to be determined or (ii) any category of extensions of credit or other assets which include LIBOR Rate Tranches. 1.27. "STATED PRIME RATE" means the variable per annum rate of interest so designated from time to time by the Bank as its prime rate. The Stated Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. 1.28. "SUBSIDIARY" means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a 6 Page 6 of 31 EXHIBIT 4.1(B) majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by Borrower, by Borrower and one or more of its other Subsidiaries or by one or more of Borrower's other Subsidiaries. 1.29. "TANGIBLE NET WORTH" shall refer to the total stockholders' equity of Borrower and its consolidated subsidiaries less all of the following: treasury stock; intangible assets of any kind, including, without limitation, goodwill, patents and trademarks; and deferred expenses (exclusive of prepaid real property taxes and insurance premiums), to be determined in accordance with generally accepted accounting principles. 1.30. "TERM LOANS" means the loans made pursuant to Section 2.1 hereof and evidenced by the Term Notes. 1.31. "TERM NOTE A" means the Term Note in substantially the form of Exhibit A hereto; "TERM NOTE B" means the Term Note in substantially the form of Exhibit B hereto; and "TERM NOTES" means Term Note A and Term Note B, collectively. 1.32. "YIELD MAINTENANCE FEE" means, in respect of any prepayment of the Fixed Rate Tranche, whether by acceleration or otherwise, the current rate on the date of prepayment for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the end of the Fixed Rate Term, shall be subtracted from the Cost of Funds component of the Fixed Rate. If the result is zero or a negative number, there shall be no Yield Maintenance Fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the Fixed Rate Term. Said amount shall be reduced to present value calculated by using the number of days remaining in the Fixed Rate Term and using the above-referenced United States Treasury security rate. The resulting amount shall be the Yield Maintenance Fee due to Bank upon prepayment of the Fixed Rate Tranche. 2. TERM LOAN FACILITY 2.1. TERM LOANS. Subject to the terms and conditions of this Agreement, on the date hereof the Bank shall lend and the Borrower shall borrow the principal amount of $1,000,000. The Term Loans shall be evidenced by the Term Notes, each in the original principal amount of $500,000. 7 Page 7 of 31 EXHIBIT 4.1(B) 2.2. RATES AND PAYMENT OF INTEREST. (i) The principal amount outstanding from time to time under Term Note A shall bear interest at the LIBOR Based Rate from the date hereof until paid in full. (ii) The principal amount outstanding from time to time under Term Note B shall bear interest at the LIBOR Based Rate from the date hereof until paid in full except during the Fixed Rate Term, during which the principal amount outstanding from time to time under Term Note B shall bear interest at the Fixed Rate. (That is, the interest rate on the principal amount outstanding from time to time under Term Loan B shall be at the LIBOR Based Rate before and after the Fixed Rate Term.) (iii) All interest accrued on the Term Loan (including both Term Notes and including interest on the LIBOR Tranche and on the Fixed Rate Tranche) shall be payable on the first day of each month after the date hereof. (iv) All interest shall be computed on the basis of a year of 360 days and charged for each day on which principal is outstanding at the close of business of such day, including any days for which the payment of principal is extended by reason of Sundays and holidays. 2.3. LIBOR BASED RATE ELECTIONS. Borrower shall give Bank two (2) Business Days notice prior to electing a LIBOR Base Rate and corresponding LIBOR Period for any portion of the LIBOR Tranche. If Borrower does not elect a new LIBOR Period at least two Business Days prior to the expiration of any LIBOR Period, the interest rate for the LIBOR Tranche may be set by the Bank at the LIBOR Based Rate for a 1 month LIBOR Period. Not more than one LIBOR Period may be in effect at one time. 2.4. PAYMENT OF PRINCIPAL. The principal of the Term Loans shall be payable in twenty-eight substantially equal, consecutive quarterly installments, commencing May 1, 1999 and continuing on the first day of each August, November, February and May thereafter as follows: twenty-seven installments in the amount of $35,714.28 each and a twenty-eighth and final installment due February 1, 2006 in the amount of $35,714.44, at which time all outstanding principal and accrued interest shall be paid in full. All payments of principal shall be applied first to the payment of principal outstanding under Term Note A and then, after payment in full of Term Note A, to the payment of principal outstanding under Term Note B. 2.5. VOLUNTARY PREPAYMENT OF PRINCIPAL. (i) Prepayment of the Libor Rate Tranche can be made in whole (but not in part) at any time at the end of a LIBOR Period. (ii) Prepayment of the Fixed Rate Tranche can be made in whole or in part only at the end of the Fixed Rate Term. 8 Page 8 of 31 EXHIBIT 4.1(B) (iii) All prepayments of principal shall be applied first to payment of the principal outstanding under Term Note A and then, after payment in full of Term Note A, to payment of the principal outstanding under Term Note B. 2.6. PAYMENTS GENERALLY. All payments shall be made in lawful money of the United States and in immediately available funds. 3. REPRESENTATIONS AND WARRANTIES OF BORROWER. 3.1. Borrower makes the following representations and warranties to Bank on the date hereof: (i) Borrower has full power and authority to enter into this Agreement, to borrow hereunder, to execute and deliver any related notes, assignments, mortgages, security agreements, guarantees or other agreements and documents executed by Borrower in connection with the Obligations (collectively, the "Borrower Documents"), and to take all other action required of it under this Agreement, all of which has been duly authorized by all proper and necessary corporate action, no shareholder action being required. (ii) To the best of Borrower's knowledge, there are no actions, suits or proceedings pending or threatened which, if adversely determined, would materially adversely affect the property, assets, financial condition or business of Borrower, except as set forth on Schedule 3.1 annexed hereto. (iii) This Agreement constitutes, and all Borrower Documents when executed and delivered will constitute, legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms, except to the extent that enforcement of any such obligations of Borrower may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws of general application affecting the rights and remedies of creditors generally. (iv) To the best of Borrower's knowledge, Borrower is not in violation of any terms of (i) any charter, by-law, mortgage, indenture, indebtedness or other instrument or agreement, or (ii) any order, writ, judgment, injunction, decree or demand, or (iii) any statute, rule or regulation, which violation may materially adversely affect the financial condition or properties of Borrower; and the execution and delivery of this Agreement and the Borrower Documents, and the performance thereof is and will be in compliance with each and all of the foregoing terms and will not result in any such violation or result in the creation of any mortgage, lien, charge or encumbrance upon any of the properties or assets of Borrower (except in favor of the Bank), and there is no such term which shall or may forseeably materially adversely affect the financial condition, assets, business or operations of Borrower and its consolidated subsidiaries taken as a whole. (v) Borrower has furnished the Bank consolidated financial statements of Borrower and its subsidiaries audited by PricewaterhouseCoopers, LLP as of December 31, 1997. 9 Page 9 of 31 EXHIBIT 4.1(B) 3.2. Borrower makes the following representations and warranties to Bank which shall be deemed to be continuing representations and warranties so long as any of the Obligations remain unpaid: (i) Borrower is duly organized, validly existing and in good standing under the laws of Delaware, the jurisdiction in which it was incorporated. (ii) Borrower has the requisite corporate powers to transact the business in which it is engaged and is duly licensed or qualified and in good standing in each jurisdiction in which failure to be so licensed or qualified would materially adversely affect its business or operations. (iii) Borrower has and will continue to have good and marketable title to all of its assets (subject to Permitted Encumbrances). (iv) To the best of Borrower's knowledge, no consent, approval or authorization of, or registration, declaration or filing with, any governmental body or authority or other person or entity is required in connection with the valid execution, delivery or performance of this Agreement or any of the Borrower Documents (other than the approval of the appropriate New York State agency required for the Linked Deposit Program, which approval has been obtained). (v) Borrower has, to the best of its knowledge, duly filed and will continue to file all tax returns (or appropriate extensions therefor) required to be filed in any jurisdiction, if any, including, without limitation, all federal income tax returns, and has duly paid all taxes shown as being due thereon and all other taxes, assessments and governmental charges on Borrower's assets and incomes which are due and payable, excluding any tax, assessment or charge which Borrower is contesting in good faith and by appropriate proceedings. 4. AFFIRMATIVE COVENANTS. During the term of this Agreement and so long as any of the Obligations shall remain unpaid, Borrower: 4.1. Will duly and punctually pay principal of and interest on the Obligations when due. 4.2. Will have, at the end of each of its fiscal quarters, Net Working Capital of not less than $5,000,000.00. 4.3. Will have, at the end of each of its fiscal quarters, a Tangible Net Worth of not less than $5,000,000.00. 4.4. Will have, at the end of each of its fiscal quarters, a ratio of its Liabilities to Tangible Net Worth of not more than 1.5 to 1.0. 4.5. Will have, for the twelve (12) month period ending on the last day of any of its fiscal quarters, a Debt Service Coverage Ratio of not less than 1.0 to 1.0. 10 Page 10 of 31 EXHIBIT 4.1(B) 4.6. Will furnish to Bank: (i) within forty-five (45) days after the end of each of its fiscal quarters other than year end, an internally prepared consolidated and consolidating balance sheet, operating statement and statement of changes in shareholders' equity (if such changes result from other than income) of Borrower at and as of the end of such quarter, together with copies of Borrower's SEC Form 10-Q SB or equivalent filing; (ii) within one hundred twenty (120) days after the end of each of its fiscal years: a copy of SEC Form 10-K SB or equivalent filing, and consolidated and consolidating financial statements of Borrower as of the end of each such year audited by PricewaterhouseCoopers, LLP or any other independent certified public accountants reasonably satisfactory to Bank; (iii) together with each quarterly financial statement a certificate of the Chairman or Treasurer of Borrower certifying, to his best knowledge and belief, that (a) no Event of Default under the terms of this Agreement has occurred, and (b) no event which would constitute an Event of Default under this Agreement but for the requirement that notice be given or time elapse, or both, has occurred or, if any such event has occurred or then exists, stating the nature thereof and the steps being taken by Borrower to cure same; and (iv) as soon as they are available, copies of all proxy statements, annual reports made available to its security holders and annual reports filed by Borrower with the Securities and Exchange Commission. 4.7. Will promptly pay or cause to be paid all of its taxes, assessments and other governmental charges prior to the date on which penalties are attached thereto, establish adequate reserves for the payment of taxes and assessments and make all required withholding and other tax deposits; provided, however, that nothing herein contained shall be interpreted to require the payment of any tax, assessment or charge so long as it is being contested in good faith by Borrower. 4.8. Will keep (i) all of its property so insurable insured at all times with responsible insurance carriers against fire, theft and other hazards in such manner and to the extent that like properties are usually insured by others operating properties of a similar character in the same general locality; (ii) adequately insured at all times with responsible insurance carriers against liability on account of damages to person or property and under all applicable workers' compensation laws; and will promptly deliver to Bank, upon request, certificates of insurance of any of those insurance policies required to be carried by Borrower pursuant hereto. 4.9. Will promptly inform Bank of the commencement of any action, suit, counterclaim or proceeding against Borrower (i) involving a claim in excess of $100,000.00, unless such claim is fully covered by insurance (with deductibility of not more than $25,000.00); (ii) involving a claim which results in the aggregate of all claims then outstanding and not fully insured to exceed $100,000.00; (iii) which would materially adversely affect the business of Borrower; or (iv) which questions the validity of this Agreement or the Term Notes or any action taken or to be taken pursuant to any of the foregoing. 4.10. Will maintain its corporate existence in good standing and remain or become duly qualified or licensed and in good standing as a foreign corporation in 11 Page 11 of 31 EXHIBIT 4.1(B) each jurisdiction in which failure to do so would have a material adverse impact on its business or operations. 4.11. Will promptly notify Bank in writing of (i) any material adjustment or assessment by any taxing authority as soon as Borrower has knowledge thereof, except for adjustments or assessments in an amount not exceeding $100,000.00 being contested by Borrower in good faith, and the results of any audit done by government officials of any of Borrower's tax returns after its completion; (ii) the occurrence of any event or the existence of a condition which constitutes, or which but for a requirement of lapse of time or notice, or both, would constitute, an Event of Default as defined in this Agreement; or (iii) any default by Borrower in the performance of any terms or conditions contained in any mortgage, indenture or instrument relating to borrowed money or the lease of real or personal property to which Borrower is a party which either materially adversely affects the financial condition or business of Borrower and its consolidated subsidiaries taken as a whole or which exceeds $100,000.00 in outstanding principal amount. 4.12. Will permit any Bank employees or agents designated by Bank at such times as Bank may reasonably request to visit and inspect any of the properties, corporate books and financial records of Borrower and to make extracts from and copies of such books and financial records, except as such visitation, inspection and the making of extracts and copies may be limited by government restrictions, the contractual or other restrictions of Borrower's customers, or the Company's procedures established to protect its confidential proprietary information (other than its financial information). 4.13. Will maintain its principal accounts with Bank or its successor and cause Bank to be the major bank of account of Borrower. 4.14. Will use the proceeds of the Term Loans as follows: (i) refinance the Existing Debt, (ii) purchase equipment to be used in Borrower's business, and (iii) for proper corporate working capital or acquisition purposes of Borrower. 4.15. Will grant a first priority, perfected security interest in all equipment purchased with proceeds of the Term Loans and shall have taken all steps necessary for such perfection at the later of: (i) the time that Borrower shall take possession of such equipment; or (ii) within ten days after the consummation of this Agreement. 5. NEGATIVE COVENANTS. During the term of this Agreement and so long as any of the Obligations shall remain unpaid, Borrower, without the prior written consent of Bank, which consent shall not be unreasonably withheld, will not: 5.1. Create, incur, assume or suffer to exist any liability for borrowed money except for (i) liabilities to Bank; (ii) indebtedness subordinated to any and all indebtedness of Borrower to Bank; and (iii) other liabilities for money borrowings and purchase money indebtedness incurred in the acquisition of additions to fixed assets not exceeding an aggregate principal amount at any one time outstanding of $1,000,000.00. 12 Page 12 of 31 EXHIBIT 4.1(B) 5.2. Merge or consolidate with or into any other corporation; acquire all or substantially all of the capital stock or assets of any other firm or corporation; convey, lease or sell all or any substantial portion of its property, assets or business (excluding sales of inventory in the ordinary course of business) to any other person, firm or corporation; sell and lease back any of its property assets; or amend its Certificate of Incorporation for the purpose of altering its capital structure. Borrower may, however, without violating the foregoing, permit one or more corporations to consolidate with or merge into it or acquire all or substantially all of the capital stock or assets of another corporation if Borrower is the surviving, resulting or transferee corporation, as the case may be, and immediately after such merger, consolidation or acquisition the Borrower has a Tangible Net Worth at least equal to that of Borrower immediately prior to such merger, consolidation or acquisition. 5.3. Enter, as Lessee, into any leases or assume any leases, of real property or personal property except (i) renewals of Borrower's existing leases; (ii) replacement leases for property similar to that currently being leased by Borrower; (iii) additional leases not covered by clause (iv) of this subsection which, in the aggregate, have lease payments not exceeding $100,000.00 per year; and (v) leases that are capitalized. 5.4. Loan or otherwise advance funds to any person, firm or corporation or become a guarantor, surety or otherwise become liable for the debts or other obligations of any other person, firm or corporation exceeding, in the aggregate, $50,000.00; provided, however, that this section shall have no application to: (i) loans or advances to or guaranties of the debts or other obligations of a Consolidated Subsidiary or employee stock ownership plan of Borrower; (ii) the endorsement of negotiable instruments for the payments of money deposited in the Borrower's bank account for collection in the ordinary course of business; (iii) trade credit extended in the ordinary course of the Borrower's business; (iv) advances made in the usual course of business to officers and employees of the Borrower for: (1) travel and other out-of-pocket expenses incurred by them on behalf of the Borrower in connection with such business, or (2) other general purposes not exceeding $100,000.00 in the aggregate; and (v) investments in money market deposit accounts, prime commercial paper and certificates of deposit in United States banks (having assets in excess of $50,000,000.00), obligations of the United States Government or any agency thereof and obligations guaranteed by the United States Government. 5.5. Mortgage, pledge or otherwise encumber any of its assets, except for (i) liens granted to Bank; and (ii) "purchase money security interests" as defined in Section 9.107 of the New York Uniform Commercial Code. 13 Page 13 of 31 EXHIBIT 4.1(B) 6. EVENTS OF DEFAULT. 6.1. The occurrence of any one or more of the following events shall constitute an Event of Default: (i) Failure by the Borrower to pay when due any installment of principal of or interest on any of the Obligations and continuation of such failure for fifteen (15) days after written notice by the Bank to the Borrower of such failure. (ii) The making of a general assignment by Borrower for the benefit of creditors, or the institution by Borrower of any type of bankruptcy, reorganization or insolvency proceeding under any state or federal law or of any formal or informal proceeding for the dissolution or liquidation of, settlement of all creditors' claims against, or winding-up of affairs of, Borrower without the prior written consent of Bank. (iii) The appointment of a receiver or trustee for Borrower or for all or a substantial part of the assets of Borrower; or the institution against Borrower of any type of bankruptcy; reorganization or insolvency proceeding under any state or federal law or any proceeding for the liquidation or the winding-up of the affairs of Borrower, and the failure to have such appointment vacated, or such proceeding dismissed, within thirty (30) days. (iv) If the subject matter of any certificate, statement, representation, warranty or audit heretofore or hereafter furnished by or on behalf of Borrower (including, without limitation, the representations and warranties contained herein) shall prove to be untrue or misleading as of the date made in any material respect in relation to the assets, business, income or financial condition of Borrower and its consolidated subsidiaries taken as a whole or to have omitted any substantial contingent or unliquidated liability or claim against Borrower; or, if on the date of the execution of this Agreement or on the date any Obligation is incurred hereafter, there shall have been any materially adverse change in any of the facts disclosed by any such certificate, statement, representation, warranty or audit in relation to the assets, business, income or financial condition of Borrower and its consolidated subsidiaries taken as a whole and such change is not remedied within thirty (30) days after notice thereof from Bank to Borrower. (v) Default by Borrower in the performance of any term or condition of this Agreement not otherwise specifically referred to in this Section 6, which default is not cured within fifteen (15) days after written notice thereof from Bank to Borrower. (vi) Default by Borrower in the payment of or the performance of the terms of any other indebtedness whether now existing or hereafter arising to any party other than Bank for borrowed money except where such indebtedness is being contested by Borrower in good faith or the amount of such indebtedness does not exceed $100,000.00 in the aggregate. 14 Page 14 of 31 EXHIBIT 4.1(B) (vii) If any judgment or judgments in excess of $50,000.00 (other than any judgment for which Borrower is fully insured with deductibility of not more than $25,000.00) against Borrower remains unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of forty-five (45) days. (viii) The occurrence of any Event of Default, which, under the terms of any of the Borrower Documents or any other loan agreement, note, indenture, mortgage, security agreement or other agreement evidencing or securing indebtedness of Borrower to any party other than Bank, creates in Bank or such other party a right to require immediate payment in full of any of the Obligations or other indebtedness; provided, however, that this section shall not apply to defaults under the terms of any loan agreement, note, indenture, mortgage, security agreement or other agreement evidencing or securing indebtedness of Borrower to such other party where such default is being contested by Borrower in good faith or the related indebtedness does not exceed $100,000.00 in the aggregate. 6.2. Upon the occurrence of any of the Events of Default enumerated in Section 6.1 hereof and, except with respect to an Event of Default under subsection (i) of Section 6.1, the continuation of such Event of Default for a period of fifteen (15) days after receipt of notice of such Event of Default by Borrower from Bank, all obligations of Bank under this Agreement may be immediately terminated, and all Obligations not otherwise then due and payable or payable on demand shall immediately become due and payable, at the option of Bank. Further, Borrower agrees that it will promptly furnish Bank with such security as Bank may request and will execute such agreements or documents deemed necessary by Bank to accomplish same upon the occurrence of an Event of Default (and, except with respect to an Event of Default under subsection 5.1, the continuation of such Event of Default for a period of fifteen (15) days after receipt of notice of such Event of Default by Borrower from Bank) and, concurrently, a judgment or judgments in excess of $100,000.00 (other than any judgment for which Borrower is fully insured with deductibility of not more than $25,000.00) against Borrower remains unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of fifteen (15) days. Borrower agrees that the foregoing rights and remedies herein expressly specified are cumulative and not exclusive of any rights or remedies which Bank may or would otherwise have at law or by any instrument evidencing terms of deposit of any funds or by an assignment or transfer of collateral or by any other instrument signed or assented to by Borrower. If by reason of an Event of Default Bank elects to declare the Term Loans to be immediately due and payable, then any Yield Maintenance Fee with respect to the Fixed Rate Tranche shall become due and payable in the same manner as though Borrower had exercised such right of prepayment. 7. EXPENSES. Borrower shall reimburse Bank promptly for all reasonable out-of-pocket costs and expenses, including reasonable counsel fees and disbursements, incurred by Bank in connection with (a) the preparation and execution of this Agreement, and (b) if Borrower is in default of any of its obligations hereunder or an Event of Default has occurred and is continuing, the enforcement of any provision of this Agreement or any of the Borrower Documents. 15 Page 15 of 31 EXHIBIT 4.1(B) 8. Miscellaneous. 8.1. This Agreement: cannot be amended, supplemented, modified or terminated orally (or by any course of conduct or usage of trade) and may be amended only by an agreement in writing duly executed by authorized officers of the parties hereto. 8.2. No course of dealing and no failure on the part of Bank to exercise, and no delay by Bank in exercising, any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Bank of any right or power hereunder preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies herein expressed are cumulative and not exclusive of any other right or remedy which Bank may have. 8.3. Any notice or demand to be given hereunder or any notice or demand under any of the Borrower Documents that does not specify a method of notice shall be duly given if personally delivered or mailed by registered or certified mail as follows to each of the parties below and shall be effective on the date of personal delivery or three Business Days after mailing: To Bank at: Fleet National Bank 10 Fountain Plaza Buffalo, New York 14202 ATTN: Gerald A. Lee Vice President To Borrower at: Servotronics, Inc. 1110 Maple Road Elma, New York 14059 ATTN: Lee D. Burns Treasurer 8.4. This Agreement and the acts and obligations of the parties hereunder shall be construed and interpreted in accordance with the laws of the State of New York, without regard to principles of conflict of laws. 8.5. If there is any conflict between the terms of this Agreement and the terms of any of the Term Notes or other Borrower Documents, the terms of this Agreement shall be deemed to govern and control. 8.6. The Existing Loan Agreement is hereby amended and restated in its entirety by the substitution and replacement thereof by this Second Amended and Restated Term Loan Agreement. 8.7. Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower, to grant to one or more banks or other financial institutions (each, "Participant") participating interests in Bank's obligations to lend hereunder and/or any or all of the loans held by Bank hereunder. In 16 Page 16 of 31 EXHIBIT 4.1(B) the event of any such grant by Bank of a participating interest to a Participant, whether or not upon notice to Borrower, Bank shall remain responsible for the performance of its obligations hereunder and under the Term Notes and related documents and Borrower shall continue to deal solely and directly with Bank in connection with Bank's rights and obligations hereunder. 8.8. Borrower hereby grants to Bank, a lien, security interest and right of setoff as security for all liabilities and obligations to Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. Upon the occurrence and continuing existence of any Event of Default (which shall not have been cured within any applicable grace period), Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower under this Agreement or either of the Term Notes even though unmatured and regardless of the adequacy of any other collateral securing any such obligation. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY SUCH OBLIGATION, PRIOR TO EXERCISING ITS RIGHTS OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 8.9. All agreements between Borrower and Bank are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to Bank for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement and the Term Notes shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of Borrower and Bank in the execution, delivery and acceptance of this Agreement and the Term Notes to contract in strict compliance with the laws of the State of New York from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between Borrower and Bank. 8.10. Upon receipt of an affidavit of an officer of Bank as to the loss, theft, destruction or mutilation of this Agreement, either of the Term Notes or other Borrower Document, which states, among other things that Bank has sole ownership of such Term Note or, as applicable, the rights under this Agreement or other Borrower 17 Page 17 of 31 EXHIBIT 4.1(B) Document, which contains an indemnification against claims and associated expenses of persons making claims with respect to such lost documents, in form and substance reasonably acceptable to Borrower, and by which Bank agrees to surrender (without demand for duplicate payment), as applicable, such Term Note, this Agreement or other Borrower Document upon any recovery thereof, Borrower will issue, in lieu thereof, a replacement Term Note, Agreement or other Borrower Document, such replacement Term Note to be in the same principal amount hereof and otherwise of like tenor. 8.11. All dates hereunder, including dates upon which interest or principal payments are due, which would otherwise fall on a day that is not a Business Day shall be deemed adjusted so that the date will be deemed to be the first following day that is a Business Day. 8.12. Borrower (a) expressly waives any presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever except notice required as a prerequisite to default under the Loan Agreement, and diligence in collection of the Term Notes; (b) consents that Bank may, from time to time and without notice or demand, extend, renew or postpone any or all payments and/or release any other person liable for payment of the Term Notes, without in any way modifying, altering, releasing, affecting or limiting Borrower's liability; and (c) agrees that Bank, in order to enforce payment of the Term Notes, shall not be required first to institute any suit or to exhaust any of its remedies against any other person liable for payment hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by their duly authorized officer, all as of the day and year first above written. FLEET NATIONAL BANK SERVOTRONICS, INC. By: /S/GERALD A. LEE By: /S/LEE D. BURNS, TREASURER -------------------------------------- --------------------------- Gerald A. Lee, Vice President Lee D. Burns, Treasurer 18 Page 18 of 31 EXHIBIT 4.1(B) STATE OF NEW YORK ) ss.: COUNTY OF ERIE ) On this 26th day of February, 1999, before me personally appeared GERALD A. LEE, to me known, who, being by me duly sworn, did depose and say that he resides at 68 Thistle Avenue, Town of Tonawanda, New York; that he is a Vice President of Fleet National Bank, the corporation described in and which executed the above instrument; that the foregoing instrument was executed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. /S/Pandora W. Mangold --------------------------------- Notary Public PANDORA W. MANGOLD Notary Public, State of New York Qualified in Erie County Commission Expires March 30, 2000 STATE OF NEW YORK ) ss.: COUNTY OF ERIE ) On the 26th day of February, 1999, before me personally came LEE D. BURNS, to me known, who, being by me duly sworn, did depose and say that he resides at 72 Brandel Avenue, Lancaster, New York; that he is the Treasurer of Servotronics, Inc., the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that (s)he signed his name thereto by like order. /S/Pandora W. Mangold --------------------------------- Notary Public PANDORA W. MANGOLD Notary Public, State of New York Qualified in Erie County Commission Expires March 30, 2000 19 Page 19 of 31 EXHIBIT 4.1(B) Exhibit A TERM NOTE A $500,000.00 Buffalo, New York February 26, 1999 FOR VALUE RECEIVED, Servotronics, Inc. (the "Borrower") promises to pay to the order of Fleet National Bank (the "Bank"), at its office located at 10 Fountain Plaza, Buffalo, New York 14202, or at such other place or places as may be designated by the holder of this Note, the principal sum of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00), with interest thereon, until the principal sum is fully paid, at the rates and at the times provided in the Second Amended and Restated Term Loan Agreement between the Borrower and the Bank dated as of February 26, 1999 (the "Loan Agreement"). All terms defined in the Loan Agreement are incorporated herein by reference and used herein with the same meanings. This Term Note is the Term Note A described in the Loan Agreement and is delivered pursuant to and is subject to all of the terms and conditions of, and entitled to all the benefits of, the Loan Agreement which apply to Term Note A, including without limitation the events of default set forth in Section 6 therein, the exculpatory clauses in respect of the usury law set forth in Section 8.10 therein, the set-off provisions of Section 8.8 therein, or the lost document provision of Section 8.10 therein. The terms of the Loan Agreement shall apply in the event of an inconsistency between the terms of the Loan Agreement and this Term Note. This Term Note may be prepaid in whole or in part only as provided in the Loan Agreement. Any payment or prepayment hereunder shall be applied first to unpaid costs of collection and late charges, if any, then to accrued and unpaid interest and the balance, if any, to principal. After maturity or acceleration, this Term Note shall bear interest at the Default Interest Rate set forth in the Loan Agreement until paid in full. Borrower shall pay a late charge of five percent (5%) of any required payment of principal or interest on this Term Note which is not received by Bank within ten (10) days of when such payment is due. The parties agree that this charge is a fair and reasonable charge for the late payment and shall not be deemed a penalty. Borrower authorizes Bank, from time to time, to debit any account that Borrower may have with Bank, for any payment of principal or interest hereunder past due for ten (10) days for the amount of such payment of principal or interest. Exercise of this right shall be optional with Bank and the provisions of this paragraph shall not be construed 20 Page 20 of 31 Exhibit 4.1(B) as releasing Borrower from the obligation to make payments of principal or interest according to the terms hereof. In the event that this Term Note should be found not to be a negotiable instrument, the parties hereto acknowledge and agree that Article 3 of the Uniform Commercial Code, as now or hereafter in effect in the State of New York, nevertheless sets forth the respective contracts, warranties, rights and obligations of Bank and of Borrower and any other person liable for payment hereof, except to the extent that there can be no holder in due course hereof. Borrower hereby (a) expressly waives any valuation and appraisement, presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever except notice required as a prerequisite to default under the provisions of the Loan Agreement, and diligence in collection; (b) consents that Bank may, from time to time and without notice or demand, (i) extend, rearrange, renew or postpone any or all payments and/or (ii) release, exchange, add to or substitute all or any part of any collateral for this Term Note; and (c) agree that Bank, in order to enforce payment of this Term Note shall not be required first to institute any suit or to exhaust any of its remedies against Borrower. In the event that this Term Note is collected by legal action, or otherwise with the advice of attorneys at law, Borrower hereby agrees to pay all costs of collection including reasonable attorneys' fees and expenses, whether of outside counsel or the Bank's in-house counsel, whether or not suit is brought, and whether incurred in connection with legal advice, collection, trial, appeal, bankruptcy or other creditors' proceedings. Bank may accept partial payments or payments marked "payment in full" or "in satisfaction" or words to similar effect at any time. Acceptance of such payments shall not affect or vary the duty of Borrower to pay all obligations when due hereunder, and shall not affect or impair the right of Bank to pursue all remedies available to it hereunder, or under any of the other agreements securing or guaranteeing payment hereof. The remedies of Bank shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Bank, and may be exercised as often as occasion therefor shall arise. No act of omission or commission of Bank, including specifically any failure to exercise or forbearance in the exercise of any right, remedy or recourse, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Bank and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing or as constituting a course of dealing, nor shall it be construed as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. BORROWER BY EXECUTING THIS TERM NOTE, WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY 21 Page 21 of 31 EXHIBIT 4.1(B) STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS TERM NOTE OR TO ANY CREDIT AGREEMENT OR LOAN DOCUMENT. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY FEDERAL COURT, IN EITHER CASE LOCATED IN ERIE COUNTY IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS TERM NOTE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK'S EXTENDING CREDIT TO BORROWER AND NO WAIVER OF LIMITATION OF BANK'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY SIGNED ON BANK'S BEHALF. Borrower acknowledges that the above paragraph has been expressly bargained for by Bank as part of the loan evidenced hereby and that, but for Borrower's agreement, Bank would not have extended the loan for the term and with the interest rate provided herein. Bank may at any time pledge all or any portion of its rights under this Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release Bank from its obligations under this Note. Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower, to grant to one or more banks or other financial institutions (each, "Participant") participating interests in Bank's obligations to lend hereunder and/or any or all of the loans held by Bank hereunder. In the event of any such grant by Bank of a participating interest to a Participant, whether or not upon notice to Borrower, Bank shall remain responsible for the performance of its obligations hereunder and Borrower shall continue to deal solely and directly with Bank in connection with Bank's rights and obligations hereunder. All dates hereunder, including dates upon which interest or principal payments are due, which would otherwise fall on a day that is not a Business Day shall be deemed adjusted so that the date will be deemed to be the first following day that is a Business Day. IN WITNESS WHEREOF, Borrower has executed this Term Note on the day and year first above written. SERVOTRONICS, INC. By: LEE D. BURNS, TREASURER ----------------------- Lee D. Burns, Treasurer 22 Page 22 of 31 EXHIBIT 4.1(B) Exhibit B TERM NOTE B (Fixed Rate or LIBOR Based Rate) $500,000.00 Buffalo, New York February 26, 1999 FOR VALUE RECEIVED, Servotronics, Inc. (the "Borrower") promises to pay to the order of Fleet National Bank (the "Bank"), at its office located at 10 Fountain Plaza, Buffalo, New York 14202, or at such other place or places as may be designated by the holder of this Note, the principal sum of FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000.00), with interest thereon, until the principal sum is fully paid, at the rates and at the times provided in the Second Amended and Restated Term Loan Agreement between the Borrower and the Bank dated as of February 26, 1999 (the "Loan Agreement"). All terms defined in the Loan Agreement are incorporated herein by reference and used herein with the same meanings. This Term Note is the Term Note B described in the Loan Agreement and is delivered pursuant to and is subject to all of the terms and conditions of, and entitled to all the benefits of, the Loan Agreement which apply to Term Note B, including without limitation the events of default set forth in Section 6 therein, the exculpatory clauses in respect of the usury law set forth in Section 8.10 therein, the set-off provisions of Section 8.8 therein, or the lost document provision of Section 8.10 therein. The terms of the Loan Agreement shall apply in the event of an inconsistency between the terms of the Loan Agreement and this Term Note. This Term Note may be prepaid in whole or in part only as provided in the Loan Agreement. Any payment or prepayment hereunder shall be applied first to unpaid costs of collection and late charges, if any, then to accrued and unpaid interest and the balance, if any, to principal. After maturity or acceleration, this Term Note shall bear interest at the Default Interest Rate set forth in the Loan Agreement until paid in full. Borrower shall pay a late charge of five percent (5%) of any required payment of principal or interest on this Term Note which is not received by Bank within ten (10) days of when such payment is due. The parties agree that this charge is a fair and reasonable charge for the late payment and shall not be deemed a penalty. Borrower authorizes Bank, from time to time, to debit any account that Borrower may have with Bank, for any payment of principal or interest hereunder past due for ten (10) days for the amount of such payment of principal or interest. Exercise of this right shall be optional with Bank and the provisions of this paragraph shall not be construed 23 Page 23 of 31 EXHIBIT 4.1(B) as releasing Borrower from the obligation to make payments of principal or interest according to the terms hereof. In the event that this Term Note should be found not to be a negotiable instrument, the parties hereto acknowledge and agree that Article 3 of the Uniform Commercial Code, as now or hereafter in effect in the State of New York, nevertheless sets forth the respective contracts, warranties, rights and obligations of Bank and of Borrower and any other person liable for payment hereof, except to the extent that there can be no holder in due course hereof. Borrower hereby (a) expressly waives any valuation and appraisement, presentment, demand for payment, notice of dishonor, protest, notice of nonpayment or protest, all other forms of notice whatsoever except notice required as a prerequisite to default under the provisions of the Loan Agreement, and diligence in collection; (b) consents that Bank may, from time to time and without notice or demand, (i) extend, rearrange, renew or postpone any or all payments and/or (ii) release, exchange, add to or substitute all or any part of any collateral for this Term Note; and (c) agree that Bank, in order to enforce payment of this Term Note shall not be required first to institute any suit or to exhaust any of its remedies against Borrower. In the event that this Term Note is collected by legal action, or otherwise with the advice of attorneys at law, Borrower hereby agrees to pay all costs of collection including reasonable attorneys' fees and expenses, whether of outside counsel or the Bank's in-house counsel, whether or not suit is brought, and whether incurred in connection with legal advice, collection, trial, appeal, bankruptcy or other creditors' proceedings. Bank may accept partial payments or payments marked "payment in full" or "in satisfaction" or words to similar effect at any time. Acceptance of such payments shall not affect or vary the duty of Borrower to pay all obligations when due hereunder, and shall not affect or impair the right of Bank to pursue all remedies available to it hereunder, or under any of the other agreements securing or guaranteeing payment hereof. The remedies of Bank shall be cumulative and concurrent, and may be pursued singularly, successively or together, at the sole discretion of Bank, and may be exercised as often as occasion therefor shall arise. No act of omission or commission of Bank, including specifically any failure to exercise or forbearance in the exercise of any right, remedy or recourse, shall be deemed to be a waiver or release of the same, such waiver or release to be effected only through a written document executed by Bank and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as continuing or as constituting a course of dealing, nor shall it be construed as a bar to, or as a waiver or release of, any subsequent right, remedy or recourse as to a subsequent event. BORROWER BY EXECUTING THIS TERM NOTE, WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION, WHETHER ARISING IN CONTRACT OR TORT, BY 24 Page 24 of 31 EXHIBIT 4.1(B) STATUTE OR OTHERWISE, IN ANY WAY RELATED TO THIS TERM NOTE OR TO ANY CREDIT AGREEMENT OR LOAN DOCUMENT. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK AND OF ANY FEDERAL COURT, IN EITHER CASE LOCATED IN ERIE COUNTY IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS TERM NOTE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK'S EXTENDING CREDIT TO BORROWER AND NO WAIVER OF LIMITATION OF BANK'S RIGHTS UNDER THIS PARAGRAPH SHALL BE EFFECTIVE UNLESS IN WRITING AND MANUALLY SIGNED ON BANK'S BEHALF. Borrower acknowledges that the above paragraph has been expressly bargained for by Bank as part of the loan evidenced hereby and that, but for Borrower's agreement, Bank would not have extended the loan for the term and with the interest rate provided herein. Bank may at any time pledge all or any portion of its rights under this Note to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release Bank from its obligations under this Note. Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to Borrower, to grant to one or more banks or other financial institutions (each, "Participant") participating interests in Bank's obligations to lend hereunder and/or any or all of the loans held by Bank hereunder. In the event of any such grant by Bank of a participating interest to a Participant, whether or not upon notice to Borrower, Bank shall remain responsible for the performance of its obligations hereunder and Borrower shall continue to deal solely and directly with Bank in connection with Bank's rights and obligations hereunder. All dates hereunder, including dates upon which interest or principal payments are due, which would otherwise fall on a day that is not a Business Day shall be deemed adjusted so that the date will be deemed to be the first following day that is a Business Day. IN WITNESS WHEREOF, Borrower has executed this Term Note on the day and year first above written. SERVOTRONICS, INC. By: LEE D. BURNS, TREASURER ----------------------- Lee D. Burns, Treasurer 25 Page 25 of 31 EXHIBIT 4.1(B) SECURITY AGREEMENT (Goods And Equipment) THIS AGREEMENT is made between FLEET NATIONAL BANK ("Bank") and SERVOTRONICS, INC. ("Grantor") with an address of 1110 MAPLE STREET, P.O. BOX 300, ELMA, NEW YORK 14059 1. DEFINITIONS. Unless otherwise indicated in this Agreement, all terms shall have the same meanings as given to them in the Uniform Commercial Code as amended from time to time in the State of New York. (a) "Debtor" means: (CHOOSE AND COMPLETE ONE OF THE FOLLOWING CHOICES FOR SECTION a) X Grantor; or ___ _____________________________________________ with an address of: _________________________________________________________________ (b) "Collateral" means: (CHOOSE AND COMPLETE ONE OF THE FOLLOWING CHOICES FOR SECTION b) ___ all assets and property, including without limitation all goods, tangible property, machinery, equipment, furniture, fixtures, vehicles, parts, leasehold improvements, and any intellectual property used or useful in connection therewith (including among others operating systems, patents, licenses, trade secrets, know-how, franchises, and proprietary and other rights in data, engineering, technical plans, drawings, information methods, systems, processes, inventions, formulas, applications, software, programs, manuals, and technology, and all rights and interests in any of them), of any kind or nature in which the Grantor has an interest now or in the future, and which are now existing or hereafter created or acquired, together with all additions, replacements, accessions, and proceeds in any form thereof, including without limitation any items described in the Schedule attached to this Security Agreement. X the equipment and items described in the Schedule attached to ___ this Security Agreement which is made a part hereof together with all additions, replacements, accessions, and proceeds in any form thereof. (c) "Liabilities" means all [Rider 1(c)] Among others, the Liabilities include all sums expended by the Bank for protection of its interests such as payments made for taxes and insurance and expenses of collection. 2. SECURITY INTEREST. The Grantor hereby grants to the Bank a security interest in the Collateral to secure the payment and performance of the Liabilities. This security interest is specifically intend to be a continuing interest and shall cover Collateral in which the Grantor acquires an interest after the date of this Agreement [Rider 2] as well as Collateral in which Grantor now has an interest. This security interest shall continue until terminated as described in this Agreement. The Bank shall have the right to apply the Collateral and any proceeds therefrom to all or any part of the Liabilities as and in the order the Bank may elect, whether such Liabilities are otherwise secured and whether due or not. 3. LOCATIONS OF GRANTOR AND COLLATERAL. The principal office of the Grantor is at the address shown in the preamble to this Agreement. All locations at which the Collateral will be kept or at which the Grantor does business are indicated on the Schedule attached to and made a part of this Agreement. The Grantor will not change the locations at which any of the Collateral kept [Rider 3] will notify the Bank immediately of any new or changed locations at which any of the Collateral is kept or the Grantor does business, and of any change in the name of the Grantor. The Collateral will remain personal property and will not be affixed to real estate without the prior consent of the Bank. If any of the Collateral is or will be a fixture, Grantor will provide legal descriptions and the names of record owners of the premises to which the Collateral will be affixed sufficient for perfection of the security interests of the Bank. The Grantor will provide disclaimers of interest and removal agreements, in form satisfactory to the Bank, signed by all parties other than Grantor having an interest in premises at which any Collateral is located. 4. FIRST LIEN. Except for the security interest granted hereby, and any other interest to which the Bank has consented in writing, Grantor is the owner of the Collateral free from all liens, encumbrances, and security interests. Grantor will not sell or transfer the Collateral or any interest therein, (including, without limitation, a security interest) without the prior written consent of the Bank. Grantor will defend the same against the claims and demands of all persons, and will cause the immediate removal and termination of any levy, execution, judgment or other lien, or similar claim of third persons to the Collateral. 26 Page 26 of 31 EXHIBIT 4.1(B) 5. PERFECTION OF SECURITY INTEREST. Grantor will execute and deliver to Bank such financing statements, security agreements, assignments, and other papers, as Bank may at any time or from time to time reasonably request. If the Collateral is a motor vehicle required to be titled under applicable law, Grantor warrants that Bank's security interest will be recorded on the title certificates covering the Collateral and will deliver such certificates or other evidence of ownership to Bank as the Bank requests. Grantor hereby appoints Bank as its attorney in fact to execute and deliver notices of lien, financing statements, and any other documents, notices, and agreements necessary for the perfection of the Bank's security interests in the Collateral. Grantor agrees to pay the costs of filing or perfection of the Bank's security interests, searches of the public records, and releases or assignments of the Bank's interests. 6. MAINTENANCE. Grantor will keep the Collateral in good order and repair except for normal wear and tear in the ordinary course of business. Grantor will not use the same in violation of law or any policy of insurance thereon. Bank, or its nominee, may inspect the Collateral at any reasonable time, wherever located. 7. TAXES. Grantor will pay promptly, when due, all taxes and assessments upon the Collateral or its use or operation, or upon this Agreement. [Rider 7] 8. INSURANCE. Grantor at all times will keep the Collateral insured in such amounts, with such insurance companies chosen by Grantor, and against such risks, all as are satisfactory to the Bank. In any event and without specific request by Bank, Grantor will insure the Collateral against FIRE, including so-called extended coverage, theft and, in the case of any motor vehicle, collision. All insurance policies shall name the Bank as loss payee, to include a Lender Loss Payable Clause, and shall provide for losses covered thereby to be payable to Bank and Grantor as their respective interests may appear. The endorsements on any insurance policy shall be in a form satisfactory to the Bank and all policies of insurance shall provide for not less than ten (10) days' prior notice of cancellation to the Bank. Grantor will deliver certificates and policies evidencing required insurance to the Bank upon its request and in any event at least annually. After any Event of Default hereunder, the Bank may, but need not (i) cancel, in accordance with applicable law, any insurance contract covering the Collateral or its ownership or operation, (ii) demand and receive any return premiums, unearned premium refunds and dividends payable in respect thereof (the Grantor hereby irrevocably designating, constituting and appointing the Bank as its true and lawful agent so to do), and (iii) apply any and all sums received by the Bank as a result of such cancellation, after deducting therefrom any and all expenses incident thereto, toward payment of the Liabilities. Grantor will notify insurer and Bank in the event of any loss, damage or other casualty affecting the Collateral. Grantor hereby assigns to Bank, any and all monies which may become due and payable under any policy insuring the Collateral, directs any such insurance company to make payments directly to Bank, and authorizes Bank to apply such monies in payment on account of the Liabilities, whether or not due, and to remit any surplus to Grantor. Grantor hereby irrevocably appoints Bank as its attorney in fact, with full power of substitution, to (i) make and adjust claims, (ii) receive all proceeds and payments, including the return of unearned premiums, (iii) execute proofs of claim, (iv) endorse drafts and other instruments for die payment of money, (v) execute releases, (vi) negotiate settlements, (vii) cancel any insurance referred to in this contract, and (viii) do all other things necessary and required to effect a settlement under or to realize the benefits of any insurance policy. 9. PROTECTION OF BANK'S INTEREST. Seven or more days after the day the Bank mails the Grantor notice, upon failure of the grantor to (i) remove liens or interests prohibited by Section 4 of this Agreement, (ii) comply with obligations to maintain Collateral pursuant to Section 6 of this Agreement (iii) pay taxes or assessments as required by Section 7 of this Agreement, or (iv) provide evidence satisfactory to the Bank of insurance as required by Section 8 of this Agreement, the Bank in its discretion may discharge any such liens or interests, repair or take other reasonable steps to protect the value of Collateral, pay taxes or assessments, and obtain insurance coverage on the Collateral. Bank also may pay any costs of perfection, searches, releases, or assignments pursuant to Section 5 of this Agreement. Grantor agrees to reimburse Bank on demand for any and all expenditures so made, and until paid the amount thereof also shall he part of the Liabilities secured by the Collateral. Bank shall have no obligation to Grantor or Debtor to make any such expenditures I shall the making thereof relieve any default hereunder. 10. DEFAULT. The following events or conditions shall be an "Event of Default" under this Agreement: (a) any default with respect to any of the Liabilities, (b) any failure to comply with any [Rider 10] Agreement, [Rider 10A] loss, theft, material damage or destruction of the Collateral, or (e) material or reasonably projected material decline in the value a of the Collateral. These Events of Default are not intended to affect in any way any Liability payable on demand and shall not prejudice the Bank's rights to demand payment of any such Liabilities at any time. 11. REMEDIES. Upon the occurrence of an Event of Default, the Bank may declare all of the Liabilities to be immediately due and payable and Bank shall have the rights and remedies of a secured party under the Uniform Commercial Code of the State of New York as amended from time to time in any jurisdiction where enforcement of this Agreement is sought in addition to all other rights and remedies at law or in equity. Among other remedies, the Bank may take immediate possession of the Collateral and for that purpose Bank may, so far as Grantor can give authority therefor, enter upon any premises on which the Collateral or any part thereof may be situated and secure or remove the same therefrom. Upon request of the Bank, Grantor will assemble and make the Collateral available to the Bank at a reasonable place and time designated by the Bank. Grantor's failure to take possession of any Collateral at any time and place reasonably specified by the Bank in writing to the Grantor shall constitute an abandonment of such property. Grantor and Debtor agree that notice of the time and place of public sale of any of the Collateral or of the time after which any private sale thereof is to be made or of other disposition of the Collateral shall he deemed reasonable notice seven days after such notice is deposited in the mail or otherwise delivered to Grantor and Debtor at the addresses shown in the preamble and section I of this Agreement respectively. 27 Page 27 of 31 EXHIBIT 4.1(B) The rights of the Bank are cumulative, and the Bank may enforce its rights under this Agreement irrespective of any other collateral, guaranty, right, or remedy it may have. The exercise of all or a part of its rights or remedies hereunder shall not prevent the Bank from exercising at the same or any other time any other right or remedy with respect to the Liabilities. The Grantor authorizes the Bank in its sole discretion to direct the order or manner of the disposition of the Collateral. From the proceeds realized from the Collateral the Bank shall be entitled to retain all sums secured hereby as well as its reasonable expenses of collection including without limitation those of retaking, holding, safeguarding, accounting for , preparing for sale, selling, and reasonable attorneys' fees and legal expenses. If the proceeds realized form the Collateral are not sufficient to defray said expenses and to satisfy the balance due on the Liabilities, the Grantor shall remain liable for such expenses and Debtor shall remain liable for such expenses and any deficiency with respect to the Liabilities. Any payments or proceeds from realization on the Collateral may be applied to the Liabilities in whatever order or manner the Bank elects. Rider 12 12. ADDITIONAL SECURITY/SETOFF. Borrower and any Guarantor hereby grant to Bank, a lien, security interest and right of setoff as security for all liabilities and obligations to Bank, whether now or existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under control of Fleet Financial Group, Inc., or in transit to any of them. [Rider 12] Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower and any Guarantor even though unmatured and regardless of the adequacy of any other collateral securing the Loan. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. The rights of the Bank under this Agreement are in addition to, and not exclusive of, any other rights it may have with respect to such deposits, sums, securities, or other property under other agreements or applicable principles of law. Tile Bank shall have no duty to take steps to preserve rights against prior parties as to such securities or other property. 13. CONTINUING AGREEMENT/TERMINATION. This is a continuing Agreement, and no notice of the creation or existence of' the Liabilities, renewal, extension or modification thereof need be given to Grantor. This security interest shall [Rider 13]. 14. NO WAIVER. Grantor agrees that no representation, promise or agreement made by the Bank or by any officer or employee of the Bank at, prior or subsequent to the execution and delivery of this Agreement shall modify, alter, limit or otherwise abridge the rights and remedies of the Bank hereunder unless agreed by the Bank in writing. None of the rights and remedies of the Bank hereunder shall be modified, altered, limited or otherwise abridged or waived by any representation, promise or agreement hereafter made or by any course of conduct hereafter pursued by the Bank. [Rider 14] No delay or omission on the part of Bank in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Agreement, and waiver of any right shall not be deemed waiver of any other right unless expressly agreed by the Bank in writing. 15. JOINT AND SEVERAL LIABILITY. If there are more than one Grantor hereunder, their representations, warranties, liabilities and obligations hereunder shall be joint and several. 16. LAWS/WAIVER OF JURY TRIAL. The validity, construction and performance of this Agreement shall be governed by the laws of' the State of New York. Grantor consents to jurisdiction and service of process, which may be effected by certified mail, in the courts of the State of New York and in the courts of the United States \having jurisdiction hereof. BORROWER AND BANK MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THE NOTE OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ACCEPT THE NOTE AND MAKE THE LOAN. 17. PARTIES IN INTEREST. All terms and provisions of this Agreement shall inure to the benefit of and be binding upon and be enforceable by the respective heirs, executors, legal representatives, successors, and assigns of the parties hereto. 18. SEVERABILITY. Any partial invalidity of' the provisions of' this Agreement shall not invalidate the remaining portions hereof or thereof. 19. MISCELLANEOUS. Grantor hereby expressly waives demand, presentment, protest and notice of dishonor on any and all of the Liabilities. 28 Page 28 of 31 EXHIBIT 4.1(B) Grantor: Grantor: SERVOTRONICS, INC. By: By: /S/LEE D. BURNS ------------------------ --------------------------- Title: Title:TREASURER --------------------- --------------------------- Date: Date:2-26-99 --------------------- --------------------------- I/We acknowledge receipt of a copy of this Security Agreement and agree with the terms thereof insofar as it is applicable to me/us. Debtor: By: ------------------------ Title: --------------------- Date: ---------------------- WARNING: IT IS A CRIMINAL OFFENSE IN NEW YORK STATE FOR A DEBTOR TO KNOWINGLY SELL OR OTHERWISE DISPOSE OF COLLATERAL IN CONTRAVENTION OF THE TERMS OF A SECURITY AGREEMENT SCHEDULE A TO GOODS AND EQUIPMENT SECURITY AGREEMENT I. This Security Agreement applies to the following specific items of Collateral: Two Fadal CNC machining centers VNIC 4020 Tooling One Hardinge CNC Lathe Conquest T42SP Tooling One Hansvedt Wire EDM machine Tooling One Bridgeport EZ Path CNC milling machine One Hardinge Precision Tool Room Lathe II. All of the locations at which the Collateral is located or the Grantor maintains a place of business are listed below. If any of the Collateral is a fixture, the record owner of the location at which the Collateral is kept is indicated. Address County Record Owner 1110 Maple Street Erie Grantor Elma, NY 14059 29 Page 29 of 31 EXHIBIT 4.1(B) RIDERS TO SECURITY AGREEMENT BETWEEN FLEET NATIONAL BANK AND SERVOTRONICS, INC. Rider 1(c): Liabilities of Grantor upon the Term Notes ("Term Notes") as defined in Section 1.31 of the Term Loan Agreement between Grantor and Bank dated February 26, 1999 ("Loan Agreement"). Rider 2: to the extent provided under Section 4.15 of the Loan Agreement Rider 3: except upon the notification given in the next sentence. Grantor Rider 7: other than a tax or assessment which Grantor is contesting in good faith. Rider 8: Bank will indemnify Grantor for any loss sustained by Grantor by reason of Bank's cancellation of insurance on collateral without Grantor's specific consent or, at Bank's option, will offset its indemnification liability to Grantor under this sentence against Liabilities of Grantor and pay to Grantor any excess of its indemnification liability to Grantor over Grantor's Liabilities. The power of attorney granted under the following sentence with respect to clause (vii) does not constitute a consent by Grantor under the preceding sentence and does not avoid Bank's indemnification liability under the preceding sentence. Rider 10: material term of this Rider 10 A: (c) material Rider 12: Upon the occurrence and continuing existence of any Event of Default (which shall not have been cured within any applicable grace period), Rider 13: terminate upon payment in full of all Liabilities. Rider 14: unless agreed by the Bank in writing. 30 Page 30 of 31 EXHIBIT 4.1(B)
UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC-1 This FINANCING STATEMENT is presented to a Filing No. of Additional Officer for filing pursuant to the Uniform Sheets Presented: 3. |_| The Debtor is a transmitting Commercial Code. utility. - ------------------------------------------------------------------------------------------------------------------------------------ 1. Debtor(s) (Last Name First) and Address(es): 2. Secured Party(ies) Name(s) and 4. For Filing Officer: Date, Time, No. Address(es) Filing Office Servotronics, Inc. 1110 Maple Road Fleet National Bank Elma, New York 14059 10 Fountain Plaza Buffalo, New York 14202 - ------------------------------------------------------------------------------------------------------------------------------------ 5. This Financing Statement covers the following 6. Assignee(s) of Secured Party and 7. |_|The described crops are growing types Address(es) or to be grown on:* (or items) of property: |_|The described goods are or are to be affixed to:* The equipment and items described in Schedule A |_|The lumber to be cut or minerals annexed hereto, together with all additions, or the like (including oil and replacements, accessions and proceeds in any form gas is on:* thereof. *(Describe Real Estate Below) |_| Products of the Collateral are also covered. - ------------------------------------------------------------------------------------------------------------------------------------ 8. Describe Real Estate Here: |_| This statement is to be indexed 9. Name of a Record Owner in the Real Estate Records: - ------------------------------------------------------------------------------------------------------------------------------------ No. & Street Town or City County Section Block Lot - ------------------------------------------------------------------------------------------------------------------------------------ 10. This statement is filed without the debtor's signature to perfect a security interest in collateral (check appropriate box) |_| under a security agreement signed by debtor authorizing secured party to file this statement, or |_| which is proceeds of the original collateral described above in which a security interest was perfected, or |_| acquired after a change of name, identity or corporate structure of the debtor, or |_| as to which the filing has lapsed, or already subject to a security interest in another jurisdiction: |_|when the collateral was brought into the state, or |_| when the debtor's location was changed to this state. SERVOTRONICS, INC. FLEET NATIONAL BANK By _____________________________________________ By__________________________________________________ Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
STATE OF NEW YORK 31 Page 31 of 31 EXHIBIT 4.1(B) SCHEDULE A TO UCC-1 FINANCING STATEMENT SERVOTRONICS, INC. AS (THE "DEBTOR") and FLEET NATIONAL BANK (THE "SECURED PARTY") ITEM 5. FURTHER DESCRIPTION OF COLLATERAL: Two Fadal CNC machining centers VNIC 4020 Tooling One Hardinge CNC Lathe Conquest T42SP Tooling One Hansvedt Wire EDM machine Tooling One Bridgeport EZ Path CNC milling machine One Hardinge Precision Tool Room Lathe EX-4.1.C 3 EXHIBIT 4.1(C) 1 EXHIBIT 4.1(C) FIRST AMENDMENT TO SECOND AMENDED AND RESTATED TERM LOAN AGREEMENT This First Amendment ("First Amendment"), dated as of December 17, 1999 is made by and between SERVOTRONICS, INC. ("Borrower"), a Delaware corporation having its principal office at 1110 Maple Street, P.O. Box 300, Elma, New York 14059 and FLEET NATIONAL BANK, a national banking association and successor to Fleet Bank, with an office at Fleet Bank Building, Ten Fountain Plaza, Buffalo, New York 14202 ("Bank"). STATEMENT OF THE PREMISES Borrower and Bank have previously entered into a Second Amended and Restated Term Loan Agreement dated February 26, 1999 (as amended from time to time, the "Loan Agreement"). Borrower and Bank have agreed to amend certain financial covenants in the Loan Agreement and make certain other changes, all upon the terms and conditions set forth herein. STATEMENT OF CONSIDERATION Accordingly, in consideration of the premises and under the authority of Section 5-1103 of the New York General Obligations Law, Borrower and Bank agree as follows: AGREEMENT 1. AMENDMENT. Effective upon the satisfaction of all conditions specified in Section 3 hereof, the Loan Agreement is hereby amended as follows: A. The following subsection (vi) is hereby added at the end of Section 3.2 of the Loan Agreement: (vi) Borrower has reviewed the "Year 2000 Risk" (that is the risk that computer applications used by Borrower and/or it suppliers, vendors and customers may be unable to recognize and perform without error date-sensitive functions involving certain dates prior to and any date after December 31, 1999) and represents that, to the best of its knowledge after such review, it is taking such action as may be necessary to ensure that the Year 2000 Risk will not materially adversely affect its business operations and/or financial condition. Notwithstanding the provisions of this Section, the Borrower gives no representation with respect to suppliers, vendors or customers not controlled by the Borrower except that it has made a reasonable effort to obtain assurances as to Year 2000 Risk from entities with whom the Borrower has material business relationships, and the Borrower has received from such entities no reports advising of a Year 2000 Risk materially adversely affecting the Borrower's business operations and/or financial condition. B. Sections 4.2, 4.3, 4.4 and 4.5 of the Loan Agreement are hereby amended and restated in their entirety to read as follows: 2 EXHIBIT 4.1(c) Page 2 of 7 4.2 Will maintain, (i) as of December 31, 1999, Net Working Capital of not less than $7,500,000 and (ii) as at the end of each fiscal quarter thereafter, Net Working Capital of not less than $7,500,000, increasing each fiscal year, commencing December 31, 2000, by two percent (2%) of the amount used on the previous December 31 for purposes of testing this covenant (e.g. for the quarters ending March 31, 2000, June 30, 2000 and September 30, 2000, not less than $7,500,000; for the quarter ending December 31, 2000, not less than $7,650,000; for the quarters ending March 31, 2001, June 30, 2001 and September 30, 2001, not less than $7,650,000; for the quarter ending December 31, 2001, not less than $7,803,000, etc.). If the effect of any change in GAAP would cause a violation of the covenant set forth in this Section 4.2 on any testing date during the term of this Agreement and such covenant would not be violated if such change in GAAP were disregarded in making the calculations set forth in this Section, then such covenant shall not be deemed violated as of the applicable testing date. 4.3 Will maintain, (i) as of December 31, 1999, a Tangible Net Worth of not less than $9,000,000 and (ii) as of the end of each fiscal quarter thereafter, Tangible Net Worth of not less than $9,000,000, increasing each fiscal year, commencing December 31, 2000, by two percent (2%) of the amount used on the previous December 31 for purposes of testing this covenant (e.g. for the quarters ending March 31, 2000, June 30, 2000 and September 30, 2000, not less than $9,000,000; for the quarter ending December 31, 2000, not less than $9,180,000; for the quarters ending March 31, 2001, June 30, 2001 and September 30, 2001, not less than $9,180,000; for the quarter ending December 31, 2001, not less than $9,363,600, etc.). If the effect of any change in GAAP would cause a violation of the covenant set forth in this Section 4.3 on any testing date during the term of this Agreement and such covenant would not be violated if such change in GAAP were disregarded in making the calculations set forth in this Section, then such covenant shall not be deemed violated as of the applicable testing date. 4.4 Will maintain, at the end of each of its fiscal quarters for the four quarters then ended, a ratio of its Liabilities to Tangible Net Worth of not more than 1.5 to 1.0. 4.5 Will have a Debt Service Coverage Ratio of not less than 1.0 to 1.0, for the four quarters then ended, as of the end of each fiscal quarter. C. The following new Section 4.16 is added to the Loan Agreement immediately following Section 4.15: 4.16 Borrower will be Year 2000 Compliant by January 1, 2000. For purposes of this Section, "Year 2000 Compliant" means, with regard to Borrower and/or its suppliers, vendors and customers (subject, however, to the last sentence of Section 3.2(vi)), that all software, embedded microchips, and other processing capabilities utilized by, and material to the business operations or financial condition of, such entity are able to interpret and manipulate data on and involving all calendar dates correctly and without causing any abnormal ending scenario, including in relation to dates on and after January 1, 2000. D. The following language is hereby added at the end of Section 8.7 of the Credit Agreement as part of such Section: Bank may furnish any information concerning Borrower in its possession from time to time to prospective Participants, provided that, if any information is provided which is not publicly available (it being understood that "publicly available" shall include non-confidential filings made by the Company with the Securities and Exchange Commission which shall have become available to the public and shall exclude information which has become publicly available in violation of the provisions of this Section) Bank shall require any such prospective Participant to agree in writing (a true copy of which shall be furnished to Borrower) to maintain the confidentiality of all such information which is not publicly available and the Borrower shall be identified in that written agreement as a beneficiary of that agreement with the right to enforce it. 3 EXHIBIT 4.1(c) Page 3 of 7 2. REPRESENTATIONS AND WARRANTIES. Borrower makes the following representations and warranties to Bank which shall be deemed to be continuing representations and warranties so long as any obligations, including indebtedness of Borrower to Bank arising under the Loan Agreement or any note delivered pursuant thereto remain unpaid: A. AUTHORIZATION. Borrower has full power and authority to borrow hereunder and to execute, deliver and perform this First Amendment and any documents delivered in connection with it and all other related documents and transactions, all of which have been duly authorized by all proper and necessary corporate action. The execution and delivery of this First Amendment by Borrower will not violate the provisions of, or cause a default under, Borrower's Certificate of Incorporation or By-Laws or any agreement to which the Borrower is a party or by which it or its assets are bound. B. BINDING EFFECT. This First Amendment has been duly executed and delivered by Borrower and constitutes the legal, valid and binding obligation of Borrower enforceable in accordance with its terms. C. CONSENTS; GOVERNMENTAL APPROVALS. No consent, approval or authorization of, or registration, declaration or filing with, any governmental body or authority or any other party is required in connection with the valid execution, delivery or performance of this First Amendment or any other document executed and delivered therewith or in connection with any other transactions contemplated hereby. D. NO EVENTS OF DEFAULT. There is, on the date hereof, no event or condition which constitutes an Event of Default under any of the Loan Documents or which, with notice and/or the passage of time, would constitute an Event of Default. E. NO MATERIAL MISSTATEMENTS. Neither this First Amendment nor any document delivered to Bank by or on behalf of Borrower to induce Bank to enter into this First Amendment contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made. 3. CONDITIONS OF EFFECTIVENESS. This First Amendment shall become effective when and only when Bank shall have received counterparts of this First Amendment executed by Borrower and Bank and the following conditions shall have been fulfilled: A. DOCUMENTS. All instruments, certificates and agreements to be furnished to the Bank hereunder shall be of such form and content as the Bank shall reasonably require, and the Borrower shall furnish such consents, authorizations and other instruments and agreements as the Bank may reasonably deem necessary to effectuate the intent of this First Amendment. B. OPINION OF COUNSEL. Counsel to Borrower shall have delivered to the Bank an opinion in form and substance satisfactory to the Bank. 4 EXHIBIT 4.1(c) Page 4 of 7 C. AUTHORIZATION. The Borrower shall have taken appropriate corporate action to authorize, and the Borrower's Board of Directors shall have adopted resolutions authorizing the execution and delivery of this First Amendment and the taking of all action called for by this First Amendment, and the Borrower shall have furnished to Bank certified copies of all such corporate action and Board resolutions and such other certified corporate documents as the Bank may request. D. COSTS AND EXPENSES. Borrower shall have complied with Section 5 of this First Amendment. E. ACKNOWLEDGMENT. G. N. Metals Products, Inc., The Ontario Knife Company and Queen Cutlery Company, Inc. shall each have delivered to Bank an Acknowledgment in form and substance satisfactory to Bank and such additional documents as Bank or its counsel may reasonably require and all documents, instruments and other legal matters in connection with this First Amendment shall be satisfactory in form and substance to Bank and its counsel. 4. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS. A. Upon the effectiveness hereof, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference in the Loan Documents to the Loan Agreement shall mean and be a reference to the Loan Agreement as amended by this First Amendment. B. The Loan Agreement, as amended by this First Amendment, represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof. This First Amendment supersedes all prior negotiations and any course of dealing between the parties with respect to the subject matter hereof. This First Amendment shall be binding upon Borrower and its successors and assigns, and shall inure to the benefit of, and be enforceable by, Bank and each of its successors and assigns. The Loan Agreement, as amended hereby, is in full force and effect and, as so amended, is hereby ratified and reaffirmed in its entirety. The Borrower acknowledges and agrees that the Loan Agreement (as amended by this First Amendment) and each other Borrower Document, as defined in the Loan Agreement, to which Borrower is a party is in full force and effect, that its obligations thereunder and under this First Amendment are its legal valid and binding obligations enforceable against it in accordance with the terms thereof and hereof, and it has no defense, whether legal or equitable, setoff or counterclaim to the payment and performance of such obligations. C. The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of Bank under the Loan Agreement, nor constitute a waiver of any provision of the Loan Agreement. 5. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and expenses of Bank in connection with the preparation, negotiation, administration, execution and delivery of this First Amendment and the other documents related hereto, including the reasonable fees, charges and disbursements of counsel for Bank. 5 EXHIBIT 4.1(c) Page 5 of 7 6. GOVERNING LAW. Pursuant to Section 5-1401 of the New York General Obligations Law, the laws of the State of New York shall govern the validity, construction, enforcement and interpretation of this First Amendment in whole without regard to any rules of conflicts-of-laws that would require the application of the laws of any jurisdiction other than the State of New York. 7. HEADINGS. Section headings in this First Amendment are included herein for convenience of reference only and shall not limit or otherwise affect the meanings of this First Amendment or be used to construe its provisions. 8. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which shall be deemed to be an original, and all of which taken together shall constitute one and the same First Amendment, regardless of whether or not the execution by all parties shall appear on any single counterpart. Delivery of an executed counterpart of a signature page to this First Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this First Amendment. 6 EXHIBIT 4.1(c) Page 6 of 7 IN WITNESS WHEREOF, the parties hereto have each caused a counterpart of this First Amendment to be executed by their respective representatives thereunto duly authorized, as of the date first above written. SERVOTRONICS, INC. By: /S/LEE D. BURNS, TREASURER ---------------------------- Lee D. Burns Treasurer and Chief Financial Officer FLEET NATIONAL BANK By: /S/GERALD A. LEE -------------------- Gerald A. Lee Vice President STATE OF NEW YORK ) : SS.: COUNTY OF ERIE ) On the 17th day of December in the year 1999 before me personally came Lee D. Burns to me known, who, being by me duly sworn, did depose and say that he resides in Lancaster, New York; that he is the Treasurer and Chief Financial Officer of Servotronics, Inc., the corporation described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said corporation. /S/Pandora W. Mangold -------------------------------------------- Notary Public PANDORA W. MANGOLD Notary Public, State of New York Qualified in Erie County Commission Expires March 30, 2000 7 EXHIBIT 4.1(c) Page 7 of 7 STATE OF NEW YORK ) : SS.: COUNTY OF ERIE ) On this 17th day of December, 1999 before me personally came Gerald A. Lee to me known, who, being by me duly sworn, did depose and say that he resides in Tonawanda, New York; that he is a Vice President of Fleet National Bank, the banking association described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said association. /S/Martha M. Anderson ---------------------------------- Notary Public MARTHA M. ANDERSON Notary Public, State of New York No.02PO4930661 Qualified in Erie County Certificate Filed in Erie County Commission Expires April 18, 2000 EX-4.2.B 4 EXHIBIT 4.2(B) 1 EXHIBIT 4.2(B) FIRST AMENDMENT AND EXTENSION TO LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT This First Amendment and Extension ("First Amendment"), dated and effective as of December 17, 1999 (the "Replacement Date") is made by and between SERVOTRONICS, INC. ("Servo") and TSV ELMA, INC. formerly known as TSV, Inc. ("TSV"), Delaware corporations having their principal offices at 1110 Maple Street, P.O. Box 300, Elma, New York 14059 (Servo and TSV are sometimes collectively and severally referred to herein as the "Company") and FLEET NATIONAL BANK, a national banking association and successor to Fleet Bank, with an office at Fleet Bank Building, Ten Fountain Plaza, Buffalo, New York 14202 ("Bank"). STATEMENT OF THE PREMISES The Company and Fleet Bank have previously entered into a Letter of Credit and Reimbursement Agreement dated as of December 1, 1994 (the "Reimbursement Agreement"); and The Erie County Industrial Development Agency (the "Agency") issued its Industrial Development Revenue Bonds (1994 Servotronics, Inc. Project) in the aggregate principal amount of $5,000,000 (the "Bonds") for the purpose of assisting in financing the Project, as defined in the Reimbursement Agreement; and WHEREAS, the Bank issued its irrevocable Letter of Credit (the "Original Letter of Credit") to facilitate the issuance and sale of the Bonds, all in accordance with the terms and conditions of the Reimbursement Agreement; and WHEREAS, the Original Letter of Credit will expire on December 21, 1999 and the Company has requested that Bank renew and extend the Original Letter of Credit for a five-year period; and WHEREAS, Bank has agreed to renew and extend such Original Letter of Credit, provided that the Company agrees to the modification of certain financial covenants in the Reimbursement Agreement and certain other changes to the Reimbursement Agreement and the Company has agreed thereto, all upon the terms and conditions set forth herein. STATEMENT OF CONSIDERATION Accordingly, in consideration of the premises and under the authority of Section 5-1103 of the New York General Obligations Law, the Company and Bank agree as follows: AGREEMENT 1. AMENDMENT. Effective upon the satisfaction of all conditions specified in Section 4 hereof, the Reimbursement Agreement is hereby amended as follows: 2 Page 2 of 10 EXHIBIT 4.2(B) A. The first recital of the Reimbursement Agreement is hereby amended and restated to read in its entirety as follows: WHEREAS, the Company has applied to the Erie County Industrial Development Agency (the "Agency") to issue its Industrial Development Revenue Bonds (1994 Servotronics, Inc. Project) in the aggregate principal amount of $5,000,000 for the purpose of assisting in financing the project described below and paying certain costs incidental thereto; and B. Section 1.01 of the Reimbursement Agreement is hereby amended by amended and restating the following definitions in their entirety to read as follows: "BANK" shall mean Fleet National Bank, a national banking corporation having an office at 10 Fountain Plaza, Buffalo, New York 14202. "LETTER OF CREDIT" means the irrevocable transferable direct pay letter of credit in the form of Exhibit A to this Agreement, dated the Closing Date, issued by the Bank in favor of the Trustee, and any replacement, amendment or extension thereof. C. Section 3.02 of the Reimbursement Agreement is hereby amended and restated in its entirety to read as follows: 3.02 LETTER OF CREDIT FEE. On December 22, 1994 and on each March 22, June 22, September 22 and December 22 thereafter (or, if any such day is not a Business Day, the immediate succeeding Business Day) so long as any credit remains available to the Trustee under the Letter of Credit, the Company shall pay to the Bank a Letter of Credit fee equal to one percent ( 1%) per annum of the sum of (a) the principal amount of all Outstanding Bonds on such date and (b) if such date falls within a Variable Interest Rate Period, an amount equal to 60 days' accrued interest on the principal amount of all Outstanding Bonds on such date computed assuming an interest rate of twelve percent (12%) per annum, or, if such date falls within a Fixed Interest Rate Period, an amount equal to 210 days' accrued interest on the principal amount of all Outstanding Bonds on such date computed at the Fixed Interest Rate. There shall be no reduction or refund of any portion of such Letter of Credit fee in the event the Letter of Credit expires or is drawn upon, reduced, terminated or otherwise modified after the date such Letter of Credit fee is computed in advance for each three month period. In the event any fees payable under the terms hereof are not paid on or before the date the same are due and payable, the payment of such fees shall be accompanied by interest thereon, at a rate equal to two percent (2%) per annum in excess of the Stated Prime Rate from time to time, from the date such payment becomes due until paid in full. D. The following new Section 10.13 is added to the Reimbursement Agreement immediately following Section 10.12: 10.13 The Company has reviewed the "Year 2000 Risk" (that is the risk that computer applications used by the Company and/or it suppliers, vendors and customers may be unable to recognize and perform without error date-sensitive functions involving certain dates prior to and any date after December 31, 1999) and represents that, to the best of its knowledge after such review, it is taking such action as may be necessary to ensure that the Year 2000 Risk will not materially adversely affect its business operations and/or financial condition. Notwithstanding the provisions of this Section or Section 11.15, the Company gives no representation with respect to suppliers, vendors or customers not controlled by the Company except that it has made a reasonable effort to obtain assurances as to Year 2000 Risk from entities with whom the Company has material business relationships, and the Company has received from such entities no reports advising of a Year 2000 Risk materially adversely affecting the Company's business operations and/or financial condition. 3 Page 3 of 10 EXHIBIT 4.2(B) E. Section 11.02 of the Reimbursement Agreement is hereby amended and restated to read in its entirety as follows: 11.02 NET WORKING CAPITAL. Will maintain, (i) as of December 31, 1999, Net Working Capital of not less than $7,500,000 and (ii) as at the end of each fiscal quarter thereafter, Net Working Capital of not less than $7,500,000, increasing each fiscal year, commencing December 31, 2000, by two percent (2%) of the amount used on the previous December 31 for purposes of testing this covenant (e.g. for the quarters ending March 31, 2000, June 30, 2000 and September 30, 2000, not less than $7,500,000; for the quarter ending December 31, 2000, not less than $7,650,000; for the quarters ending March 31, 2001, June 30, 2001 and September 30, 2001, not less than $7,650,000; for the quarter ending December 31, 2001, not less than $7,803,000, etc.). If the effect of any change in Generally Accepted Accounting Principles would cause a violation of the covenant set forth in this Section 11.02 on any testing date during the term of this Agreement and such covenant would not be violated if such change in Generally Accepted Accounting Principles were disregarded in making the calculations set forth in this Section, then such covenant shall not be deemed violated as of the applicable testing date. F. Section 11.03 of the Reimbursement Agreement is hereby amended and restated to read in its entirety as follows: 11.03 TANGIBLE NET WORTH. Will maintain, (i) as of December 31, 1999, a Tangible Net Worth of not less than $9,000,000 and (ii) as of the end of each fiscal quarter thereafter, Tangible Net Worth of not less than $9,000,000, increasing each fiscal year, commencing December 31, 2000, by two percent (2%) of the amount used on the previous December 31 for purposes of testing this covenant (e.g. for the quarters ending March 31, 2000, June 30, 2000 and September 30, 2000, not less than $9,000,000; for the quarter ending December 31, 2000, not less than $9,180,000; for the quarters ending March 31, 2001, June 30, 2001 and September 30, 2001, not less than $9,180,000; for the quarter ending December 31, 2001, not less than $9,363,600, etc.). If the effect of any change in Generally Accepted Accounting Principles would cause a violation of the covenant set forth in this Section 11.03 on any testing date during the term of this Agreement and such covenant would not be violated if such change in Generally Accepted Accounting Principles were disregarded in making the calculations set forth in this Section, then such covenant shall not be deemed violated as of the applicable testing date. G. Section 11.04 of the Reimbursement Agreement is hereby amended and restated to read in its entirety as follows: 11.04 DEBT TO WORTH. Will maintain, at the end of each of its fiscal quarters for the four quarters then ended, a ratio of its Liabilities to Tangible Net Worth of not more than 1.5 to 1.0. H. Section 11.05 of the Reimbursement Agreement is hereby amended and restated to read in its entirety as follows: 11.05 DEBT SERVICE COVERAGE RATIO. Will have a Debt Service Coverage Ratio of not less than 1.0 to 1.0, for the four quarters then ended, as of the end of each fiscal quarter. I. The following new Section 11.15 is added to the Reimbursement Agreement immediately following Section 11.14: 11.15 The Company will be Year 2000 Compliant by January 1, 2000. For purposes of this Section, "Year 2000 Compliant" means, with regard to the Company and/or its suppliers, vendors and customers (subject, however, to the last sentence of Section 10.13), that all software, embedded microchips, and other processing capabilities utilized by, and material to the business operations or financial condition of, such entity are able to interpret and manipulate data on and involving all calendar dates correctly and without causing any abnormal ending scenario, including in relation to dates on and after January 1, 2000. 4 Page 4 of 10 EXHIBIT 4.2(B) J. The following new Sections 14.12 through 14.15 are added to the Reimbursement Agreement immediately following Section 14.11: 14.12 PARTICIPATION. Bank shall have the unrestricted right at any time and from time to time, and without the consent of or notice to the Company or any guarantor, to grant to one or more banks or other financial institutions other than securities brokers, dealers and investment bankers (each, a "Participant") participating interests in Bank's obligations hereunder and/or any or all of the Reimbursement obligations held by Bank hereunder. In the event of any such grant by Bank of a participating interest to a Participant, whether or not upon notice to the Company, Bank shall remain responsible for the performance of its obligations hereunder and the Company shall continue to deal solely and directly with Bank in connection with Bank's rights and obligations hereunder. Bank may furnish any information concerning the Company in its possession from time to time to prospective Participants, provided that, if any information is provided which is not publicly available (it being understood that "publicly available" shall include non-confidential filings made by the Company with the Securities and Exchange Commission which shall have become available to the public and shall exclude information which has become publicly available in violation of the provisions of this Section) Bank shall require any such prospective Participant to agree in writing (a true copy of which shall be furnished to the Company) to maintain the confidentiality of all such information which is not publicly available and the Company shall be identified in that written agreement as a beneficiary of that agreement with the right to enforce it. 14.13 SETOFF. The Company and any guarantor hereby grant to Bank, a lien, security interest and right of setoff as security for all liabilities and obligations to Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. Upon the occurrence and continuing existence of any Event of Default (which shall not have been cured within any applicable grace period), Bank may set off the same or any part thereof and apply the same to any liability or obligation of the Company and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing any Loan. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY LOAN, PRIOR TO EXERCISING ITS RIGHTS OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE COMPANY OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 14.14 MAXIMUM INTEREST RATE. All agreements between the Company and any guarantors and Bank are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to Bank for the use or the forbearance of the indebtedness evidenced by this Agreement or any other Financing Document exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement, or such other Financing Documents, as the case may be, shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Company and Bank in the execution, delivery and acceptance of this Agreement to contract in strict compliance with the laws of the State of New York from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Financing Documents at the time performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from any circumstances whatsoever Bank should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest 5 Page 5 of 10 EXHIBIT 4.2(B) shall be applied to the reduction of the principal obligations evidenced by this Agreement or such other Financing Documents, as the case may be and not to the payment of interest. This provision shall control every other provision of all agreements between the Company, any guarantors and Bank. 14.15 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an officer of Bank as to the loss, theft, destruction or mutilation of this Reimbursement Agreement or any Financing Document delivered hereunder, which states, among other things that Bank has sole ownership of such document or, as applicable, the rights thereunder, which contains an indemnification against claims and associated expenses of persons making claims with respect to such lost document, in form and substance reasonably acceptable to the Company, and by which Bank agrees to surrender (without demand for duplicate payment), as applicable, such Reimbursement Agreement or other Financing Document upon any recovery thereof, the Company will issue, in lieu thereof, a replacement Reimbursement Agreement, note or other security document in the same principal amount thereof and otherwise of like tenor. K. Effective on the Replacement Date, Exhibit A of the Reimbursement Agreement is hereby amended by the attachment thereto of the amendment attached hereto as Exhibit A. 2. EXTENSIONS. Effective as of the Replacement Date, the Letter of Credit is extended for an additional five-year period which extension shall be effected by the issuance of an amendment to letter of credit in the form attached to this Amendment and Extension as Exhibit A. 3. REPRESENTATIONS AND WARRANTIES. The Company makes the following representations and warranties to Bank which shall be deemed to be continuing representations and warranties so long as any obligations, including indebtedness of the Company to Bank arising under the Reimbursement Agreement or any note delivered pursuant thereto remain unpaid: A. AUTHORIZATION. The Company has full power and authority to borrow hereunder and to execute, deliver and perform this First Amendment and any documents delivered in connection with it and all other related documents and transactions, all of which have been duly authorized by all proper and necessary corporate action. The execution and delivery of this First Amendment by the Company will not violate the provisions of, or cause a default under, the Company's Certificate of Incorporation or By-Laws or any agreement to which the Company is a party or by which it or its assets are bound. B. BINDING EFFECT. This First Amendment has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms. C. CONSENTS; GOVERNMENTAL APPROVALS. No consent, approval or authorization of, or registration, declaration or filing with, any governmental body or authority or any other party is required in connection with the valid execution, delivery or performance of this First Amendment or any other document executed and delivered therewith or in connection with any other transactions contemplated hereby. 6 Page 6 of 10 EXHIBIT 4.2(B) D. NO EVENTS OF DEFAULT. There is, on the date hereof, no event or condition which constitutes an Event of Default under any of the Loan Documents or which, with notice and/or the passage of time, would constitute an Event of Default. E. NO MATERIAL MISSTATEMENTS. Neither this First Amendment nor any document delivered to Bank by or on behalf of the Company to induce Bank to enter into this First Amendment contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made. 4. CONDITIONS OF EFFECTIVENESS. This First Amendment shall become effective when and only when Bank shall have received counterparts of this First Amendment executed by the Company and Bank and the following conditions shall have been fulfilled: A. DOCUMENTS. All instruments, certificates and agreements to be furnished to the Bank hereunder shall be of such form and content as the Bank shall reasonably require, and the Company shall furnish such consents, authorizations and other instruments and agreements as the Bank may reasonably deem necessary to effectuate the intent of this First Amendment. B. OPINION OF COUNSEL. Counsel to the Company shall have delivered to the Bank an opinion in form and substance satisfactory to the Bank. C. AUTHORIZATION. The Company shall have taken appropriate corporate action to authorize, and the Company's Board of Directors shall have adopted resolutions authorizing the execution and delivery of this First Amendment and the taking of all action called for by this First Amendment, and the Company shall have furnished to Bank certified copies of all such corporate action and Board resolutions and such other certified corporate documents as the Bank may request. D. COSTS AND EXPENSES. The Company shall have complied with Section 6 of this First Amendment. E. ACKNOWLEDGMENT. G. N. Metals Products, Inc., The Ontario Knife Company and Queen Cutlery Company, Inc. shall each have delivered to Bank an Acknowledgment in form and substance satisfactory to Bank and such additional documents as Bank or its counsel may reasonably require and all documents, instruments and other legal matters in connection with this First Amendment shall be satisfactory in form and substance to Bank and its counsel. 5. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS. A. Upon the effectiveness hereof, each reference in the Reimbursement Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference in the Loan Documents to the Reimbursement Agreement shall mean and be a reference to the Reimbursement Agreement as amended by this First Amendment. 7 Page 7 of 10 EXHIBIT 4.2(B) B. The Reimbursement Agreement, as amended by this First Amendment, represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof. This First Amendment supersedes all prior negotiations and any course of dealing between the parties with respect to the subject matter hereof. This First Amendment shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of, and be enforceable by, Bank and each of its successors and assigns. The Reimbursement Agreement, as amended hereby, is in full force and effect and, as so amended, is hereby ratified and reaffirmed in its entirety. The Company acknowledges and agrees that the Reimbursement Agreement (as amended by this First Amendment), the Collateral Lease Assignment, the Pledge Agreement, the Agency Mortgage and all other Financing Documents to which the Company is a party are in full force and effect, that the Company's obligations thereunder and under this First Amendment are its legal valid and binding obligations enforceable against it in accordance with the terms thereof and hereof, and it has no defense, whether legal or equitable, setoff or counterclaim to the payment and performance of such obligations. C. The execution, delivery and effectiveness of this First Amendment shall not operate as a waiver of any right, power or remedy of Bank under the Reimbursement Agreement, nor constitute a waiver of any provision of the Reimbursement Agreement. 6. COSTS AND EXPENSES. The Company agrees to pay on demand all costs and expenses of Bank in connection with the preparation, negotiation, administration, execution and delivery of this First Amendment and the other documents related hereto, including the reasonable fees, charges and disbursements of counsel for Bank. 7. GOVERNING LAW. Pursuant to Section 5-1401 of the New York General Obligations Law, the laws of the State of New York shall govern the validity, construction, enforcement and interpretation of this First Amendment in whole without regard to any rules of conflicts-of-laws that would require the application of the laws of any jurisdiction other than the State of New York. 8. HEADINGS. Section headings in this First Amendment are included herein for convenience of reference only and shall not limit or otherwise affect the meanings of this First Amendment or be used to construe its provisions. 9. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which shall be deemed to be an original, and all of which taken together shall constitute one and the same First Amendment, regardless of whether or not the execution by all parties shall appear on any single counterpart. Delivery of an executed counterpart of a signature page to this First Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this First Amendment. 8 Page 8 of 10 EXHIBIT 4.2(B) IN WITNESS WHEREOF, the parties hereto have each caused a counterpart of this First Amendment to be executed by their respective representatives thereunto duly authorized, as of the date first above written. SERVOTRONICS, INC. By: /S/LEE D. BURNS, TREASURER -------------------------- Lee D. Burns Treasurer and Chief Financial Officer TSV ELMA, INC. By: /S/LEE D. BURNS, TREASURER -------------------------- Lee D. Burns Treasurer and Chief Financial Officer FLEET NATIONAL BANK By: /S/GERALD A. LEE -------------------------- Gerald A. Lee Vice President 9 Page 9 of 10 EXHIBIT 4.2(B) STATE OF NEW YORK ) : SS.: COUNTY OF ERIE ) On the 17th day of December in the year 1999 before me personally came Lee D. Burns to me known, who, being by me duly sworn, did depose and say that he resides in Lancaster, New York; that he is the Treasurer and Chief Financial Officer of Servotronics, Inc., the corporation described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said corporation. /S/Pandora W. Mangold --------------------------------- Notary Public PANDORA W. MANGOLD Notary Public, State of New York Qualified in Erie County Commission Expires March 30, 2000 STATE OF NEW YORK ) : SS.: COUNTY OF ERIE ) On the 17th day of December in the year 1999 before me personally came Lee D. Burns to me known, who, being by me duly sworn, did depose and say that he resides in Lancaster, New York; that he is the Treasurer of TSV ELMA, Inc., the corporation described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said corporation. /S/Pandora W. Mangold --------------------------------- Notary Public PANDORA W. MANGOLD Notary Public, State of New York Qualified in Erie County Commission Expires March 30, 2000 10 Page 10 of 10 EXHIBIT 4.2(B) STATE OF NEW YORK ) : SS.: COUNTY OF ERIE ) On this 17th day of December, 1999 before me personally came Gerald A. Lee to me known, who, being by me duly sworn, did depose and say that he resides in Tonawanda, New York; that he is a Vice President of Fleet National Bank, the banking association described in and which executed the above instrument; and that he signed his name thereto by order of the board of directors of said association. /S/Martha M. Anderson --------------------------------- Notary Public MARTHA M. ANDERSON Notary Public, State of New York No.02PO4930661 Qualified in Erie County Certificate Filed in Erie County Commission Expires April 18, 2000 EX-10.A.2 5 EXHIBIT 10(A)(2) 1 EXHIBIT 10(A)(2) SERVOTRONICS, INC. AND SUBSIDIARIES APRIL 28, 1999 DR. NICHOLAS D. TRBOVICH 1110 MAPLE STREET ELMA, NY 14059 DEAR DR. TRBOVICH: YOU AND SERVOTRONICS, INC. (THE "COMPANY") ARE PARTIES TO AN EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED ON AUGUST 8, 1986 AND AS SUBSEQUENTLY AMENDED AS OF OCTOBER 1, 1986, OCTOBER 1, 1987, JULY 20, 1988, OCTOBER 1, 1988, OCTOBER 1, 1989, MAY 1, 1990, MAY 1, 1991, MAY 1, 1992, MAY 1, 1993, MARCH 28, 1994, MAY 1, 1994, MAY 1, 1995, MAY 1, 1996, MAY 1, 1997, MARCH 9, 1998, MAY 1, 1998 AND OCTOBER 6, 1998 (THE "AGREEMENT"), PURSUANT TO WHICH YOU ARE EMPLOYED BY THE COMPANY. THIS WILL CONFIRM YOUR AGREEMENT AND THAT OF THE COMPANY (PURSUANT TO A RESOLUTION OF THE BOARD OF DIRECTORS PASSED AT A MEETING HELD ON APRIL 28, 1999) TO AMEND PARAGRAPH 1 OF THE AGREEMENT TO DELETE "SEPTEMBER 30, 2003" AND INSERT IN ITS PLACE "SEPTEMBER 30, 2004". EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ALL OF THE OTHER TERMS AND CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT. IF THE FOREGOING MEETS WITH YOUR APPROVAL AND YOU ARE WILLING TO BECOME BOUND HEREBY, WILL YOU PLEASE SIGN AND RETURN TO THE UNDERSIGNED THE ENCLOSED COPY OF THIS LETTER. VERY TRULY YOURS, SERVOTRONICS, INC. /S/LEE D. BURNS LEE D. BURNS, TREASURER/SECRETARY ACCEPTED AND AGREED /S/ DR. NICHOLAS D. TRBOVICH - ---------------------------- DR. NICHOLAS D. TRBOVICH EX-10.A.3 6 EXHIBIT 10(A)(3) 1 EXHIBIT 10(A)(3) SERVOTRONICS, INC. AND SUBSIDIARIES AS OF MAY 1, 1999 DR. NICHOLAS D. TRBOVICH 1110 MAPLE STREET ELMA, NY 14059 DEAR DR. TRBOVICH: YOU AND SERVOTRONICS, INC. (THE "COMPANY") ARE PARTIES TO AN EMPLOYMENT AGREEMENT, AS AMENDED AND RESTATED ON AUGUST 8, 1986 AND AS SUBSEQUENTLY AMENDED AS OF OCTOBER 1, 1986, OCTOBER 1, 1987, JULY 20, 1988, OCTOBER 1, 1988, OCTOBER 1, 1989, MAY 1, 1990, MAY 1, 1991, MAY 1, 1992, MAY 1, 1993, MARCH 28, 1994, MAY 1, 1994, MAY 1, 1995, MAY 1, 1996, MAY 1, 1997, MARCH 9, 1998, MAY 1, 1998, OCTOBER 6, 1998 AND APRIL 28, 1999 (THE "AGREEMENT"), PURSUANT TO WHICH YOU ARE EMPLOYED BY THE COMPANY. THIS WILL CONFIRM YOUR AGREEMENT AND THAT OF THE COMPANY (PURSUANT TO A RESOLUTION OF THE BOARD OF DIRECTORS PASSED AT A MEETING HELD ON JUNE 29, 1999) TO AMEND PARAGRAPH 3 OF THE AGREEMENT TO DELETE "$310,000.00" AND INSERT IN ITS PLACE "$325,000.00". EXCEPT AS SPECIFICALLY PROVIDED HEREIN, ALL OF THE OTHER TERMS AND CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT. IF THE FOREGOING MEETS WITH YOUR APPROVAL AND YOU ARE WILLING TO BECOME BOUND HEREBY, WILL YOU PLEASE SIGN AND RETURN TO THE UNDERSIGNED THE ENCLOSED COPY OF THIS LETTER. VERY TRULY YOURS, SERVOTRONICS, INC. /S/LEE D. BURNS LEE D. BURNS, TREASURER/SECRETARY ACCEPTED AND AGREED /S/ DR. NICHOLAS D. TRBOVICH - ---------------------------- DR. NICHOLAS D. TRBOVICH EX-21 7 EXHIBIT 21 1 EXHIBIT 21 SERVOTRONICS, INC. SUBSIDIARIES OF REGISTRANT NAME AND ADDRESS OF EACH MEMBER EMPLOYER ID NO. Servotronics, Inc. 16-0837866 P.O. Box 300 Elma, New York 14225-0300 Ontario Knife Company 16-0578540 26 Empire Street Franklinville, New York 14737 Queen Cutlery Company 25-0743840 507 Chestnut Street Titusville, Pennsylvania 16354 G.N. Metal Products, Inc. 16-0964682 P.O. Box 300 Elma, New York 14225-0300 SVT Management, Inc. 16-1037766 P.O. Box 300 Elma, New York 14225-0300 MRO Corporation 16-1230799 P.O. Box 300 Elma, New York 14225-0300 TSV ELMA, Inc. 16-1415699 P.O. Box 300 Elma, New York 14225-0300 EX-27 8 EXHIBIT 27
5 0000089140 SERVOTRONICS, INC. 1,000 YEAR DEC-31-1999 DEC-31-1999 794 0 2,807 0 6,168 13,274 7,128 0 21,015 3,171 6,488 0 0 523 10,611 21,015 16,165 16,165 12,149 17,248 0 0 344 (1,083) (401) (682) 0 0 (1,727) (2,409) (1.33) (1.33)
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