-----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, EwMEtmb7uCldlmTMNMhB7x/zVlmzLekqN3EHr6sBnlKi7sMJeS6V3/9MO1vWdG2/ ywT9eNBZejsZob6OecR9IA== 0000950146-96-001783.txt : 19961015 0000950146-96-001783.hdr.sgml : 19961015 ACCESSION NUMBER: 0000950146-96-001783 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19961011 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STOCKER & YALE INC CENTRAL INDEX KEY: 0000094538 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 042114473 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-10655 FILM NUMBER: 96642418 BUSINESS ADDRESS: STREET 1: 32 HAMPSHIRE ROAD CITY: SALEM STATE: NH ZIP: 03079 BUSINESS PHONE: 5082843248 SB-2/A 1 STOCKER & YALE FORM SB-2/A As filed with the Securities and Exchange Commission on October 11, 1996 Registration Statement No. 333-10655 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- AMENDMENT NO. 1 to FORM SB-2 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------------------- STOCKER & YALE, INC. (Exact name of Registrant as specified in its charter) Massachusetts 3815 04-2114473 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) (Identification No.)
------------------------------- 32 Hampshire Road Salem, New Hampshire 03079 (603) 893-8778 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) ------------------------------- Mark W. Blodgett Chairman and Chief Executive Officer Stocker & Yale 32 Hampshire Road Salem, New Hampshire 03079 (603) 893-8778 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------- Copies to: Stuart M. Cable, Esq. Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109 (617) 570-1000 ------------------------------- Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. ------------------------------- If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is filed to register additional securities for post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. ================================================================================ Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Subject to Completion, dated October 11, 1996 PROSPECTUS 750,000 Shares STOCKER & YALE, INC. Common Stock ($0.001 par value) ------------------- All of the 750,000 shares (the "Shares") of common stock, par value $0.001 per share (the "Common Stock") of Stocker & Yale, Inc. ("Stocker & Yale" or the "Company") are being offered (the "Offering") by the Company. The Company currently anticipates that Shares offered hereby will be offered at $5.00 per share. The Shares offered hereby may be offered and sold to different purchasers at different times. Accordingly, the price at which shares are purchased may differ depending on the date of sale. The Company may sell Shares offered hereby through one or more selling agents, and may also sell Shares directly to purchasers. See "Plan of Distribution." The Common Stock is listed on the Nasdaq SmallCap Market under the symbol "STKR." On October 4, 1996, the last sale price for the Common Stock reported by the Nasdaq SmallCap Market was $5.50 per share. See "MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS." The Company intends to apply for the listing of the Shares offered hereby on the Nasdaq SmallCap Market. See "PLAN OF DISTRIBUTION." See "RISK FACTORS" on page 6 for a discussion of certain factors that should be considered in connection with an investment in the Shares offered hereby. The Company expects to use the net proceeds of the Offering to provide funds for (i) certain capital expenditure requirements relating to the development of a fiber optic illumination product line and (ii) capital, capital expenditures, possible acquisitions and general corporate purposes, including the repayment of all or a portion of the amounts owed under a revolving line of credit with the Company's primary lender. See "USE OF PROCEEDS." ------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=============================================================================================================================== Price to Public Commissions(1) Proceeds to Company(2) Per Share........................... $5.00 $0.225 $4.775 Total Minimum....................... Not Applicable Not Applicable Not Applicable Total Maximum....................... $3,750,000 $112,500 $3,581,250 ================================================================================================================================
(1) The Company will pay the Commission set forth in this table to a third party in connection with the sale of 500,000 shares offered hereby. In the event that Shares offered hereby are sold through any selling agent, the Company may agree to indemnify the selling agent against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Plan of Distribution." (2) Before deducting estimated offering expenses payable by the Company of $153,250. ------------------------------- The Shares are being offered on a best efforts basis by the Company and may be offered with the assistance of one or more selling agent. There is a minimum required purchase of 5,000 Shares per purchaser. There is no arrangement to place the funds received in this Offering in escrow, trust or other similar arrangement and, accordingly, the proceeds may be used by the Company immediately following receipt thereof. The date of the termination of this Offering is October __, 1996. ------------------------------- October __, 1996 1 AVAILABLE INFORMATION The Company is currently subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's following Regional Offices: Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60604 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, and such electronic versions are available to the public at the Commission's World Wide Web Site, http://www.sec.gov. The Common Stock of the Company is traded on the Nasdaq SmallCap Market. The Company has filed with the Commission a Registration Statement on Form SB-2 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities covered hereby, reference is made to the Registration Statement and to the exhibits thereto filed as a part thereof. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "RISK FACTORS." Investors should carefully consider the information set forth under "RISK FACTORS" prior to making a decision to purchase Shares in the Offering. The Company Stocker & Yale, Inc. ("Stocker & Yale" or the "Company") is a diversified manufacturing company engaged predominantly in the production of industrial fluorescent lighting products, thermal printers and recorders, and machine tool components. The Company operates in two company-owned facilities in Salem, New Hampshire and Fraser, Michigan. See "BUSINESS." For over 50 years, the Company's Stilson/Die-Draulics Division ("SDD Division"), located in Fraser, Michigan, has manufactured a wide range of machine tool components and material handling accessories which are used extensively in the construction and maintenance of assembly and conveying machinery. The SDD Division's customers are primarily in the automotive, appliance and packaging industries. SDD Division products are sold to over 5,000 customers both directly and through 45 worldwide distributors. See "BUSINESS--Current Operations" and "BUSINESS--Product Lines." The Company's Salem Division, located in Salem, New Hampshire, produces a broad array of inspection and measurement instruments and accessories, including industrial lighting products, chart recorders and thermal printers, and military watches and compasses. Lighting products represent the Company's fastest growing product line and are primarily sold in conjunction with microscopes and machine vision inspection systems. Since its founding, Stocker & Yale has been at the forefront of the design and development of industrial fluorescent lighting products and has been an innovator in this industry. The Company's products are used by a variety of participants in the semiconductor, computer assembly, laboratory, and robotics fields. The Company's lighting products are sold worldwide through a network of 125 microscope dealers and machine vision integrators. Under the "MFE" brand name, the Company also manufactures a range of thermal printer and recorder products for the test and measurement market. Further, Stocker & Yale has been a long-standing manufacturer and distributor of compasses and supplier of military watches to the U.S. Government, foreign governments, and the U.S. and foreign civilian market. Management intends to broaden the retail distribution of such compasses and watches in accordance with the Company's plan to further reduce its dependence on sales to the U.S. Government. See "BUSINESS--Current Operations" and "BUSINESS--Product Lines." During its 50 year history, the Company has built a loyal customer base and has developed brand names that are well-recognized within its customers' industries. Over the past five years, the Company's product and market diversity have enabled the Company to generate cash flow sufficient to substantially reduce debt and fund product research and development. The Company's long-term goal is to position the Salem Division as a single source for customers' diverse industrial lighting requirements, offering an expanded line of lighting products which will include fluorescent, fiber optic and halogen lighting. As part of this goal, the Company intends to utilize a portion of the net proceeds of this Offering to develop and market a line of fiber optic products to complement the Company's fluorescent lighting product line. Management believes that the fiber optics product line represents a logical extension of the Company's current lighting product line, and its planned entry into the fiber optics product line was largely prompted by demand from existing customers for such products. Further, management believes that the development of this product line will enable the Company to improve the utilization of space and production capacity at its Salem facility and to take advantage of the Company's years of experience in the development and distribution of lighting products. Management anticipates that the fiber optic business will be housed in the existing Salem facility. Management's goal is to increase its market share in both the machine vision and microscopy markets. The Company's market research 3 suggests that by offering a more extensive line of lighting products, the Company may benefit from customer preference for a single source to fulfill all their lighting requirements. See "BUSINESS--Strategy." Over the last four years, management has focused on strengthening the Company's balance sheet and has achieved a significant reduction in the Company's long-term debt. More recently, management has focused on operational matters. In September 1995, the Company moved its headquarters to a larger, more efficient facility in New Hampshire which will better accommodate any future expansion. The Company is now in the process of building up its engineering team in order to accelerate product development. The Company has reorganized its sales department to increase the frequency of customer contact and to accommodate the Company's growing emphasis on its lighting business. While, historically, the Company has used proceeds from equity and debt financings to reduce both the size and cost of its outstanding indebtedness, management anticipates that proceeds from the Offering will augment the Company's free cash flow available for investment in its core operations. See "BUSINESS--Strategy" and "USE OF PROCEEDS." Stocker & Yale is located at 32 Hampshire Road, Salem, New Hampshire 03079, and its telephone number is (603) 893-8778. The Offering Common Stock offered by the Company........................... 750,000 shares Common Stock to be outstanding after the Offering............. 2,462,914 shares (1) Use of Proceeds by the Company................................ The proceeds of the Offering (net of Offering expenses) will be used to provide (i) approximately $1.5 million of available capital for the expansion of industrial lighting businesses through introduction of fiber optic illumination products; and (ii) funds for working capital, capital expenditures, possible acquisitions and general corporate purposes, including the repayment of all or a portion of the amounts owed under a revolving line of credit. See "USE OF PROCEEDS." NASDAQ SmallCap Market symbol................................. STKR
- ------------------- (1) Based on the number of shares outstanding as of September 30, 1996, excludes, in the aggregate, 419,491 shares of Common Stock issuable upon exercise of options granted (i) in connection with the Merger (as defined below), (ii) pursuant to the Company's Amended and Restated 1994 Stock Option Plan, (iii) pursuant to the Company's 1996 Stock Option and Incentive Plan, (iv) outside of either plan, and (v) shares of Common Stock issuable upon the conversion of certain convertible debt issued by the Company. As of September 30, 1996 the weighted average exercise price of such options and such convertible debt was $6.66 per share. See "RISK FACTORS--Dilution." Risk Factors Prospective purchasers of Common Stock in the Offering should consider carefully the matters set forth under caption "RISK FACTORS," on page 6, as well as the other information set forth in this Prospectus. Plan of Distribution The Company may sell the Shares through agents or dealers, directly to one or more individual, institutional or other purchasers or through any combination of these methods of sale. The distribution of the Shares may be effected in one or more transactions at $5.00 per share. There is a minimum required purchase of 5,000 Shares per purchaser. There is no arrangement to place the funds received in this Offering in escrow, 4 trust or similar arrangement and, accordingly, any proceeds may be used by the Company immediately following receipt thereof. Mark W. Blodgett, Chairman and Chief Executive Officer of the Company, or an entity affiliated with Mr. Blodgett has indicated an interest in purchasing Common Stock in the Offering on the same terms and conditions, including as to price, as all other purchasers in the Offering. The date of the termination of this Offering is October __, 1996. See "PLAN OF DISTRIBUTION." Summary Selected Consolidated Financial Information The summary consolidated financial data of the Company have been derived from the Company's interim financial statements, which have been prepared by the Company without audit, and from the Company's audited financial statements for the fiscal year ended December 31, 1995. The summary consolidated financial data should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," with the interim consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 1995.
Six Months Ended Years Ended December 31, June 30, 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- ---- ---- (Dollars in thousands) Statement of Operations Data: Net Sales.............................. $ 12,889 $ 10,993 $ 10,224 $ 11,179 $ 13,005 $ 6,447 $ 5,576 Gross Profit........................... 4,765 4,532 3,868 4,108 4,619 2,437 1,997 Operating Income ...................... 1,484 1,109 654 534 582 443 65 Interest Expense, net.................. (1,782) (1,449) (1,292) (755) (662) (334) (300) Extraordinary Items.................... - - - 3,594 - - - Net Income (loss)...................... (399) (418) (455) 3,337 (310) 6 (199) Balance Sheet Data (at end of period): Total Assets........................... $ 20,204 $ 19,467 $ 19,904 $ 19,047 $ 19,781 $ 19,687 $ 19,361 Total Debt(1).......................... 16,123 16,013 14,853 6,745 6,930(2) 6,253 6,823(2) Stockholders' Equity................... 1,411 1,243 1,140 8,158 8,624 8,941 8,426 Other Data: Depreciation and Amortization.......... $ 875 $ 951 $ 1,177 $ 1,118 $ 976 $ 556 $ 487 Capital Expenditures................... 559 179 109 57 2,032 74 110
- ------------------- (1) Total debt consists of current portion of long term debt, long term lease obligation, long term debt to senior lender, mortgage note and subordinated notes payable. (2) Total debt does not take into consideration offset of a $1.0 million note receivable which is included in total assets. After giving effect to the note receivable, the Company's total debt would be $5.93 million at December 31, 1995 and $5.82 million at June 30, 1996, and the Company's total assets would be $18.78 million and $18.36 million at the equivalent periods. The offset is not appropriate for financial reporting purposes because of timing differences between the maturity of the note receivable and the maturities of the debt. 5 RISK FACTORS The following risk factors should be carefully considered in addition to the other information contained in this Prospectus before purchasing the Shares offered hereby. Competition The Company operates in a highly competitive marketplace. The Company believes that participants in its respective markets compete primarily on the basis of product characteristics (such as design, style and functional performance), product quality, service, brand name recognition and price. Some of the Company's competitors have greater financial and other resources than the Company, and the Company's cash flow from operations could be adversely affected by competitors' new product innovations and pricing changes made by the Company in response to competition from existing or new competitors. The level of competition in the markets in which the Company operates can have a substantial detrimental effect on the prices that the Company can charge for its products and, consequently, can adversely impact the Company's revenues and profitability. The Company's future results will depend in part on the Company's ability to enhance its existing products and introduce new products. New product introductions can be unsuccessful, and successful product introductions can be displaced by product innovations subsequently introduced or imitated by competitors. As a result of these and other factors, there can be no assurance that the Company will successfully maintain its market position. See "BUSINESS--Competition and Competitive Position." Dependence on Technology Certain of the Company's product lines, especially those sold under the "MFE" brand name, compete in a market characterized by on-going technological development. The success of these products depends, in part, on the Company's ability to adapt its products to technological changes in the industry. In addition, the Company has limited resources to allocate among its research and development efforts, and the amount, if any, allocated to any one product line may not be sufficient to enable the Company to preserve any competitive advantages which the Company's products may have or to compete with technological developments by the Company's competitors. There can be no assurance that the technology used in the Company's products has not been or will not be superseded by technological innovations. See "BUSINESS--Product Lines" and "BUSINESS--Patents and Trademarks." New Business Initiatives From time to time, the Company considers entering into new lines of business. Presently, the Company intends to expand its line of lighting products to include a complete line of fiber optics products. There can be no assurance that the Company will enter into any new lines of business or that, if undertaken, such initiatives will not adversely affect the Company's results of operations. In addition, the entry into new product lines would be likely to involve the risks ordinarily attendant to the implementation of new business initiatives including, without limitation, the incurrence of start-up costs, and competition with other manufacturers and distributors which may have greater experience, expertise and resources with respect to such products than the Company. See "BUSINESS--Strategy" and "USE OF PROCEEDS." Uncertainties of Acquisition Strategy From time to time, the Company evaluates and considers potential acquisitions of business or assets to complement or expand its product lines or business. No assurance can be given that suitable acquisition candidates can be acquired on acceptable terms or that future acquisitions, if completed, will be successful. Future acquisitions by the Company could result in the incurrence of debt, the potentially dilutive issuance of equity securities and the incurrence of contingent liabilities and amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, operating results and financial condition. The success of any completed acquisition will depend on the Company's ability to integrate effectively the acquired business or assets into the Company. The process of integrating acquired business or assets may involve numerous risks, including difficulties in the assimilation of operations and products, the diversion of management's attention from other business concerns, risks of entering markets in which the 6 Company has limited or no direct prior experience and the potential loss of key employees of the acquired businesses. The Company has no present understandings, commitments or agreements with respect to any acquisition. See "BUSINESS--Strategy." No Minimum Offering Amount/No Escrow There is no minimum amount of proceeds required to be raised in order for the Offering to be consummated and, consequently, all proceeds may be utilized by the Company immediately. The Offering does not contemplate that funds will be placed in escrow pending the satisfaction of any conditions or threshold. In addition, there can be no assurance that the proceeds of the Offering will enable the Company to achieve the goals set forth under "USE OF PROCEEDS," such as developing the fiber-optics line of industrial lighting. If less than the amount of the total expenses relating to the Offering is raised in the Offering, all funds may be used to pay for expenses relating to the Offering. See "USE OF PROCEEDS." History of Losses; Uncertainty of Future Profitability. The Company has experienced operating losses (before extraordinary items) during recent fiscal years. The Company may continue to experience operating losses over the foreseeable future. The amount of net losses the Company may incur and the time required by the Company and its ability, if any, to reach or sustain profitability are uncertain. See "SELECTED CONSOLIDATED FINANCIAL DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Control by Certain Stockholders Upon completion of the Offering, the executive officers and directors of the Company will collectively own or control 35.0% of the Company's Common Stock, assuming that all of the Shares offered hereby are sold and that no Shares are purchased by such executive officers and directors. Accordingly, these persons will have the ability to control the Company's Board of Directors and, therefore, the business, policies, executive compensation, and affairs of the Company. Furthermore, such control could preclude any unsolicited acquisition of the Company and, consequently, adversely affect the market price of the Common Stock. See "SECURITY OWNERSHIP." Potential Fluctuations in Quarterly Results Given the long sales cycle in some of the Company's market sectors and customers' political and budgetary conditions, revenue can vary substantially on a monthly and quarterly basis. Accordingly, the timing and delivery requirements of customers' orders, particularly in the case of U.S. Government contracts, may have a material effect on the Company's operations and financial results during any reporting period. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS." Risks Associated with Goodwill Goodwill associated with the acquisition of the Company on June 14, 1989 is being amortized over forty years in the amount of approximately $269,000 per year. At June 30, 1996, the balance of goodwill remaining to be amortized was $8,860,506. This amortization of goodwill is not deductible for tax purposes, resulting in income tax provisions that are higher than the statutory rates. It is likely that for the foreseeable future the Company's operating results will be adversely impacted by such goodwill amortization and comparatively high effective tax rates. If an impairment in the carrying value of the Company's goodwill should occur, the Company would reduce the carrying amount to its fair market value and record the amount of that reduction as a charge to the Company's income. Due to the lengthy remaining amortization period, there can be no assurance that such a reduction in realizable value will not occur. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 7 Risks Associated with International Operations The Company established S & Y Hong Kong Ltd. in March 1995 for purposes of distributing and selling certain of its products throughout Southeast Asia. As a result, the Company is subject to risks associated with operating in a foreign country, including fluctuations in foreign currency exchange rates, imposition of limitations on conversion of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments on foreign subsidiaries, hyperinflation and imposition or increase of investment and other restrictions by foreign governments. Although such risks have not had a material adverse effect on the Company, no assurances can be given that such risks will not have a material adverse effect on the business, results of operations and financial condition of the Company in the future. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS." Dependence on Key Personnel The Company is highly dependent on its senior and middle management. The loss of key management personnel or an inability to attract and retain sufficient numbers of qualified management personnel could materially and adversely affect the Company's business, results of operations and financial condition. See "MANAGEMENT." Risks Associated with Environmental Matters The Company's operations are subject to federal, state, and local laws and regulations relating to the storage, handling, generation, treatment, emission, release, discharge and disposal of certain substances and wastes. While the Company believes it is in material compliance with those laws and regulations, there can be no assurance that the Company will not incur significant costs to remediate violations thereof or to comply with changes in existing laws and regulations (or the enforcement thereof). Such costs could have a material adverse effect on the Company's business, results of operations, and financial condition. See "BUSINESS -- Compliance with Environmental Laws." Unpredictability of Patent Protection and Other Intellectual Property While the Company has been issued patents with respect to certain of its products, there can be no assurance that others will not independently develop similar or superior products or technologies, duplicate any of the Company's designs, processes or other intellectual property or design around any processes or designs on which the Company has or may obtain patents. In addition, it is possible that third parties may have or acquire licenses for other technology or designs that the Company may use or desire to use. As a result, the Company may need to acquire licenses to use such technology or designs of third parties. There can be no assurance that any such license would be made available to the Company on acceptable terms, if at all. The Company also relies on trade secrets and proprietary information that it seeks to protect. There can be no assurance that the Company will be successful in protecting such trade secrets or proprietary information against unauthorized use by others or disclosure by persons who have access to them, such as employees of the Company. See "BUSINESS--Patents and Trademarks." Possible Volatility of Stock Price The market price of the Company's Common Stock may be subject to significant fluctuation in response to variations in quarterly operating results and other factors, such as announcements of product innovations by the Company or its competitors or other events. Moreover, the stock market has in recent years experienced significant price and volume fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stocks are traded. Broad market fluctuations, as well as economic conditions generally and in the industries in which the Company competes specifically, may adversely affect the market price of the Company's Common Stock. 8 Potential Impact of Shares Eligible for Future Sale Sales of substantial amounts of Common Stock in the public market following the offering could have an adverse effect on the market price of the Common Stock. In addition to the 750,000 Shares offered hereby, previously issued and outstanding shares of Common Stock are currently eligible for sale subject to the provisions of applicable securities laws. The Company issued options to purchase shares of Common Stock in connection with the merger (the "Merger") of the Company with Brower Exploration, Inc., a Wyoming corporation ("Brower"), which options are currently eligible for exercise. The Company has also granted options to purchase 133,440 shares of Common Stock pursuant to its Amended and Restated 1994 Stock Option Plan and options to purchase 42,000 shares of Common Stock outside of any plan, all of which are eligible for resale subject to the provisions of Rule 701 under the Securities Act. In addition, the Company intends to file a registration statement covering the shares of Common Stock reserved for issuance under the Company's 1996 Stock Option and Incentive Plan and, accordingly, such shares issued under the 1996 Stock Option and Incentive Plan will be eligible for sale in the public market, subject, with respect to affiliates of the Company, to compliance with applicable Rule 144 limitations. Finally, the Company has issued certain subordinated notes convertible, at the option of the holder, into 183,051 shares of Common Stock, which, upon conversion, would be eligible for sale subject to the provisions of Rule 144. Immediate and Substantial Dilution. Purchasers of the shares of Common Stock will incur an immediate and substantial dilution in the net tangible book value of the Common Stock of $3.85 per share, at an assumed public offering price of $5.00 per share. See "DILUTION." USE OF PROCEEDS Because there is no minimum for the number of Shares of Common Stock offered hereby and because the Company currently anticipates that the Shares will be offered at $5.00 per share, the Company cannot determine the proceeds from the sale of the Shares offered hereby. However, the net proceeds from the sale of the 750,000 Shares offered by the Company in the Offering, assuming all of the Shares offered hereby are sold in the Offering and assuming a price per share to the public of $5.00 and after deducting commissions and offering expenses payable by the Company, will be approximately $3,428,000. The Company expects to use the proceeds of the Offering first to pay expenses incurred in connection with the Offering and second to provide (i) available capital for certain expenditure requirements relating to the development of its fiber optic illumination product line to complement its existing industrial fluorescent lighting products and (ii) working capital, capital expenditures, possible acquisitions and general corporate purposes, including the repayment of all or some of the amounts owed under a revolving line of credit with the Company's primary lender. The Company intends to make capital expenditures of approximately $1.5 million in connection with the initial development of a fiber optic illumination product line. However, management may adjust this capital expenditure and product development program in response to market and general economic factors, among other considerations. The Company intends to use the net proceeds of the Offering initially to repay some or all of the amounts owed to Fleet National Bank pursuant to a revolving credit facility. Because such credit facility is a revolving facility, such repayment will make funds available for reborrowing. The Company intends to use a portion of the amounts available under such revolving credit facility to fund the development of a fiber optic product line. Amounts outstanding under the revolving credit facility are due March 31, 1998 and, as of June 30, 1996, the interest rate with respect to amounts outstanding under such revolving credit facility was 8.75%. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION--Liquidity and Capital Resources." The Company has no present understandings, commitments or agreements with respect to any possible acquisition. All of the proceeds of the Offering may be used by the Company immediately following receipt thereof. No assurance can be given that the Company will be able to sell all 750,000 shares of Common Stock offered hereby. If the net proceeds from the sale of all or a portion of such Shares is less than $1.5 million, the Company may be required to seek additional funds through equity or debt financings to fund its initiative to develop a fiber optic illumination product line and its other business activities. In the event that less than all of the Shares offered hereby are sold, the Company's priority is to use proceeds to pay expenses incurred in connection with the Offering and then to fund anticipated capital expenditures relating to the initial development of a fiber optic illumination product line. 9 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since January 29, 1996, the Company's Common Stock has been listed and traded on the Nasdaq SmallCap Market (the "Nasdaq SmallCap") under the symbol "STKR." From May 11, 1994 until December 28, 1995, the Company's Common Stock was listed and traded on the Senior Board of the Vancouver Stock Exchange (the "VSE") under the symbol "SYI." On December 28, 1995, the Company consummated a one- for-five reverse stock split (the "Reverse Stock Split") and in connection therewith became listed and traded on the VSE under the symbol "SYL." On May 10, 1996, the Company delisted its Common Stock from the VSE. Accordingly, from January 29, 1996 to May 10, 1996, the Company's Common Stock was listed and traded on both the Nasdaq SmallCap and the VSE. Presently, the Common Stock is listed and traded on the Nasdaq SmallCap. On May 11, 1994, the Company consummated its initial public offering (the "Initial Public Offering") of Common Stock and began trading on the VSE. The offering price in the Company's Initial Public Offering (after giving effect to the Reverse Stock Split) was $7.25 per share when converted to U.S. dollars at the exchange rate for Canadian dollars in effect on such date. Market Information Set forth below are the high and low bids for each of the ten fiscal quarters since the Company's Initial Public Offering as indicated:
High(1) Low(1) ------- ------ Quarter ended June 30, 1994 $8.00 $5.76 Quarter ended September 31, 1994 $7.26 $5.21 Quarter ended December 31, 1994 $7.45 $4.75 Quarter ended March 31, 1995 $5.35 $3.85 Quarter ended June 30, 1995 $5.30 $3.65 Quarter ended September 30, 1995 $5.80 $4.10 Quarter ended December 31, 1995 $5.50 $3.15 Quarter ended March 31, 1996 $6.25 $4.50 Quarter ended June 30, 1996 $6.25 $5.25 Quarter ended September 30, 1996 $6.00 $4.875
(1) Each of the amounts set forth below for periods ending on or prior to December 31, 1995 is based on the exchange rate in effect for Canadian dollars on the date of the high and low bids. The Company had 1,712,914.6 shares of Common Stock issued and outstanding as of September 30, 1996. As of September 30, 1996, there were outstanding options to purchase approximately 419,491 shares of Common Stock. Holders As of March 12, 1996, there were approximately 1,317 stockholders of record of the Company's common stock. DIVIDEND POLICY The Company presently is restricted from payment of dividends under the terms of its senior credit facility, and therefore, the Company does not expect to declare or pay any dividends in the foreseeable future. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, the general financial condition of the Company and general business conditions. 10 DILUTION The net tangible book value (deficit) of the Company as of June 30, 1996 was $(593,658) or $(0.35) per share of Common Stock. "Net tangible book value (deficit) per share" represents the tangible assets of the Company less liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the sale by the Company of the 750,000 shares of Common Stock offered hereby (assuming a public offering price of $5.00 per share) and the application of the estimated net proceeds therefrom of $3,428,000, the pro forma net tangible book value of the Company as of June 30, 1996 would have been approximately $2,834,000 or $1.15 per share. This represents an immediate increase in net tangible book value of $1.50 per share of Common Stock to existing Shareholders and an immediate dilution of $3.85 per share to new investors. "Dilution per share" represents the difference between the price per share to be paid by new investors for the shares of Common Stock issued in the Offerings and the pro forma net tangible book value per share as of June 30, 1996. The following table illustrates the dilution per share as described above: Assumed public offering price per share....................... $5.00 Net tangible book value (deficit) per share before the Offering...................................... $(0.35) Increase in net tangible book value per share attributable to the Offering(1).......................... $1.50 Pro forma net tangible book per share value after the Offering............................................... $1.15 Dilution per share to new investors........................... $3.85
- -------------- (1) Assuming the sale of all of the 750,000 Shares offered hereby at an assumed public offering price of $5.00 per share. 11 CAPITALIZATION The following table sets forth the historical capitalization of the Company as of June 30, 1996 and as adjusted to give effect to the sale of 750,000 shares of Common Stock in the Offering and assuming an Offering price of $5.00 per share and the application of the net proceeds as set forth under "USE OF PROCEEDS." This table should be read in conjunction with the "SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources" and the financial statements of the Company, including notes thereto, included elsewhere in this Prospectus.
June 30, 1996 ------------- Historical As Adjusted(1) ---------- -------------- (Dollars in thousands, except per share data) Cash and cash equivalents.................................................. $ 26 $ 3,454 Current portion of long-term debt.......................................... 312 312 Mortgage Note.............................................................. 1,500 1,500 Long-term debt: Revolving credit facility............................................... $ 2,333 $ 2,333 Term loan............................................................... 1,256 1,256 Subordinated convertible debenture...................................... 1,350 1,350 Total long-term debt................................................. 4,939 4,939 Stockholders' equity: Common Stock, par value $0.001, 2,400,000 authorized and 1,712,914.6 shares issued and outstanding; 10,000,000 authorized and 2,462,914.6 shares issued and outstanding as adjusted(2)(3) Paid-in capital......................................................... $ 6,848 $ 10,276 Retained earnings....................................................... 1,578 1,578 Total stockholders' equity........................................... 8,426 11,854 Total capitalization....................................................... 15,177 18,605
- ------------------ (1) Assumes that all of the Shares offered hereby are sold in the Offering and assumes a per share price to the public of $5.00. See "USE OF PROCEEDS." (2) Common Stock adjusted for: (a) the increase in the number of shares authorized for issuance to 10,000,000 and (b) the increase in the number of shares issued for the Shares issued in the Offering and assuming that 750,000 shares are sold in the Offering. 12 (3) Excludes 419,491 shares of Common Stock which were subject to outstanding stock options (i) issued in connection with the Merger, (ii) granted pursuant to the Company's Amended and Restated 1994 Stock Option Plan, (iii) pursuant to the Company's 1996 Stock Option and Incentive Plan and (iv) granted outside of either plan, and (v) issuable upon the conversion of certain convertible debt issued by the Company. As of September 30, 1996, the weighted average exercise price of such options and such convertible debt was $6.66 per share. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements of the Company, including notes thereto, appearing elsewhere in this Prospectus. Overview There have been many changes in the Company, its business and its financial condition over the past two years. As a result of certain cutbacks in defense spending during recent years, the Company experienced a dramatic reduction in U.S. Government contract business after the completion of its last lensatic compass contract in late 1992. The Company's management formulated a strategy to transition the Company's primary business away from government contract dependence and toward other aspects of the business. Manpower was reduced to save costs, and other resources were reallocated to strengthen manufacturing, selling and design of non-government products. Research and development staff and equipment were increased to improve product development cycle time. Simultaneously, domestic and foreign marketing and sales efforts were increased. Management also developed a plan to strengthen the financial condition and capital structure of the Company. The going private transaction in 1989 resulted in very high debt ($19 million) and interest expense (initially over $2 million per year) which absorbed all of the Company's working capital. As a result of certain repurchases of its then-outstanding debt and equity securities and the Initial Public Offering of the Company's Common Stock, the Company experienced a 54% reduction of long-term debt and an increase of over 700% in stockholder's equity from $1,139,500 at December 31, 1993 to $8,157,937 at December 31, 1994. In the first six months of 1995, the Company completed additional private placements for gross proceeds of $700,000, and refinanced its senior credit facility which was scheduled to mature in June 1995. The new credit facility provides a total amount available at $8 million with varying maturities beginning in August 1995 and extending until March 2000, and includes a $4 million revolving line of credit (subject to available collateral and collateral limits) of which the Company had approximately $2.3 million outstanding as of June 30, 1996. In September 1995, the Company acquired a new manufacturing facility and sold its existing facility in Beverly, Massachusetts. The Company headquarters and one operating division were relocated to an approximately 80,000 square foot building in Salem, New Hampshire. The Company believes that this relocation will reduce operating costs, facilitate future growth and improve manufacturing efficiency in the long-term. In connection with the partial prepayment of the term loan portion of the Company's indebtedness to the Bank and the release of the mortgage granted to the Bank with respect to the Company's former headquarters in Beverly, Massachusetts, the Company issued to Beverly Hospital Corporation ("BHC") a promissory note (the "BHC Note") in an initial principal amount of $1,500,000. The Company refinanced the BHC Note as of August 29, 1996 by issuing a note to Primary Bank ("Primary") in an initial principal amount of $1,500,000 (the "Primary Note"). The Company owns its Salem, New Hampshire facility subject to a mortgage granted by the Company to Primary to secure the obligations of the Company under the Primary Note. The Company had no material commitments for capital expenditures as of the close of the fiscal year ended December 31, 1995. During the first six months of 1996, the Company's expenditure for capital equipment totaled $110,073. Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995 Revenues declined $871,228 from $6,447,452 in the six months ended June 30, 1995 to $5,576,224 in the six months ended June 30, 1996. Approximately 65% of the sales drop was experienced in the Company's thermal printer and recorder business, which declined $569,283 from $1,295,392 in the six months ended June 30, 1995 to $726,109 in the equivalent period in the current year, largely due to the Company's original equipment manufacturer ("OEM") customers experiencing economy-related lower volumes and inventory overstocks in 1996 and to the fact that in 1995 sales benefited from final deliveries against a large order from a single customer. The remainder of the revenue decline is largely attributable to reduced sales of the 14 Company's electronic ballasts which declined $404,637 to $260,073 in the first half of 1996 from $664,710 in the first half of 1995. Reduced sales in this product line resulted from the Company's decision to withdraw from this market, which has become increasingly commodity price-driven, to focus on sales of higher margin products. Primarily as a result of this redirection, sales of industrial task lighting products increased 22% from $1,000,464 in the six months ended June 30, 1995 to $1,221,068 in the six months ended June 30, 1996. Gross Profit declined from $2,436,601 in the first half of 1995 to $1,996,772 in the first half of 1996, primarily due to reduced cost absorption associated with lower revenues. Operating costs decreased from $1,993,757 to $1,931,456, and interest expense decreased from $334,288 to $300,140 in the comparable periods. The difference between the effective tax rates is primarily due to non-deductible amortization. On May 3,1996, the Company refinanced $1,000,000 of 13.5% subordinated notes which were to mature on May 6, 1996, with $1,350,000 of 7.25% convertible subordinated notes which will mature on May 1, 2001. The convertible subordinated notes may be converted, at any time at the option of the holder, into shares of Common Stock at a conversion price of $7.375 per share, subject to certain adjustments. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 The 1995 operating results were significantly impacted by nonrecurring expenses totaling approximately $359,000 associated with the sale and relocation of the Company's headquarters and the registration of the Company's common stock under the Securities Exchange Act of 1934. On September 1, 1995, the Company completed the sale of its Beverly, Massachusetts facility and simultaneous purchase of new headquarters in Salem New Hampshire. The transactions resulted in a loss for financial reporting purposes of $282,565, and for tax purposes were structured as a like-kind exchange and an installment sale. The Beverly property was sold for a total of $2.2 million, $1,200,000 cash and a $1,000,000 note from the buyer which is secured by a letter of credit. The Company reduced its Term Loan by $1,100,000 in order to release the mortgage granted to the Bank with respect to the Beverly property. The Salem facility was financed by a $1,500,000 note which is payable on or before September 1, 1996. The note bears interest at Prime Rate plus 2% through February, 1996, Prime Rate plus 3% from March 1 through May 31, 1996, and Prime Rate Plus 4% thereafter; interest is payable monthly in arrears. The Company intends to refinance this note prior to its date of maturity. The Company also recorded operating expenses of $56,616 relating to the physical relocation and approximately $20,000 of professional fees relating to the registration of the Company's common stock under the Securities Exchange Act of 1934. Management notes that without the effect of these nonrecurring expenses, the Company would have recorded a pretax loss of approximately $3,000. Net revenues increased 16% to $13 million in 1995, from $11.2 million in 1994, due primarily to improved sales of industrial lighting products and increased sales to the United States government. Industrial lighting sales were $3.1 million in 1995 as compared with $2.1 million in 1994, reflecting increased demand for electronic ballasts in the first quarter of 1995 as well as a general increase in volume across the lighting product line. Sales to the U. S. government increased from $0.3 million in 1994 to $1.5 million in 1995, with most of the increase attributable to a contract for borescopes totaling $338,776 and to shipments totaling $538,942 which were made against a contract for navigator's watches, and the balance coming from increased demand for the U.S. Army watch under a requirements contract with the General Services Administration. Operating income increased from $533,528 in 1994 to $582,263 in 1995, and constituted 4.8% and 4.5% of revenue in such periods, respectively. Gross Profit increased from $4.1 million in 1994 to $4.6 million in 1995, although as a percentage of revenues gross profit decreased from 36.8% in 1994 to 35.5% in 1995, reflecting the increase in revenues in relatively low margin products, specifically the increased sales of electronic ballasts which are a commodity item. Operating costs increased from $3,574,832 in 1994 to $4,036,242 in 1995, but declined as a percentage of revenue from 32% in 1994 to 31% in 1995. Net income decreased from $3,336,606 in 1994 to a loss of $309,939 in 1995, reflecting the absence in 1995 of an extraordinary gain of $3,594,200 recorded in 1994. The 1994 extraordinary item was related to the discharge of certain indebtedness. 15 Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 During 1994 the Company accomplished significant restructuring of its debt by means of its Initial Public Offering in May and a private placement of stock in November, which netted combined proceeds of $3,665,000. The Initial Public Offering enabled the Company to repurchase subordinated notes and associated accrued interest totaling $7.4 million at a cost of $2.5 million. This transaction substantially reduced Company debt and interest expense, increased equity, and resulted in a gain, net of taxes and expenses, of $3.5 million, which is recorded as an extraordinary credit in accordance with Generally Accepted Accounting Principles. Revenues increased 9.3% to $11.2 million in 1994, from $10.2 million in 1993, due primarily to improved sales of the Company's SDD Division's machine components and accessories product lines. SDD Division revenues increased 20% from $3.8 million in 1993 to $4.6 million in 1994, as a result of improved general economic conditions in the U.S. industrial sector and intensified marketing efforts with customers and sales representatives. Changes in net sales in 1994 and 1993 were substantially volume-driven. There were no significant increases or decreases in product pricing from 1993 to 1994. Operating expenses increased from $3,213,571 in 1993 to $3,574,832 in 1994, primarily reflecting increased personnel costs associated with higher revenues, including the addition of a President at the SDD Division and the revitalization of incentive compensation programs. The percentage of operating costs to total revenues remained relatively flat at 31.4% in 1993 and 31.9% in 1994. In spite of increasing interest rates, interest expenses decreased by 42%, from $1,292,300 in 1993 to $754,868 in 1994. The decrease reflects the reduction by 54.8% of the Company's debt from $14,783,503 in 1993 to $6,679,156 in 1994. The debt reduction was achieved primarily through the repurchase of the subordinated notes and also through systematic reductions of the Company's bank debt. Before the extraordinary credit, the Company decreased its net loss by 43% to $257,594 in 1994 from $454,735 in 1993. The improvement was due primarily to reduced interest expense. Effects of Inflation In recent years, inflation has been modest and has not had a material impact upon the results of the Company's operations. Liquidity and Capital Resources The Company finances its operations primarily through third party credit facilities and cash from operations. Net cash provided by operations was $249,140 in 1995 and $376,590 in 1994. Cash used for financing activities in the same years was $936,563 and $57,190 respectively, reflecting in 1995 the purchase of the new Company headquarters and the sale of the previous facility. Net cash provided by operations was $286,800 for the six months ended June 30, 1996, compared to $6,266 for the same period in 1995. In May 1996, the Company refinanced its $1,000,000 in 13.5% Subordinated Notes due May 6, 1996 through proceeds realized from the issuance of $1,350,000 in 7.25% Convertible Subordinated Notes due May 1, 2001 (the "Notes"). The Notes may be converted at any time, at the option of the holder, into shares of Common Stock at a conversion price of $7.375 per share, subject to adjustment as provided in the Convertible Subordinated Note Purchase Agreement (the "Purchase Agreement"). Excess proceeds above those amounts used to refinance the 13.5% Subordinated Notes were used for general working capital purposes, including the costs of the issue. Payment of principal and interest on the Convertible Subordinated Notes are subordinated to all existing and future indebtedness of the Company to banks and financial institutions. The Notes are unsecured and are redeemable at the option of the Company at any time after May 1, 1998, under a formula specified in the Purchase Agreement. The Company's primary third party financing relationship is with Fleet National Bank (the "Bank"). The initial Credit Agreement (the "Initial Credit Agreement") included provisions for revolving loans due March 31, 1998 (the "Revolving Loans"), a long-term loan due March 1, 2000 (the "Term Loan"), and a short-term loan due August 1, 1995 (the "Short-Term Loan"), in an aggregate principal amount of $6,967,000. The Initial 16 Credit Agreement has been amended by that certain Waiver and Amendment No. 1 to the Credit Agreement, dated as of August 16, 1995 (the "First Amendment"); by that certain Consent under, and Second Amendment to, Credit Agreement and Amendment to Term Note, dated as of August 25, 1995 (the "Second Amendment"); Waiver and Amendment No. 3 to the Credit Agreement, dated as of March 15, 1996 (the "Third Amendment"); and by Waiver and Amendment No. 4 to the Credit Agreement, dated as of August 13, 1996 (the "Fourth Amendment"). The Initial Credit Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment is herein referred to as the "Credit Agreement." The Short Term Loan was paid as agreed in August, 1995. As of June 30, 1996, $2,332,665 and $1,417,505 were outstanding under the Revolving Loans and the Term Loan, respectively. As of June 30, 1996, the interest rate on both the Revolving Loans and the Term Loan was 8.75%. As of such date, $163,190 was available for borrowing under the Revolving Loan. The Loans under the Credit Agreement bear interest at rates that may be adjusted from time to time as follows: (a) in the case of Revolving Loans, at a rate equal to the Bank's base rate plus 1/2% or, at the election of the Company, the London Inter-Bank Offered Rate ("LIBOR") plus a margin ranging from 2 3/4% to 2% depending on the Company's net worth; (b) in the case of the Term Loan, at a rate equal to the Bank's base rate plus 1/2% or, at the election of the Company, LIBOR plus a margin of 2 3/4%, or (c) in the case of the Short-Term Loan, at the Bank's base rate plus 2%. Under certain circumstances, the Company may request that a portion of the Revolving Loans and/or of the Term Loan may bear interest for a period of not less than one year at a rate of interest determined by the Bank to be the equivalent fixed-rate yield to the Bank of its base rate plus 1/2%. In connection with the Second Amendment and the releases of the Bank's mortgage on the Company's former headquarters in Beverly, Massachusetts, the Company made a partial prepayment of the Term Loan in an amount of $1,100,000. In accordance with the Credit Agreement, the outstanding principal of the Term Loan is to be repaid in sixty installments as follows: (i) five consecutive monthly installments of $23,059.00 until and including August 1995, (ii) fifty-four consecutive monthly installments of $13,420 thereafter and (iii) one final payment of the unpaid principal of the Term Loan on March 1, 2000. Assuming that there are no further prepayments of principal of the Term Loan, a final principal payment in the amount of $817,386 will be due and payable on March 1, 2000. Interest on the outstanding principal amount of the Term Loan is payable monthly in arrears and upon the payment of the Term Loan in full. Except as described in this paragraph, the Term Loan may be prepaid, in whole or in part, at any time or from time to time without premium or penalty. In the event that a fixed interest rate has become applicable to any of the Revolving Loans or the Term Loan and the Bank receives any principal payment with respect to such loan on any date other than the last day of the interest period applicable to such loan, the Company shall pay the Bank the amount required to compensate the Bank for any losses, costs or expenses it may have incurred and may reasonably incur as a result of such payment. Under the terms of the Credit Agreement, the Company is required to comply with a number of covenants including minimum equity, debt to equity ratios, and minimum net income tests. As a result of delays in government contracts and a slowdown in the automotive sector, the Company did not meet the minimum net income test for the second quarter of 1995. On August 16, 1995, a waiver of this covenant was granted by the Bank and the Initial Credit Agreement was amended to reduce income minimums for the remainder of 1995. At December 31, 1995, the Company did not meet covenants for minimum net income, minimum debt service coverage ratio and maximum capital expenditures, primarily due to the loss on the sale of real estate and the capital purchase of the Company's new property and renovations to that facility. On March 15, 1996, the Bank granted waivers of these covenants as of December 31, 1995 for period then ended, and the Initial Credit Agreement was amended to establish new minimum equity, debt service coverage ratios, minimum net income and maximum capital expenditure covenants for 1996. At March 31, 1996, the Company was not in compliance with the minimum net income and minimum equity covenants, and on June 30, 1996 the Company was not in compliance with the minimum net income covenant. Noncompliance resulted from the operating losses associated with lower than anticipated revenues. On May 24, 1996 the Bank granted waivers of the minimum net income and minimum equity covenants as of March 31, 1996 for the period then ended, and on July 31, 1996, the Bank granted a waiver of the net income covenant as of June 30, 1996 for the period then ended. On August 13, 1996, the Credit Agreement was amended to establish new minimum equity and maximum net 17 loss covenants for the remaining two quarters of 1996 and to set quarterly frequency and limits on the debt service coverage ratio covenant through maturity. In connection with the partial prepayment of the term loan portion of the Company's indebtedness to the Bank and the release of the mortgage granted to the Bank with respect to the Company's former headquarters in Beverly, Massachusetts, the Company issued to BHC the BHC Note in an initial principal amount of $1,500,000. The Company's indebtedness evidenced by the BHC Note bore interest at an annual rate that will be adjusted as follows: (a) from September 1, 1995 to February 28, 1996, at a rate equal to the rate of interest announced from time to time by Fleet Bank of Massachusetts, N.A., as its "prime" or "base" rate (the "Fleet Prime Rate") plus 2%; (b) from March 1, 1996 to May 31, 1996, at an annual rate equal to the Fleet Prime Rate plus 3%; and (c) from June 1, 1996 and thereafter, at an annual rate equal to the Fleet Prime Rate plus 4%. Interest on the unpaid principal balance outstanding under the BHC Note was payable monthly in arrears. All principal outstanding under the BHC Note, together with any accrued, unpaid interest thereon, was due and payable on September 1, 1996. On August 29, 1996, the Company refinanced the BHC Note by issuing to Primary the Primary Note due August 29, 2011 in an initial principal amount of $1,500,000. The Company's indebtedness evidenced by the Primary Note bears interest at an annual rate of 9.25% per annum until August 29, 1999; and thereafter, adjusted annually to the Prime Rate plus one percent. The principal and interest are repayable in 180 equal monthly installments. In accordance with the terms of the Primary Note, the Company may prepay amounts outstanding thereunder, in whole or in part, at any time without premium or penalty. Historically, the Company has not required major expenditures for capital equipment. In 1994, 1993 and 1992, purchases of fixed assets totaled $57,190, $109,077 and $178,781 respectively, which were primarily purchases of computer hardware and software. In 1995 capital expenditures totaled $2,032,025, $1,824,728 of which related to the purchase, renovation and furnishing of the Company's new headquarters building in Salem, New Hampshire, and $108,000 was for the purchase of a new CNC machining center for the SDD Division. During the six months ended June 30, 1996, the Company's purchases of fixed assets totaled approximately $110,000. The Company believes that its available financial resources are adequate to meet its foreseeable working capital, debt service and capital expenditure requirements. Inventory Obsolescence The potential for inventory obsolescence of older products as the Company develops new products is not significant. With the exception of the Company's fluorescent light dimming systems and electronic ballasts which were new product lines in 1993, the Company's product offerings have remained substantially the same for twenty years, with new enhancements introduced periodically. Enhanced versions of old products are not introduced to the market until the old components being replaced in the new configurations are appropriately reduced. New product additions to existing lines are generally designed to accommodate new and different applications, have features that are quite different from existing products, and do not impact the demand for other, older products. Foreign Currency Fluctuations Foreign currency fluctuations have had a minor impact on the Company's results of operations. Specifically, the Company has Swiss Franc contracts to purchase watches at an agreed fixed cost and corresponding contracts with the General Services Administration to sell those watches at a fixed price. For 1995, currency exchange rate fluctuations totaled $40,730 over anticipated costs of $530,449. For the first six months of 1996, currency exchange rate fluctuations have totaled $15,817 under anticipated costs of $333,440. 18 BUSINESS General Background Stocker & Yale, Inc. (the "Company") was incorporated on March 27, 1951 under the laws of the Commonwealth of Massachusetts. The Company became a public company in the United States in 1962, with its shares listed for trading on the National Association of Securities Dealers Automated Quotation System, as it was then known, and was taken private in June, 1989 by Messrs. Mark W. Blodgett and James Bickman (both senior officers of the Company). On May 11, 1994, the Company merged with Brower which was publicly traded on the VSE. In connection with the Merger, the Company was the surviving corporation. Immediately prior to the Merger, the Company conducted a split of its common stock, pursuant to which each share of the Company's common stock then outstanding was converted into 11.129701 shares of the Company's Common Stock. In connection with the Merger, each share of Brower common stock issued and outstanding was converted into 0.2 shares of Common Stock of the Company. Concurrently with the Merger, the Company offered 2,000,000 shares (400,000 shares after giving effect to the Reverse Stock Split) of its Common Stock in its Initial Public Offering and obtained an authorization to list its Common Stock on the VSE. Additionally, in private placements occurring concurrently with the Initial Public Offering, the Company sold 363,757 shares (72,751 shares after giving effect to the Reverse Stock Split) of Common Stock to U.S. investors. Upon completion of the Merger, the Initial Public Offering and concurrent private placements, the former Brower stockholders held a 21.9% interest in the Company. In transactions occurring subsequent to the Initial Public Offering, the Company has sold approximately 1,698,656 shares (339,731 shares after giving effect to the Reverse Stock Split) of Common Stock in certain private placements. On December 28, 1995, the Company consummated the Reverse Stock Split which resulted in a reduction of the authorized number of shares of Common Stock from 12,000,000 shares to 2,400,000 shares, and a reduction in the number of issued and outstanding shares of Common Stock from 8,564,573 shares to 1,712,614.6 shares. As of September 30, 1996, the authorized capital stock of the Company was 10,000,000 shares of Common Stock of which 1,712,914 shares were issued and outstanding. As of September 30, 1996, 419,491 shares of Common Stock have been reserved for issuance upon the exercise of outstanding options to purchase Common Stock and upon conversion of certain convertible indebtedness of the Company. The Company listed its Common Stock on the Nasdaq SmallCap on January 29, 1996 under the trading symbol "STKR". As of May 10, 1996, the Company de-listed its Common Stock from the Vancouver Stock Exchange. Current Operations The Company is a diversified manufacturing company engaged predominantly in the production of industrial fluorescent lighting products, thermal printers and recorders, and machine tool components. The Company operates in two company-owned facilities in Salem, New Hampshire and Fraser, Michigan. For over 50 years, the SDD Division located in Fraser, Michigan, has manufactured a wide range of machine tool components and material handling accessories which are used extensively in the construction and maintenance of assembly and conveying machinery. The SDD Division's customers are primarily in the automotive, appliance and packaging industries. SDD Division products are sold to over 5,000 customers both directly and through 45 worldwide distributors. See "--Product Lines." The Company's Salem Division, located in Salem, New Hampshire, produces a broad array of inspection and measurement instruments and accessories, including industrial lighting products, chart recorders and thermal printers, and military watches and compasses. Lighting products represent the Company's fastest growing product line and are primarily sold in conjunction with microscopes and machine vision inspection systems. Since its founding, Stocker & Yale has been at the forefront of the design and development of industrial fluorescent lighting products and has been an innovator in this industry. The Company's products are used by a variety of participants in the semiconductor, computer assembly, laboratory, and robotics fields. The Company's lighting products are sold worldwide through a network of 125 microscope dealers and machine vision integrators. Under the "MFE" brand name, the Company also manufactures a range of thermal printer 19 and recorder products for the test and measurement market. Further, Stocker & Yale has been a long-standing manufacturer and distributor of compasses and supplier of military watches to the U.S. Government, foreign governments, and the U.S. and foreign civilian market. Management intends to broaden the retail distribution of such compasses and watches in accordance with the Company's plan to further reduce its dependence on sales to the U.S. Government. See "--Product Lines." The Company has two subsidiaries: Stocker and Yale Foreign Sales Corporation, a U.S. Virgin Islands corporation which is a wholly owned subsidiary of the Company, and Stocker & Yale Hong Kong Ltd., a Hong Kong corporation formed in March, 1995, which is a 95% owned subsidiary of the Company. Strategy Over the last four years, management has focused on strengthening the Company's balance sheet and has achieved a significant reduction in the Company's long-term debt. More recently, management has focused on operational matters. In September 1995, the Company moved its headquarters to a larger, more efficient facility in New Hampshire which will better accommodate any future expansion. The Company is now in the process of building up its engineering team in order to accelerate product development. The Company has reorganized its sales department to increase the frequency of customer contact and to accommodate the Company's growing emphasis on its lighting business. The Company intends to use a portion of the net proceeds of the Offering to make capital expenditures in connection with a new business initiative to develop a fiber optic illumination product line. In addition, management anticipates that a portion of the net proceeds from the Offering will augment the Company's free cash flow available for investment in its core operations. See "USE OF PROCEEDS." Measurement and Inspection Instruments and Accessories. The Company's long-term goal is to position the Salem Division as a single source for customers' diverse industrial lighting requirements, including fluorescent, fiber optic and halogen lighting. As part of the Company's plan to achieve this goal, the Company intends to utilize a portion of the net proceeds of this Offering to develop and market a line of fiber optic products to complement the Company's fluorescent lighting product line. Management's strategy for the development of such products anticipates the expansion of its engineering staff for the purpose of the internal development of such products and recognizes that the acquisition of businesses or assets to complement or expand its product lines may be appropriate. The Company's market research suggests that by offering a more extensive line of lighting products, the Company may benefit from customer preference for a single source to fulfill all their lighting requirements. In addition, management believes that the fiber optics product line represents a logical extension of the Company's current lighting product line, and its planned entry into the fiber optics product line was largely prompted by demand from existing customers for such products. Management believes that the development of this product line will result in increased production efficiencies and will take advantage of the Company's years of experience in the development and distribution of lighting products. Further, Stocker & Yale has been a long-standing manufacturer and distributor of compasses and supplier of military watches to the U.S. Government, foreign governments, and the U.S. and foreign civilian market. Management intends to broaden the retail distribution of such compasses and watches in accordance with the Company's plan to further reduce its dependence on sales to the U.S. Government. Machine Tool Components and Accessories. The Company's goal is to increase its market share in the machine tool components and accessories market, which is fragmented between numerous companies offering specialized products. Part of the Company's plan for increasing market share is to acquire a product line or a business that offers its own specialized product that may be related to or complement the Stilson or Die-Draulics product lines. The Company has no present understandings, commitments or agreements with respect to any acquisition. In addition to its efforts to identify possible strategic acquisitions, the Company has initiated a plan to emphasize its capability to modify its products to meet customer specifications. 20 Product Lines The Company manufactures (i) machine tool components and accessories for the automotive and related industries at its SDD Division and (ii) measurement and inspection instruments and accessories including industrial lighting products, and military compasses and watches chart recorders, and thermal printers, at its Salem Division. Machine Tool Components and Accessories The SDD Division manufactures a wide range of machine tool components and accessories. "Stilson" brand name material handling products and machine tool accessories have had market acceptance and brand-name recognition for 50 years. Similarly, "Die-Draulics" brand name die pressure control equipment and systems have had market acceptance and brand-name recognition for more than 40 years. The Company's goal is to expand the business of the SDD Division through new product development and strategic acquisitions of complementary product lines. The SDD Division develops new products on an on-going basis and updates or customizes its existing products for its customers. As a result, management believes that the level of success of any single new SDD Division product or modification thereto will not materially affect the results of operations of the SDD Division. The Company has no present understandings, commitments or agreements with respect to any acquisition. Products. The SDD Division designs and manufactures machine tool components for clamping, indexing, holding, handling, locating, positioning and actuating under its Stilson brand name. Stilson products include roto-clamps (which combine linear and rotary motion for the clamping and indexing of moving parts), wedge lock actuators (mechanical devices used to position, lock and pull cores or inserts in plastic molds), and other accessories used by machine tool manufacturers. Most Stilson machine tool accessories are sold to participants in the automotive, appliance and other industries directly and through manufacturer's representatives and distributors. Material handling components are used for conveying, rolling, stopping, handling, holding, positioning, protecting and aligning virtually any type of product. The SDD Division's material handling products include conveyor rolls, bumpers, vacuum handling systems (which use regulated shop air to generate the vacuum), and other accessories. These material handling accessories are sold to participants in the automotive, packaging and other industries through manufacturers' representatives and distributors. Die-Draulics brand-name equipment and systems are used in independent and captive stamping operations producing automotive parts, appliance parts, metal furniture, housewares and hardware. Sales and Distribution. The SDD Division's products are sold to over 5,000 customers, both directly and through an extensive network of distributors throughout North America. The Company works with approximately 40 manufacturers' representatives in the marketing of the Stilson product line and with approximately 20 manufacturers' representatives in the marketing of the Die-Draulics product line. The SDD Division also markets its products through print ads in industry journals, direct marketing, new product releases, trade shows, and through distribution of sales literature. All sales leads from advertising are tracked on computer and allocated to sales representatives for follow-up. The Company's sales representatives are extensively trained on the Company's products and their uses. Each representative works to meet an annual sales target and is compensated accordingly, with commissions ranging from 10% to 20% of gross sales. Competition and Competitive Position. The market for machine components and accessories is mature, with a number of small companies competing within the industry as described below. The Company's strategy for the SDD Division has been to develop product acceptance primarily by offering a complete product line, technical applications assistance, quality service, and competitive prices. Further, certain products of the SDD Division may be modified to meet specific customer applications in a timely manner. The SDD Division competes with a variety of companies (many of which are larger and have greater resources than the Company) in designing and distributing its products. These products are sold primarily to participants in the automotive industry and secondarily to participants in the home appliance, leisure time products, building materials and packaging equipment industries. No single customer represents more than 3% of sales of the products of the SDD Division. The Company believes that its competitive strengths in the 21 machine tool components and accessories products markets include: (i) the Company's products constitute a complete line; (ii) the Company has developed a reputation for designing, manufacturing and delivering a quality product; (iii) the Company has trademark and patent protection on a number of these products; (iv) the Company can adapt its products to the specific requirements of its customers; and (v) the Company has an extensive network of manufacturers' representatives. Since the machine tool components and accessories market is fragmented between numerous competitors, none of which dominate the market, the Company has adopted a strategy to increase its share of this market through increased selling efforts and the introduction of new, related products. There can be no assurances that this strategy will be successfully implemented or effective in increasing in light of the fragmented and competitive nature of this market. With the exception of the manufacture of rubber rolls and vacuum cups in which the Company believes that it has only four important competitors, the market for material handling accessories is extremely competitive. However, the Company believes that the strengths of the SDD Division enhance its competitive position. The Company competes with four other manufacturers in the production of pressure control systems of nitrogen gas design. Although the Company does not possess the resources of some of its competitors, management believes that its proprietary design and its ability to adapt its pressure control systems to the special needs of its customers is an important factor in the marketing of its products. The Company's objective in the short-term is to continue and to expand its existing research and development efforts within the machine components and accessories divisions, in order to develop new products and improve its existing line of products. The general industry can be characterized as mature. As a result, new product development and product line acquisitions are important factors in the Company's growth strategy for the SDD Division's sales. Measurement and Inspection Instruments and Accessories The Company manufactures a variety of measurement and inspection instruments and accessories, including industrial lighting products, military compasses and watches, recorders and thermal printers. Measuring and inspection instruments and accessories represented approximately 67% of total Company sales in 1995, and approximately 59% in 1994. The Division's contribution to sales and cash flow historically has been considerably higher, but has been affected in recent years by a significant decline in U.S. Government defense spending and through direct reductions in military compass and watch contract awards to the Company. Sales to the U.S. Government as a percentage of total Company sales have declined from 27% in 1990 to 11% in 1995. The Company has significantly increased its research and development efforts to develop new products to offset the above mentioned decrease in military sales. In the summer of 1993, the Company introduced a line of electronic ballasts and patented fluorescent dimming systems for the machine vision industry, based on technology developed by Company engineers. The fluorescent dimming technology has helped in significantly increasing the Company's customer base since introduction. However, the dimmers are typically packaged with the Company's ballasts, and in recent years, ballast prices have been negatively impacted by a significant increase in production capacity within the industry. As a result, ballasts have generated a gross profit margin below that which is acceptable to management. Accordingly, the Company decided in early 1996 to de-emphasize the sale of dimmers packaged with ballasts but continued to utilize the Company's patented dimming technology in its machine vision lighting products. This decision negatively impacted revenue for the first six months of 1996. New product development is currently focused on introducing a line of fiber optic illumination products to complement the Company's line of industrial fluorescent lighting products. Specifically, it is the Company's intention to sell illuminators, ring lights and standard and custom lengths of glass fiber to existing and new customers within the machine vision and microscopy industries. The Company believes that these product lines have positive growth prospects because, in part, the Company's customers in the machine vision and microscopy industries, both domestic and foreign, have requested alternatives to fluorescent lighting. 22 Management believes that the fiber optics product line represents a logical extension of the Company's current lighting product line, and its planned entry into the fiber optics product line was largely prompted by demand from existing customers for such products. The Company's market research suggests that by offering more extensive product lines, the Company may benefit from customer preference for a single source to fulfill all their lighting requirements. Proceeds from the Offering will be used partially to fund certain capital expenditures and to provide working capital sufficient to enter the fiber optic illumination business. Initially, the Company plans to purchase bulk fiber and to rely on certain private label products as it enhances its core manufacturing base and develops the capacity to manufacture and assemble products internally. Products. The Company manufactures a wide variety of lighting and optical measuring instruments. Industrial lighting products represent the Company's fastest growing product segment having increased 25% in the six months of 1996 and 48% in 1995. Lighting products include circular and linear fluorescent illuminators for microscopes and machine vision inspection applications. In addition, the Company manufactures, illuminated magnifiers for use in bench assembly operations by OEM and others to mount as light sources on machinery, and machine tool analyzers that are used to inspect the cutting geometry of drills, taps and other cutting tools at one setting. These products are generally sold directly to industrial users, distributors and OEM that incorporate them into their own products. The Company's lighting products are sold both directly and through a worldwide network of 125 microscope dealers and machine vision integrators. The Company sources and distributes watches which are manufactured to U.S. military specifications. Stocker & Yale is the only U.S. company qualified as a supplier of watches to the U.S. armed services. In February, 1996, the Company won a four year "requirements" contract which stipulates that the Company will be the sole provider of all U.S. General Services Administration requirements for certain military watches. Further, the Company manufactures and distributes a variety of compasses, including lensatic compasses (a self-luminous and induction-damped compass which enables the viewer to take readings and make sightings), wrist compasses (a self-luminous one-inch compass), and plastic compasses (a liquid filled compass which performs tasks similar to the lensatic compass). Since 1979, the Company has manufactured over one million compasses for the U.S. Army and foreign armed forces. The Company manufactures a variety of oscillographic and thermal recorders and printers under the MFE brand name. These recorders and printers are manufactured as OEM modules and end user models for diverse field, industrial and laboratory uses, as well as for medical applications such as bedside monitors and defibrillators. Under the MFE brand name, the Company also manufactures a line of galvanometers that are used for positioning applications. In 1991, the Company acquired the assets of Memodyne Products and consolidated its operations into the Salem Division. Following this acquisition, the Company began developing and manufacturing a broad range of thermal printers for the test and kiosk (customer self-service equipment such as automated teller machines) markets. In September 1993, the Company introduced a thermal printer targeted at the test and measurement OEM market. Sales and Distribution Salem Division products are sold to over 10,000 customers, primarily in North America, Europe and the Pacific Rim. The Division sells directly and also works with a group of approximately 125 microscope dealers in selling industrial fluorescent lighting products and with approximately 10 manufacturer's representatives in selling MFE brand products. Salem Division products are also marketed through advertising in trade journals, distribution of sales literature, and participation in trade shows. Competition and Competitive Position The Company competes with a number of large and small firms in the design and manufacture of its measurement and inspection instruments and accessories. Some competitors have greater resources than the Company, and as a result, may have a competitive advantage in the research and development of new products, sales and distribution and in other business areas. Although the Company does not consider that any one factor 23 gives it an edge over its competitors, it believes that it has an established reputation in the field for satisfying specific customer requirements. Stocker & Yale has been designing, manufacturing and selling industrial fluorescent lighting products since the Company was established almost fifty years ago by two engineers who recognized the need for reliable specialized lighting for industrial applications. Since its founding, the Company has developed and marketed a wide variety of industrial fluorescent lighting products, many of which are still offered and sold to new and repeat customers. In the industrial fluorescent lighting market, the Company has two primary competitors, Microlite ("Microlite") and Techni-Quip Corp. ("Techni-Quip"). Microlite was founded by a former employee of the Company and markets a product similar to the Company's circular fluorescent microscope illuminator. Techni-Quip offers industrial fluorescent lighting as part of its product line but its lighting product line is limited and represents a small percentage of Techni-Quip's total business. The Company believes that its primary market advantages are its long history of providing specialized products to meet customers' illumination needs and its broad line of industrial fluorescent lighting products. The chart recorder and thermal printer market is dominated by companies that are larger and offer more advanced technology than the Salem Division. Recognizing that it lacks the resources to compete directly against larger companies, such as Gould, Inc., and General Scanning, Inc., the Company focuses on the value-oriented segment of the market and customers with low volume specialized applications. In bidding for contracts to manufacture compasses and military-type mechanical watches and related products for the U.S. Army, the Company competes against only a limited number of firms. However, as a result of reduced spending by the United States Government, the Company expects to obtain fewer contracts from the United States armed forces. The Company believes that its competitive position in obtaining contracts from the U.S. armed forces depends, in part, on its ability to limit production costs and to offer the lowest bids, while still earning an acceptable profit. Over the past several years, the Company has increased its marketing efforts to develop the civilian market for compasses and military-type watches by emphasizing the Company's "authentic" U.S. Army watch. Backlog The Company maintains an inventory of standard materials and components and generally manufactures standard product configurations within one to five days after receipt of a customer order. Although such rapid response is, and historically has been, a selling advantage for the Company, some orders are placed for future delivery. At August 1, 1996, the Company had a backlog of orders for future delivery of approximately $1.2 million. Raw Materials The raw materials and components used in the Company's products are purchased from a number of different suppliers and are generally available from several sources. Dependence on One or a Few Major Customers The Company's customer base consists of more than 8,000 customers in various industries worldwide. The Company's largest single customer is the United States Government to which the Company has been a contract supplier of watches and compasses for many years. Sales to the United States Government were approximately 11% of the Company's total sales in 1995, and approximately 15% of the Company's total sales for the six months ended June 30, 1996. Patents and Trademarks The Company holds patents in the United States and has filed additional patent applications in the United States, Europe and Japan. The Company's patents include compact limited rotation motors and fundamental technological devices and methodologies used to achieve low-cost fluorescent light dimming. The Company believes that patents are an effective way of protecting its competitive technological advantages, and considers 24 its patents to be a strong deterrent against unauthorized manufacture, use and sale of its products and key product attributes. There can be no assurance, however, that a patent will be issued with respect to the patent applications or whether the Company's patents will provide meaningful protection for the Company. The Company also relies upon trade secret protection for its confidential and proprietary information. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to and use or disclose the Company's trade secrets or that the Company can meaningfully protect its trade secrets. The Company holds rights in certain trademarks to protect its brand name recognition in various markets. Because of the Company's long history and reputation for designing and manufacturing high quality products, trademark protection enhances the Company's position in the market. Although the Company believes that its products and other proprietary rights do not infringe the proprietary rights of third parties, there can be no guarantee that infringement claims will not be asserted against the Company in the future or that any such claims will not require the Company to enter into royalty arrangements or result in costly litigation. Research and Development Research and development expenditures for the Company were $220,290 in 1995, $226,498 in 1994 and $248,830 in 1993. Research and development expenditures for the Company were $144,762 for the six months ended June 30, 1996. Compliance with Environmental Laws The Company is subject to evolving Federal, state and local environmental laws and regulations. Compliance with such laws and regulations in the past had no material effect on the capital expenditures, earnings or competitive position of the Company. The Company believes that it complies in all material respects with existing environmental laws and regulations applicable to it. However, the Company's Salem, New Hampshire headquarters are currently the subject of environmental testing and monitoring relating to soil and groundwater contamination which occurred under prior ownership. The Company believes that the costs of any required remediation will be covered by an environmental indemnity obtained from the seller, John Hancock Mutual Life Insurance Company. Compliance with environmental laws and regulations in the future may require additional capital expenditures and the Company expects that in the foreseeable future such capital expenditures will be financed by cash flow from operations. Employees As of June 30, 1996, the Company employed approximately 98 persons, 92 of whom were full-time employees. No employees of the Company are unionized and relations with employees are satisfactory. Properties The Company currently conducts its business at two company-owned facilities. In September 1995, the Company relocated its headquarters, which includes the Company's manufacturing and distribution center for the Salem Division to a 79,120 square foot facility located in Salem, New Hampshire. The machine tool components and materials handling accessories product lines are manufactured and sold from a 25,800 square foot facility in Fraser, Michigan. The Company's Michigan facility is owned by the Company and subject to a mortgage granted by the Company to the Bank to secure the obligations of the Company under the Credit Agreement, as well as security interests in substantially all of the Company's assets. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS--Liquidity and Capital Resources." 25 The Company's facilities are generally operated on the basis of one shift per day, five days per week. Management considers the facilities to be in generally good condition, to be adequately maintained and insured, and sufficient to satisfy its needs for the foreseeable future. Legal Proceedings No material legal proceedings to which the Company is a party or to which its property is subject are pending and no such proceedings are known by the Company to be contemplated. No legal actions are pending or, to the knowledge of the Company, contemplated, nor are there any judgments entered against any officer or director of the Company in connection with any matter involving the Company or its business. 26 MANAGEMENT Directors and Executive Officers The members of the Company's Board of Directors serve one year terms and are elected each year by the stockholders at the Company's annual meeting. The directors and executive officers of the Company are as follows:
Name Age Position ---- --- -------- Mark W. Blodgett 39 Chairman of the Board of Directors and Chief Executive Officer James Bickman 79 President, Salem Division and Director Susan A. H. Sundell 46 Senior Vice President of Finance and Treasurer Alex W. Blodgett 38 President, SDD Division and Director Clifford L. Abbey 50 Director Robert G. Atkinson 55 Director Hubert R. Marleau 51 Director John M. Nelson 63 Director
Mark W. Blodgett purchased the majority of the common shares of the Company in 1989 and since then he has maintained overall responsibility for daily operations and strategic planning. Prior to joining the Company in 1989, Mr. Blodgett worked for a private merchant bank (1988-1989); was a corporate vice president at Drexel Burnham Lambert, Inc. in New York (1980-1988); and was a merger and acquisition associate for European American Bank in New York (1979-1980). Mr. Blodgett is actively involved in the Young Presidents Organization. Mr. Blodgett graduated with an M.A. Honors in Economics from the University of St. Andrews in Scotland. Mark Blodgett is the brother of Alex W. Blodgett, a Director of the Company and President of the SDD Division. James Bickman presently serves as President of the Company's Salem Division. Mr. Bickman has been a Director of the Company since 1961, and joined as its President and Chief Executive Officer in 1964. Mr. Bickman has an extensive background in manufacturing and engineering, and has been responsible for the growth of the Company over the past thirty years from a small manufacturer of optical metrology instruments. Prior to joining the Company, Mr. Bickman was a co-founder and operator of a successful engineering sales and manufacturing business. Mr. Bickman graduated from Clark University with a major in Chemistry and studied metallurgy at MIT. Susan A. H. Sundell is Senior Vice President of Finance and Treasurer of the Company, and is responsible for all aspects of financial management, including accounting and treasury functions, corporate compliance and human resources. Ms. Sundell advanced to Vice President in 1992 from the former MFE Division, where she served in a variety of positions including Operations Manager and Controller. Ms. Sundell joined MFE in 1981 prior to its acquisition by the Company. Prior to joining the Company, Ms. Sundell held various finance and information systems responsibilities with a number of companies in the manufacturing, high tech, and banking industries. Ms. Sundell holds a Bachelor of Science, magna cum laude, from Franklin Pierce College. Alex W. Blodgett joined the Company in February 1994 as President of the Company's SDD Division, and was elected Director in June 1994. From January 1993 until December 1993, he was Vice President of 27 Corporate Development for Brassie Golf Corporation, a corporation engaged primarily in the development of golf courses, and a partner with Pacificbridge Investments, a real estate development firm. From April 1986 until November 1991, he was a partner with Gordon Capital Corporation, a private investment bank. Alex W. Blodgett is the brother of Mark W. Blodgett. Clifford L. Abbey is the Chief Executive Officer and principal shareholder of Agnelli Jeans, a manufacturer and distributor of designer jeans. Mr. Abbey has an established reputation as a successful entrepreneur, having founded, operated and ultimately sold a number of small and middle-market businesses. Mr. Abbey has been a Director of the Company since 1994. Robert G. Atkinson is the founder and Chairman of BridgeBank Partners, a Canada-based merchant bank formed in 1991 to make equity investments in expansion stage middle-market companies. Prior to forming BridgeBank Partners, Mr. Atkinson was a director of Gordon Capital Corporation, a private investment bank, from October 1991 to June 1992, and President and Chief Executive Officer of Loewen Ondaatje McCutcheon Inc., a leading Canadian investment dealer specializing in financing emerging growth companies, from 1987 to 1991. Mr. Atkinson is currently a director of a number of public companies and graduated with a Bachelor of Commerce from the University of British Columbia. Mr. Atkinson has been a Director of the Company since 1994. Hubert R. Marleau has been Chairman and Chief Executive Officer of Marleau, Lemire Inc. since April 1989. Prior to April 1989, he was Senior Executive Vice President, a director and a member of the Executive Committee of Levesque Beaubien Geoffrion Inc., a securities dealer. Mr. Marleau has been a Director of the Company since 1994. John M. Nelson has served as the Chairman of the Board of Wyman-Gordon, Inc., a manufacturer in the defense and related industries, since 1991. Prior to that time, Mr. Nelson served for many years in a series of executive positions with Norton Company, a manufacturer of abrasives and ceramics based in Worcester, Massachusetts, and was Norton Company's Chairman and Chief Executive Officer from 1988 to 1990, and its President and Chief Operating Officer from 1986 to 1988. Mr. Nelson is also a Director of Browne & Sharpe Manufacturing Company, Cambridge Biotechnology, Inc., and TSI Corporation. Mr. Nelson has been a Director since February 1995. Key Employees Dale Depas is Vice President-Sales and Engineering for the SDD Divisions. Application-specific design is an integral part of the selling effort at the SDD Division, due to the technical nature of the products. Mr. Depas joined Die-Draulics 32 years ago, prior to its acquisition by the Company. William J. Michaud is Vice President-Sales and Marketing, responsible for all sales and marketing operations, excluding the SDD Division. Mr. Michaud has an extensive sales and marketing background through his previous positions: Director of Sales, Sopha Medical Systems; Regional Vice President of Sales/Marketing, General Electric Medical Systems; Divisional Sales Manager, Johnson Healthcare Division; and District Sales Manager, Procter and Gamble Distributing Company. Mr. Michaud graduated dean's list from The College of Business Administration at the University of Maine. Delores J. Perelli is General Manager of the Company's SDD Division and is responsible for the production, purchasing, accounting and personnel of the Company's Michigan operations. Ms. Perelli joined the Company 29 years ago, prior to the acquisition of Stilson by the Company. John E. Powers is Vice President-Operations for the Company's Salem facility, responsible for purchasing, materials management, customer service and repairs, as well as for all phases of production. He also oversees the introduction of new products and changes to the production floor. Mr. Powers has been with the Company for 15 years, previously serving as Production Supervisor and as Production Manager for the MFE Division. Mr. Powers holds a Bachelor's degree from Keene State College. 28 Kenneth A. Ribeiro is Vice President-Engineering, responsible for both product development projects and existing product line support. Mr. Ribeiro has 18 years of design experience in the areas of electronics, optics, acoustics, thermodynamics and pneumatics. Further, he has in-depth experience in both hardware and software. Prior employment includes American Optical Corporation, Merrimack Laboratories Inc., Ion Track Instruments, Inc., and Kaye Instruments, Inc. Mr. Ribeiro holds a BS in Electrical Engineering and an MS in Electro-optics from Northeastern University in Boston, Mass. Doreen Shane is Vice President-Management Information Services and responsible for overseeing all of the management information systems functions of the Company, including systems analysis, design, development and training. From 1985 to 1991, Ms. Shane held various management positions with Memodyne Corporation, a manufacturer of thermal printers which the Company acquired in 1991. Ms. Shane holds a BSBA from Merrimack College. Family Relationships Mark W. Blodgett, Chairman of the Board of Directors and Chief Executive Officer of the Company, is the brother of Alex W. Blodgett, President of the SDD Division and a Director of the Company. Executive Compensation Summary Compensation Table The table below sets forth summary compensation information for the last three completed fiscal years ended December 31, 1995, 1994 and 1993, with respect to those of the Company's Executive Officers who received total salary and bonus in excess of $100,000 for the fiscal year ended December 31, 1995.
Annual Compensation Long-Term Compensation ------------------- ----------------------- Restricted Securities Name & Principal Other Annual Stock Underlying All Other Position Year Salary (1) Bonus Compensation Awards Options Compensation - ----------------------- ---- ---------- ----- ------------ ------ ------- ------------ Mark W. Blodgett 1995 $ 255,954 - - - - - Chairman and Chief 1994 $ 258,391 - - - 42,524 - Executive Officer 1993 $ 161,803 - - - - - Alex W. Blodgett 1995 $ 108,440 - - - 11,000 1,158 President, SDD Division 1994 91,479 - - - 4,000 - and Director 1993 none (2)
- -------------------- (1) Salary includes amounts, if any, deferred pursuant to the Company's 401(k) Plan. (2) Alex W. Blodgett became an employee of the Company on January 1, 1994. Option Grants in Last Fiscal Year The following table sets forth information as to stock options granted in the last fiscal year to the individuals listed in the Summary Compensation Table.
Number of % of Total Securities Options Granted Exercise or Underlying to Employees Base Price Expiration Name Options in Fiscal Year ($/share) Date - ---- ---------- --------------- ----------- ---------- Mark W. Blodgett -- -- -- Alex W. Blodgett 11,000 3.9% April 1, 2006
29 Director Compensation Directors are not compensated by the Company in cash for their services in their capacity as directors. Under the Company's Amended and Restated 1994 Stock Option Plan (the "1994 Plan"), at the time of his or her first election to the Board of Directors, each newly elected Director receives a grant of options to purchase 4,000 shares of Common Stock at the fair market value of the Common Stock on the date of the grant. The options granted to Directors pursuant to the Plan are intended to be non-qualified options for federal income tax purposes. Unless earlier terminated, all options granted pursuant to the plan vest on the date which is two years after the grant of such options. In addition, on January 13, 1995, the Company granted to each Director who is not an employee of the Company an option to purchase 3,000 shares of Common Stock which grant was made outside the provisions of the Plan. This grant to outside Directors included the grant of an option to purchase 3,000 shares of Common Stock to John M. Nelson who was not then affiliated with the Company, subject to his subsequent election to the Board. Mr. Nelson was elected to the Board on February 27, 1995. On May 7, 1996, the Company's stockholders approved the 1996 Stock Option and Incentive Plan (the "1996 Plan") which among other items, specified as to how independent Directors will be compensated. The 1996 Plan provides for automatic grant of non-qualified options to independent Directors. Each independent director will be granted an option to purchase 4,000 shares after his election to the Board. Each independent director who is serving as a Director of the Company after each annual meeting will automatically be granted an option to purchase 2,000 shares of Common Stock. The exercise price of each such non-qualified option is the fair market value of the Common Stock on the date of the grant. Such non-qualified option may not be exercised before the second anniversary of the date of grant. Employment Contracts and Termination of Employment The Company has no plan or arrangement with respect to compensation of its executive officers which would be payable upon the resignation, retirement or any other termination of any executive officer's employment with the Company or its subsidiaries or in connection with a change of control of the Company or any subsidiary of the Company or a change in the executive officer's responsibilities following a change in control. However, options to purchase shares of Common Stock granted under the 1994 Plan and the 1996 Plan become fully vested upon a change of control as defined in the 1994 Stock Option Plan. In addition, certain options granted to outside Directors of the Company vest upon such a change of control. There are no employment contracts between the Company and any of the named executive officers. 30 SECURITY OWNERSHIP The following table sets forth certain information regarding the beneficial ownership of the Company's outstanding Common Stock as of August 31, 1996 by (i) each person or entity who is known by the Company to beneficially own 5% or more of the Company's voting stock, (ii) each of the executive officers named in the Summary Compensation Table, (iii) each of the Company's directors and (iv) all of the Company's directors and executive officers as a group.
Before Offering After Offering Number of Percentage Number of Percentage Shares of Beneficially Shares of Beneficially Name and Address Common Stock(1) Owned(2) Common Stock(1) Owned(2) - ---------------- --------------- ------------ --------------- ------------ Mark W. Blodgett(3) 714,372(4) 40.7% 714,372(4)(5) 28.5% James Bickman(3) 100,254(6) 5.8% 100,254 4.1% Trainer Wortham & Co. 845 Third Avenue 6th Floor New York NY 10022 103,653 6.1% 103,653 4.2% Hoover Capital Management, Inc. 50 Congress Street Boston MA 02109 515,398(7) 28.1% 515,398(7)(8) 19.9% Alex W. Blodgett(3) 44,100(9) 2.6% 44,100(9) 1.8% Hubert R. Marleau(3) 6,400(10) * 6,400(10) * John M. Nelson(3) 5,000 * 5,000 * Clifford L. Abbey(3) 4,100(11) * 4,100(11) * Robert G. Atkinson(3) 4,000(12) * 4,000(12) * All officers and directors as a group (8 persons) 884,796 49.7% 865,296 35.0%
- ------------------- * Represents less than 1% of the outstanding shares of Common Stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options or other rights to purchase shares of Common Stock that are currently exercisable or exercisable within 60 days of August 31, 1996 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of another person. (2) Applicable percentage of ownership is based on 1,712,914 shares of Common Stock outstanding as of August 31, 1996 together with applicable options or other rights to purchase shares of Common Stock for each stockholder. 31 (3) The address for the named party is c/o Stocker & Yale, Inc., 32 Hampshire Road, Salem, New Hampshire 03079. (4) Includes 49,907 shares beneficially owned indirectly through the Blodgett Family Trust, of which Mark W. Blodgett is a Trustee, and as to which Mr. Blodgett disclaims beneficial ownership. Also includes 42,534 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. (5) Does not include any shares which may be purchased by Mark W. Blodgett or the Blodgett Family Trust in the Offering. Mr. Blodgett and the Blodgett Family Trust are not obligated to purchase any shares offered hereby. Any such purchases will be made, if at all, on the same terms and conditions, including as to price, as all other purchasers in the Offering. (6) Includes 7,506 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. (7) Includes 387,564 shares beneficially owned by various clients of Hoover Capital Management, Inc. ("Hoover Capital"), for which Hoover Capital exercises investment and voting discretion. Hoover Capital is a registered investment adviser under the Investment Advisers Act of 1940, as amended, and disclaims beneficial ownership of such shares. Also includes 122,034 shares which may be acquired by certain clients of Hoover Capital within 60 days of August 31, 1996 pursuant to 7.25% Convertible Subordinated Notes due May 1, 2001. (8) Does not include any shares which may be purchased by Hoover Capital, either directly or on behalf of any of its clients. Hoover Capital, and its clients, are not obligated to purchase any shares offered hereby. Any such purchases will be made, if at all, on the same terms and conditions, including as to price, as all other purchasers in the Offering. (9) Includes 4,000 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. (10) Includes 4,000 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. (11) Includes 4,000 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. (12) Includes 4,000 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. (13) Includes 72,040 shares which may be acquired upon the exercise of stock options that are currently exercisable or that will be exercisable within 60 days of August 31, 1996. 32 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In October, 1994, the Company sold an aggregate of 164,880 shares of Common Stock in a private placement. The price per share in such transaction was the then-current market price of approximately $6.22 and the aggregate consideration paid for such shares was $1,025,000. In this private placement, a trust for the benefit of Mark W. Blodgett and certain members of his family acquired 20,107.2 shares (after adjusting for the Reverse Stock Split) at a price per share of approximately $6.22 and an aggregate price of $125,000. These shares were sold to, and acquired by, such trust on the same terms and subject to the same conditions as contemporaneous sales to third parties. In March 1995, the Company paid a total of $61,642.13 to Marleau, Lemire Securities for commissions, expenses and legal fees relating to the issuance of certain subordinated notes. Mr. Hubert R. Marleau is Chairman of the Board and Chief Executive Officer of Marleau, Lemire, Inc. In 1995, Mark Blodgett personally guaranteed certain indebtedness of the Company. The Company's Board of Directors determined that such guaranty had a value to the Company of $125,000. In consideration of such guaranty, in June 1995 the Company issued 25,533.2 shares to Mr. Blodgett. The shares issued to Mr. Blodgett in this transaction had an aggregate fair market value, at the then-current market price of $4.90, of $125,000. In June 1995, the Company sold an aggregate of 107,527 shares of Common Stock in a private placement. The price per share in such transaction was the then-current market price of $4.65, and the aggregate consideration paid for such shares was $500,000. In this private placement, Mark W. Blodgett acquired 21,505.4 shares of Common Stock at a price of $4.65 per share and at an aggregate price of $100,000. These shares were sold to, and acquired by Mr. Blodgett on the same terms and subject to the same conditions as contemporaneous sales to third parties. DESCRIPTION OF CAPITAL STOCK Authorized and Outstanding Capital Stock The voting securities of the Company consist of its Common Stock with $.001 par value. As of September 30, 1996, there were 1,712,914.6 shares of Common Stock issued and outstanding, with 10,000,000 shares authorized. Holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of Directors of the Company may elect all of the Directors standing for election. Holders of Common Stock will be entitled to receive ratably any dividends if, as and when declared by the Board of Directors and upon dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, or any other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs and to receive the remaining property and assets of the Company legally available for distribution to holders of Common Stock. Holders of Common Stock have no cumulative voting rights nor any preemptive, subscription, redemption or conversion rights. All outstanding shares of Common Stock are validly issued, fully paid and non-assessable. Certain Anti-Takeover Provisions under Massachusetts Law In general, Massachusetts General Laws Chapter 110D, entitled "Regulation of Control Share Acquisitions," an anti-takeover statute, provides that any stockholder of a corporation subject to this statute who acquired 20% or more of the outstanding voting stock of a corporation may not vote such stock unless the stockholders of the corporation so authorize. Certain provisions of Massachusetts General Laws, Chapter 156B (the "Massachusetts Business Corporation Law") would make more difficult or could discourage a proxy contest or the acquisition of control by a holder of a substantial block of the Company's stock or the removal of the incumbent Board of Directors. These provisions could also have the effect of discouraging a third party from 33 making a tender offer or otherwise attempting to obtain control of the Company, even though such an attempt might be beneficial to the Company and its stockholders. In addition, because certain provisions of the Massachusetts Business Corporation Law are designed to discourage accumulations of large blocks of a corporation's stock by purchasers whose objective is to have such stock repurchased by such corporation at a premium, such provisions could tend to reduce the temporary fluctuations in the market price of such corporation's stock which are caused by such accumulations. Accordingly, stockholders could be deprived of certain opportunities to sell their stock at a temporarily higher market price. Reference is made to the full text of the foregoing statutes, the Company's Amended and Restated Articles of Organization and the Company's Amended and Restated By-Laws for their entire terms, and the partial summary contained in this document is not intended to be complete. Elimination of Monetary Liability for Officers and Directors The Company's Amended and Restated Articles of Organization also incorporate certain provisions permitted under the Massachusetts General Laws relating to the liability of Directors. The provisions eliminate a Director's liability for monetary damages for a breach of fiduciary duty except in circumstances involving certain wrongful acts, such as the breach of a Director's duty of loyalty or acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or authorization of distributions in violation of the Amended and Restated Articles of Organization or of loans to officers or Directors of the Company or any transaction from which the Director derived personal benefit. These provisions do not eliminate a Director's duty of care. Moreover, the provisions do not apply to claims against a Director for violations of certain laws, including federal securities laws. The Company's Amended and Restated Articles of Organization and Amended and Restated By-Laws also contain provisions to indemnify Directors, officers, employees or other agents to the fullest extent permitted by the Massachusetts General Laws. The Company believes that these provisions will assist the Company in attracting or retaining qualified individuals to serve as Directors or officers. Indemnification of Officers and Directors The Company's Amended and Restated Articles of Organization also contain provisions to indemnify its Directors, officers, employees or other agents to the fullest extent permitted by the Massachusetts General Laws. These provisions may have the practical effect in certain cases of eliminating the ability of the stockholders to collect monetary damages from Directors. The Company believes that these provisions will assist the Company in attracting or retaining qualified individuals to serve as Directors or officers. Section 67 of Chapter 156B of the Massachusetts General Laws provides a statutory framework covering indemnification of directors, officers and employees against liabilities and expenses arising out of legal proceedings brought against them by reason of their status or service as directors or officers. In addition, Article V of the Company's Amended and Restated By-Laws provides for indemnification of directors, officers and employees of the Company. Section 67 and the Company's Amended and Restated By-Laws generally provide that a director, officer or employee of the Company shall be indemnified by the Company for all expenses and liabilities of legal proceedings brought against him/her by reason of his/her status or service as a director, officer or employee unless the director, officer or employee is adjudged not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such plan. The Company's Amended and Restated Articles of Organization also incorporate certain provisions permitted under the Massachusetts General Laws relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, including gross negligence, except in circumstances involving certain wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or authorization of distributions in violation of the Company's Amended and Restated Articles of Organization or of loans to officers or directors of the Company or any transaction from which the director derived improper personal benefit. These provisions do not eliminate a director's duty of care. Moreover, the provisions do not apply to claims against a director for violations of certain laws, including federal securities laws. 34 Transfer Agent and Registrar The Transfer Agent and Registrar for the Common Stock of the Company is The First National Bank of Boston at its principal office in Boston, Massachusetts. PLAN OF DISTRIBUTION The Company may sell the Shares through agents or dealers, directly to one or more individual, institutional or other purchasers or through any combination of these methods of sale. The Company currently anticipates that distribution of the Shares may be effected in one or more transactions, at $5.00 per share. There is a minimum required purchase of 5,000 Shares per purchaser. The Company will pay a commission in the aggregate amount of $112,500 to a third party in connection with the sale of 500,000 of the Shares offered hereby. There is no arrangement to place the funds received in this Offering in escrow, trust or similar arrangement and, accordingly, all of the proceeds may be used by the Company immediately. The date of the termination of this Offering is October __, 1996. In the event that the Company sells any of the Shares through a selling agent, it is currently contemplated that any selling agent would be retained on a "best efforts" basis pursuant to the terms of a selling agent agreement, entered into prior to the sale of any Shares sold through such selling agent, which limits the agent's obligations to using its best efforts to place the Shares as agent for the Company. Although the Company has not entered into a selling agent agreement with any party as of the date hereof, any such agreement may provide for the reimbursement by the Company of certain costs and expenses incurred by or on behalf of the agent in connection with the performance of its obligations, and the payment of compensation to such agent, in the form of discounts, concessions or commissions. Agents and dealers that participate in the distribution of the Shares may be deemed to be "underwriters" within the meaning of the Securities Act, and any discounts or commissions they receive from the Company, and any profit on the resale of the Shares they realize may be deemed to be underwriting discounts and commissions under the Securities Act. In addition, any selling agent agreement may contain provisions in which the Company agrees to indemnify the agent against certain liabilities, which may include liabilities under the Securities Act, or requires the Company to contribute to payments the agent may be required to make in respect thereof. The Company has applied for the listing of the Shares offered hereby on the Nasdaq SmallCap. Agents or dealers may engage in transactions with, or perform services for, the Company in the ordinary course of business. In order to comply with the securities laws of certain states, if applicable, the Shares offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states, Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Shares offered hereby may not simultaneously engage in market making activities with respect to the Common Stock for a period of two business days prior to the commencement of such distribution. LEGAL MATTERS Certain legal matters with respect to the validity of the shares of Common Stock offered hereby will be passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. 35 EXPERTS The financial statements and schedules of the Company included in this Prospectus and elsewhere in the Registration Statement, to the extent and for the periods indicated in their report, have been audited by Arthur Andersen LLP, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said reports. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form SB-2 (including all amendments thereto, the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission (the "Commission"), this Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statements and exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any agreement or other document referred to are not necessarily complete. With respect to each such agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in all respects by such reference. Copies of the Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at the following regional offices of the Commission: Seven World Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the public reference section of the Commission at its Washington address upon payment of fees prescribed by the Commission. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, and such electronic versions are available to the public at the Commission's World Wide Web Site, http://www.sec.gov. The Company is currently subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's following Regional Offices: Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60604 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company intends to continue to furnish its stockholders with annual reports containing financial statements audited by the Company's independent accountants and quarterly reports for the first three fiscal quarters of each fiscal year containing unaudited interim financial information. 36 INDEX TO FINANCIAL STATEMENTS Page INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1996 Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 ............................... F-2 Consolidated Statements of Operations for the three months ended June 30, 1996 and 1995 and the six months ended June 30, 1996 and 1995 ............................................ F-3 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 .......................................................... F-4 Notes to Financial Statements ....................................... F-5 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND DECEMBER 31, 1994 TOGETHER WITH AUDITORS' REPORT Report Of Independent Public Accountants-- Arthur Andersen LLP ............................................... F-6 Consolidated Balance Sheets as of December 31, 995 and December 31, 1994 ............................ F-7 Consolidated Statements of Operations for the years ended December 31, 1995 and December 31, 1994 ............................................. F-8 Consolidated Statements of Stockholders' Investment as of December 31, 1993, December 31, 1994 and December 31, 1995 ........................... F-9 Consolidated Statements of Cash Flows for the years ended December 31, 1995 and December 31, 1994 ............................................. F-10 Notes to Consolidated Financial Statements .......................... F-11 F-1 FINANCIAL STATEMENTS STOCKER & YALE, INC. AND SUBSIDIARIES Item 1.1 CONSOLIDATED BALANCE SHEETS
June 30, 1996 December 31,1995 (unaudited) (audited) ASSETS CURRENT ASSETS Cash $ 26,071 $ 22,033 Accounts Receivable 1,693,214 1,897,943 Prepaid Taxes 323,963 323,963 Inventory 3,999,111 3,836,653 Prepaid Expenses 114,886 159,013 Total Current Assets 6,157,245 6,239,605 PROPERTY, PLANT & EQUIPMENT, NET 3,184,221 3,365,949 NOTE RECEIVABLE 1,000,000 1,000,000 GOODWILL, NET 8,860,506 9,005,729 DEBT ISSUANCE COSTS, NET 158,926 169,687 19,360,898 19,780,970 LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 311,876 $ 266,358 Mortgage note payable 1,500,000 1,500,000 Subordinated notes payable 0 1,000,000 Accounts payable 1,752,808 1,527,468 Short-term lease obligation 31,401 58,560 Accrued expenses Income taxes 81,730 265,918 Other 426,326 475,136 Total Current Liabilities 4,104,141 5,093,440 LONG TERM LEASE OBLIGATION 72,094 82,909 LONG TERM DEBT Subordinated Convertible Notes $ 1,350,000 $ 0 Senior Bank Debt 3,589,130 4,080,364 Total Long Term Debt 4,939,130 4,080,364 OTHER LONG TERM LIABILITIES 684,479 684,479 DEFERRED INCOME TAXES 1,135,280 1,215,280 10,935,124 1,156,472 STOCKHOLDER'S EQUITY Common stock, .001 par value Authorized -2,400,000 Issued and Outstanding -1,712,914 $ 1,713 $ 1,713 Paid in capital 6,845,685 6,845,685 Retained Earnings 1,578,376 1,777,100 Total Stockholder's Equity 8,425,774 8,624,498 19,360,898 19,780,970
F-2 FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF OPERATIONS Item 1.2 STOCKER & YALE, INC. AND SUBSIDIARIES
(unaudited) Three Months Ended Six Months Ended June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995 NET SALES $2,566,098 $3,158,634 $5,576,224 $6,447,452 COST OF SALES 1,634,293 1,984,952 3,579,452 4,010,851 Gross profit 931,805 1,173,682 1,996,772 2,436,601 SELLING EXPENSES 409,756 417,977 831,127 862,078 GENERAL AND ADMINISTRATIVE EXPENSES 444,562 502,429 955,567 979,576 RESEARCH AND DEVELOPMENT EXPENSES 73,357 77,387 144,762 152,103 Operating income 4,130 175,889 65,316 442,844 INTEREST EXPENSE 147,971 179,865 300,140 334,288 Income (loss) before income tax provision (143,841) (3,976) (234,824) 108,556 INCOME TAX PROVISION (BENEFIT) (29,300) 6,600 (36,100) 102,250 Net income (loss) $ (114,541) $ (10,576) $ (198,724) $ 6,306 EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.01) $ (0.12) $ 0.00 WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS 1,712,914 1,570,025 1,712,914 1,581,316
F-3 FINANCIAL STATEMENTS STOCKER & YALE, INC. AND SUBSIDIARIES Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 June 30, 1995 (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (198,724) $ 6,306 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 486,784 556,434 Deferred income taxes and other (80,000) (82,377) Other changes in assets and liabilities - Accounts receivable, net 204,729 (131,076) Inventories (162,458) (791,485) Prepaid expenses 44,127 58,649 Accounts payable 225,340 567,051 Accrued expenses (48,810) (140,692) Accrued and refundable taxes (184,188) (36,544) Net cash provided by operating activities 286,800 6,266 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (110,073) (73,618) Net cash used for investing activities (110,073) (73,618) CASH FLOWS FROM FINANCING ACTIVITIES Sales of common stock 0 776,500 Repayment of Subordinated Note/ Bank Debt (1,000,000) (6,605,827) Proceeds from Short Term Note 0 200,000 Proceeds from Term Loan 0 2,767,000 Proceeds from Line of Credit 0 2,766,357 Proceeds from Subordinated Notes payable 1,350,000 1,000,000 Repayment of bank debt (445,715) (553,917) Payments on capital lease (37,974) (23,530) Deferred financing cost (39,000) (246,744) Net cash provided by (used for )financing activities (172,689) 79,839 NET INCREASE IN CASH 4,038 12,487 CASH, BEGINNING OF PERIOD 22,033 8,344 CASH, END OF PERIOD $ 26,071 $ 20,831
F-4 FINANCIAL STATEMENTS Item 1.4 Notes to Financial Statements 1. General The interim consolidated financial statements presented have been prepared by Stocker & Yale, Inc. (the "Company") without audit and, in the opinion of the management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the three month and six month periods ended June 30, 1996 and June 30, 1995, (b) the financial position at June 30, 1996, and (c) the cash flows for the six month periods ended June 30, 1996 and June 30, 1995. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 31, 1995, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are condensed as permitted by Form 10-QSB and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual report on Form 10-KSB. 2. Debt The 13.5% Subordinated Notes Payable of $1,000,000, which matured on May 6, 1996, were refinanced by a new issue of Subordinated Notes totaling $1,350,000. The new notes mature on May 1, 2001, bear interest at 7.25% and are convertible into shares of the Company's common stock at a price of $7.375 per share. F-5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Directors of Stocker & Yale, Inc.: We have audited the accompanying consolidated balance sheets of Stocker & Yale, Inc. (a Massachusetts corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' investment and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stocker & Yale, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States. ARTHUR ANDERSEN LLP Boston, Massachusetts March 15, 1996 F-6 STOCKER & YALE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN U.S. DOLLARS) ASSETS December 31, 1995 1994 CURRENT ASSETS: Cash and cash equivalents $ 22,033 $ 8,344 Trade receivables, less reserves of $54,000 in 1995 and 1994 1,897,943 1,790,268 Prepaid income taxes 323,963 113,923 Inventories 3,836,653 3,307,051 Prepaid expenses 159,013 279,876 ----------- ----------- Total current assets 6,239,605 5,499,462 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT, NET 3,365,949 4,223,821 ----------- ----------- NOTE RECEIVABLE 1,000,000 -- ----------- ----------- GOODWILL, NET OF ACCUMULATED AMORTIZATION 9,005,729 9,293,683 ----------- ----------- DEBT ISSUANCE COSTS, NET OF ACCUMULATED AMORTIZATION 169,687 29,569 ----------- ----------- $19,780,970 $19,046,535 =========== =========== LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Current portion of long-term debt $ 266,358 $ 407,531 Mortgage note payable 1,500,000 -- Subordinated notes payable 1,000,000 -- Accounts payable 1,527,468 1,347,612 Short-term lease obligation 58,560 41,779 Accrued expenses-- Income taxes 265,918 89,338 Other 475,136 613,049 ----------- ----------- Total current liabilities 5,093,440 2,499,309 ----------- ----------- LONG-TERM LEASE OBLIGATION -- 65,591 ----------- ----------- LONG-TERM DEBT 4,163,273 6,271,625 ----------- ----------- OTHER LONG-TERM LIABILITIES 684,479 597,122 ----------- ----------- DEFERRED INCOME TAXES 1,215,280 1,454,951 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' INVESTMENT: Common stock, par value $0.001 at December 31, 1995 and 1994-- Authorized--2,400,000 shares at December 31, 1995 and 1994 Issued and outstanding--1,712,914 shares and 1,538,062 shares at December 31, 1995 and 1994, respectively 1,713 1,538 Paid-in capital 6,845,685 6,069,360 Retained earnings 1,777,100 2,087,039 ----------- ----------- Total stockholders' investment 8,624,498 8,157,937 ----------- ----------- $19,780,970 $19,046,535 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. F-7 STOCKER & YALE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN U.S. DOLLARS) For the Years Ended December 31, 1995 1994 NET SALES $ 13,004,675 $ 11,178,685 COST OF SALES 8,386,170 7,070,325 ------------ ------------ Gross profit 4,618,505 4,108,360 SELLING EXPENSES 1,703,704 1,569,145 GENERAL AND ADMINISTRATIVE EXPENSES 2,112,248 1,779,189 RESEARCH AND DEVELOPMENT 220,290 226,498 ------------ ------------ Operating income 582,263 533,528 LOSS ON SALE OF REAL ESTATE (282,565) -- INTEREST EXPENSE (661,907) (754,868) ------------ ------------ Loss before income tax provision (benefit) and extraordinary item (362,209) (221,340) INCOME TAX PROVISION (BENEFIT) (52,270) 36,254 ------------ ------------ Loss before extraordinary item (309,939) (257,594) GAIN ON EXTINGUISHMENT OF DEBT, NET OF $930,000 IN TAXES -- 3,594,200 ------------ ------------ Net income (loss) $ (309,939) $ 3,336,606 ============ ============ LOSS PER SHARE BEFORE EXTRAORDINARY ITEM $ (0.19) $ (0.21) EXTRAORDINARY ITEM -- 3.00 ------------ ------------ EARNINGS (LOSS) PER SHARE $ (0.19) $ 2.79 ============ ============ WEIGHTED AVERAGE COMMON SHARES AND EQUIVALENTS 1,660,590 1,197,600 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. F-8 STOCKER & YALE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (IN U.S. DOLLARS)
Retained Total Common Stock Paid-in Earnings Stockholders' Shares Amount Capital (Deficit) Investment BALANCE, DECEMBER 31, 1993 741,986 $ 742 $ 2,388,325 $(1,249,567) $ 1,139,500 Repurchase of common stock (141,986) (142) (351,358) -- (351,500) Shares issued to acquire Brower 300,431 300 -- -- 300 Sales of common stock 637,631 638 4,032,393 -- 4,033,031 Net income -- -- -- 3,336,606 3,336,606 --------- ------ ----------- ----------- ----------- BALANCE, DECEMBER 31, 1994 1,538,062 1,538 6,069,360 2,087,039 8,157,937 Sales of common stock 174,852 175 776,325 -- 776,500 Net loss -- -- -- (309,939) (309,939) --------- ------ ----------- ----------- ----------- BALANCE, DECEMBER 31, 1995 1,712,914 $1,713 $ 6,845,685 $ 1,777,100 $ 8,624,498 ========= ====== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-9 STOCKER & YALE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN U.S. DOLLARS)
For the Years Ended December 31, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (309,939) $ 3,336,606 Adjustments to reconcile net income (loss) to net cash provided by operating activities- Extraordinary gain -- (3,594,200) Loss on disposal of assets 228,565 -- Depreciation and amortization 975,516 1,117,595 Deferred income taxes (449,711) (594,636) Other changes in assets and liabilities, net of effect of extinguishment of debt- Accounts receivable, net (107,675) (177,977) Inventories (529,602) 43,890 Prepaid expenses 120,863 (106,952) Accounts payable 179,856 (185,657) Other accrued expenses (122,670) 350,101 Accrued taxes 176,580 (11,286) Other 87,357 199,106 ----------- ----------- Net cash provided by operating activities 249,140 376,590 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (2,032,025) (57,190) Proceeds from sale of property, plant and equipment 1,095,462 -- ----------- ----------- Net cash used for investing activities (936,563) (57,190) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Sales of common stock 664,000 3,681,831 Payments of bank debt (6,679,156) (1,381,018) Proceeds from bank debt 2,836,708 -- Proceeds from (payment of) subordinated notes 1,000,000 (2,500,000) Proceeds from mortgage note payable 1,500,000 -- Repayments of term loans (1,482,218) -- Proceeds from term loans 3,075,141 -- Payments on capital lease (48,810) (40,409) Deferred financing costs (164,553) (76,880) ----------- ----------- Net cash provided by (used for) financing activities 701,112 (316,476) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 13,689 2,924 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,344 5,420 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 22,033 $ 8,344 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 681,953 $ 699,703 =========== =========== Taxes paid $ 110,578 $ 208,540 =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: Note receivable from the sale of property, plant and equipment $ 1,000,000 $ -- =========== =========== The Company issued 300,431 shares of its common stock to acquire all of the outstanding shares of Brower Explorations, Inc. $ -- $ 300 =========== =========== Issuance of 25,333 shares in consideration of personal guarantees associated with financing $ 112,500 $ -- =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-10 STOCKER & YALE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 (IN U.S. DOLLARS) (1) ORGANIZATION AND RECENT EVENTS On June 14, 1989, Stocker & Yale, Inc. (the Company) was acquired by S&Y Acquisition Corp., a privately held corporation. The Company was merged with and into S&Y Acquisition Corp., with the Company being the surviving corporation. S&Y Acquisition Corp. financed the acquisition through the issuance of its common stock, borrowings under a revolving line of credit, issuance of subordinated notes payable and cash of the Company. On May 11, 1994, the Company merged with an existing inactive company, Brower Explorations, Inc., pursuant to a certain agreement and plan of merger dated December 29, 1993, with the Company being the surviving corporation. Simultaneous to this merger, the Company offered 400,000 shares of its stock in a public offering on the Vancouver Stock Exchange. Additionally, the Company has sold shares to U.S. investors through various private placements. The Company utilized the proceeds of the offerings to acquire the notes, related accrued interest and common stock held by the subordinated note holders (see Note 7). (2) OPERATIONS The Company, incorporated in 1951, designs, manufactures, assembles and markets a diversified line of products. In its Salem, New Hampshire, facility, the Company manufactures a variety of optical and measuring instruments, including microscope illuminators, magnifiers and machine vision lighting systems, machine tool projectors and tool analyzers, land navigation compasses and military-type mechanical watches. The Company sells its compasses and watches to a wide variety of customers including the U.S. Government. The Company has developed and patented a line of fluorescent light dimming systems which was introduced to the market in late 1993. In its MFE Instruments Division, the Company manufactures a broad range of oscillographic recorders and thermal printers. These products are produced for both the original equipment manufacturer and end-user markets and are used in diverse applications including medical, laboratory, general industrial and commercial applications. The Company's Stilson and Die-Draulics divisions manufacture a wide range of machine tool components, material handling accessories and pressure control systems at their facility in Fraser, Michigan. These products are sold to the automotive, electronic, food, pharmaceutical and appliance industries. F-11 STOCKER & YALE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 (IN U.S. DOLLARS) (Continued) (2) OPERATIONS (Continued) Stocker & Yale Hong Kong Limited was formed in March 1995 as a 95%-owned subsidiary of the Company. This entity was formed to facilitate distribution of watches and compasses in Southeast Asia. The operations of this entity are consolidated into the accompanying financial statements. (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), and all amounts are presented in U.S. dollars unless denoted otherwise. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Operating results in the future could vary from the amounts derived from management's estimates and assumptions. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, Stocker & Yale Foreign Sales Corp. and Stocker & Yale Hong Kong Limited. All significant intercompany balances and transactions have been eliminated. Revenue Recognition The Company recognizes revenue as products are shipped. Property, Plant and Equipment The Company provides for depreciation on a straight-line basis by charges to expense in amounts estimated to amortize the costs of property, plant and equipment over their estimated useful lives. Rates used to compute depreciation are based on the following estimated useful lives: Asset Classification Estimated Useful Life Building and building improvements 25 to 40 Years Machinery and equipment 5 to 10 Years Furniture and fixtures 3 to 10 Years F-12 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property, Plant and Equipment (Continued) Property, plant and equipment, net, consist of the following: December 31, 1995 Accumulated Net Book Cost Depreciation Value Land $ 446,300 $ -- $ 446,300 Building and building improvements 2,400,119 296,747 2,103,372 Machinery and equipment 4,213,625 3,629,604 584,021 Furniture and fixtures 629,473 397,217 232,256 ---------- ---------- ---------- $7,689,517 $4,323,568 $3,365,949 ========== ========== ========== December 31, 1994 Accumulated Net Book Cost Depreciation Value Land $ 822,000 $ -- $ 822,000 Building and building improvements 2,909,273 536,598 2,372,675 Machinery and equipment 4,100,333 3,258,820 841,513 Furniture and fixtures 486,193 298,560 187,633 ---------- ---------- ---------- $8,317,799 $4,093,978 $4,223,821 ========== ========== ========== Total depreciation of property, plant and equipment amounted to approximately $566,000 and $745,000 for the periods ended December 31, 1995 and 1994, respectively. Included in machinery and equipment is an asset under capital lease with fair market value at the inception of the lease of $190,094. This equipment is being depreciated over the life of the lease, which is five years. Goodwill and Debt Issuance Costs On June 14, 1989, the Company was acquired by S&Y Acquisition Corp., a privately held corporation. The Company was merged with and into S&Y Acquisition Corp., with the Company being the surviving corporation. S&Y Acquisition Corp. financed the acquisition through the issuance of its common stock, outstanding cash on hand at the time of the acquisition, borrowings under a revolving line of credit and borrowings under subordinated notes payable. In addition, a noncontrolling stockholder converted 41,667 shares of Stocker & Yale, Inc., valued at $500,000, into 41,667 shares of S&Y Acquisition Corp. F-13 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill and Debt Issuance Costs (Continued) Total consideration paid was approximately $33,413,000 ($33,125,000 in cash and $288,000 in common stock of the predecessor company) for assets of approximately $23,899,000 (including approximately $12,400,000 in cash) and liabilities of approximately $1,235,000, resulting in $10,749,000 of goodwill. For financial reporting purposes, the purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair market value existing at the date of acquisition, in accordance with the purchase method of accounting. The excess of purchase price over fair market value of net assets acquired is reflected in the accompanying consolidated balance sheets as goodwill. For income tax purposes, the transaction was treated as an acquisition of stock. As a result, the tax bases of assets and liabilities carry over from amounts previously reported for income tax purposes. On July 19, 1991, the Company purchased a product line for approximately $370,000. The acquisition was accounted for as a purchase. The Company valued the inventory and certain fixed assets at their fair market value of approximately $262,000 and recorded the remaining purchase price of approximately $108,000 as goodwill. Intangibles consist of the following: December 31, 1995 Accumulated Net Book Cost Amortization Value Goodwill $10,859,278 $ 1,853,549 $ 9,005,729 Debt issuance costs 277,053 107,366 169,687 December 31, 1994 Accumulated Net Book Cost Amortization Value Goodwill $10,856,780 $ 1,563,097 $ 9,293,683 Debt issuance costs 76,880 47,311 29,569 Goodwill associated with the acquisition of the Company on June 14, 1989 is being amortized over 40 years. Goodwill associated with the acquisition of the product line on July 19, 1991 is being amortized over five years. F-14 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill and Debt Issuance Costs (Continued) Total amortization of goodwill amounted to approximately $290,000 for the periods ended December 31, 1995 and 1994. The Company evaluates the net realizable value of intangible assets on an ongoing basis relying on a number of factors including operating results, business plans, budgets and economic projections. In addition, the Company's evaluation considers nonfinancial data such as market trends, product development cycles and changes in management's market emphasis. When an impairment in the carrying value has occurred, it is the Company's policy to reduce the carrying amount of the impaired asset to its fair market value. In connection with the refinancing of its revolving line of credit and subordinated notes payable, the Company incurred $277,053 in debt issuance costs, which are being amortized over the respective lives of the underlying agreements. In conjunction with the refinancing in 1995, all prior debt issuance costs were written off. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of the assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market and include materials, labor and overhead. Earnings (Loss) per Share Earnings (loss) per share are calculated using the weighted average number of common shares outstanding, plus the dilutive effect of any options or warrants outstanding. All share amounts and per share amounts in the accompanying financial statements have been adjusted to reflect the 1:5 reverse stock split which occurred on December 28, 1995. F-15 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Cash Equivalents and Financial Instruments For purposes of the consolidated statements of cash flows, cash and cash equivalents consist of highly liquid investments with original maturities of three months or less. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. The risk is limited due to the relatively large number of customers composing the Company's customer base and their dispersion across many industries and geographic areas within the United States, Europe and Asia. Fair Values of Financial Instruments The following methods and assumptions were used by the Company to estimate the fair values of each class of financial instruments: Cash and Cash Equivalents The carrying amounts of cash and cash equivalents approximate their fair value. Note Receivable The carrying amount of the note receivable approximates its fair value as of December 31, 1995 using a discounted cash flow analysis at interest rates currently available for notes with similar risk characteristics. Revolving Lines of Credit The carrying amounts of revolving lines of credit with adjustable interest rates approximate their fair value since no significant change in the risk characteristics of the Company have occurred since inception of the borrowing. Term Loans and Subordinated Notes Payable The carrying amounts of term loans with fixed interest rates approximate their fair value as of December 31, 1995 using a discounted cash flow analysis at interest rates currently available for obligations with similar risk characteristics. The carrying amounts of debt facilities, including subordinated notes and mortgage note payable with variable interest rates, approximate their fair value. F-16 (4) INCOME TAXES The components of the income tax provision (benefit) are as follows: For the Years Ended December 31, 1995 1994 Current- Federal $ 260,820 $ 167,717 State 80,526 72,008 ---------- ---------- 341,346 239,725 ---------- ---------- Deferred- Federal (295,212) (155,471) State (98,404) (48,000) ---------- ---------- (393,616) (203,471) ---------- ---------- $ (52,270) $ 36,254 ========= ========= Deferred income taxes result primarily from timing differences in book and tax depreciation and the recognition of gains related to the note receivable. The following is a reconciliation of the federal income tax provision (benefit) calculated at the statutory rate of 34% to the recorded amount: For the Years Ended December 31, 1995 1994 Applicable statutory federal income tax benefit $(123,151) $(75,256) State income taxes, net of federal income tax benefit (21,733) 4,328 Goodwill amortization 98,754 98,724 Other, net (6,140) 8,458 --------- ----------- $ (52,270) $ 36,254 ========= ======== F-17 (4) INCOME TAXES (Continued) The significant items composing the deferred tax asset and liability at December 31, 1995 and 1994 are as follows:
1995 1994 Current Long-term Current Long-term Assets- Reserves not currently deductible $223,901 $ -- $102,286 $ -- Other 107,144 -- 52,455 172,572 -------- ----------- -------- ----------- Total assets 331,045 -- 154,741 172,572 -------- ----------- -------- ----------- Liabilities- Accelerated depreciation and property-basis differences -- (738,655) -- (1,627,523) Note receivable -- (402,700) -- -- Other (7,082) (73,925) (40,818) -- -------- ----------- -------- ----------- Total liabilities (7,082) (1,215,280) (40,818) (1,627,523) -------- ----------- -------- ----------- Net assets (liabilities) $323,963 $(1,215,280) $113,923 $(1,454,951) ======== =========== ======== ===========
(5) INVENTORIES Inventories are as follows: December 31, 1995 1994 Finished goods $ 863,428 $ 881,110 Work-in-process 482,712 476,707 Raw materials 2,490,513 1,949,234 ---------- ---------- $3,836,653 $3,307,051 ========== ========== F-18 (6) NOTE RECEIVABLE On September 5, 1995, the Company sold its manufacturing facility in Beverly, Massachusetts, for $1.2 million in cash and a note receivable of $1 million from the buyer. The note bears interest at 6.32%, payable monthly in arrears. The terms of the note require interest-only payments for the first five years, with monthly principal and interest payments of $19,482 commencing October 1, 2000 through maturity on September 1, 2005. The note is secured by a letter of credit with a bank. (7) DEBT As of December 31, 1995 and 1994, long-term debt consisted of the following: December 31, 1995 1994 Revolving line of credit, maturing June 30,1995, payable to a bank, with an interest rate at the bank's prime lending rate plus 3/4% at December 31, 1994 (9.25%) $ - $6,679,156 Revolving line of credit, maturing March 31, 1998, payable to a bank, with an interest rate at the bank's prime lending rate plus 1/2 % at December 31, 1995 (9.00%) 2,753,018 -- Revolving line of credit, maturing April 1996, payable to a Hong Kong bank, with an interest rate at the bank's prime lending rate at December 31, 1995 (8.75%) 83,690 -- Term loan, maturing on March 1, 2000, payable to a bank, with an interest rate of prime plus 1/2%, (9.00%) at December 31, 1995 1,488,386 -- Term loan, maturing October 17, 2000, payable to a bank, with an interest rate at 8.80% 104,537 -- ---------- ---------- Less--Current portion of long-term debt 266,358 407,531 ---------- ---------- $4,163,273 $6,271,625 ========== ========== F-19 (7) DEBT (Continued) On March 6, 1995, the Company refinanced its revolving line of credit. The old line of credit was repaid with the proceeds of a revolving line of credit and two term loans totaling $2.967 million with a different bank (the Bank) and $1 million of subordinated notes payable. The revolving line of credit has a maximum credit limit of the lesser of $4,000,000 or a borrowing base as defined in the Credit Agreement as a function of the Company's eligible accounts receivable and inventory, approximately $3,266,000 as of December 31, 1995. The line has a floating interest rate of 1/2% above the Bank's prime lending rate. The maximum amount outstanding at any month-end during 1995 was $2,886,250 with a weighted average interest rate of during the year of 9.35%. One term loan has a five-year term with an original principal amount of $2,767,000. Principal payments of $23,059 were due monthly, plus interest at the Bank's prime lending rate plus 1/2%. In conjunction with the sale of the Beverly facility referred to in Note 6, a principal payment of $1.1 million was made on this note, at which time the loan agreement was amended to reduce the monthly principal payment on this note to $13,420. The other term loan was short-term in nature. It had an original principal amount of $200,000 and carried an interest rate of the Bank's prime lending rate plus 2%. The entire amount was repaid in August 1995. These loans require the Company to comply with several affirmative and negative covenants, including certain financial tests and ratios such as debt service coverage, net income requirements and other items. The loans are collateralized by substantially all of the Company's assets and a personal guaranty, to the extent of $1,000,000, by the Chairman of the Board. The subordinated notes payable, principal balance of $1,000,000, have a term of 14 months and have interest rates of 13.5%. Interest payments are due quarterly, commencing on June 1, 1995. The notes mature on May 6, 1996. Payment of these notes is subordinated to those of the senior debt discussed above and is personally guaranteed by the Chairman of the Board. In conjunction with the subordinated notes, the subordinate noteholders received warrants to purchase 20,000 shares of the Company's $0.001 par value common stock. These warrants are exercisable through March 6, 1996 at $7.50 CND per share of common stock, which was the publicly traded price at the date of the issuance of the warrants. For financial reporting purposes, the Company has not placed any value on the warrants. In exchange for the personal guarantees discussed above, the Chairman of the Board received 5% of the face amount of the guarantees in common stock of the Company, which amounted to $112,500. F-20 (7) DEBT (Continued) This amount is included in debt acquisition costs and is being amortized over the lives of the respective loan and note agreements. On September 5, 1995, the Company sold its manufacturing facility in Beverly, Massachusetts, and purchased a manufacturing facility in Salem, New Hampshire. In conjunction with this purchase, the Company issued a $1,500,000 mortgage note payable to the buyer of its Beverly, Massachusetts, facility in exchange for $1,500,000 in cash, which was utilized to purchase the Salem facility. This note requires monthly interest payments at rates as follows: prime plus 2% from September 5, 1995 through February 28, 1996, prime plus 3% from March 1, 1996 through May 31, 1996 and prime plus 4% thereafter through maturity on September 1, 1996. As of December 31, 1995, the Company was not in compliance with certain financial covenants set forth in the Credit Agreement, as amended. On March 15, 1996, the Company obtained a waiver for these events of noncompliance. In addition to the waiver, the Credit Agreement was amended such that the Company's cumulative net income for the calendar periods ended March 31, June 30, September 30, and December 31 must be greater than zero, $43,000, 75,000 and $158,000, respectively. The Credit Agreement was also amended to change the certain other covenant requirements related to debt service coverage and capital expenditures. On May 11, 1994, the holder of certain subordinated notes agreed to the repayment in full of the principal amount of, and accrued interest on, the notes and the repurchase of all of the shares of common stock it held in the Company, for an aggregate consideration of $2,500,000. The Company recorded an extraordinary gain of $3,594,200, net of $930,000 in taxes, as a result of the extinguishment of this debt in the consolidated statement of operations for the year ended December 31, 1994. F-21 (8) STOCKHOLDERS' INVESTMENT On May 11, 1994, the Company changed the par value of its stock from $.01 to $.001 per share and increased the authorized shares to 2,400,000. The outstanding shares of the Company were converted to the new shares using a 11.129701-to-1 ratio. Pursuant to the merger agreement discussed earlier, the 7,510,784 outstanding shares of Brower Explorations, Inc. (Brower) were converted to, and exchangeable for, shares of the Company on the basis of 25 shares of Brower stock for one share of the Company's common stock. In addition, 750,000 outstanding Brower options were converted to 30,000 options to purchase shares of the Company's $0.001 par value common stock at $6.25 CND per share. These options expire on August 26, 1998. On May 11, 1994, the Company issued 400,000 shares of its $.001 par value common stock in an initial public offering on the Vancouver Stock Exchange. Simultaneously, 72,751 shares were sold via a private placement in the U.S. Net proceeds of these transactions were approximately $3,065,000. In November 1994, an additional 164,880 shares were sold in another private placement in the U.S. for approximately $960,000, net of expenses. During 1995, 149,519 shares were sold via two private placements in the U.S. Net proceeds of these transactions were approximately $664,000. In conjunction with the refinancing of the Company's debt in March 1995, 25,333 shares were issued to a principal shareholder in exchange for certain personal guarantees of the Company's debt. (9) EMPLOYEE BENEFITS The Company has noncontributory defined benefit pension plans that cover a majority of Company employees. The accrued benefit is determined based on credited service as of the employee's retirement date. Employees become fully vested after five years. The Company froze the benefit of the defined benefit pension plan during August 1993. The Company will report a curtailment gain in accordance with SFAS No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, after all benefit payments are made; the Company does not believe that the curtailment gain will have a material impact on the financial position or operations of the Company. F-22 (9) EMPLOYEE BENEFITS (Continued) The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets: December 31, 1995 1994 Actuarial present value of benefit obligations- Accumulated benefit obligation, including vested benefits of $354,253 in 1995 and $393,695 in 1994 $(354,253) $(393,695) ========= ========= Projected benefit obligation for service rendered to date $(354,253) $(393,695) Plan assets at fair value, guaranteed investment contract with an insurance company 393,530 466,357 Unrecognized net gain (11,347) (64,885) Unrecognized net assets (75,696) (81,175) --------- --------- Accrued pension cost $ (47,766) $ (73,398) ========= ========= Net periodic pension cost (benefit) includes the following components: For the Years Ended December 31, 1995 1994 Service cost--benefit earned during the period $ - $ - Interest cost on projected benefit obligation 27,752 30,843 Return on plan assets (29,150) (34,545) Amortization of intangibles and other (4,241) (6,478) -------- ----------- Net periodic pension cost (benefit) $ (5,639) $(10,180) ======== ========== The weighted average discount rate and rate of increase in future compensation used in determining the actuarial present value of the projected benefit obligation was 8.5% in 1995 and 1994. The expected long-term rate of return on assets was 8% in 1995 and 1994. F-23 (9) EMPLOYEE BENEFITS (Continued) On January 17, 1994, the Company established the Stocker & Yale 401(k) Plan (the Plan). Under the Plan, employees are allowed to make pretax retirement contributions. In addition, the Company may make matching contributions, not to exceed 100% of the employee contributions, and profit sharing contributions at its discretion. The Company made no such contributions for the Plan year ended December 31, 1995 and 1994. The Company incurred $8,284 and $3,655 in 1995 and 1994, respectively, to establish and administer the Plan. During 1994, the Company adopted a Stock Option Plan (the Option Plan) for the purpose of issuing both Incentive Options and Nonqualified Options to officers, employees and directors of the Company. Options may be granted under the Option Plan on such terms and at such prices as determined by the Board of Directors, except that the options cannot be granted at less than 100%, or in certain circumstances not less than 110%, of the fair market value of the common stock on the date of the grant. Each option will be exercisable after the period or periods specified in the option agreement, but no option may be exercised after the expiration of 10 years from the date of grant. As of December 31, 1994, the Company had granted 89,040 options at an exercise price of $7.25. As of December 31, 1995 and 1994, no options were exercisable. The following is a summary of the Option Plan activity: Number of Shares Price Range Outstanding at December 31, 1994 89,040 $7.25 Granted 50,000 3.70-4.55 Exercised - - Lapsed (4,600) 7.25 ----------- ----------- Outstanding at December 31, 1995 134,440 $3.70-$7.25 =========== ============ F-24 (10) COMMITMENTS AND CONTINGENCIES Total rent expense for operating leases charged to operations for the periods ended December 31, 1995 and 1994 was $34,000 and $43,000, respectively. Minimum commitments under leases in effect at December 31, 1995 are as follows: Operating Capital Leases Leases 1996 $62,265 $20,100 1997 - 11,544 1998 - 6,459 1999 - 2,779 ------- ------- Total minimum lease payments 62,265 $40,882 ======= Less--Amount representing interest 3,705 Present value of net minimum lease payments under capital lease $58,560 ======= F-25 (11) SEGMENTED INFORMATION The Company's operations were conducted primarily within the following industry segments for the fiscal years ended December 31, 1995 and 1994: December 31, 1995 Measuring Machine and Inspection Components Instruments and Accessories Total Net sales $ 8,684,411 $4,320,264 $13,004,675 Operating income 10,325 517,938 528,263 Capital expenditures 1,920,967 111,058 2,032,025 Depreciation expense 418,968 146,902 565,870 Amortization expense 266,270 143,376 409,646 Fixed assets, net 2,304,302 1,061,647 3,365,949 Total identifiable assets 12,857,630 6,923,340 19,780,970 December 31, 1994 Measuring Machine and Inspection Components Instruments and Accessories Total Net sales $ 6,616,063 $4,562,622 $11,178,685 Operating income (249,886) 783,414 533,528 Capital expenditures 107,815 785 108,600 Depreciation expense 481,547 263,811 745,358 Amortization expense 241,954 130,283 372,237 Fixed assets, net 3,126,332 1,097,489 4,223,821 Total identifiable assets 12,447,659 6,598,876 19,046,535 Sales to unaffiliated customers in foreign countries represented approximately 10% and 11% of net sales for fiscal 1995 and 1994, respectively. The Company's export sales are denominated in U.S. dollars. F-26 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or make any representations not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or the Underwriters. This Prospectus does not constitute an offer of any securities other than those to which it relates or an offer to sell, or a solicitation of an offer to buy, to any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. --------------------------- TABLE OF CONTENTS Page ---- Available Information....................................................2 Prospectus Summary.......................................................3 Risk Factors.............................................................6 Use of Proceeds..........................................................9 Market for Common Equity and Related Stockholder Matters.........................................10 Dividend Policy.........................................................10 Dilution................................................................11 Capitalization..........................................................12 Management's Discussion and Analysis Of Financial Condition and Results of Operations..........................................................14 Business................................................................19 Management..............................................................27 Security Ownership......................................................31 Certain Relationships and Related Transactions..........................33 Description of Capital Stock............................................33 Plan of Distribution....................................................35 Legal Matters...........................................................35 Experts.................................................................36 Additional Information..................................................36 750,000 Shares Stocker & Yale, Inc. Common Stock -------------------- Prospectus _____, 1996 -------------------- PART II Information Not Required in Prospectus Item 25. Other Expenses of Issuance and Distribution The following table sets forth an itemized statement of all expenses expected to be incurred in connection with the issuance and distribution of the securities being registered (all of which are estimated). All expenses in connection with the registration and distribution of the securities shall be borne by the Company. Securities and Exchange Commission filing fee................................ $1,360 Nasdaq filing fee........................... 7,500 Legal fees and expenses..................... 125,000 Accounting fees and expenses................ 15,000 Blue sky fees and expenses.................. 3,000 Miscellaneous............................... 1,390 ======== $153,250 Item 24. Indemnification of Directors and Officers Section 67 of Chapter 156B of the Massachusetts General Laws provides a statutory framework covering indemnification of directors, officers and employees against liabilities and expenses arising out of legal proceedings brought against them by reason of their status or service as directors or officers. In addition, Article V of the Company's Amended and Restated By-Laws provides for indemnification of directors, officers and employees of the Company. Section 67 and the Company's Amended and Restated By-Laws generally provide that a director, officer or employee of the Company shall be indemnified by the Company for all expenses and liabilities of legal proceedings brought against him/her by reason of his/her status or service as a director, officer or employee unless the director, officer or employee is adjudged not to have acted in good faith in the reasonable belief that his/her action was in the best interest of the Company or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such plan. The Company's Amended and Restated Articles of Organization also incorporate certain provisions permitted under the Massachusetts General Laws relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, including gross negligence, except in circumstances involving certain wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or authorization of distributions in violation of the Company's Amended and Restated Articles of Organization or of loans to officers or directors of the Company or any transaction from which the director derived improper personal benefit. These provisions do not eliminate a director's duty of care. Moreover, the provisions do not apply to claims against a director for violations of certain laws, including federal securities laws. Item 26. Recent Sales of Unregistered Securities Described below are all transactions in which the Company sold unregistered securities of the Company within the past three years. Numbers of shares and per share prices have been adjusted, as required, to reflect the one-for-five Reverse Stock Split which was consummated on December 28, 1995. In May 1994, the Company sold an aggregate of 40,000 shares of its Common Stock in the Initial Public Offering conducted in Canada at a price of $10.00 CDN per share. The aggregate amount of consideration paid for the shares of Common Stock sold in the Initial Public Offering was $4,000,000 CDN. The Company believes that the offer and sale of these shares of Common Stock was made in reliance on the exemption under Regulation S promulgated pursuant to the Securities Act as an offer and sale of securities outside of the United States without registration under the Securities Act. II-1 In May 1994, the Company consummated the Merger of Brower with and into the Company in which merger the Company was the surviving entity. The purpose of the Merger was to enable the Company to succeed to Brower's status as an entity listed for trading on the VSE and thereby to cause the Company to have access to the public capital markets. In connection with the Merger, the issued and outstanding common stock of Brower was converted into shares of Common Stock at a conversion ratio of five shares of Brower common stock for one share of Common Stock (twenty-five shares of Brower common stock for one share of Common Stock after giving effect to the Reverse Stock Split). As a result, the former holders of Brower common stock received 300,431.36 shares of Common Stock (after adjusting for the Reverse Stock Split) in consideration of 1,502,156.8 shares of Brower common stock. Based on information received from the transfer agent for Brower's common stock, the Company believes that the aggregate value of the shares of the Company's Common Stock issued to U.S. residents was less than $1,000,000 and, accordingly, the Company believes that the issuance and sale of such shares of Common Stock were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In May 1994, in connection with the Merger, certain options to purchase up to 750,000 shares of Brower common stock were converted into options to purchase up to 30,000 shares of Common Stock at an exercise price of $1.25 CDN per share. The issuance and sale of such securities were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In light of the status of each optionee as a senior executive of Brower, the Company believes that it has sufficient information to reasonably conclude that each such purchaser is an "accredited investor." In addition, based on information received from Brower, the Company believes that the aggregate value of shares of the Company's Common Stock which may be acquired by U.S. residents upon exercise of such options was less than $1,000,000. In May 1994, the Company sold an aggregate of approximately 72,751 shares of its Common Stock to certain parties which are not affiliates of the Company at a price of approximately $7.56 per share. The aggregate amount of consideration paid for such shares was $550,000. Based on information received from Brower, the Company believes that the aggregate value of shares of the Company's Common Stock acquired by U.S. residents was less than $1,000,000, and accordingly, the Company believes that the issuance and sale of such shares of Common Stock were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In October 1994, the Company sold an aggregate of 164,880 shares of Common Stock in a private placement. The price per share in such transaction was the then-current approximately $6.22, and the aggregate consideration paid for such shares was $1,025,000. In this private placement, a trust for the benefit of Mark W. Blodgett and certain members of his family acquired 20,107.2 shares (after adjusting for the Reverse Stock Split) at a price per share of approximately $6.22 and an aggregate price of $125,000. These shares were sold to, and acquired by, such trust on the same terms and subject to the same conditions as contemporaneous sales to third parties. In addition, 104,501.6 shares of Common Stock sold in this private placement were acquired by Hoover Capital Management, Inc. ("Hoover Capital") on behalf of certain of its clients at an aggregate price of $650,000 and on the same terms and subject to the same conditions as contemporaneous sales to other parties. Based, in part, on representations made by the respective purchasers of such shares of Common Stock that such purchaser is (i) (A) a trust with total assets in excess of $5,000,000 or (B) a corporation, partnership, Massachusetts or similar business trust or an organization described in Section 501(c)(3) of the Code, not formed for the purpose of acquiring such shares, directed by a person who has such experience in financial matters that such person is capable of evaluating the merits and risks of owning such securities (any such person, a "Sophisticated Person") or (ii) a high net worth individual, the Company believes that the issuance and sale of such shares of Common Stock were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In January 1995, the Company sold an aggregate of 41,791.2 shares of its Common Stock to certain parties, all of whom were represented by Hoover Capital, at a price of approximately $4.79 per share. The aggregate amount of consideration paid for such shares was $200,000. Based, in part, on representations made II-2 by the respective purchasers of such shares of Common Stock that such purchaser is (i)(A) a trust with total assets in excess of $5,000,000 or (B) a corporation, Massachusetts partnership or similar business trust or an organization described in Section 501(c)(3) of the Code, not formed for the purpose of acquiring such shares, directed by a Sophisticated Person or (ii) a high net worth individual, the Company believes that the issuance and sale of such shares of Common Stock were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. Between April 1994 and April 1995, options to purchase a total of 118,440 shares of Common Stock were issued pursuant to the Company's 1994 Stock Option Plan (the "Plan") which provides for the granting of either incentive stock options or non-qualified options to employees, officers, directors and consultants of the Company. The Company believes that these grants and sales are deemed to be exempt transactions as sales of an issuer's securities pursuant to a written plan or contract relating to the compensation of such individuals under Rule 701 promulgated pursuant to the Securities Act. In December 1994, the Company's 1994 Employee Stock Bonus Plan (the "Bonus Plan") purchased a total of 2,400 shares of Common Stock on the VSE and distributed the acquired shares to certain employees in accordance with the Bonus Plan. The Bonus Plan provides, among other things, for the granting of shares of Common Stock to employees of the Company other than the Chairman and Chief Executive Officer, the President and the President of the Company's SDD Division. The Company believes that these grants and sales are deemed to be exempt transactions as sales of an issuer's securities pursuant to a written plan or contract relating to the compensation of such individuals under Rule 701 promulgated pursuant to the Securities Act. In January 1995, options to purchase a total of 9,000 shares of Common Stock at an exercise price of $7.50 CDN per share were granted to the three Directors of the Company who are not officers or employees of the Company. The Company believes that the issuance and sale of such securities were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In light of the status of each of the option holders as a Director of the Company or a high net worth individual, management of the Company believes that it obtained sufficient information to reasonably conclude that each such option holder is either an "accredited investor" or either alone or with his representative, has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of owning shares of Common Stock. Contemporaneously with the 1995 grant of options to outside Directors of the Company, options to purchase a total of 3,000 shares of Common Stock at an exercise price of $7.50 CDN per share were issued to John M. Nelson who was not then affiliated with the Company, subject to his subsequent election to the Board. The issuance and sale of such securities were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In light of the status of such option holder as a high net worth individual, management of the Company believes it obtained sufficient information to reasonably conclude that such option holder is either an "accredited investor" or either alone or with his representative, has such knowledge and experience in financial business matters that he is capable of evaluating the merits and risks of owning shares of Common Stock. Mr. Nelson was elected to the Board of Directors on February 27, 1995. In March 1995, pursuant to that certain Subordinated Note and Warrant Purchase Agreement by and between the Company and certain parties which are not affiliates of the Company, the Company issued its 13.5% Subordinated Notes due May 6, 1996 (the "1995 Notes"), in an aggregate initial principal amount of $1,000,000 and its Stock Purchase Warrants expiring March 6, 1996 (the "Warrants"), upon the exercise of which the Company was obligated to issue, in the aggregate, up to 20,000 shares of its Common Stock at a price per share of $7.50 The aggregate consideration paid for the 1995 Notes and the Warrants was $1,000,000. Based, in part, on representations made by each purchaser of such securities, the Company believes that the issuance and sale of the Notes and the Warrants were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. These 1995 Notes were paid in full in May, 1996, without exercise of the warrants. II-3 In 1995, Mark Blodgett personally guarantied certain indebtedness of the Company. The Company's Board of Directors determined that such guaranty had a value to the Company of $125,000. In consideration of such guaranty, in June 1995 the Company issued 25,533.2 shares to Mr. Blodgett. The shares issued to Mr. Blodgett in this transaction had an aggregate fair market value, at the then-current market price of $4.90, of $125,000. The Company believes that the issuance and sale of such shares of Common Stock were made in reliance on the exemptions under Section 4(2) of the Securities Act. In light of Mr. Blodgett's status as an officer and Director of the Company and a high net worth individual, management believes that it has obtained sufficient information to reasonably conclude that Mr. Blodgett, either alone or with his representative, has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of owning shares of Common Stock. In June 1995, the Company sold an aggregate of 107,527 shares of Common Stock in a private placement. The price per share in such transaction was the then-current market price of $4.65, and the aggregate consideration paid for such shares was $500,000. In this private placement, Mark W. Blodgett acquired 21,505.4 shares of Common Stock at a price of $4.65 per share and at an aggregate price of $100,000. These shares were sold to, and acquired by Mr. Blodgett on the same terms and subject to the same conditions as contemporaneous sales to third parties. The Company believes that the issuance and sale of such shares of Common Stock to Mr. Blodgett were made in reliance on the exemptions under Section 4(2) of the Securities Act. In light of Mr. Blodgett's status as an officer and Director of the Company and a high net worth individual, management believes that it has obtained sufficient information to reasonably conclude that Mr. Blodgett, either alone or with his representative, has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of owning shares of Common Stock. The remaining 86,021.5 shares of Common Stock were acquired by Hoover Capital on behalf of certain of its clients. Based, in part, on representations made by the respective purchasers, other than Mr. Blodgett, of such shares of Common Stock that such purchaser is (i)(A) a trust with total assets in excess of $5,000,000 or (B) a corporation, Massachusetts partnership or similar business trust or an organization described in Section 501(c)(3) of the Code, not formed for the purpose of acquiring such shares, directed by a Sophisticated Person or (ii) a high net worth individual, the Company believes that the issuance and sale of such shares of Common Stock were made in reliance on the exemption from registration under Section 4(2) of the Securities Act. In December 1995, the Company's 1995 Employee Stock Bonus Plan (the "1995 Bonus Plan") purchased a total of 2,920 shares of Common Stock on the VSE and distributed the acquired shares to certain employees in accordance with the 1995 Bonus Plan. The 1995 Bonus Plan provides, among other things, for the granting of shares of Common Stock to employees of the Company other than the Chairman and Chief Executive Officer, the President and the President of the Company's SDD Division. The Company believes that these grants and sales are deemed to be exempt transactions as sales of an issuer's securities pursuant to a written plan or contract relating to the compensation of such individuals under Rule 701 promulgated pursuant to the Securities Act. In May 1996, pursuant to that certain Convertible Subordinated Note Purchase Agreement by and between the Company and certain parties which are not affiliates of the Company, the Company issued its 7.25% Convertible Subordinated Notes due on May 1, 2001 (the "1996 Notes"), in an aggregate principal amount of $1,350,000. The aggregate consideration paid for the 1996 Notes was $1,350,000. In addition, 1996 Notes in an aggregate principal amount of $900,000 were acquired by Hoover Capital on behalf of certain of its clients on the same terms and subject to the same conditions as contemporaneous sales to other parties. Based, in part, on representations made by each purchaser of such securities, the Company believes that the issuance and sale of the 1996 Notes was made in reliance on the exemption from registration under section 4(2) of the Securities Act. II-4 Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description - ------- ----------- *3.1 Amended and Restated Articles of Organization of the Registrant. 3.2 Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 4.1 Escrow Agreement by and among the Registrant and the parties named therein, incorporated by reference to Exhibit 4.1 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 4.2 Subordinated Note & Warrant Purchase Agreements, incorporated by reference to Exhibit 10.7 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. *5.1 Form of Opinion of Goodwin, Procter & Hoar LLP as to the legality of Stocker & Yale's shares of Common Stock. 10.1 (a) Credit Agreement, dated as of March 6, 1995, by and between the Registrant and Shawmut Bank, N.A., incorporated by reference to Exhibit 10.1(a) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.1 (b) Waiver and Amendment No. 1 to the Credit Agreement, dated as of August, 16, 1995, incorporated by reference to Exhibit 10.1(b) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.1 (c) Consent under, and Second Amendment, to Credit Agreement and Amendment to Term Note, dated as of August 25, 1995, incorporated by reference to Exhibit 10.1(c) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.1 (d) Waiver and Amendment No. 3 to the Credit Agreement, dated as of March 15, 1996, incorporated by reference to Exhibit 10.14 of Stocker & Yale's Form 10-KSB for the fiscal year ended December 31, 1995. 10.1(e) Waiver of certain provisions of the Credit Agreement dated May 24, 1996, incorporated by reference to Exhibit 10.1 of Stocker & Yale's Form 10-QSB for the period ended June 30, 1996. 10.1(f) Waiver of certain provisions of the Credit Agreement dated July 31, 1996, incorporated by reference to Exhibit 10.2 of Stocker & Yale's Form 10-QSB for the period ended June 30, 1996. 10.1(g) Amendment No. 4 to the Credit Agreement, dated August 13, 1996, for the fiscal year ending December 31, 1996, incorporated by reference to Exhibit 10.3 of Stocker & Yale's Form 10-QSB for the period ending June 30, 1996. 10.2 Security Agreement, dated March 6, 1995, by and between the Registrant and Shawmut Bank, N.A., incorporated by reference to Exhibit 10.2 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. II-5 10.3 Mortgage (Michigan), incorporated by reference to Exhibit 10.3 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.4 Promissory Note, due September 1, 1996, issued by the Registrant to Beverly Hospital Corporation, incorporated by reference to Exhibit 10.4 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.5 Mortgage (New Hampshire), incorporated by reference to Exhibit 10.5 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.6 Purchase and Sale Agreement, dated as of August 28, 1995, by and between the Registrant and John Hancock Mutual Life Insurance Company, incorporated by reference to Exhibit 10.6 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.7 (a) Form of Convertible Subordinated Note Purchase Agreement by and between the Registrant and the Purchaser named therein, incorporated by reference to Exhibit 4.1 of Stocker & Yale's Form 10-QSB for the period ended March 31, 1996. 10.8 (d) Form of Nonqualified Option Agreement for Outside Directors under the Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit 10.8(d) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.9 Form of Option Agreement for Outside Directors outside the Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit 10.9 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.10 1995 Senior Management Profit Sharing Plan, incorporated by reference to Exhibit 10.10 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.11 1994 Employee Stock Bonus Plan, incorporated by reference to Exhibit 10.11 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.12 1995 Employee Stock Bonus Plan, incorporated by reference to Exhibit 10.12 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.13(a) 1996 Stock Option and Incentive Plan, incorporated by reference to Exhibit A of Stocker & Yale's Proxy Statement for the 1996 Annual Meeting of Stockholders, filed on April 3, 1996. 10.13(b) Form of Incentive Option Agreement for employees under the 1996 Stock Option and Incentive Plan, incorporated by reference to Exhibit 10.13(b) of Stocker & Yale's Form 10-KSB, for the fiscal year ended December 31, 1995. 10.13(c) Form of Nonqualified Option Agreement for employees under the Restated 1995 Stock Option Plan, incorporated by reference to Exhibit 10.13(d) of Stocker & Yale's Form 10-FSB, for the fiscal year ended December 31, 1995. 21.1 Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. *23.1 Consent of Goodwin, Procter & Hoar LLP (included in their opinion, filed as Exhibit 5.1 hereto). II-6 *23.2 Consent of Arthur Andersen LLP. +24.1 Power of Attorney (included on signature page of Registration Statement as filed).
- ---------------------- * Filed herewith. + Previously filed. II-7 (b) Financial Statement Schedules Item 17. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed n the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, (the "Securities Act") the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Salem, State of New Hampshire, on this 11th day of October, 1996. STOCKER & YALE, INC. By: /s/ Mark W. Blodgett ---------------------------- Mark W. Blodgett Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title --------- ------ /s/ Mark W. Blodgett Chairman of the Board of October 11, 1996 - ------------------------------------ Mark W. Blodgett Directors and Chief Executive Officer (Principal Executive Officer) * President and Director October 11, 1996 - ------------------------------------ James Bickman * President of Stilson Division October 11, 1996 - ------------------------------------ Alex W. Blodgett and Director * Director October 11, 1996 - ------------------------------------ Clifford L. Abbey * Director October 11, 1996 - ------------------------------------ Robert G. Atkinson * Director October 11, 1996 - ------------------------------------ Hubert R. Marleau * Director October 11, 1996 - ------------------------------------ John M. Nelson II-9 * Senior Vice President of October 11, 1996 - ------------------------------------ Susan Hojer Sundell Finance and Treasurer (Principal Financial and Accounting Director) *By: /s/ Mark W. Blodgett Mark W. Blodgett Attorney-in-Fact
II-10 Exhibit Index -------------
Exhibit Number Description Page No. - ------- ----------- -------- *3.1 Amended and Restated Articles of Organization of the Registrant. 3.2 Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 3.2 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 4.1 Escrow Agreement by and among the Registrant and the parties named therein, incorporated by reference to Exhibit 4.1 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 4.2 Subordinated Note & Warrant Purchase Agreements, incorporated by reference to Exhibit 10.7 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. *5.1 Form of Opinion of Goodwin, Procter & Hoar LLP as to the legality of Stocker & Yale's shares of Common Stock. 10.1 (a) Credit Agreement, dated as of March 6, 1995, by and between the Registrant and Shawmut Bank, N.A., incorporated by reference to Exhibit 10.1(a) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.1 (b) Waiver and Amendment No. 1 to the Credit Agreement, dated as of August, 16, 1995, incorporated by reference to Exhibit 10.1(b) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.1 (c) Consent under, and Second Amendment, to Credit Agreement and Amendment to Term Note, dated as of August 25, 1995, incorporated by reference to Exhibit 10.1(c) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.1 (d) Waiver and Amendment No. 3 to the Credit Agreement, dated as of March 15, 1996, incorporated by reference to Exhibit 10.14 of Stocker & Yale's Form 10-KSB for the fiscal year ended December 31, 1995. 10.1(e) Waiver of certain provisions of the Credit Agreement dated May 24, 1996, incorporated by reference to Exhibit 10.1 of Stocker & Yale's Form 10-QSB for the period ended June 30, 1996. 10.1(f) Waiver of certain provisions of the Credit Agreement dated July 31, 1996, incorporated by reference to Exhibit 10.2 of Stocker & Yale's Form 10-QSB for the period ended June 30, 1996. 10.1(g) Amendment No. 4 to the Credit Agreement, dated August 13, 1996, for the fiscal year ending December 31, 1996, incorporated by reference to Exhibit 10.3 of Stocker & Yale's Form 10-QSB for the period ending June 30, 1996. 10.2 Security Agreement, dated March 6, 1995, by and between the Registrant and Shawmut Bank, N.A., incorporated by reference to Exhibit 10.2 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.3 Mortgage (Michigan), incorporated by reference to Exhibit 10.3 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.4 Promissory Note, due September 1, 1996, issued by the Registrant to Beverly Hospital Corporation, incorporated by reference to Exhibit 10.4 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.5 Mortgage (New Hampshire), incorporated by reference to Exhibit 10.5 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.6 Purchase and Sale Agreement, dated as of August 28, 1995, by and between the Registrant and John Hancock Mutual Life Insurance Company, incorporated by reference to Exhibit 10.6 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.7 (a) Form of Convertible Subordinated Note Purchase Agreement by and between the Registrant and the Purchaser named therein, incorporated by reference to Exhibit 4.1 of Stocker & Yale's Form 10-QSB for the period ended March 31, 1996. 10.8 (d) Form of Nonqualified Option Agreement for Outside Directors under the Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit 10.8(d) of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.9 Form of Option Agreement for Outside Directors outside the Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit 10.9 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.10 1995 Senior Management Profit Sharing Plan, incorporated by reference to Exhibit 10.10 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.11 1994 Employee Stock Bonus Plan, incorporated by reference to Exhibit 10.11 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.12 1995 Employee Stock Bonus Plan, incorporated by reference to Exhibit 10.12 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. 10.13(a) 1996 Stock Option and Incentive Plan, incorporated by reference to Exhibit A of Stocker & Yale's Proxy Statement for the 1996 Annual Meeting of Stockholders, filed on April 3, 1996. 10.13(b) Form of Incentive Option Agreement for employees under the 1996 Stock Option and Incentive Plan, incorporated by reference to Exhibit 10.13(b) of Stocker & Yale's Form 10-KSB, for the fiscal year ended December 31, 1995. 10.13(c) Form of Nonqualified Option Agreement for employees under the Restated 1995 Stock Option Plan, incorporated by reference to Exhibit 10.13(d) of Stocker & Yale's Form 10-FSB, for the fiscal year ended December 31, 1995. 21.1 Subsidiaries of the Registrant, incorporated by reference to Exhibit 21.1 of Stocker & Yale's Form 10-SB, as amended, filed on November 2, 1995. *23.1 Consent of Goodwin, Procter & Hoar LLP (included in their opinion, filed as Exhibit 5.1 hereto). *23.2 Consent of Arthur Andersen LLP. +24.1 Power of Attorney (included on signature page of Registration Statement as filed).
- ---------------------- * Filed herewith. + Previously filed. EX-3.1 2 ARTICLES OF INCORPORATION Exhibit 3.1 The Commonwealth of Massachusetts MICHAEL JOSEPH CONNOLLY Secretary of State FEDERAL IDENTIFICATION _________ ONE ASHBURTON PLACE NO. 04-2114473 Examiner BOSTON, MASS. 02108 ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 82 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts * * * * We, James Bickman and Norman B. Asher President* and Clerk* of Stocker & Yale, Inc. name of corporation organized under the laws of Massachusetts and herein called the parent corporation, do hereby certify as follows: 1. That the subsidiary corporation(s) to be merged into the parent corporations are as follows: State of Date of Name Organization Organization MFE Instruments Corporation Delaware February 24, 1983 2. That the parent corporation owns at least ninety percent of the outstanding shares of each class of the stock of each subsidiary corporation to be merged into the parent corporation. 3. That in the case of each of the above-named corporations the laws of the state of organization, if other than Massachusetts, permit the merger herein provided for and that all action required under the laws of each such state in connection with this merger has been duly taken. (If all the corporations are organized under the laws of Massachusetts and if General Laws, Chapter 156B is applicable to them, then Paragraph 3 may be deleted.) Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts, these articles are to be signed by officers having corresponding powers and duties. 4. That at a meeting of the directors of the parent corporation the following vote, pursuant to subsection (a) of General Laws, Chapter 156B Section 82, was duly adopted: RESOLVED: That pursuant to [ss]253 of the Delaware General Corporation Law and [ss]82 of the Massachusetts Business Corporation Act, MFE Instruments Corporation be merged with and into the Company (the "Merger"), effective as of the later of the filing of the Articles of Merger with the Secretary of State of the Commonwealth of Massachusetts or the filing of the Certificate of Ownership and Merger with the Secretary of State of the State of Delaware; and that the Company shall assume all of the liabilities and obligations of MFE Instruments Corporation. RESOLVED:That the President and Treasurer of the Company be, and each of them acting singly hereby is authorized (i) to execute a Certificate of Ownership and Merger and to cause the same to be filed with the Secretary of State of the State of Delaware and the office of the Recorder of Deeds in the County of New Castle in the State of Delaware, (ii) to execute Articles of Merger and to cause the same to be filed with the Secretary of State of the Commonwealth of Massachusetts, and (iii) to execute and deliver such other certificates, agreements, instruments or documents, and to take such actions as shall be necessary or advisable in order to effect the Merger, the execution of any such certificates, agreements, instruments or documents and the taking of any such actions to be conclusive evidence of the approval of such officer and the authorization by the Board of Directors. NOTE: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B etc. Continuation sheets must have a left-hand margin 1 inch wide for binding. Only one side should be used. 5. The effective date of the merger as specified in the vote set out under Paragraph 4 is the effective date of the filing of these Articles of Merger with the Secretary of State of the Commonwealth of Massachusetts. 6. (This Paragraph 6 may be deleted if the parent corporation is organized under the laws of Massachusetts.) The parent corporation hereby agrees that it may be sued in the Commonwealth of Massachusetts for any prior obligation of any subsidiary corporation organized under the laws of Massachusetts with which it has merged, and any obligation hereafter incurred by the parent corporation, including the obligation created by subsection (e) of General Laws, Chapter 156B, Section 82, so long as any liability remains outstanding against the parent corporation in the Commonwealth of Massachusetts and it hereby irrevocably appoints the Secretary of the Commonwealth as its agent to accept service of process for the enforcement of any such obligations, including taxes, in the same manner as provided in Chapter 181. IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed our names this 12 day of June, 1989 . /s/ James Bickman President* ----------------------------- /s/ Norman Asher Clerk* ----------------------------- * Delete the inapplicable words in case the parent corporation is organized under the laws of a state other than Massachusetts These articles are to be signed by officers having corresponding powers and duties. COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws, Chapter 156B, Section 82) I hereby approve the within articles of merger of parent and subsidiary corporations and, the filing fee in the amount of $ 256.00 having been paid, said articles are deemed to have been filed with me this 13th day of June , 1989. MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Merger to Be Sent TO: Conan R. Deady Hale and Dorr 60 State Street Boston, MA 02109 Telephone (617) 742-9100 Copy Mailed The Commonwealth of Massachusetts _______ FEDERAL IDENTIFICATION Examiner MICHAEL JOSEPH CONNOLLY NO. 00-0291594 Secretary of State ONE ASHBURTON PLACE FEDERAL IDENTIFICATION BOSTON, MASS.02108 NO. 04-2114473 ARTICLES OF MERGER* PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 78 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make checks payable to the Commonwealth of Massachusetts. * * * * MERGER* OF S&Y ACQUISITION CORPORATION STOCKER & YALE, INC. the constituent corporations into STOCKER & YALE, INC. the surviving* corporation. The undersigned officers of each of the constituent corporations certify under the penalties of perjury as follows: 1. An agreement of merger* has been duly adopted in compliance with the requirements of subsections (b) and (c) of General Laws, Chapter 156B, Section 78, and will be kept as provided by subsection (d) thereof. The surviving* corporation will furnish a copy of said agreement to any of its stockholders, or to any person who was a stockholder of any constituent corporation, upon written request and without charge. 2. The effective date of the merger* determined pursuant to the agreement referred to in paragraph 1 shall be June 14, 1989 3. (For a merger) ** The following amendments to the articles of organization of the SURVIVING corporation to be effected pursuant to the agreement of merger referred to in paragraph 1 are as follows: NONE * Delete the inapplicable words. ** If there are no provisions state "NONE." NOTE: If the space provided under article 3 is insufficient, additions shall be set forth on separate 8 1/2 x 11 inch sheets of paper, leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. (For a consolidation) (a) The purposes of the RESULTING corporation are as follows: N/A (b) The total number of shares and the par value, if any, of each class of stock which the resulting corporation is authorized is as follows: N/A - ------------------------------------------------------------------- WITHOUT PAR WITH PAR VALUE VALUE CLASS OF STOCK --------------------------------------------------- PAR NUMBER OF NUMBER OF VALUE AMOUNT SHARES SHARES - ------------------------------------------------------------------- Preferred $ ................................................................... ................................................................... Common - ------------------------------------------------------------------- **(c) If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established. N/A **(d) Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, for restrictions upon the transfer of shares of stock of any class, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: N/A * Delete the inapplicable words. ** If there are no provisions state "NONE." NOTE: If the space provided under article 3 is insufficient, additions shall be set forth on separate 8 1/2 x 11 inch sheets of paper, leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 4. The following information shall not for any purpose be treated as a permanent part of the articles of organization of the surviving* corporation. (a) the post office address of the principal office of the surviving* corporation in Massachusetts is: Route 128 and Brimbal Avenue, Beverly, MA 01915 (b) The name, residence and post office address of each of the directors and President, Treasurer, and Clerk of the surviving* corporation is as follows:
Name Residence Post Office Address 400 Paradise Road 400 Paradise Road President James Bickman Swampscott, MA Swampscott, MA Treasurer James Bickman 400 Paradise Road 400 Paradise Road Swampscott, MA Swampscott, MA Clerk Stuart M. Cable 120 Fulton Street, Apt. 3D 120 Fulton Street, Apt. 3D Boston, MA 02109 Boston, MA 02109 Directors James Bickman 400 Paradise Road 400 Paradise Road Swampscott, MA Swampscott, MA Mark W. Blodgett 14 Knollwood Drive 14 Knollwood Drive Greenwich, CT 06830 Greenwich, CT 06830
(c) The date adopted on which the fiscal year of the surviving* corporation end is: December 31 (d) The date fixed in the by-laws for the Annual Meeting of the stockholders of the surviving* corporation is: The Third Tuesday in April of each year The undersigned officers of the several constituent corporations listed above further state under the penalties of perjury as to their respective corporations that the agreement of merger* referred to in paragraph 1 has been duly executed on behalf of such corporation and duly approved by the stockholders of such corporation in the manner required by General Laws, Chapter 156B, Section 78. /s/ Mark W. Blodgett President* ------------------------------ Mark W. Blodgett /s/ Stuart M. Cable Clerk* ------------------------------ Stuart M. Cable of S&Y ACQUISITION CORPORATION - ------------------------------------------------------------------------------- (name of constituent corporation) /s/ James Bickman President* ------------------------- James Bickman /s/ Stuart M. Cable Clerk* -------------------------- Stuart M. Cable of STOCKER & YALE, INC. - ------------------------------------------------------------------------------- (name of constituent corporation) *Delete the inapplicable words. THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER* (General Laws, Chapter 156B, Section 78) I hereby approve the within articles of merger* and, the filing fee in the amount of $ 250.00 having been paid, said articles are deemed to have been filed with me this 14th day of June , 1989 . Effective Date MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photocopy of Articles of Merger To Be Sent TO: Stuart M. Cable, Esq. Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 Telephone (617) 570-1000 Copy Mailed *Delete the inapplicable words. The Commonwealth of Massachusetts MICHAEL JOSEPH CONNOLLY Secretary of State FEDERAL IDENTIFICATION ONE ASHBURTON PLACE, BOSTON, MASS. 02108 NO. 04-2114473 ------------ RESTATED ARTICLES OR ORGANIZATION General Laws, Chapter 156B, Section 74 This certificate mus be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. ------------ We, Mark W. Blodgett , President and Stuart M. Cable , Clerk of STOCKER & YALE, INC. - ------------------------------------------------------------------------------- (Name of Corporation) located at Route 128 and Brimbal Avenue, Beverly, Massachusetts 01915 -------------------------------------------------------------------- do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted by consent in lieu of joint special meeting of stockholders and directors dated June 14, 1989, by vote of 166,668 shares of Common Stock out of 166,668 shares outstanding, - ----------------- ------------------------- ----------------- (Class of Stock) shares of out of shares outstanding, and - ----------------- ------------------------- ----------------- (Class of Stock) shares of out of shares outstanding, and (Class of Stock)
being at lest two-thirds of each class of stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby: 1. The name by which the corporation shall be known is: STOCKER & YALE, INC. 2. The purposes for which the corporation is formed are as follows: To design, manufacture, assemble and market measuring and inspection instruments and machine components and accessories; and To carry on any other service, business operation or activity which may be lawfully carried out by a corporation organized under the Business Corporation Law of The Commonwealth of Massachusetts. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue is as follows: WITHOUT PAR VALUE WITH PAR VALUE ----------------- --------------- CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE - -------------- ---------------- ---------------- --------- Preferred NONE NONE Common NONE 6,000,000 $.01 *4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: NONE *5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows: NONE *6. Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See attached ARTICLE 6. OTHER LAWFUL PROVISIONS ----------------------------------- * If there are no such provisions, state "None." *We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles 2, 3, 4, 5 and 6. - ------------------------------------------------------------------------------- (*If there are no such amendments, state "None".) Briefly describe amendments in space below: ARTICLE 2. - Deleted in its entirety and replaced with Amended ARTICLE 2. herein. ARTICLE 3. - Provision for Class A Common Stock is eliminated and the par value of the Common Stock is reduced from $1.00 per share to $.01 per share. ARTICLE 4. - Deleted in its entirety. ARTICLE 5. - Deleted in its entirety. ARTICLE 6. - Deleted in its entirety and replaced with Amended ARTICLE 6. herein. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names to fourteenth day of June in the year 1989 /s/ Mark W. Blodgett President - -------------------------------------------------------------- /s/ Stuart M. Cable Clerk - -------------------------------------------------------------- STOCKER & YALE, INC. ARTICLE 6. OTHER LAWFUL PROVISIONS ---------------------------------- ARTICLE 6(a). LIMITATION OF LIABILITY OF DIRECTORS - ----------- ------------------------------------ No director of this Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that this Article shall not eliminate or limit any liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Sections 61 or 62 of the Massachusetts Business Corporation Law, or (iv) with respect to any transaction from which the director derived an improper personal benefit. No amendment or repeal of this Article shall adversely affect the rights and protection afforded to a director of this Corporation under this Article for acts or omissions occurring prior to such amendment or repeal. ARTICLE 6(b). INDEMNIFICATION - ----------- --------------- 1. Definitions. For purposes of this Article ----------- (a) A "Director" or "Officer" means any person serving as a director of this Corporation or in any other office filled by appointment or election by the directors or the stockholders and also includes (i) a Director or Officer of the Corporation serving at the request of the Corporation as a director, officer, employee, trustee, partner or other agent of another organization, and (ii) any person who formerly served as a Director or Officer; (b) "Expenses" means (i) all expenses (including attorneys' fees and disbursements) actually and reasonably incurred in defense of a Proceeding, in being a witness in a Proceeding, or in successfully seeking indemnification under this Article, (ii) such expenses incurred in connection with a Article 6 -- Continuation Page 1 Proceeding initiated by a Director or Officer as may be approved by the Board of Directors, and (iii) any judgments, awards, fines or penalties paid by a Director or Officer in connection with a Proceeding or reasonable amounts paid in settlement of a Proceeding; and (c) A "Proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and any claim which could be the subject of a Proceeding. 2. Right to Indemnification. Except as limited by law, this Corporation shall indemnify its Directors and Officers against all Expenses incurred by them in connection with any Proceedings in which they are involved as a result of their service as a Director or Officer, except that (i) no indemnification shall be provided for any Director or Officer regarding a matter as to which it shall be determined pursuant to Section 5 of this Article or adjudicated that he did not act in good faith and in the reasonable belief that his action was in the best interests of this Corporation, or with respect to a criminal matter, that he had reasonable cause to believe that his conduct was unlawful, and (ii) no indemnification shall be provided for any Director or Officer with respect to any Proceeding by or in the right of this Corporation or alleging that a Director or Officer received an improper personal benefit if he is adjudged liable to this Corporation in such Proceeding or, in the absence of such an adjudication, if he is determined to be ineligible for indemnification under the circumstances pursuant to Section 5 of this Article; provided, however, that indemnification of Expenses incurred by a Director or Officer in successfully defending a Proceeding alleging that he received an improper personal benefit as a result of his status as such may be paid if and to the extent authorized by the Board of Directors. 3. Settled Proceedings. If a Proceeding is compromised or settled in a manner which imposes any liability or obligation upon a Director or Officer, (i) no indemnification shall be provided to him with respect to a Proceeding by or in the right of this Corporation unless a court having jurisdiction determines that indemnification is reasonable and proper under the circumstances, and (ii) no indemnification shall be provided to him with respect to any other type of Proceeding if it is determined pursuant to Section 5 of this Article on the basis of the Article 6 -- Continuation Page 2 circumstances known at that time (without further investigation) that said Director or Officer is ineligible for indemnification. 4. Advance Payments. Except as limited by law, Expenses incurred by a Director or Officer in defending any Proceeding, including a Proceeding by or in the right of this Corporation, shall be paid by this Corporation to said Director or Officer in advance of final disposition of the Proceeding upon receipt of his written undertaking to repay such amount if he is determined pursuant to Section 5 of this Article or adjudicated to be ineligible for indemnification, which undertaking shall be an unlimited general obligation but need not be secured and may be accepted without regard to the financial ability of such person to make repayment; provided, however, that no such advance payment of Expenses shall be made if it is determined pursuant to Section 5 of this Article on the basis of the circumstances known at that time (without further investigation) that said Director or Officer is ineligible for indemnification. 5. Determinations; Payments. The determination of whether a Director or Officer is eligible or ineligible for indemnification under this Article shall be made in each instance by (a) a majority of the Directors or a committee thereof who are not parties to the Proceeding in question, (b) independent legal counsel appointed by a majority of such Directors, or if there are none, by a majority of the Directors in office, or (c) a majority vote of the stockholders who are not parties to the Proceeding in question. Notwithstanding the foregoing, a court having jurisdiction (which need not be the court in which the Proceeding in question was brought) may grant or deny indemnification in each instance under the provisions of law and this Article. The Corporation shall be obliged to pay indemnification applied for by a Director or Officer unless there is an adverse determination (as provided above) within 45 days after the application. If indemnification is denied, the applicant may seek an independent determination of his right to indemnification by a court, and in such event this Corporation shall have the burden of proving that the applicant was ineligible for indemnification under this Article. 6. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any agent, employee, director or officer against any liability or cost incurred by him Article 6 -- Continuation Page 3 in any such capacity or arising out of his status as such, whether or not this Corporation would have power to indemnify him against such liability or cost. 7. Responsibility With Respect to Employee Benefit Plan. If this Corporation or any of its Directors or Officers sponsors or undertakes any responsibility as a fiduciary with respect to an employee benefit plan, then for purposes of indemnification of such persons under this Article (i) a "Director" or "Officer" shall be deemed to include any Director or Officer of this Corporation who serves at its request in any capacity with respect to said plan, (ii) such Director or Officer shall not be deemed to have failed to act in good faith in the reasonable belief that his action was in the best interests of the Corporation if he acted in good faith in the reasonable belief that his action was in the best interests of the participants or beneficiaries of said plan, and (iii) "Expenses" shall be deemed to include any taxes or penalties imposed on such Director or Officer with respect to said plan under applicable law. 8. Heirs and Personal Representatives. The indemnification provided by this Article shall inure to the benefit of the heirs and personal representatives of a Director or Officer. 9. Non-Exclusivity. The provisions of this Article shall not be construed to limit the power of this Corporation to indemnify its Directors or Officers to the full extent permitted by law or to enter into specific agreements, commitments or arrangements for indemnification permitted by law. In addition, this Corporation shall have power to indemnify any of its agents or employees who are not Directors or Officers on any terms not prohibited by law which it deems to be appropriate. The absence of any express provision for indemnification herein shall not limit any right of indemnification existing independently of this Article. 10. Amendment. The provisions of this Article may be amended or repealed by the stockholders only; however, no amendment or repeal of such provisions which adversely affects the rights of a Director or Officer under this Article with respect to his acts or omissions at any time prior to such amendment or repeal, shall apply to him without his consent. Article 6 -- Continuation Page 4 ARTICLE 6(c). TRANSACTIONS WITH INTERESTED PERSONS - ----------- ------------------------------------ 1. Unless entered into in bad faith, no contract or transaction by this Corporation shall be void, voidable or in any way affected by reason of the fact that it is with an Interested Person. 2. For the purposes of this Article, "Interested Person" means any person or organization in any way interested in this Corporation whether as an officer, director, stockholder, employee or otherwise, and any other entity in which any such person or organization or this Corporation is in any way interested. 3. Unless such contract or transaction was entered into in bad faith, no Interested Person, because of such interest, shall be liable to this Corporation or to any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction. 4. The provisions of this Article shall be operative notwithstanding the fact that the presence of an Interested Person was necessary to constitute a quorum at a meeting of directors or stockholders of this Corporation at which such contract or transaction was authorized or that the vote of an Interested Person was necessary for the authorization of such contract or transaction. ARTICLE 6(d). STOCKHOLDERS' MEETINGS - ------------ ---------------------- Meetings of Stockholders of this Corporation may be held anywhere in the United States. ARTICLE 6(e). AMENDMENT OF BY-LAWS - ------------ -------------------- The By-Laws may provide that the Board of Directors as well as the stockholders may make, amend or repeal the By-Laws of this Corporation, except with respect to any provision thereof which by law, by these Articles or by the By-Laws requires action by the stockholders. Article 6 -- Continuation Page 5 ARTICLE 6(f). ACTING AS A PARTNER - ------------ ------------------- This Corporation may be a partner in any business enterprise which it would have power to conduct by itself. Article 6 -- Continuation Page 6 THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) I hereby approve the within restated articles of organization and, the filing fee in the amount of $ having been paid, said articles are deemed to have been filed with me this fourteenth day of June , 1989 . MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT TO: Stuart M. Cable, Esq. Goodwin, Procter & Hoar Exchange Place Boston, Massachusetts 02109 Telephone (617) 570-1000 Copy Mailed The Commonwealth of Massachusetts MICHAEL JOSEPH CONNOLLY Secretary of State FEDERAL IDENTIFICATION _________ ONE ASHBURTON PLACE Examiner BOSTON, MASS. 02108 NO. 04-2114473 ------------------- ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 82 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts * * * * We, Mark W. Blodgett and Stuart M. Cable President* and Clerk* of Stocker & Yale, Inc. - ------------------------------------------------------------------------------- name of corporation organized under the laws of Massachusetts and herein called the parent corporation, do hereby certify as follows: 1. That the subsidiary corporation(s) to be merged into the parent corporations are as follows: State of Date of Name Organization Organization Stocker & Yale MA April 14, 1982 Securities Corporation 2. That the parent corporation owns at least ninety percent of the outstanding shares of each class of the stock of each subsidiary corporation to be merged into the parent corporation. 3. That in the case of each of the above-named corporations the laws of the state of organization, if other than Massachusetts, permit the merger herein provided for and that all action required under the laws of each such state in connection with this merger has been duly taken. (If all the corporations are organized under the laws of Massachusetts and if General Laws, Chapter 156B is applicable to them, then Paragraph 3 may be deleted.) Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts these articles are to be signed by officers having corresponding powers and duties. 4. That by unanimous written consent of the directors of the parent corporation the following vote, pursuant to subsection (a) of General Laws, Chapter 156B Section 82, was duly adopted: VOTED: That the Corporation merge with and into itself its wholly-owned subsidiary known as Stocker & Yale Securities Corporation, and that the Corporation be the surviving entity. NOTE: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must have a left-hand margin 1 inch wide for binding. Only one side should be used. 5. The effective date of the merger as specified in the vote set out under Paragraph 4 is the date of filing of these Articles of Merger IN WITNESS WHEREOF and under the penalties of perjury we have hereto signed our names this 20th day of June, 1990 . /s/ Mark W. Blodgett President ------------------------ Mark W. Blodgett /s/ Stuart M. Cable Clerk ------------------------ Stuart M. Cable Delete the inapplicable words. In case the parent corporation is organized under the laws of a state other than Massachusetts these articles are to be signed by officers having corresponding powers and duties. COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws, Chapter 156B, Section 82) I hereby approve the within articles of merger of parent and subsidiary corporations and, the filing fee in the amount of $250 having been paid, said articles are deemed to have been filed with me this 21st day of June, 1990. MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Merger To Be Sent TO: Ingrid Dohler, Senior Legal Assistant Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 Telephone (617) 570-1582 Copy Mailed The Commonwealth of Massachusetts FEDERAL IDENTIFICATION MICHAEL JOSEPH CONNOLLY NO. 04-2114473 Secretary of State ONE ASHBURTON PLACE FEDERAL IDENTIFICATION BOSTON, MASS. 02108 NO. _________ ARTICLES OF MERGER* PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 79 The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts * * * * MERGER* OF Stocker & Yale, Inc. Brower Exploration Inc. the constituent corporations into Stocker & Yale, Inc. *one of the constituent corporations* organized under the laws of Massachusetts as specified in the agreement referred to in Paragraph 1 below. The undersigned officers of each of the constituent corporations certify under the penalties of perjury as follows: 1. An agreement of merger has been duly adopted in compliance with the requirements of subsections (b) and (c) of General Laws, Chapter 156B, Section 79, and will be kept as provided by subsection (c) thereof. The surviving corporation will furnish a copy of said agreement to any of its stockholders, or to any person who was a stockholder of any constituent corporation, upon written request and without charge. 2. The effective date of the merger determined pursuant to the agreement referred to in paragraph 1 shall be upon the filing of the Articles of Merger 3. (For a merger) ** The following amendments to the articles of organization of the SURVIVING corporation have been affected pursuant to the agreement of merger referred to in paragraph 1: See attached paragraph 3 (For a consolidation) * Delete the inapplicable words. ** If there are no provisions state "NONE " NOTE: If the space provided under article 3 is insufficient, additions shall be set forth on separate 8 1/2 x 11 inch sheets of paper, leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 4. (This paragraph 4 may be deleted if the surviving corporation is organized under the laws of a state other than Massachusetts.) The following information shall not for any purpose be treated as a permanent part of the articles of organization of the "surviving" corporation: (a) The post office address of the initial principal office of the surviving corporation in Massachusetts is: 133 Brimbal Avenue Beverly, MASS 01915 (b) The name, residence and post office address of each of the initial directors and President, Teasurer and Clerk of the surviving corporation is as follows:
Name Residence Post Office Address President See attached paragraph 4(b) for initial directors and President, Treasurer and Clerk of surviving corporation. Treasurer Clerk Directors
(c) The date initially adopted on which the fiscal year of the *surviving* corporation ends is: December 31. (d) The date initially fixed in the by-laws for the Annual Meeting of stockholders of the resulting* surviving* corporation is: third Tuesday in April * Delete the inapplicable words. ** If there are no provisions state "NONE " NOTE: If the space provided under article 3 is insufficient, additions shall be set forth on separate 8 1/2 x 11 inch sheets of paper, leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. Paragraph 3 The total number of shares and the par value of each class of stock which the surviving corporation is authorized is as follows: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES Par Value COMMON: None COMMON: 12,000,000 $.001 PREFERRED: None PREFERRED: None
Paragraph 4(b) The name, residence and post office address of each of the initial directors and President, Treasurer and Clerk of the surviving corporation is as follows:
POST OFFICE NAME RESIDENCE ADDRESS ---- --------- ------------ President James Bickman 8 Preston Court 8 Preston Court Swampscott, MASS 01907 Swampscott, MASS 0l907 Treasurer Susan Hojer 83 Ann Avenue 83 Ann Avenue Manchester, NH 03102 Manchester, NH 03102 Clerk Stuart M. Cable 120 Fulton Street 120 Fulton Street Boston, MASS 02109 Boston, MASS 02109 Directors Mark W. Blodgett 37 Chestnut Street 37 Chestnut Street Salem, MASS 01970 Salem, MASS 01970 James Bickman 8 Preston Court 8 Preston Court Swampscott, MASS 01907 Swampscott, MASS 01907 Clifford Abbey 1150 Greenwich 1150 Greenwich San Francisco, CA 94109 San Francisco, CA 94109 Robert G. Atkinson 6036 Gleneagles Drive 6036 Gleneagles Drive W. Vancouver, BC W. Vancouver, BC Canada V7W 1W2 Canada V7W 1W2 Lawrence W. Blodgett 1548 Point Pleasure 1548 Point Pleasure Spur Rd. Spur Rd. New Richmond, OH 45157 New Richmond, OH 45157 Hubert R. Marleau 2 Westmount Sq. 2 Westmount Sq. Penthouse C Penthouse C Westmount, Quebec Westmount, Quebec Canada H3Z 2S4 Canada H3Z 2S4
FOR MASSACHUSETTS CORPORATIONS The undersigned President* Vice President* and Clerk* Assistant Clerk* of Stocker & Yale, Inc. a corporation organized under the laws of Massachusetts further state under the penalties of perjury that the agreement of merger* referred to in paragraph 1 has been duly executed on behalf of such corporation and duly approved in the manner required by General Laws, Chapter 156B, Section 79. /s/ James Bickman President* Vice President* --------------------------------- /s/ Stuart M. Cable Clerk* Assistant Clerk* ---------------------------------- FOR CORPORATIONS ORGANIZED OTHER THAN IN MASSACHUSETTS The undersigned President + and Secretary-Treasurer ++ of Brower Exploration Inc. a corporation organized under the laws of Wyoming further state under the penalties of perjury that the agreement of merger* referred to in paragraph 1, has been duly adopted by such corporation in the manner required by the laws of Wyoming /s/ William H. W. Atkinson + ------------------------------------------- William H.W. Atkinson President /s/ M. Michael Sikula ++ -------------------------------------------- M. Michael Sikula Secretary-Treasurer *Delete the inapplicable words +Specify the officer having powers and duties corresponding to those of the President or Vice President of a Massachusetts corporation organized under General Laws, Chapter 156B. ++Specify the officer having power and duties corresponding to the Clerk or Assistant Clerk of such a Massachusetts corporation. COMMONWEALTH OF MASSACHUSETTS ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS (General Laws, Chapter 156B, Section 82) I hereby approve the within articles of merger of parent and subsidiary corporations and, the filing fee in the amount of $6,000 having been paid, said articles are deemed to have been filed with me this 11th day of May, 1994. MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photo Copy of Merger To Be Sent TO: Evan Jones Goodwin, Procter & Hoar Exchange Place Boston, MA 02109 Telephone (617) 570-1582 Copy Mailed - ---------- Examiner - ---------- Name Approved C P M R.A. - ---------- P.C. NO. 04-2114473 The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, James Bickman , *President, and Stuart M. Cable , *Clerk, of STOCKER & YALE, INC. , (Exact name of corporation) located at 32 HAMPSHIRE ROAD, SALEM, NH 03079 , (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: Article 3 (SEE AUTHORIZED SHARE TABLE) (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on May 2, 1995, by vote of: 4,982,469 shares of Common of 7,899,271.4 shares outstanding, - --------- ------------------------------- ------------- (type, class & series, if any) shares of of shares outstanding, (type, class & series, if any) shares of of shares outstanding, (type, class & series, if any)
1**being at least a majority of each type, class or series outstanding and entitled to vote thereon: *Delete the inapplicable words. **Delete the inapplicable clause. 1For amendments adopted pursuant to Chapter 156B, Section 70. 2For amendments adopted pursuant to Chapter 156B, Section 71. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
- ---------------------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - ---------------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ---------------------------------------------------------------------------------------------- Common: Common: 12,000,000 .001 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Preferred: Preferred: - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Change the total authorized to: - ---------------------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - ---------------------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - ---------------------------------------------------------------------------------------------- Common: Common: 2,400,000 .001 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Preferred: Preferred: - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: -----------------------------------------. SIGNED UNDER THE PENALTIES OF PERJURY, this 21st day of December , 1995, /s/ James Bickman , *President, - ------------------------------------------------------------------- James Bickman /s/ Stuart M. Cable, Esq. , *Clerk. - ------------------------------------------------------------------- Stuart M. Cable, Esq. *Delete the inapplicable words. FEDERAL IDENTIFICATION NO. 04-2114473 The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, Susan A. Sundell, Vice President and Stuart M. Cable, Clerk of Stocker & Yale, Inc., located at 32 Hampshire Road, Salem, New Hampshire 03079 certify that these Articles of Amendment affecting articles numbered 3 of the Articles of Organization were duly adopted at a meeting held on September 17, 1996, by vote of: 1,198,021 shares of Common Stock of 1,712,914.6 shares outstanding, being at least a majority of each type, class or series outstanding and entitled to vote thereon: Voted: To increase the amount of authorized common stock to 10,000,000 shares. To change the number of shares and the par value of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
- ------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - ------------------------------------------------------------------------------- Type Number of Shares Type Number of Shares Par Value - ------------------------------------------------------------------------------- Common: Common 2,400,000 .001 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Preferred: Preferred: - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Change the total authorized to: - ------------------------------------------------------------------------------- WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - ------------------------------------------------------------------------------- Type Number of Shares Type Number of Shares Par Value - ------------------------------------------------------------------------------- Common: Common 10,000,000 .001 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Preferred: Preferred: - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not mor than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: ________________________. SIGNED UNDER THE PENALTIES OF PERJURY, this 23rd day of September, 1996. /s/ Susan Sundell , Vice President Susan A. Sundell /s/ Stuart M. Cable , Clerk Stuart M. Cable THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) ============================================ I hereby approve the within Articles of Amendment and, the filing fee in the amount of $7,600 having been paid, said articles are deemed to have been filed with me this 24th day of September 1996. Effective date: ---------------------------------------------- /s/ William Francis Galvin WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: Christine Grant, Legal Assistant Goodwin, Procter & Hoar Exchange Place - Boston, Massachusetts 02109 EX-5.1 3 OPINION RE: LEGALITY Exhibit 5.1 Goodwin, Procter & Hoar LLP Counsellors at Law Exchange Place Boston, MA 02109-2881 (617) 570-1000 October 11, 1996 Stocker & Yale, Inc. 32 Hampshire Road Salem, New Hampshire 0379 Re: Legality of Securities to be Registered Under Registration Statement on Form SB-2 File No. 333-10655 ---------------------------------------------- Ladies and Gentlemen: This opinion is furnished in connection with the filing of a Registration Statement on Form SB-2, File No. 333-10655 (the "Registration Statement"), pursuant to the Securities Act of 1933, as amended (the "Securities Act"), of 750,000 shares (the "Shares") of common stock, par value $.001 per share (the "Common Stock"), of Stocker & Yale, Inc., a Massachusetts corporation, (the "Company"), that are being registered by the Company for its account. In connection with rendering this opinion, we have examined the Articles of Organization of the Company, as amended and restated to the date hereof and on file with the Massachusetts Secretary of State; the By-laws of the Company; such records of the corporate proceedings of the Company as we deem appropriate for the purposes of this opinion; the Registration Statement and the exhibits thereto. We are attorneys admitted to practice in The Commonwealth of Massachusetts. We express no opinion concerning the laws of any jurisdictions other than the federal laws of the United States of America and the laws of The Commonwealth of Massachusetts. Based upon the foregoing, we are of the opinion that when and as the Shares have been issued and paid for, such Shares will be duly authorized, validly issued and fully paid and non-assessable. The foregoing assumes that all requisite steps will be taken to comply with the requirements of the Securities Act and applicable requirements of state laws regulating the offer and sale of securities. Securities and Exchange Commission October 11, 1996 Page 2 We hereby consent to being named as counsel to the Company in the Registration Statement, to the references therein to our firm under the caption "Legal Matters" and to the inclusion of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Goodwin, Procter & Hoar LLP GOODWIN, PROCTER & HOAR LLP EX-23.1 4 CONSENTS OF EXPERTS AND COUNSEL [ARTHUR ANDERSEN Letterhead] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this Form SB-2. /s/ Arthur Andersen LLP Boston, Massachusetts October 11, 1996 -----END PRIVACY-ENHANCED MESSAGE-----