<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________________ to _________________.
Commission File No. 1-7109
SERVOTRONICS, INC.
-----------------------------------------------------------
(Name of small business issuer as specified in its charter)
Delaware 16-0837866
- ------------------------------- --------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1110 Maple Street, Elma, New York 14059
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 716-655-5990
-----------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------------
Common Stock, $.20 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x . No .
---- ----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $17,571,000.
As of March 3, 1999 the aggregate market value of the voting common stock
held by non-affiliates of the registrant was $4,604,949.54 based on the average
of sales prices reported by the American Stock Exchange on that day.
As of March 3, 1999 the number of $.20 par value common shares outstanding
was 2,405,488.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-KSB
-------- --------------------
1999 Proxy Statement Part III
Transitional Small Business Disclosure Format. Yes . No x .
---- -----
<PAGE> 2
PART I
------
Item 1. Description Of Business
- ------- -----------------------
General
- -------
Servotronics, Inc. and its subsidiaries (collectively the "Registrant" or
the "Company") design, manufacture and market advanced technology products
consisting primarily of control components and consumer products consisting of
knives and various types of cutlery.
The Registrant was incorporated in New York in 1959. In 1972, the
Registrant was merged into a wholly-owned subsidiary organized under the laws of
the State of Delaware, thereby changing the Registrant's state of incorporation
from New York to Delaware.
Products
- --------
Advanced Technology Products
----------------------------
The Registrant designs, manufactures and markets a variety of
servo-control components which convert an electrical current into a mechanical
force or movement and other related products. The principal servo-control
components produced include torque motors, electromagnetic actuators,
proportional solenoids, hydraulic valves, pneumatic valves and similar devices,
all of which perform the same general function. These are sold principally to
the commercial, aerospace, missile, aircraft and government related industries.
To fill most of its orders for components, the Registrant must either
modify a catalog model or design a new item in order to satisfy the customer's
particular requirements. The Registrant also produces unique products based on
specifications provided by its' customers. The Registrant produces under
long-term contracts and otherwise.
The Registrant also produces metallic seals of various cross-sectional
configurations. These seals fit between two surfaces, usually metal, to produce
a more secure and leak-proof joint. They are generally designed for use under
circumstances in which more conventional seals and gaskets do not perform
adequately, such as exposure to extremes of temperature, high pressures,
vacuums, radiation or corrosive atmospheres. The Registrant manufactures these
seals to close tolerances from standard and special alloy steels. Ductile
coatings are often applied to the seals in order to increase their
effectiveness.
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From time to time, the Registrant has also produced other products of its
own and/or of a given design to meet customers' requirements.
The Registrant also designs and/or manufactures for its own use custom
precision metal stampings. These stampings are produced from precision single
stage and/or progressive dies which are also designed and manufactured by the
Registrant. The progressive die performs, in a series of stages in one die, the
stamping of a metal piece which could otherwise require stamping by a number of
separate dies.
Consumer Products
-----------------
The Registrant designs, manufactures and sells a variety of cutlery
products. These products include a wide range of knives such as steak, carving,
bread, butcher and paring knives for household use and for use in restaurants,
government installations, institutions and private industry and pocket and other
types of knives for hunting, fishing and camping. The Registrant also produces
and markets other cutlery items such as carving forks, sharpeners and various
specialty tools such as putty knives, linoleum sheet cutters and field knives.
The Registrant manufactures its cutlery products from stainless or high carbon
steel in numerous styles, designs, models and sizes. Substantially all of the
Registrant's cutlery and cutlery related products are intended for the medium to
premium priced markets.
The Registrant sells many of its cutlery products under its own brand
names including "Old Hickory" and "Queen."
Sales, Marketing And Distribution
- ---------------------------------
Advanced Technology Products
----------------------------
The Registrant's advanced technology products are marketed throughout the
United States and are essentially nonseasonal in nature. These products are sold
to the United States Government, government prime contractors and commercial
manufacturers and end users. Sales are made primarily by the Registrant's
professional staff.
During the Registrant's last fiscal year, sales of advanced technology
products pursuant to subcontracts with prime or subcontractors for various
branches of the United States Government or pursuant to prime contracts directly
with the government accounted for approximately 22% of the Registrant's total
revenues. If the Registrant were deemed to be unqualified by the United States
Government as a contractor or subcontractor, it would lose approximately 35% of
its revenue of advanced technology products. In 1998 and 1997 sales of advanced
technology products to
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AlliedSignal and United Technologies, through several of their subsidiaries
and/or divisions, respectively, exceeded 10% of Registrant's total revenues. No
other single customer represented more than 10% of the Company's revenues in any
of these years.
The Registrant's prime contracts and subcontracts with the Government are
subject to termination for the convenience of the Government. In the event of
such termination, the Registrant is ordinarily entitled to receive payment for
its costs and profits on work done prior to termination. Since the inception of
the Registrant's business, less than 1% of its government contracts have been
terminated for convenience.
Consumer Products
-----------------
The Registrant's consumer products are marketed throughout the United
States. Consumer sales are moderately seasonal. Sales are to hardware,
supermarket, variety, department, discount, gift and drug stores. The Registrant
also sells its cutlery products (principally machetes, survival knives and
kitchen knives) to various branches of the United States Government. The
Registrant sells its products through its own sales personnel and through
independent manufacturers' representatives.
Business Segments
- -----------------
Business segment information is presented in Note 11 of the accompanying
consolidated financial statements.
Patents
- -------
In the view of management, the Registrant's competitive position is not
dependent on patent protection. The Registrant has rights under a number of
patents.
Research Activities
- -------------------
The amount spent by the Registrant in research and development activities
during its 1998 and 1997 fiscal years was not significant.
Environmental Compliance
- ------------------------
The Registrant does not anticipate that the cost of compliance with
current environmental laws will be material.
Manufacturing
- -------------
The Registrant manufactures its consumer products in Franklinville, New
York and Titusville, Pennsylvania and its advanced technology products in Elma,
New York.
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Raw Materials And Other Supplies
- --------------------------------
The Registrant purchases raw materials and certain components for its
products from outside vendors. The Registrant is not generally dependent upon a
single source of supply for any raw material or component used in its
operations.
Competition
- -----------
Although no reliable industry statistics are available to enable the
Registrant to determine accurately its relative competitive position with
respect to any of its products, the Registrant believes that it is a significant
factor with respect to certain of its servo-control components. The Registrant's
share of the overall cutlery market is not significant.
The Registrant encounters active competition with respect to its products
from numerous companies, many of which are larger than it in terms of
manufacturing capacity, financial resources and marketing organization. Its
principal competitors vary depending upon the customer and/or the products
involved. The Registrant believes that it competes primarily with more than 20
companies with respect to its consumer products, in addition to foreign imports.
To the Registrant's knowledge, its principal competitors with regard to cutlery
include ECKO Housewares, Inc., Russell Harrington Cutlery, Inc., W. R. Case &
Sons Cutlery Company, Imperial Schrade Corporation and Camillus Cutlery Company.
The Registrant has many different competitors with respect to
servo-control components because of the nature of that business and the fact
that these products also face competition from other types of control components
which, at times, can accomplish the desired result.
The Registrant markets most of its products throughout the United States.
The Registrant believes that it competes in marketing its consumer products
primarily on the basis of price, quality and delivery, and its control products
primarily on the basis of operating performance, adherence to rigid
specifications, quality, price and delivery.
Employees
- ---------
The Registrant at March 3, 1999 had approximately 239 employees of which
approximately 226 are full time. In excess of 85% of its employees are engaged
in production, inspection, packaging or shipping activities. The balance are
engaged in executive, engineering, administrative, clerical or sales capacities.
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<PAGE> 6
Item 2. Description of Properties
- ------- -------------------------
The Registrant's executive offices are located on premises leased by the
Registrant at 1110 Maple Street, Elma, a suburb of Buffalo, New York. The
Registrant owns and/or leases real property as set forth in the following table:
<TABLE>
<CAPTION>
Number of
Principal buildings and Approx.
Approx. product type of floor area
Location acreage manufactured construction (sq. feet)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Elma, New York 38.4 Advanced 1-concrete block 82,000
technology and steel
products
Franklinville, 7.7 Cutlery products 1-tile and
New York wood 85,000
Titusville,
Pennsylvania .4 Cutlery products 2-brick 25,000
</TABLE>
The Registrant leases approximately 38.4 acres of land and a facility
from a local industrial development agency. The lease is accounted for as a
capital lease and entitles the Registrant to purchase the property for a nominal
amount for the end of the lease term.
See the consolidated financial statements, including Note 8 thereto, for
further information with respect to the Registrant's lease commitments.
The Registrant possesses modern precision manufacturing and testing
equipment suitable for the development, manufacture, assembly and testing of its
advanced technology products. The Registrant designs and makes substantially all
of the tools, dies, jigs and specialized testing equipment necessary for the
production of the advanced technology products. The Registrant also possesses
automatic and semi-automatic grinders, tumblers, presses and miscellaneous metal
and wood finishing machinery and equipment for use in the manufacture of
consumer products.
Item 3. Legal Proceedings
- ------- -----------------
There are no legal proceedings which are material to the Company
currently pending by or against the Company other than ordinary routine
litigation incidental to the business which is not expected to materially
adversely affect the business or earnings of the Company.
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Item 4. Submission Of Matters To A Vote Of Security Holders
- ------- ---------------------------------------------------
Not applicable.
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PART II
-------
Item 5. Market For Common Equity And Related Stockholder Matters
- ------- --------------------------------------------------------
(a) Price Range Of Common Stock
---------------------------
The following table shows the range of high and low prices
for the Registrant's common stock as reported by the
American Stock Exchange for 1998 and 1997.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1998
<S> <C> <C>
Fourth Quarter $ 7-3/4 $ 6-5/8
Third Quarter 11 7-1/2
Second Quarter 13-3/8 8-3/8
First Quarter 10-1/2 7-5/16
1997
Fourth Quarter $ 13-3/8 $ 7-7/8
Third Quarter 9-3/8 6
Second Quarter 6 4-1/8
First Quarter 6-7/16 5-1/4
</TABLE>
(b) Approximate number of holders of common stock
---------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Title Approximate number of
of record holders (as of
class December 31, 1998)
----- ------------------
</TABLE>
Common Stock, $.20 par value 719
(c) Dividends on common stock
-------------------------
No cash dividends were paid in 1998 or 1997.
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Item 6. Management's Discussion And Analysis Or Plan Of Operation
---------------------------------------------------------
Summary
- -------
The following table sets forth for the periods indicated the percentage
relationship of certain items in the consolidated statement of income to net
revenues and the percentage increase or decrease of such items as compared to
the indicated prior period:
<TABLE>
<CAPTION>
PERIOD TO
RELATIONSHIP TO PERIOD
NET REVENUES YEAR INCREASE
ENDED (DECREASE)
DECEMBER 31, YEAR ENDED
1998 1997 1998-97
---- ---- -------
<S> <C> <C> <C>
Net revenues:
Advanced technology products 62.4% 60.0% 15.1%
Consumer products 37.6 40.0 3.8
------ ------ ------
100.0 100.0 10.6
Cost of goods sold 68.2 68.0 11.0
------ ------ ------
Gross profit 31.8 32.0 9.7
------ ------ ------
Selling, general and administrative 18.1 19.3 3.8
Interest 1.8 2.1 -7.4
Depreciation 3.6 4.2 -6.2
------ ------ ------
23.5 25.6 -9.8
------ ------ ------
Income before income taxes 8.3 6.4 44.2
Income tax provision 3.4 2.5 52.7
------ ------ ------
Net income 4.9% 3.9% 38.8%
====== ====== ======
</TABLE>
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<PAGE> 10
Management Discussion
- ---------------------
During the year ended December 31, 1998 and for the comparable period
ended December 31, 1997, approximately 24% and 20% respectively of the Company's
revenues were derived from contracts with agencies of the U.S. Government or
their prime contractors. The Company's business is performed under fixed price
contracts. It is noted that the many uncertainties in today's global economy and
the difficulty in predicting defense appropriations (both actual and proposed)
preclude any guarantees or even assurances that current programs will be
continued or that programs in the prototype stages will ultimately result in
production applications. It is because of such volatile uncertainties and
because such adverse occurrences may not be counterbalanced with new programs or
otherwise that cyclical downturns in operational performances are realistic
expectations.
See also Note 11 to the consolidated financial statements for information
concerning business segment operating results.
Results Of Operations - Year 1998 As Compared To 1997
- -----------------------------------------------------
The Company's consolidated results of operations for the year ended
December 31, 1998 showed an approximate 10.6% increase in net revenues, which
includes $210,000 of gross receipts on the settlement of disputes. Operating
income as a percentage of net revenues increased from approximately 12.7% to
13.7% when compared to the same period in 1997. The increase in revenues is
attributable to an approximate 15% increase in revenues at the Advanced
Technology Group as the result of past and current engineering, marketing and
other support efforts and new programs and applications, and an increase in
revenues at the Consumer Products Group of approximately 4%.
The respective amounts of the funded and unfunded sales backlog at
December 31, 1998 and 1997 for the Advanced Technology Group were approximately
$61,321,000 and $59,192,000, a year to year increase of 4%, of which $53,217,000
and $51,235,000 was unfunded in the respective comparable periods. Approximately
$38,000,000 of the December 31, 1998 backlog is for product deliveries beyond
2001. The unfunded portion of the backlog is based on the Company's customers'
estimated quantities for multi-year agreements for which the Company has not
received firm orders.
Income before income taxes increased $446,000 or 44.2% to $1,456,000 for
the year ended December 31, 1998 from $1,010,000 for the year ended December 31,
1997.
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<PAGE> 11
Selling, general and administrative costs increased by approximately 4%
for the year ended December 31, 1998 when compared to the same period in 1997.
This is primarily attributable to the increase in net revenues. Interest expense
decreased by approximately 7% for the same comparable periods due to a decrease
in interest rates and long-term debt while depreciation expense decreased due to
a decrease in capital expenditures.
Income taxes for the year ended December 31, 1998, as a percentage of
income before taxes, increased when compared to the same period in 1997 because
of the effects of variable state income taxes.
Results of Operations - Year 1997 as Compared to 1996
- -----------------------------------------------------
The Company's consolidated results of operations for the year ended
December 31, 1997 showed an approximate 2% increase in net revenues with an
increase in operating income as a percentage of net revenues from approximately
11.5% to 12.7% when compared to the same period in 1996. The increase in
revenues is attributable to a 16% increase in revenues at the Advanced
Technology Group as the result of past and current engineering, marketing and
other support efforts and new programs and applications, offset by a 14%
decrease in revenues at the Consumer Products Group due to a decrease in
customer demand and the phasing out of low margin product lines.
The respective amounts of the funded and unfunded sales backlog at
December 31, 1997 and 1996 for the Advanced Technology Group were approximately
$59,192,000 and $46,462,000, a year to year increase of 27%, of which
$51,235,000 and $38,075,000 was unfunded in the respective comparable periods.
Approximately $38,000,000 of the December 31, 1997 backlog is for product
deliveries beyond 2000. The unfunded portion of the backlog is based on the
Company's customers' estimated quantities for multi-year agreements for which
the Company has not received firm orders.
Income before income taxes increased $188,000 or 23% to $1,010,000 for
the year ended December 31, 1997 from $822,000 for the year ended December 31,
1996 when comparing net income before income taxes and the net gain on sale of
assets. The net gain on the sale of assets of $639,000 was recognized in the
year ended December 31, 1996 and no similar gain occurred in 1997.
Selling, general and administrative costs increased by approximately 2%
for the year ended December 31, 1997 when compared to the same period 1996. This
is primarily attributable to the
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<PAGE> 12
increase in net revenues. Interest expense remained relatively consistent for
the same comparable periods while depreciation expense increased due to an
increase in capital expenditures.
Income taxes for the year ended December 31, 1997, as a percentage of
income before taxes, decreased when compared to the same period in 1996 due to
variable state income tax rates.
Liquidity and Capital Resources
- -------------------------------
Certain contracts of the Advanced Technology Group require engineering
and other support costs in addition to hardware and the maintenance of inventory
for replacement and/or overhaul. The replacement and/or overhaul units are
billed at the time of shipment. The inventories at December 31, 1998 include
costs associated with the initiation and maintenance of certain programs and
costs in anticipation of increased demands upon the Company to support new
programs and the request of customers' for shorter production lead time. Also
included in inventory are $125,000 of capitalized costs associated with the
introduction of new product lines. See also Note 2 to the consolidated Financial
Statements for information concerning engineering and other support costs.
During the year ended December 31, 1998, the Company expended $471,000 on
capital expenditures. During the year ended December 31, 1997, the Company
expended $685,000. The Company also has a $1,000,000 line of credit at December
31, 1998 on which there is no amount outstanding at December 31, 1998.
There are no material commitments for capital expenditures at December
31, 1998.
In 1991, the Company's Board of Directors authorized the purchase by the
Company of up to 250,000 additional shares of its common stock in open and
privately negotiated transactions for a total authorized purchase of up to
350,000 shares, of which 256,045 shares have been purchased.
YEAR 2000 INITIATIVES
The Company is reliant on systems that use time-based mechanisms for
asset and information management. Management recognizes that such systems may
have potential problems affecting their capabilities because of the Year 2000
date change. The Company also has relationships with vendors, services and
product suppliers, customers and financial institutions among others, which are
reliant on such systems. It is possible that Year 2000 problems encountered by
the Company or these outside parties could result in a loss of business that is
potentially material to the Company.
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<PAGE> 13
During the previous and current years, the Company formulated, initiated
and continued the implementation of a three-phase plan to determine and, when
appropriate, address any internal or external Year 2000 problems to the extent
they existed. Phase I identified internal and external (outside parties with a
material relationship to the Company) Year 2000 compliance concerns. Phase II
assessed the Year 2000 readiness of the Company. Phase III is the implementation
of solutions and contingency plans for the potential problems identified during
Phase I and Phase II.
To date, the Company has assessed its internal computing systems and
determined that there are no apparent material Year 2000 issues, although
certain reprogramming of internal systems were determined to be desirable and
are being accomplished. With respect to external compliance, the Company has
developed and mailed a Year 2000 survey to its suppliers, customers and
financial institutions to determine their Year 2000 readiness and compliance. As
of March 18, 1999, the Company has not received notification from any such
outside parties that any material Year 2000 readiness or compliance issues have
been identified.
The Company is implementing phase III and is in the process of making
reprogramming changes to internal software as well as upgrading to Year 2000
compliant versions of purchased desktop software. The Company is unaware of any
internal Year 2000 issues that will not be resolved by the end of 1999. Should
the Company become aware of any internal or external Year 2000 issues that will
not be resolved by the end of 1999, it will immediately formulate and implement
the appropriate solutions and contingency plans. In any event, it is anticipated
that the Company will complete all phases of its Year 2000 plan by the end of
1999.
The Company does not believe that the costs of Year 2000 compliance will
be material and anticipates such costs will be funded out of working capital. At
this time, the Company cannot predict the final outcome of the on-going survey
and assessment of the outside parties considered important to the Company's
business or the ability of such outside parties to achieve Year 2000 Compliance
by the end of 1999.
Item 7. Financial Statements
- ------- --------------------
The financial statements of the Registrant which are included in this
Form 10-KSB Annual Report are described in the accompanying Index to
Consolidated Financial Statements on Page F1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- ------- --------------------------------------------------------------
Financial Disclosure
--------------------
None.
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<PAGE> 14
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons;
- ------- -------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
Information regarding directors and executive officers of the Registrant
is incorporated herein by reference to the information included in the
Registrant's definitive proxy statement if it is filed with the Commission
within 120 days after the end of the Registrant's 1998 fiscal year or such
information will be included by amendment.
Item 10. Executive Compensation
- -------- ----------------------
Information regarding executive compensation is incorporated herein by
reference to the information included in the Registrant's definitive proxy
statement if it is filed with the Commission within 120 days after the end of
the Registrant's 1998 fiscal year or such information will be included by
amendment.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the information included in
the Registrant's definitive proxy statement if it is filed with the Commission
within 120 days after the end of the Registrant's 1998 fiscal year or such
information will be included by amendment.
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information included in the Registrant's
definitive proxy statement if it is filed with the Commission within 120 days
after the end of the Registrant's 1998 fiscal year or such information will be
included by amendment.
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<PAGE> 15
Item 13. Exhibits And Reports On Form 8-K
- -------- --------------------------------
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------ ------------ ---------
<S> <C> <C>
3(A)(1) Certificate of Incorporation Exhibit 3(A)(1) to 1996
Form 10-KSB*
3(A)(2) Amendments to Certificate Exhibit 3(A)(2) to 1996
of Incorporation dated Form 10-KSB*
August 27, 1984
3(A)(3) Certificate of designation Exhibit 4(A) to 1987
regarding Series I Form 10-K*
preferred stock
3(A)(4) Amendments to Certificate Filed herewith
of Incorporation dated
June 30, 1998
3(B) By-laws Exhibit 3(B) to 1986
Form 10-K*
4(A) First amended and restated Exhibit 4(A) to 1993
term loan agreement with Form 10-KSB*
Fleet Bank of New York
dated October 4, 1993
4(B)(1) Letter of Credit Reimbursement Exhibit 4(B)(1) to
Agreement with Fleet Bank 1994 10-KSB*
dated as of December 1, 1994
4(B)(2) Agency Mortgage and Security Exhibit 4(B)(2) to
Agreement dated as of 1994 10-KSB*
December 1, 1994 from the
Registrant and its subsidiaries
4(B)(3) Guaranty Agreement dated as Exhibit 4(B)(3) to
of December 1, 1994 from the 1994 10-KSB*
Registrant and its subsidiaries
to the Erie County Industrial
Development Agency ("ECIDA"),
Norwest Bank Minnesota, N.A.,
as Trustee, and Fleet Bank
4(C) Shareholder Rights Plan Attachment B to Form
dated as of August 13, 8-K filed August 17,
1992 1992*
------------------------------------------------------
*Incorporated herein by reference (File No. 1-7109)
**Indicates management contract or compensatory plan or arrangement
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------ ------------ ---------
<S> <C> <C>
10(A)(1) Employment contract** Exhibit 10(A) to 1986
Form 10-K*
10(A)(2) Amendment to employment Filed herewith
contract**
10(A)(3) Amendment to employment Filed herewith
contract**
10(A)(4) Amendment to employment Filed herewith
contract**
10(B) Form of Indemnification Exhibit 10(E) to 1986
Agreement between the Form 10-K*
Registrant and each of
its Directors and Officers**
10(C)(1) Loan agreement between Exhibit 10(C)(1)
the Company and its to 1991 Form 10-K*
employee stock ownership
trust, as amended
10(C)(2) Stock purchase agreement Exhibit 10(D)(2) to
between the Company 1988 Form 10-K*
and its employee
stock ownership trust
10(D)(1)(a) 1989 Employees Stock Exhibit A to Form
Option Plan** 8: Amendment
No. 1 to 1988
Form 10-K*
10(D)(1)(b) Amendment to 1989 Exhibit 10(D)(1)(b)
Employees Stock Option to 1990 Form 10-K*
Plan**
10(D)(1)(c) Amendment No. 2 to Exhibit 10(D)(1)(d) to
1989 Employees Stock 1991 Form 10-K*
Option Plan**
10(D)(2) Stock Option Agreement Filed herewith
for Donald W. Hedges
dated March 24, 1998**
--------------------------------------------------------------------
*Incorporated herein by reference (File No. 1-7109)
**Indicates management contract or compensatory plan or arrangement
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------ ------------ ---------
<S> <C> <C>
10(D)(3)(a) Stock Option Agreement Exhibit D to Form
for Nicholas D. 8: Amendment
Trbovich, Sr. dated No. 1 to 1988
March 29, 1989** Form 10-K*
10(D)(3)(b) Stock Option Agreement Filed herewith
for Nicholas D.
Trbovich, Sr. dated
March 24, 1998**
10(D)(4) Stock Option Agreement Filed herewith
for William H. Duerig
dated March 24, 1998**
10(D)(5)(a) Stock Option Agreement Exhibit 10(D)(5) to 1990
for Nicholas D. Form 10-K*
Trbovich, Jr. dated
December 21, 1990**
10(D)(5)(b) Stock Option Agreement Filed herewith
for Nicholas D.
Trbovich, Jr. dated
March 24, 1998**
10(D)(6)(a) Stock Option Agreement Exhibit 10(D)(6) to 1991
for Nicholas D. Form 10-K*
Trbovich, Jr. dated
October 17, 1991**
10(D)(6)(b) Stock Option Agreement Filed herewith
for Nicholas D.
Trbovich, Jr. dated
March 24, 1998**
10(D)(7)(a) Stock Option Agreement Exhibit 10(D)(7) to 1991
for Lee D. Burns dated Form 10-K*
October 17, 1991**
10(D)(7)(b) Stock Option Agreement Filed herewith
for Lee D. Burns dated
March 24, 1998**
-------------------------------------------------------------------
*Incorporated herein by reference (File No. 1-7109)
**Indicates management contract or compensatory plan or arrangement
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
Exhibit
number Presentation Reference
------ ------------ ---------
<S> <C> <C>
10(D)(8)(a) Stock Option Agreement Exhibit 10(D)(8) to 1991
for Raymond C. Zielinski Form 10-K*
dated October 17, 1991**
10(D)(8)(b) Stock Option Agreement Filed herewith
for Raymond C. Zielinski
dated March 24, 1998**
10(D)(9) Land Lease Agreement between Exhibit 10(D)(9) to 1992
TSV, Inc. (wholly-owned Form 10-KSB*
subsidiary of the Registrant)
and the ECIDA
dated as of May 1, 1992, and
Corporate Guaranty of the
Registrant dated as of May 1,
1992
10(D)(10) Amendment to Land Lease Exhibit 10(D) (11) to 1993
Agreement and Interim Form 10-KSB*
Lease Agreement dated
November 19, 1992
10(D)(11) Lease Agreement dated as of Exhibit 10(D)(11) to
December 1, 1994 between 1994 10-KSB*
the Erie County Industrial
Development Agency
("ECIDA") and TSV, Inc.
10(D)(12) Sublease Agreement dated as Exhibit 10(D)(12) to
of December 1, 1994 between 1994 10-KSB*
TSV, Inc. and the Registrant
21 Subsidiaries of the Exhibit 22 to 1992
Registrant Form 10-KSB*
</TABLE>
The Registrant hereby agrees that it will furnish to the
Securities and Exchange Commission upon request a copy of
any instrument defining the rights of holders of long-term
debt not filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter
of the year ended December 31, 1998.
-------------------------------------------------------------
*Incorporated herein by reference (File No. 1-7109)
**Indicates management contract or compensatory plan or
arrangement
-18-
<PAGE> 19
FORWARD-LOOKING STATEMENTS
In addition to historical information, certain sections of this Form 10-KSB
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's capital resources and profitability.
Forward-looking statements involve numerous risks and uncertainties. The Company
derives approximately 24% of its revenues from contracts with agencies of the
U.S. Government or their prime contractors. The Company's business is performed
under fixed price contracts and the following factors, among others discussed
herein, could cause actual results and future events to differ materially from
those set forth or contemplated in the forward-looking statements: uncertainties
in today's global economy, the growth of the national deficit and difficulty in
predicting defense appropriations, the discontinuance of current defense
programs, the vitality of the commercial aviation industry and its ability to
purchase new aircraft, the willingness and ability of the Company's customers to
fund and issue substantial follow-on orders to the Company for long-term
programs, competitive products and pricing, difficulties in the development or
commercialization of products, product demand and market acceptance, both for
the Company's products and its customers' products which incorporate components
supplied by the Company, enforceability of intellectual property rights,
capacity and supply, the effects of foreign competition, and the Company's
future accounting policies. The success of the Company also depends upon the
trends of the economy, including interest rates, income tax laws, governmental
regulation, legislation, population changes and those risk factors discussed
elsewhere in this Form 10-KSB. Readers are cautioned not to place undue reliance
on forward-looking statements, which reflect management's analysis only as the
date hereof. The Company assumes no obligation to update forward-looking
statements.
-19-
<PAGE> 20
SIGNATURES
----------
In accordance with of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SERVOTRONICS, INC.
March 18, 1999 By /s/ Nicholas D. Trbovich, President
-----------------------------------------
Nicholas D. Trbovich
President, Chief Executive Officer
and Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Nicholas D. Trbovich President, Chief Executive March 18, 1999
- ------------------------ Officer, Chairman of the
Nicholas D. Trbovich Board and Director
/s/ Lee D. Burns Treasurer and Secretary March 18, 1999
- ------------------------ (Chief Financial Officer)
Lee D. Burns
/s/ Donald W. Hedges Director March 18, 1999
- ----------------------
Donald W. Hedges
/s/ William H. Duerig Director March 18, 1999
- ----------------------
William H. Duerig
/s/ Nicholas D. Trbovich Jr. Director March 18, 1999
- ----------------------
Nicholas D. Trbovich Jr.
</TABLE>
-20-
<PAGE> 21
SERVOTRONICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of independent accountants F2
Consolidated balance sheet at December 31, 1998 F3
Consolidated statement of income for the years ended
December 31, 1998 and 1997 F4
Consolidated statement of cash flows for the years ended
December 31, 1998 and 1997 F5
Notes to consolidated financial statements F6-F20
</TABLE>
Financial statement schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
-F1-
<PAGE> 22
Report of Independent Accountants
To the Board of Directors and Shareholders of
Servotronics, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index on page F1 present fairly, in all material respects, the financial
position of Servotronics, Inc. and its subsidiaries at December 31, 1998 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Buffalo, New York
March 18, 1999
-F2-
<PAGE> 23
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1998
($000's omitted except per share data)
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 1,009
Accounts receivable 2,198
Inventories 8,984
Prepaid income taxes 15
Deferred tax asset 539
Other 1,376
--------
Total current assets 14,121
Property, plant and equipment, net 7,210
Other assets 630
--------
$ 21,961
========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 249
Accounts payable 890
Accrued employee compensation and benefit costs 930
Other accrued liabilities 183
--------
Total current liabilities 2,252
--------
Long-term debt 6,144
Non-current deferred tax liability 477
Other non-current liability 277
Shareholders' equity:
Common stock, par value $.20; authorized
4,000,000 shares; Issued 2,614,506 shares 523
Capital in excess of par value 13,324
Retained earnings 2,904
Accumulated other comprehensive income (43)
--------
16,708
Employee stock ownership trust commitment (2,741)
Treasury stock, at cost 238,012 shares (1,156)
--------
Total shareholders' equity 12,811
--------
$ 21,961
========
</TABLE>
See notes to consolidated financial statements
-F3-
<PAGE> 24
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
($000's omitted except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Net revenues $17,571 $15,892
Costs and expenses:
Cost of goods sold 11,983 10,800
Selling, general and administrative 3,188 3,071
Interest 312 337
Depreciation and amortization 632 674
------- -------
16,115 14,882
------- -------
Income before income taxes 1,456 1,010
Income tax provision 597 391
------- -------
Net income $ 859 $ 619
------- -------
Net income per share - Basic $ 0.49 $ 0.37
======= =======
Net income per share - Diluted $ 0.48 $ 0.36
======= =======
</TABLE>
See notes to consolidated financial statements
-F4-
<PAGE> 25
SERVOTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
($000's omitted)
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows related to operating activities:
Net income $ 859 $ 619
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 632 674
Deferred taxes 74 (85)
Tax benefit from stock options 55 0
Change in assets and liabilities -
Accounts receivable 4 512
Inventories (956) (821)
Prepaid income taxes 23 (38)
Other current assets 10 (257)
Other assets 15 15
Accounts payable (140) 39
Accrued employee compensation & benefit costs 121 (65)
Other accrued liabilities (76) 39
Accrued income taxes 0 (200)
Employee stock ownership trust payment 101 101
------- -------
Net cash provided by operating activities 722 533
------- -------
Cash flows related to investing activities:
Capital expenditures - property, plant &
equipment (471) (685)
------- -------
Net cash used in investing activities (471) (685)
------- -------
Cash flows related to financing activities:
Increase in demand loan 250 500
Payments on demand loan (450) (300)
Principal payments on long-term debt (250) (252)
Issuance of common stock 23 0
------- -------
Net cash used in financing activities (427) (52)
------- -------
Net decrease in cash (176) (204)
Cash at beginning of period 1,185 1,389
------- -------
Cash at end of period $ 1,009 $ 1,185
======= =======
Supplemental disclosures:
Income taxes paid $ 451 $ 697
Interest paid $ 314 $ 334
</TABLE>
See notes to consolidated financial statements
-F5-
<PAGE> 26
SERVOTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
------------------------------------------
The principal accounting policies of Servotronics, Inc. (the Company) and
subsidiaries are as follows:
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of
Servotronics, Inc. and its wholly-owned subsidiaries.
Cash and cash equivalents
-------------------------
The Company considers cash and cash equivalents to include all cash
accounts and short-term investments purchased with a maturity of three
months or less.
Revenue recognition
-------------------
The Company incurred costs for certain contracts which are long term.
These contracts are accounted for under the percentage of completion
method (cost-to-cost) which recognizes revenue as the work progresses
towards completion. Revenues on the remaining contracts are recognized
when the terms of purchase orders are met.
Included in other current assets is $683,000 of unbilled revenues which
represents revenue earned under the percentage of completion method
(cost-to-cost) not yet billable under the terms of the contracts.
Inventories
-----------
Inventories are stated generally at the lower of standard cost, which
approximates actual cost (first-in, first-out), or market.
-F6-
<PAGE> 27
Property, plant and equipment
-----------------------------
Property, plant and equipment is carried at cost; expenditures for new
facilities and equipment and expenditures which substantially increase
the useful lives of existing plant and equipment are capitalized;
expenditures for maintenance and repairs are charged directly to cost or
expenses as incurred. Upon retirement or disposal of properties, the
related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is included in income.
Depreciation is provided on the basis of estimated useful lives of
depreciable properties, primarily by the straight-line method for
financial statement purposes and by accelerated methods for tax purposes.
Depreciation expense includes the amortization of capital lease assets.
The estimated useful lives of depreciable properties are generally as
follows:
Buildings and improvements 5-39 years
Machinery and equipment 5-15 years
Tooling 3-5 years
Income taxes
------------
The Company and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns.
The Company follows the asset and liability approach to account for
income taxes. This approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of
assets and liabilities.
Employee stock ownership plan
-----------------------------
Contributions to the employee stock ownership plan are determined
annually by the Company according to plan formula.
-F7-
<PAGE> 28
Use of estimates
----------------
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates employed by
management include those used in revenue recognition, amortization of
engineering and other support costs included in inventory (See Note 2).
Actual results could differ from those estimates.
2. Inventories
------------
<TABLE>
<CAPTION>
December 31, 1998
-----------------
($000's omitted)
<S> <C>
Raw materials and common parts $ 1,425
Work-in-process (including engineering
and other support costs of $2,615,000) 7,231
Finished goods 564
----------
9,220
Less common parts expected to be used
after one year (236)
----------
$ 8,984
==========
</TABLE>
Engineering and other support costs are incurred in fulfilling certain
contracts which have a production cycle longer than one year. A portion
of these costs will therefore not be realized within one year.
Start-up costs
--------------
During 1997, the Company's CPG capitalized start-up costs of $251,000
relating to the introduction of new product lines. The costs associated
with the introduction of these product lines were deferred and were being
amortized using the half year convention over a three year period. No
similar amounts were capitalized during 1998. The remaining unamortized
balance at December 31, 1998 of
-F8-
<PAGE> 29
$125,000 will be written off on January 1, 1999 in accordance with
Statement of Position No. 98-5 "Reporting on the Cost of Start-Up
Activities".
3. Property, plant and equipment
-----------------------------
<TABLE>
<CAPTION>
December 31, 1998
($000's omitted)
<S> <C>
Land $ 11
Buildings and improvements 6,154
Machinery, equipment and tooling 8,461
----------
14,626
Less accumulated depreciation (7,416)
----------
$ 7,210
==========
</TABLE>
4. Long-term debt
<TABLE>
<CAPTION>
December 31, 1998
-----------------
($000's omitted)
<S> <C>
Industrial Development Revenue Bonds; secured by a
letter of credit from a bank with interest payable monthly
at a floating rate (4.15% at December 31, 1998) $ 5,000
Unsecured term note; payable to a bank with
interest at prime plus 1/4% (8.00% at
December 31, 1998); quarterly principal
payments of $34,439 through November 1, 2000 241
Various other secured term notes payable to government agencies 1,152
----------
6,393
Less current portion (249)
----------
$ 6,144
==========
</TABLE>
Industrial Development Revenue Bonds were issued by a government agency
to finance the construction of the Company's new headquarters/Advanced
Technology facility. Annual sinking fund payments of $170,000 commence
December 1, 2000 and continue through 2013, with a final payment of
$2,620,000 due December 1, 2014. The Company has agreed to reimburse the
issuer of the letter of credit if there are draws on that letter of
credit. The Company pays the letter of credit bank an
-F9-
<PAGE> 30
annual fee of 1% of the amount secured thereby and pays the remarketing
agent for the bonds an annual fee of .25% of the principal amount
outstanding. The Company's interest under the facility capital lease has
been pledged to secure its obligations to the government agency, the bank
and the bondholders.
The letter of credit reimbursement agreement, the unsecured term note
agreement and the secured term notes contain, among other things,
covenants relative to maintenance of working capital and tangible net
worth and restrictions on capital expenditures, leases and additional
borrowings. On February 26, 1999, the company received a $1,000,000 loan
from a financial institution payable in equal quarterly installments,
maturing in 2006. The proceeds were used to pay off the unsecured term
note as disclosed above and to finance purchases of equipment and working
capital. $500,000 of the loan is at a rate of LIBOR plus 2% and the
remaining $500,000, used to acquire equipment, is at a current rate of
5.86%, which is partially subsidized by New York State.
Principal maturities of long-term debt are as follows: 2000 - $404,000;
2001 - $250,000; 2002 - $405,000, 2003 - $235,000, 2004 and thereafter
$4,850,000.
The Company also has a $1,000,000 line of credit on which there was no
amount outstanding at December 31, 1998.
5. Employee benefit plans
----------------------
Employee stock ownership plan (ESOP)
------------------------------------
Under the Company's ESOP adopted in 1985, participating employees are
awarded shares of the Company's common stock based upon salary levels and
minimum service requirements. Upon inception of the ESOP, the Company
borrowed $2,000,000 from a bank and lent the proceeds to the trust
established under the ESOP to purchase shares of the Company's common
stock. The Company's loan to the trust is at an interest rate
approximating the prime rate and is repayable to the Company over a
40-year term ending in December 2024. During 1987 and 1988, the Company
loaned an additional $1,942,000 to the trust under terms similar to the
Company's original loan. Each year the Company makes contributions to the
trust which the plan's trustees use to repay the principal and interest
due the Company under the trust loan agreement. Shares held by the trust
are allocated in the aggregate to participating employees in proportion
to the amount of the loan repayment made by the trust to the Company.
Since inception of the ESOP, approximately 314,000 shares have been
allocated, exclusive of shares distributed to
-F10-
<PAGE> 31
ESOP participants. At December 31, 1998 and 1997, approximately 594,000
and 629,000 shares, respectively, purchased by the ESOP remain
unallocated.
Related compensation expense associated with the Company's ESOP, which is
equal to the principal reduction on the loans receivable from the trust,
amounted to $101,000 in 1998 and 1997. Included as a reduction to
shareholders' equity is the employee stock ownership trust commitment
which represents the remaining indebtedness of the trust to the Company.
Employees are entitled to vote allocated shares and the ESOP trustees are
entitled to vote unallocated shares and those allocated shares not voted
by the employees.
Defined benefit plan
--------------------
During 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 132 "Employer' Disclosures about Pensions and
other Post-Retirement Benefits" (FAS 132). Adoption of FAS 132 did not
effect the Company's results of operations or financial position.
A Consumer Products division subsidiary of the Company maintains a
noncontributory defined benefit pension plan covering substantially all
its employees. Plan benefits are based on stated amounts for each year of
service; funding is in accordance with statutory requirements. Pension
cost of $28,000 and $29,000 was recognized in 1998 and 1997,
respectively, calculated using a weighted-average discount rate of 6.5%
and 8.0%, respectively, and weighted-average expected rate of return on
plan assets of 8.0% for both years. The projected benefit obligation
under the plan at December 31, 1998 was $137,000, net of $149,000 of plan
assets at fair value.
Deferred compensation plan
--------------------------
The Company maintains a deferred compensation program designed to
achieve, among other things, benefit parity for an officer of the
Company. During 1998 and 1997, no amount was accrued under this program.
No amounts under this plan have been paid since its inception. Accrued in
the December 31, 1998 consolidated balance sheet is $420,000.
-F11-
<PAGE> 32
6. Income taxes
------------
The provision for income taxes included in the consolidated statement of
income consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
($000's omitted)
<S> <C> <C>
Current:
Federal income tax $ 450 $ 387
State income tax 73 89
------- -------
523 476
------- -------
Deferred:
Federal income tax (benefit) 62 (72)
State income tax (benefit) 12 (13)
------- -------
74 (85)
------- -------
$ 597 $ 391
======= =======
</TABLE>
The reconciliation of the difference between the Company's effective tax
rate based upon the total income tax provision and the federal statutory
income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Statutory rate 34% 34%
Increase resulting from:
State tax (net of federal benefit) 5% 5%
Other 2% -%
--- ---
41% 39%
=== ===
</TABLE>
-F12-
<PAGE> 33
At December 31, 1998, the deferred tax assets (liabilities) were
comprised of the following:
<TABLE>
<CAPTION>
($000's omitted)
<S> <C>
Inventory $ 208
Accrued pension 153
Accrued vacation 148
Other 59
--------
Gross deferred tax assets 568
Property, plant and equipment (468)
Other (38)
--------
Gross deferred tax liabilities (506)
--------
Net deferred tax asset $ 62
========
</TABLE>
7. Common shareholders' equity
<TABLE>
<CAPTION>
Common stock Accumulated
Number Capital in other
of shares excess of Retained Treasury Comprehensive comprehensive
issued Amount par value earnings ESOP stock income income
--------- --------- --------- --------- --------- --------- ------------- ---------
($000's omitted)
<S> <C> <C> <C> <C> <C> <C>
Balance December
31, 1996 2,614,506 $ 523 $ 13,269 $ 1,485 ($ 2,943) ($ 1,240) -- --
Compensation expense -- -- -- -- 101 -- -- --
Net income -- -- -- 619 -- -- $ 619 --
--------- --------- --------- --------- --------- --------- ========= ---------
Balance December
31, 1997 2,614,506 $ 523 $ 13,269 $ 2,104 ($ 2,842) ($ 1,240) --
Comprehensive income
Net income -- -- -- $ 859 -- -- $ 859 --
Other comprehensive income,
net of tax -- -- -- -- -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- -- (43) (43)
---------
Other comprehensive income -- -- -- -- -- -- (43) --
---------
Comprehensive income -- -- -- -- -- -- $ 816 --
=========
Issuance of common stock -- -- -- (59) -- -- --
Compensation expense -- -- -- -- 101 -- --
Treasury stock -- -- -- -- -- 84 --
Exercise of stock options -- -- 55 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balance December
31, 1998 2,614,506 $ 523 $ 13,324 $ 2,904 ($ 2,741) ($ 1,156) ($ 43)
========= ========= ========= ========= ========= ========= =========
</TABLE>
-F13-
<PAGE> 34
Earnings per share
------------------
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding during the period. Diluted
earnings per share is computed by dividing net earnings by the weighted
average number of shares outstanding during the period plus the number of
shares of common stock that would be issued assuming all contingently
issuable shares having a dilutive effect on earnings per share were
outstanding for the period.
<TABLE>
<CAPTION>
($000's omitted, except per share data) 1998 1997
--------------------------------------- ---- ----
<S> <C> <C>
Net earnings $859 $619
Weighted average common
shares outstanding (basic) 1,742 1,696
Incremental shares from
assumed conversions of stock options 30 32
Weighted average common
shares outstanding (diluted) 1,772 1,728
Earnings per share:
Basic $0.49 $0.37
Diluted $0.48 $0.36
</TABLE>
Comprehensive income
--------------------
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130
established standards for reporting and displaying comprehensive income
and its components. Adoption of FAS 130 had no impact on the Company's
results of operations or its financial position. The minimum pension
liability adjustment of $43,000, net tax effect of $29,000, is the only
component of other comprehensive income for 1998.
Stock options
-------------
Under the Servotronics, Inc. 1989 Employees Stock Option Plan (the Option
Plan) and other separate agreements authorized by the Board of Directors,
the Company
-F14-
<PAGE> 35
has granted non-qualified options to its Directors and Officers. The
Company applies APB Opinion No. 25 and related interpretations in
accounting for the Option Plan and the separate option agreements.
Accordingly, no compensation expense has been charged to earnings in 1998
or prior years as stock options granted have an exercise price equal to
the market price on the date of grant. At December 31, 1998, 3,200 shares
of common stock were available under the Option Plan. Options granted
under the Option Plan have durations of ten years.
A summary of the status of options granted under all employee plans is
presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Options Exercise Options Exercise
Outstanding Price Exercisable Price
----------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1996 92,729 3.08 92,729 3.08
Granted in 1997 - - -
Exercised in 1997 - - -
Forfeited in 1997 - - -
Outstanding as of December 31, 1997 92,729 3.08 92,729 3.08
Granted in 1998 93,000 8.50 47,250 8.50
Exercised in 1998 (25,186) 2.32 (25,186) 2.32
Forfeited in 1998 - - -
Outstanding as of December 31, 1998 160,543 6.34 114,793 5.48
</TABLE>
The following tables summarize information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
Average
Remaining
Exercise Number contractual Options
Prices ($) Outstanding Life Exercisable
------------------------------------------------------------------
<S> <C> <C> <C> <C>
2.07 12,593 2 years 12,593
2.63 37,778 1 years 37,778
5.95 17,172 2 years 17,172
8.50 93,000 9 years 47,250
------- -------
Total 160,543 114,793
======= =======
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). 47,250 of the 93,000 options granted in 1998
vested in 1998 and the
-F15-
<PAGE> 36
remaining options vest over a three year period. The options calculated
estimated values, using the Black-Scholes option-pricing model as a
basis, are amortized to expense over the options vesting period. If the
compensation cost for these plans had been determined based on the
Black-Scholes calculated values at the grant dates for awards consistent
with the method prescribed by FAS 123, the pro forma effects on the years
ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Net income:
As reported 859,000 619,000
Pro forma 706,000 619,000
Earnings per common share:
As reported - basic .49 .37
As reported - diluted .48 .36
Pro forma - basic .41 .37
Pro forma - diluted .40 .36
</TABLE>
The Black-Scholes calculated estimated value of the options granted in
1998 was $5.48. The assumptions used to calculate this value include a
risk-free interest rate of 5.63%, an expected term of 8 years, and an
annual standard deviation (volatility) factor of 53%. The Black-Scholes
option pricing model was developed for use in estimating values of traded
options that have no vesting restrictions and are fully transferable. In
addition, option pricing models require the use of highly subjective
assumptions, including the expected stock price volatility. Because the
Company's stock options are restricted and have characteristics
significantly different from those of traded options, and because changes
in the subjective assumptions can materially affect the calculated
estimated values, in the Company's opinion the existing models do not
necessarily provide a reliable measure of the value of the Company's
stock options. The estimated value calculated by the Black-Scholes
methodology is hypothetical and does not represent an actual tangible
Company expense or an actual tangible monetary transfer to the optionee.
Further, for the reasons stated above (among others) and especially
because of the volatility factor used in the Black-Scholes calculations
for the Company's 1998 options, the derived estimated value may be, in
the Company's opinion, substantially higher than the value which may be
realized in an arms-length transaction under the above stated and
existing conditions.
-F16-
<PAGE> 37
Shareholders' rights plan
-------------------------
During 1992, the Company's Board of Directors adopted a shareholders'
rights plan (the "Rights Plan") and simultaneously declared a dividend of
one Right for each outstanding share of the Company's common stock
outstanding at August 28, 1992. The Rights do not become exercisable
until the earlier of (i) the date of the Company's public announcement
that a person or affiliated group other than Dr. Nicholas D. Trbovich or
the ESOP trust (an "Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 25% or more of the Company's
common stock (excluding shares held by the ESOP trust) or (ii) ten
business days following the commencement of a tender offer that would
result in a person or affiliated group becoming an Acquiring Person.
The exercise price of a Right has been established at $30.00. Once
exercisable, each Right would entitle the holder to purchase one
one-hundredth of a share of Series A Junior Participating Preferred
Stock. In the event that any person becomes an Acquiring Person, each
Right would entitle any holder other than the Acquiring Person to
purchase common stock or other securities of the Company having a value
equal to three times the exercise price. The Board of Directors has the
discretion in such event to exchange two shares of common stock or two
one-hundredths of a share of preferred for each Right held by any holder
other than the Acquiring Person.
8. Commitments
-----------
The Company leases certain equipment pursuant to operating lease
arrangements. Total rental expense in 1998 and 1997 and future minimum
payments under such leases are not significant.
9. Litigation
----------
There are no legal proceedings which are material to the Company
currently pending by or against the Company other than ordinary routine
litigation incidental to the business which is not expected to materially
adversely affect the business or earnings of the Company.
Included in 1998 net revenues is $210,000 of gross receipts resulting
from the resolution of disputes, $85,000 of which was recognized in the
fourth quarter.
-F17-
<PAGE> 38
10. Involuntary conversion
-----------------------
During the fourth quarter of 1994, the Company suffered damages caused by
a fire at one of its subsidiaries. The Company maintained property and
business interruption insurance. Included in other current assets at
December 31, 1998 is a receivable for an insurance claim of $275,000
which was subsequently paid on January 20, 1999.
11. Business segments
-----------------
The Company operates in two business segments, Advanced Technology
Products and Consumer Products. The Company's reportable segments are
strategic business units that offer different products and services. The
segments are separate corporations and are managed separately. Operations
in Advanced Technology Products involve the design, manufacture, and
marketing of servo-control components for government and commercial
industrial applications. Consumer Products operations involve the design,
manufacture and marketing of a variety of cutlery products for use by
consumers and government agencies. The Company derives substantially all
of its sales revenue from domestic customers.
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related
Information". This statement revised the manner in which an enterprise
must report information concerning its' operating segments. Adoption of
this statement by the Company did not require significant changes in the
way segments were disclosed.
-F18-
<PAGE> 39
Information regarding the Company's operations in these segments is summarized
as follows:
<TABLE>
<CAPTION>
Advanced
Year ended Technology Consumer
December 31, 1998 Products Products Consolidated
----------------- -------- -------- ------------
($000's omitted)
<S> <C> <C> <C>
Revenues from unaffiliated customers $ 10,972* $ 6,599 $ 17,571
======== ======== ========
Operating profit $ 2,185 $ 2 $ 2,187
======== ========
Interest expense (312)
General corporate expense (419)
--------
Income before income taxes $ 1,456
========
Identifiable assets $ 14,572 $ 5,698 $ 20,270
======== ======== ========
Depreciation expense $ 352 $ 280 $ 632
======== ======== ========
Capital expenditures $ 200 $ 271 $ 471
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Advanced
Year ended Technology Consumer
December 31, 1997 Products Products Consolidated
----------------- -------- -------- ------------
($000's omitted)
<S> <C> <C> <C>
Revenues from unaffiliated customers $ 9,533 $ 6,359 $ 15,892
======== ======== ========
Operating profit $ 2,049 $ (277) $ 1,772
======== ========
Interest expense (337)
General corporate expense (425)
--------
Income before income taxes $ 1,010
========
Identifiable assets $ 15,097 $ 5,636 $ 20,733
======== ======== ========
Depreciation expense $ 369 $ 305 $ 674
======== ======== ========
Capital expenditures $ 456 $ 229 $ 685
======== ======== ========
</TABLE>
* Includes $210,000 of gross receipts on the settlement of disputes. See note 9.
-F19-
<PAGE> 40
The Company engages in a significant amount of business with the United
States Government through sales to its prime contractors and otherwise.
Such contracts by the Advanced Technology segment accounted for revenues
of approximately $3,828,000 in 1998 and $2,784,000 in 1997. Similar
contracts by the Consumer Products segment accounted for revenues of
approximately $325,000 in 1998 and $327,000 in 1997. Sales of advanced
technology products to one prime contractor, including various divisions
and subsidiaries of a common parent company, amounted to approximately
14% and 19% of total revenues in 1998 and 1997, respectively. Another
customer amounted to approximately 21% of total revenues in 1998 and 18%
of total 1997 revenues respectively. No other single customer represented
more than 10% of the Company's revenues in any of these years.
-F20-
<PAGE> 1
Exhibit 3(A)(4)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SERVOTRONICS, INC.
PURSUANT TO SECTION 242 OF
THE DELAWARE GENERAL CORPORATION LAW
Lee D. Burns, being the Treasurer of SERVOTRONICS, INC. (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Act"), DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were adopted setting forth a proposed amendment to the Certificate
of Incorporation of the Corporation (the "Certificate") declaring said amendment
advisable and directing that the proposed amendment be submitted to the
Corporation's stockholders for consideration thereof.
SECOND: That Article TWELFTH be added to the Certificate, which shall
read as follows:
"TWELFTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (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 Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation
Law hereafter is amended to further eliminate or limit the
liability of a director, then a director of the Corporation,
in addition to the circumstances in which a director is not
personally liable as set forth in the preceding sentence,
shall not be liable to the fullest extent permitted by the
amended Delaware General Corporation Law.
Any repeal or modification of the foregoing paragraph
by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the
Corporation existing at the time of such repeal or
modification."
<PAGE> 2
THIRD: That thereafter, pursuant to a resolution of the Board of
Directors, the proposed amendment was submitted to the Corporation's
stockholders at the annual meeting duly called and held upon due notice to the
stockholders of the Corporation of the proposed amendment, at which meeting the
proposed amendment was authorized by the majority vote of all of the
Corporation's stockholders entitled to vote thereon.
FOURTH: That said amendment was duly adopted in accordance with Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has subscribed to this Certificate
this 30th day of June 1998 and affirms that the statements made herein are
true and correct under penalties of perjury.
/s/ Lee D. Burns
--------------------------------
Lee D. Burns, Treasurer
<PAGE> 1
Servotronics, Inc. and Subsidiaries
Exhibit 10(A)(2)
As of October 6, 1998
Dr. Nicholas D. Trbovich
1110 Maple Street
Elma, NY 14059
Subject: Amendment to Employment Agreement
Dear Dr. Trbovich:
The following amendment is made to the Amended and Restated Employment Agreement
dated August 8, 1986 between Servotronics, Inc., ("Employer") and Dr. Nicholas
D. Trbovich ("Employee"), and as subsequently amended as of October 1, 1986,
October 1, 1987, July 20, 1988, October 1, 1988, October 1, 1989, May 1, 1990,
May 1, 1991, May 1, 1992, May 1, 1993, March 28, 1994, May 1, 1994, May 1, 1995,
May 1, 1996, May 1, 1997, March 9, 1998, and May 1, 1998 (the "Agreement").
Recitals
Employee has and is serving as Founder, Chairman of the Board, President and
Chief Executive Officer of Employer for over 39 years. In consideration of his
exemplary services to Employer, the parties desire to continue certain
Employee's benefits for the period after termination of Employee's employment by
the Company.
Terms of Amendment
14-A After termination of Employee's employment hereunder for any reason,
Employer shall provide and pay for, at a minimum, the Employee's Post Employment
disability, medical, hospital and other health care benefits and life insurance
benefits that are no less than the maximum benefits which were provided to
Employee during the term of Employee's employment and which do not require
Employee to assume co-pay or employee contribution costs greater than he had
been required to assume (if any) during that period of his employment when
maximum benefits were provided to him. Employer shall pay the cost of all Post
Employment Benefits. If Employer is unable to provide the Post Employment
Benefits as part of the plan or plans which provide benefits to other employees
of the Employer, it shall create a special or individual plan or plans to
provide the benefits to Employee; and if Employer is unable to provide such
benefits through a special or individual plan, it shall pay Employee monthly an
amount which will equal the sum of the cost to Employee of his obtaining
benefits equivalent to the Post Employment Benefits plus any additional federal
and state income tax cost to Employee of receiving such payments in lieu of Post
Employment Benefits. This amendment is effective as of October 6, 1998.
<PAGE> 2
Servotronics, Inc. and Subsidiaries Page 2
Exhibit 10(A)(2)
If the foregoing meets with your approval and you are willing to become bound
hereby, will you please sign and return to the undersigned the enclosed copy of
this letter.
Very truly yours,
SERVOTRONICS, INC.
/S/Lee D. Burns
Lee D. Burns,
Treasurer/Secretary
ACCEPTED AND AGREED
/s/ Dr. Nicholas D. Trbovich
- -----------------------------
Dr. Nicholas D. Trbovich
<PAGE> 1
Servotronics, Inc. and Subsidiaries
Exhibit 10(A)(3)
As of May 1, 1998
Dr. Nicholas D. Trbovich
1110 Maple Street
Elma, NY 14059
Dear Dr. Trbovich:
You and Servotronics, Inc. (the "Company") are parties to an employment
agreement, as amended and restated on August 8, 1986 and as subsequently amended
as of October 1, 1986, October 1, 1987, July 20, 1988, October 1, 1988, October
1, 1989, May 1, 1990, May 1, 1991, May 1, 1992, May 1, 1993, March 28, 1994, May
1, 1994, May 1, 1995, May 1, 1996, May 1, 1997 and March 9, 1998 (the
"Agreement"), pursuant to which you are employed by the Company.
This will confirm your agreement and that of the Company (pursuant to a
resolution of the Board of Directors passed at a meeting held on June 30, 1998)
to amend Paragraph 3 of the Agreement to delete "$285,000.00" and insert in its
place "$310,000.00".
Except as specifically provided herein, all of the other terms and conditions of
the Agreement shall remain in full force and effect.
If the foregoing meets with your approval and you are willing to become bound
hereby, will you please sign and return to the undersigned the enclosed copy of
this letter.
Very truly yours,
SERVOTRONICS, INC.
/S/Lee D. Burns
Lee D. Burns,
Treasurer/Secretary
ACCEPTED AND AGREED
/s/ Dr. Nicholas D. Trbovich
- ----------------------------
Dr. Nicholas D. Trbovich
<PAGE> 1
Servotronics, Inc. and Subsidiaries
Exhibit 10(A)(4)
March 9, 1998
Dr. Nicholas D. Trbovich
1110 Maple Street
Elma, NY 14059
Dear Dr. Trbovich:
You and Servotronics, Inc. (the "Company") are parties to an employment
agreement, as amended and restated on August 8, 1986 and as subsequently amended
as of October 1, 1986, October 1, 1987, July 20, 1988, October 1, 1988, October
1, 1989, May 1, 1990, May 1, 1991, May 1, 1992, May 1, 1993, March 28, 1994, May
1, 1994, May 1, 1995, May 1, 1996 and May 1, 1997 (the "Agreement"), pursuant to
which you are employed by the Company.
This will confirm your agreement and that of the Company (pursuant to a
resolution of the Board of Directors passed at a meeting held on February 25,
1998) to amend Paragraph 1 of the Agreement to delete "September 30, 2001" and
insert in its place "September 30, 2003".
Except as specifically provided herein, all of the other terms and conditions of
the Agreement shall remain in full force and effect.
If the foregoing meets with your approval and you are willing to become bound
hereby, will you please sign and return to the undersigned the enclosed copy of
this letter.
Very truly yours,
SERVOTRONICS, INC.
/S/Lee D. Burns
Lee D. Burns,
Treasurer/Secretary
ACCEPTED AND AGREED
/s/ Dr. Nicholas D. Trbovich
- ----------------------------
Dr. Nicholas D. Trbovich
<PAGE> 1
Exhibit 10(D)(2)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
DONALD W. HEDGES
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 12,600 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means Donald W. Hedges.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
this Agreement to administer this Agreement. The Committee is authorized to
interpret this Agreement.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 12,600 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised with respect to 3,150 shares of Common
Stock on or after September 24, 1998, and with respect to an additional 3,150
shares of Common Stock on or after each of the first three anniversaries of the
Date of Grant, on a cumulative basis, provided that the Option shall not be
exercisable later than the day preceding the tenth anniversary of the Date of
Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs and distributees that any shares of
Common Stock purchased pursuant to the Option are being acquired for investment
and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Option is not assignable or transferable by the Optionee
except by will or the laws of descent and distribution and is exercisable,
during the Optionee's lifetime, only by him.
- 2 -
<PAGE> 3
(g) If the Option has not already expired, it shall expire upon the
termination of the Optionee's service as a director of the Company, whether by
death or otherwise, and no shares of Common Stock may thereafter be purchased
pursuant to the Option, except that:
(1) The Optionee may, within three months after the date of the
termination of his service as a director of the Company, purchase any shares of
Common Stock that the Optionee was entitled to purchase under the Option on the
date of the termination of his service as a director.
(2) Upon the death of any Optionee while serving as a director of
the Company or within the three-month period referred to in Section 4(g)(1)
above, the Optionee's estate or the person to whom such Optionee's rights under
the Option are transferred by will or the laws of descent and distribution may,
within one year after the date of the Optionee's death, purchase any shares of
Common Stock that the Optionee was entitled to purchase under the Option on the
date of his death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become exercisable in full as of the Change in Control, and the Committee
may, subject to the agreement of the Optionee, (i) further accelerate the time
at which the Option may be exercised
- 3 -
<PAGE> 4
so that the Option may be exercised in full on or before a date fixed by the
Committee, (ii) provide for and offer the purchase of the Option to the extent
then outstanding for an amount of cash equal to the excess of the Fair Market
Value of the shares subject to the Option (which in the event of a change in the
ownership of more than 25 percent of the outstanding shares of Common Stock
shall not be less than the amount of cash and the fair market value of other
consideration tendered for such outstanding shares) over the aggregate purchase
price of the shares subject to the Option, (iii) make such adjustments to the
Option as the Committee finds appropriate to reflect such Corporate Change,
provided such adjustments are not to the disadvantage of the Optionee, or (iv)
cause any surviving corporation in such Corporate Change to assume the Option or
substitute a new option (of equal or greater value) for such Option.
6. No Right to Continue as Director.
--------------------------------
Nothing in this Agreement shall confer upon the Optionee the right to
continue as a director of the Company.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion reasonably, determine to be necessary, (b) the
admission of such shares to listing on any stock exchange on which the Common
Stock may then be listed, and (c) the completion of any registration or other
qualification of such shares under any state or Federal law or rulings or
regulations of any governmental body that the Company shall, in its sole
discretion, reasonably determine to be necessary or advisable. The Company
agrees to use its best efforts to accomplish the above expeditiously and at no
cost to the Optionee.
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount
- 4 -
<PAGE> 5
of cash or shares of Common Stock to the Company or through the Company's
retention of shares of Common Stock otherwise issuable on the exercise of the
Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
10. Construction.
-------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By
----------------------------
Nicholas D. Trbovich
President
-------------------------------
Donald W. Hedges
- 5 -
<PAGE> 1
Exhibit 10(D)(3)(b)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
NICHOLAS D. TRBOVICH
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 37,800 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means Nicholas D. Trbovich, Sr.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
this Agreement to administer the Agreement. The Committee is authorized to
interpret this Agreement.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 37,800 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised in whole or in part from time to time
on or after September 24, 1998, provided that the Option shall not be
exercisable later than the day preceding the tenth anniversary of the Date of
Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs, distributees, and transferees that
any shares of Common Stock purchased pursuant to the Option are being acquired
for investment and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Optionee may, during his lifetime, transfer the Option to any
other person.
(g) If the Option has not already expired, it shall expire upon the
death of the Optionee, and no shares of Common Stock may thereafter be purchased
pursuant to the Option, except that the Optionee's estate or the person to whom
such Optionee's rights
- 2 -
<PAGE> 3
under the Option are transferred by will or the laws of descent and distribution
or any person to whom the Optionee had transferred the Option before his death
may, within one year after the date of the Optionee's death, purchase any shares
of Common Stock that the Optionee was entitled to purchase under the Option on
the date of his death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
(h) The Optionee agrees that from and after the Date of Grant of the
Option and during the term of the Option he will not, unless acting as an
officer or employee of the Company or with the prior written consent of the
Company, directly or indirectly, engage or participate in, or own, manage,
operate, join, or control, or be connected as an officer, director, employee,
partner, investor, or otherwise with, any business manufacturing or selling
products or services similar to or competing with products or services
manufactured or sold by the Company or its subsidiaries or otherwise engage
directly or indirectly in competition with the Company or its subsidiaries. The
Optionee acknowledges that the remedy at law for any breach by him of the
foregoing will be inadequate and that the Company shall be entitled to
injunctive relief. Furthermore, the Option shall expire upon any breach by the
Optionee of the foregoing. Nothing contained in this Agreement, however, shall
prevent the Optionee from purchasing for investment 3 percent or less of any
outstanding class of securities of any company whose securities are held by the
general public.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become
- 3 -
<PAGE> 4
exercisable in full as of the Change in Control, and the Committee may, subject
to the agreement of the Optionee (i) further accelerate the time at which the
Option may be exercised so that the Option may be exercised in full on or before
a date fixed by the Committee, (ii) provide for and offer the purchase of the
Option to the extent then outstanding for an amount of cash equal to the excess
of the Fair Market Value of the shares subject to the Option (which in the event
of a change in the ownership of more than 25 percent of the outstanding shares
of Common Stock shall not be less than the amount of cash and the fair market
value of other consideration tendered for such outstanding shares) over the
aggregate purchase price of the shares subject to the Option, (iii) make such
adjustments to the Option as the Committee finds appropriate to reflect such
Corporate Change, providing such adjustments are not to the disadvantage of the
Optionee, or (iv) cause any surviving corporation in such Corporate Change to
assume the Option or substitute a new option (of equal or greater value) for
such Option.
6. No Right to Continued Employment.
--------------------------------
Nothing in this Agreement is a conferral upon the Optionee of
additional the rights to continue in the employ of the Company. It is recognized
and agreed that the Company's and the Optionee's obligations with respect to the
Optionee's continued employment with the Company are contained in a separate
agreement dated August 8, 1986, as amended.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion, reasonably determine to be necessary, (b) the
admission of such shares to listing on any stock exchange on which the Common
Stock may then be listed, and (c) the completion of any registration or other
qualification of such shares under any state or Federal law or rulings or
regulations of any governmental body that the Company shall, in its sole
discretion, reasonably determine to be necessary or advisable. The Company
agrees to use its best efforts to accomplish the above expeditiously and at no
cost to the Optionee.
- 4 -
<PAGE> 5
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount of cash or shares of Common Stock to
the Company or through the Company's retention of shares of Common Stock
otherwise issuable on the exercise of the Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
10. Construction.
------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By
------------------------------
Lee D. Burns
Secretary and Treasurer
---------------------------------
Nicholas D. Trbovich
- 5 -
<PAGE> 1
Exhibit 10(D)(4)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
WILLIAM H. DUERIG
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 12,600 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means William H. Duerig.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
this Agreement to administer this Agreement. The Committee is authorized to
interpret this Agreement.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 12,600 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised with respect to 3,150 shares of Common
Stock on or after September 24, 1998, and with respect to an additional 3,150
shares of Common Stock on or after each of the first three anniversaries of the
Date of Grant, on a cumulative basis, provided that the Option shall not be
exercisable later than the day preceding the tenth anniversary of the Date of
Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs and distributees that any shares of
Common Stock purchased pursuant to the Option are being acquired for investment
and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Option is not assignable or transferable by the Optionee
except by will or the laws of descent and distribution and is exercisable,
during the Optionee's lifetime, only by him.
- 2 -
<PAGE> 3
(g) If the Option has not already expired, it shall expire upon the
termination of the Optionee's service as a director of the Company, whether by
death or otherwise, and no shares of Common Stock may thereafter be purchased
pursuant to the Option, except that:
(1) The Optionee may, within three months after the date of the
termination of his service as a director of the Company, purchase any shares of
Common Stock that the Optionee was entitled to purchase under the Option on the
date of the termination of his service as a director.
(2) Upon the death of any Optionee while serving as a director of
the Company or within the three-month period referred to in Section 4(g)(1)
above, the Optionee's estate or the person to whom such Optionee's rights under
the Option are transferred by will or the laws of descent and distribution may,
within one year after the date of the Optionee's death, purchase any shares of
Common Stock that the Optionee was entitled to purchase under the Option on the
date of his death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become exercisable in full as of the Change in Control, and the Committee
may, subject to the agreement of the Optionee, (i) further accelerate the time
at which the Option may be exercised
- 3 -
<PAGE> 4
so that the Option may be exercised in full on or before a date fixed by the
Committee, (ii) provide for and offer the purchase of the Option to the extent
then outstanding for an amount of cash equal to the excess of the Fair Market
Value of the shares subject to the Option (which in the event of a change in the
ownership of more than 25 percent of the outstanding shares of Common Stock
shall not be less than the amount of cash and the fair market value of other
consideration tendered for such outstanding shares) over the aggregate purchase
price of the shares subject to the Option, (iii) make such adjustments to the
Option as the Committee finds appropriate to reflect such Corporate Change,
provided such adjustments are not to the disadvantage of the Optionee, or (iv)
cause any surviving corporation in such Corporate Change to assume the Option or
substitute a new option (of equal or greater value) for such Option.
6. No Right to Continue as Director.
-------------------------------
Nothing in this Agreement shall confer upon the Optionee the right to
continue as a director of the Company.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion reasonably, determine to be necessary, (b) the
admission of such shares to listing on any stock exchange on which the Common
Stock may then be listed, and (c) the completion of any registration or other
qualification of such shares under any state or Federal law or rulings or
regulations of any governmental body that the Company shall, in its sole
discretion, reasonably determine to be necessary or advisable. The Company
agrees to use its best efforts to accomplish the above expeditiously and at no
cost to the Optionee.
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount
- 4 -
<PAGE> 5
of cash or shares of Common Stock to the Company or through the Company's
retention of shares of Common Stock otherwise issuable on the exercise of the
Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
10. Construction.
------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By
---------------------------
Nicholas D. Trbovich
President
------------------------------
William H. Duerig
- 5 -
<PAGE> 1
Exhibit 10(D)(5)(b)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
NICHOLAS D. TRBOVICH, JR.
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 5,800 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means Nicholas D. Trbovich, Jr.
(h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option
Plan.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
the Plan to administer this Agreement. The Committee is authorized to interpret
this Agreement and the Plan.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 5,800 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised in whole or in part from time to time
on or after March 24, 1999, provided that the Option shall not be exercisable
later than the day preceding the tenth anniversary of the Date of Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs and distributees that any shares of
Common Stock purchased pursuant to the Option are being acquired for investment
and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Option is not assignable or transferable by the Optionee
except by will or the laws of descent and distribution and is exercisable,
during the Optionee's lifetime, only by him.
(g) If the Option has not already expired, it shall expire upon the
termination of the Optionee's employment with the Company, whether by death or
otherwise,
- 2 -
<PAGE> 3
and no shares of Common Stock may thereafter be purchased pursuant to the
Option, except that:
(1) The Optionee may, within three months after the date of the
termination of his employment, purchase any shares of Common Stock that the
Optionee was entitled to purchase under the Option on the date of the
termination of his employment.
(2) Upon the death of any Optionee while employed by the Company
or within the three-month period referred to in Section 4(g)(1) above, the
Optionee's estate or the person to whom such Optionee's rights under the Option
are transferred by will or the laws of descent and distribution may, within one
year after the date of the Optionee's death, purchase any shares of Common Stock
that the Optionee was entitled to purchase under the Option on the date of his
death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become exercisable in full as of the Change in Control, and the Committee
in its sole discretion may (i) further accelerate the time at which the Option
may be exercised so that the Option may be exercised in full on or before a date
fixed by the Committee, (ii) provide for the purchase of the Option to the
extent then outstanding for an amount of cash equal to the excess of the Fair
Market Value of the shares subject to the Option (which in the event of a change
in the
- 3 -
<PAGE> 4
ownership of more than 25 percent of the outstanding shares of Common Stock
shall not be less than the amount of cash and the fair market value of other
consideration tendered for such outstanding shares) over the aggregate purchase
price of the shares subject to the Option, (iii) make such adjustments to the
Option as the Committee finds appropriate to reflect such Corporate Change, or
(iv) cause any surviving corporation in such Corporate Change to assume the
Option or substitute a new option for such Option.
6. No Right to Continue as Employee.
--------------------------------
Nothing in this Agreement shall confer upon the Optionee the right to
continue in the employ of the Company.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion, determine to be necessary, and (b) the completion
of any registration or other qualification of such shares under any state or
Federal law or rulings or regulations of any governmental body that the Company
shall, in its sole discretion, determine to be necessary or advisable.
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount of cash or shares of Common Stock to
the Company or through the Company's retention of shares of Common Stock
otherwise issuable on the exercise of the Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
- 4 -
<PAGE> 5
10. Agreement Subject to Plan.
-------------------------
Notwithstanding any provision to the contrary herein, this Agreement
is subject to the provisions of the Plan, and if there shall be any conflict
between the provisions of the Agreement and the Plan, then the provisions of the
Plan shall take precedence.
11. Construction.
------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By
---------------------------
Nicholas D. Trbovich
President
------------------------------
Nicholas D. Trbovich, Jr.
- 5 -
<PAGE> 1
Exhibit 10(D)(6)(b)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
NICHOLAS D. TRBOVICH, JR.
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 12,600 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means Nicholas D. Trbovich, Jr.
(h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option
Plan.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
the Plan to administer this Agreement. The Committee is authorized to interpret
this Agreement and the Plan.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 12,600 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised with respect to 3,150 shares of Common
Stock on or after September 24, 1998, and with respect to an additional 3,150
shares of Common Stock on or after each of the first three anniversaries of the
Date of Grant, on a cumulative basis, provided that the Option shall not be
exercisable later than the day preceding the tenth anniversary of the Date of
Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs and distributees that any shares of
Common Stock purchased pursuant to the Option are being acquired for investment
and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Option is not assignable or transferable by the Optionee
except by will or the laws of descent and distribution and is exercisable,
during the Optionee's lifetime, only by him.
- 2 -
<PAGE> 3
(g) If the Option has not already expired, it shall expire upon the
termination of the Optionee's employment with the Company, whether by death or
otherwise, and no shares of Common Stock may thereafter be purchased pursuant to
the Option, except that:
(1) The Optionee may, within three months after the date of the
termination of his employment, purchase any shares of Common Stock that the
Optionee was entitled to purchase under the Option on the date of the
termination of his employment.
(2) Upon the death of any Optionee while employed by the Company
or within the three-month period referred to in Section 4(g)(1) above, the
Optionee's estate or the person to whom such Optionee's rights under the Option
are transferred by will or the laws of descent and distribution may, within one
year after the date of the Optionee's death, purchase any shares of Common Stock
that the Optionee was entitled to purchase under the Option on the date of his
death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become exercisable in full as of the Change in Control, and the Committee
in its sole discretion may (i) further accelerate the time at which the Option
may be exercised so that the Option may be exercised in full on or before a date
fixed by the Committee, (ii) provide for the purchase of
- 3 -
<PAGE> 4
the Option to the extent then outstanding for an amount of cash equal to the
excess of the Fair Market Value of the shares subject to the Option (which in
the event of a change in the ownership of more than 25 percent of the
outstanding shares of Common Stock shall not be less than the amount of cash and
the fair market value of other consideration tendered for such outstanding
shares) over the aggregate purchase price of the shares subject to the Option,
(iii) make such adjustments to the Option as the Committee finds appropriate to
reflect such Corporate Change, or (iv) cause any surviving corporation in such
Corporate Change to assume the Option or substitute a new option for such
Option.
6. No Right to Continue as Employee.
--------------------------------
Nothing in this Agreement shall confer upon the Optionee the right to
continue in the employ of the Company.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion, determine to be necessary, and (b) the completion
of any registration or other qualification of such shares under any state or
Federal law or rulings or regulations of any governmental body that the Company
shall, in its sole discretion, determine to be necessary or advisable.
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount of cash or shares of Common Stock to
the Company or through the Company's retention of shares of Common Stock
otherwise issuable on the exercise of the Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
- 4 -
<PAGE> 5
10. Agreement Subject to Plan.
-------------------------
Notwithstanding any provision to the contrary herein, this Agreement
is subject to the provisions of the Plan, and if there shall be any conflict
between the provisions of the Agreement and the Plan, then the provisions of the
Plan shall take precedence.
11. Construction.
------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By -----------------------------
Nicholas D. Trbovich
President
--------------------------------
Nicholas D. Trbovich, Jr.
- 5 -
<PAGE> 1
Exhibit 10(D)(7)(b)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
LEE D. BURNS
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 5,800 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means Lee D. Burns.
(h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option
Plan.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
the Plan to administer this Agreement. The Committee is authorized to interpret
this Agreement and the Plan.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 5,800 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised in whole or in part from time to time
on or after March 24, 1999, provided that the Option shall not be exercisable
later than the day preceding the tenth anniversary of the Date of Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs and distributees that any shares of
Common Stock purchased pursuant to the Option are being acquired for investment
and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Option is not assignable or transferable by the Optionee
except by will or the laws of descent and distribution and is exercisable,
during the Optionee's lifetime, only by him.
- 2 -
<PAGE> 3
(g) If the Option has not already expired, it shall expire upon the
termination of the Optionee's employment with the Company, whether by death or
otherwise, and no shares of Common Stock may thereafter be purchased pursuant to
the Option, except that:
(1) The Optionee may, within three months after the date of the
termination of his employment, purchase any shares of Common Stock that the
Optionee was entitled to purchase under the Option on the date of the
termination of his employment.
(2) Upon the death of any Optionee while employed by the Company
or within the three-month period referred to in Section 4(g)(1) above, the
Optionee's estate or the person to whom such Optionee's rights under the Option
are transferred by will or the laws of descent and distribution may, within one
year after the date of the Optionee's death, purchase any shares of Common Stock
that the Optionee was entitled to purchase under the Option on the date of his
death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become exercisable in full as of the Change in Control, and the Committee
in its sole discretion may (i) further accelerate the time at which the Option
may be exercised so that the Option may be exercised in full on or before a date
fixed by the Committee, (ii) provide for the purchase of
- 3 -
<PAGE> 4
the Option to the extent then outstanding for an amount of cash equal to the
excess of the Fair Market Value of the shares subject to the Option (which in
the event of a change in the ownership of more than 25 percent of the
outstanding shares of Common Stock shall not be less than the amount of cash and
the fair market value of other consideration tendered for such outstanding
shares) over the aggregate purchase price of the shares subject to the Option,
(iii) make such adjustments to the Option as the Committee finds appropriate to
reflect such Corporate Change, or (iv) cause any surviving corporation in such
Corporate Change to assume the Option or substitute a new option for such
Option.
6. No Right to Continue as Employee.
--------------------------------
Nothing in this Agreement shall confer upon the Optionee the right to
continue in the employ of the Company.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion, determine to be necessary, and (b) the completion
of any registration or other qualification of such shares under any state or
Federal law or rulings or regulations of any governmental body that the Company
shall, in its sole discretion, determine to be necessary or advisable.
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount of cash or shares of Common Stock to
the Company or through the Company's retention of shares of Common Stock
otherwise issuable on the exercise of the Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
- 4 -
<PAGE> 5
10. Agreement Subject to Plan.
-------------------------
Notwithstanding any provision to the contrary herein, this Agreement
is subject to the provisions of the Plan, and if there shall be any conflict
between the provisions of the Agreement and the Plan, then the provisions of the
Plan shall take precedence.
11. Construction.
------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By ------------------------------
Nicholas D. Trbovich
President
---------------------------------
Lee D. Burns
- 5 -
<PAGE> 1
Exhibit 10(D)(8)(b)
SERVOTRONICS, INC.
STOCK OPTION AGREEMENT
FOR
RAYMOND C. ZIELINSKI
DATED MARCH 24, 1998
1. Definitions.
-----------
As used in this Agreement:
(a) "Company" means Servotronics, Inc.
(b) "Common Stock" means the common stock, $.20 par value, of the
Company.
(c) "Fair Market Value" of a share of Common Stock on a given date
means the average of the highest and lowest quoted sales prices of a share of
Common Stock on the American Stock Exchange on that date or, if no such shares
were traded on the American Stock Exchange on that date, on the next preceding
date on which such shares were so traded. However, if shares of Common Stock
have not been traded on the American Stock exchange for more than ten days
immediately preceding the given date, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in such manner as it may deem
appropriate.
(d) "Option" means the option granted pursuant to this Agreement to
purchase 5,800 shares of Common Stock, which option is intended to be a
non-qualified stock option.
(e) "Committee" means the Board of Directors of the Company or any
committee of the Board that the Board has appointed to administer the Plan.
(f) "Date of Grant" means March 24, 1998.
(g) "Optionee" means Raymond C. Zielinski.
(h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option
Plan.
<PAGE> 2
2. Administration.
--------------
The Committee shall have all the powers vested in it by the terms of
the Plan to administer this Agreement. The Committee is authorized to interpret
this Agreement and the Plan.
3. Grant of Option.
---------------
The Company grants to Optionee an option to purchase 5,800 shares of
Common Stock pursuant to this Agreement.
4. Terms of Option.
---------------
(a) The purchase price of each share of Common Stock subject to the
Option is the Fair Market Value of a share of Common Stock on the Date of Grant
of the Option, which is $8.50.
(b) The Option may be exercised in whole or in part from time to time
on or after March 24, 1999, provided that the Option shall not be exercisable
later than the day preceding the tenth anniversary of the Date of Grant.
(c) By executing this Agreement, the Optionee agrees on behalf of
himself, his executor, administrator, heirs and distributees that any shares of
Common Stock purchased pursuant to the Option are being acquired for investment
and not with a view to distribution.
(d) To exercise the Option, written notice should be given to the
Secretary of the Company in the form attached to this Agreement.
(e) The purchase price of any shares with respect to which the Option
is exercised is payable in full on the date the Option is exercised, in cash or
in shares of Common Stock or in a combination of cash and such shares. The value
of a share of Common Stock delivered in payment of the purchase price shall be
its Fair Market Value on the date the Option is exercised.
(f) The Option is not assignable or transferable by the Optionee
except by will or the laws of descent and distribution and is exercisable,
during the Optionee's lifetime, only by him.
(g) If the Option has not already expired, it shall expire upon the
termination of the Optionee's employment with the Company, whether by death or
otherwise,
- 2 -
<PAGE> 3
and no shares of Common Stock may thereafter be purchased pursuant to the
Option, except that:
(1) The Optionee may, within three months after the date of the
termination of his employment, purchase any shares of Common Stock that the
Optionee was entitled to purchase under the Option on the date of the
termination of his employment.
(2) Upon the death of any Optionee while employed by the Company or
within the three-month period referred to in Section 4(g)(1) above, the
Optionee's estate or the person to whom such Optionee's rights under the Option
are transferred by will or the laws of descent and distribution may, within one
year after the date of the Optionee's death, purchase any shares of Common Stock
that the Optionee was entitled to purchase under the Option on the date of his
death.
Nothing in this subsection shall allow the exercise of the Option
later than the day before the tenth anniversary of the Date of Grant of the
Option.
5. Adjustment of Shares Available.
------------------------------
If there is any change in the number of outstanding shares of Common
Stock of the Company through the declaration of stock dividends or through stock
splits, then the number of shares subject to the Option and the purchase price
of the shares subject to the Option shall be automatically adjusted. If there is
any change in the number of outstanding shares of Common Stock of the Company
through any change in the capital account of the Company or through any other
transaction referred to in section 424(a) of the Internal Revenue Code, then the
number of shares subject to the Option and the purchase price of the shares
subject to the Option shall be appropriately adjusted by the Committee, except
to the extent the Committee takes other action pursuant to the following
paragraph.
Notwithstanding the provision of any other Section of this Agreement,
if the Company shall not be the surviving corporation in any merger or
consolidation, or if the Company is to sell all or substantially all of its
assets, or if the ownership of more than 25 percent of the outstanding shares of
Common Stock shall change as the result of a concerted action by one or more
persons or corporations or if an attempt is so made to effect such a change of
ownership, or if the Company is to be dissolved and liquidated (each such event
shall be referred to in this paragraph as a "Corporate Change"), then the Option
shall become exercisable in full as of the Change in Control, and the Committee
in its sole discretion may (i) further accelerate the time at which the Option
may be exercised so that the Option may be exercised in full on or before a date
fixed by the Committee, (ii) provide for the purchase of the Option to the
extent then outstanding for an amount of cash equal to the excess of the Fair
Market Value of the shares subject to the Option (which in the event of a change
in the
- 3 -
<PAGE> 4
ownership of more than 25 percent of the outstanding shares of Common Stock
shall not be less than the amount of cash and the fair market value of other
consideration tendered for such outstanding shares) over the aggregate purchase
price of the shares subject to the Option, (iii) make such adjustments to the
Option as the Committee finds appropriate to reflect such Corporate Change, or
(iv) cause any surviving corporation in such Corporate Change to assume the
Option or substitute a new option for such Option.
6. No Right to Continue as Employee.
--------------------------------
Nothing in this Agreement shall confer upon the Optionee the right to
continue in the employ of the Company.
7. Rights as Stockholder.
---------------------
No person shall have the rights of a stockholder with respect to
shares of Common Stock subject to the Option until the date of issuance, if any,
of a stock certificate pursuant to the exercise of the Option.
8. Regulatory Approvals and Listing.
--------------------------------
The Company shall not be required to issue any certificate or
certificates for shares of Common Stock upon the exercise of the Option prior to
(a) the obtaining of any approval from any government agency that the Company
shall, in its sole discretion, determine to be necessary, and (b) the completion
of any registration or other qualification of such shares under any state or
Federal law or rulings or regulations of any governmental body that the Company
shall, in its sole discretion, determine to be necessary or advisable.
9. Satisfaction of Tax Liabilities.
-------------------------------
The Company shall not be required to issue any certificate for shares
of Common Stock upon the exercise of the Option unless any Federal, state, or
local tax withholding obligation incurred by the Company in connection with the
exercise of the Option has been provided for by the Optionee through the
Optionee's delivery of a sufficient amount of cash or shares of Common Stock to
the Company or through the Company's retention of shares of Common Stock
otherwise issuable on the exercise of the Option.
The value of a share of Common Stock delivered or retained to provide
for the tax withholding obligation incurred by the Company shall be its Fair
Market Value on the date the Option is exercised.
- 4 -
<PAGE> 5
10. Agreement Subject to Plan.
-------------------------
Notwithstanding any provision to the contrary herein, this Agreement
is subject to the provisions of the Plan, and if there shall be any conflict
between the provisions of the Agreement and the Plan, then the provisions of the
Plan shall take precedence.
11. Construction.
------------
This Agreement shall be construed in accordance with the law of the
State of Delaware.
SERVOTRONICS, INC.
By
-------------------------
Nicholas D. Trbovich
President
-----------------------------
Raymond C. Zielinski
- 5 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000089140
<NAME> SERVOTRONICS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,009
<SECURITIES> 0
<RECEIVABLES> 2,198
<ALLOWANCES> 0
<INVENTORY> 8,984
<CURRENT-ASSETS> 14,121
<PP&E> 7,210
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,961
<CURRENT-LIABILITIES> 2,252
<BONDS> 6,144
0
0
<COMMON> 523
<OTHER-SE> 12,288
<TOTAL-LIABILITY-AND-EQUITY> 21,961
<SALES> 17,571
<TOTAL-REVENUES> 17,571
<CGS> 11,983
<TOTAL-COSTS> 16,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 312
<INCOME-PRETAX> 1,456
<INCOME-TAX> 597
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-PRIMARY> $0.49
<EPS-DILUTED> $0.48
</TABLE>
