<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996
-----------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
------------------------- --------------------
Commission file number 0-3905
-------
TRANSMATION, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- -------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 VANTAGE POINT DRIVE, ROCHESTER, NY 14624
- --------------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
-----------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate by check mark (x) whether the registrant, (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS NUMBER OF SHARES OUTSTANDING DATE
- ----- --------------------------- ---------------
Common 2,631,270 January 23, 1997
TOTAL PAGES - 26
<PAGE> 2
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
Dec. 31, March 31,
ASSETS: 1996 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 324,251 $ 204,046
Accounts Receivable, less allowance
for doubtful accounts of $518,000 at
December 31, 1996, and $436,000 at
March 31, 1996 6,425,498 5,320,996
Inventories 7,291,750 6,491,127
Prepaid Expenses and Deferred Charges 1,081,669 947,209
Deferred Tax Assets 526,923 310,294
------------ ------------
Current Assets 15,650,091 13,273,672
Properties, at cost, less accumulated
depreciation 2,246,029 1,976,679
Deferred Charges 197,202 172,713
Deferred Income Taxes 92,331 54,366
Other Assets 266,095 224,297
Goodwill 6,053,206
------------ ------------
$ 24,504,954 $ 15,701,727
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $ 1,700,000
Accounts Payable 2,916,670 $ 3,049,880
Accrued Payrolls, Commissions & Other 1,611,771 1,345,499
Income Taxes Payable 557,141 410,566
------------ ------------
Current Liabilities 6,785,582 4,805,945
Long-Term Debt 5,822,800 2,050,800
Deferred Compensation 615,016 682,593
------------ ------------
13,223,398 7,539,338
------------ ------------
Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 15,000,000 shares - issued
and outstanding - 2,629,270 at Dec. 31,
1996, and 2,451,946 at March 31, 1996 1,314,635 1,225,973
Capital in Excess of Par Value 1,910,376 1,124,583
Stock payable former Altek Owners 1,225,000
Accumulated Translation Adjustment (121,301) (93,819)
Retained Earnings 6,952,846 5,905,652
------------ ------------
11,281,556 8,162,389
------------ ------------
$ 24,504,954 $ 15,701,727
============ ============
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------ ------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
Net Sales $12,210,882 $ 9,918,064 $34,470,490 $28,584,813
------------------------- -------------------------
Costs and Expenses:
Cost of Product Sold 7,377,367 6,284,669 20,915,278 18,045,464
Selling & Admin. Expenses 3,567,901 2,610,327 10,081,481 8,094,237
Research & Develop. Costs 399,802 266,916 1,186,792 796,028
Interest Expense 163,209 81,741 475,445 300,739
------------------------- -------------------------
11,508,279 9,243,653 32,658,996 27,236,468
------------------------- -------------------------
Income Before Taxes 702,603 674,411 1,811,494 1,348,345
Provision for Income Taxes
State and Federal 275,065 197,775 764,300 480,300
------------------------- -------------------------
Net Income 427,538 476,636 1,047,194 868,045
Retained Earnings at
Beginning of Period 6,525,308 5,062,338 5,905,652 4,670,929
------------------------- -------------------------
Retained Earnings at
End of Period $ 6,952,846 $ 5,538,974 $ 6,952,846 $ 5,538,974
=========== =========== =========== ===========
Net Income Per Share $ 0.15 $ 0.19 $ 0.36 $ 0.34
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
<TABLE>
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ----------------------------
12/31/96 12/31/95 12/31/96 12/31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 427,538 $ 476,636 $ 1,047,194 $ 868,045
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 248,115 115,631 737,179 323,379
Provision for Losses on Accounts Receivable (11,000) (25,000) 82,000 30,200
Other Assets (5,600) (5,800) 3,803 (14,377)
(Increase)Decrease in Accounts Receivable (885,820) (198,400) (541,856) 312,437
Decrease(Increase) in Inventories (38,451) (143,569) 40,946 94,996
Decrease(Increase) in Prepaid Expenses &
Deferred Charges 168,204 163,141 (158,879) 171,340
Increase(Decrease) in Accounts Payable 91,728 1,284,774 (558,694) (291,782)
Increase(Decrease) in Accrued Payrolls, Commiss.
and Other Liabilities 216,974 201,954 (59,877) (45,024)
Increase in Income Taxes Payable 166,201 213,452 146,575 475,791
(Decrease) in Deferred Compensation (22,328) (22,327) (67,577) (65,790)
(Increase) in Deferred Income Taxes (130,099) (1,251) (130,099) 1,851
----------- ----------- ----------- -----------
Net Cash Provided(used) by Operating Activities 225,462 2,059,241 540,715 1,861,066
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of Altek Industries Corp (6,723,888)
Purchases of Properties (292,718) (283,727) (462,812) (568,778)
----------- ----------- ----------- -----------
Net Cash (used in) Investing Activities (292,718) (283,727) (7,186,700) (568,778)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Increase in Notes Payable 1,700,000
Exercise of Stock Options, Warrants & Stk Purchases 42,465 18,135 261,955 180,752
Stock Issued - Altek Purchase 612,500
Increase(Decrease) in Long-Term Debt 324,000 (1,607,700) 2,993,459 (1,632,326)
Stock Payable - Former Altek Owners 1,225,000
----------- ----------- ----------- -----------
Net Cash Provided by(used in) Financing Activities 366,465 (1,589,565) 6,792,914 (1,451,574)
----------- ----------- ----------- -----------
Effect of Exchange Rate Changes on Cash (10,494) (12,426) (26,724) 19,594
----------- ----------- ----------- -----------
Net Increase(Decrease) in Cash 288,715 173,523 120,205 (139,692)
Cash at Beginning of Period 35,536 294,548 204,046 607,763
----------- ----------- ----------- -----------
Cash at End of Period $ 324,251 $ 468,071 $ 324,251 $ 468,071
=========== =========== =========== ===========
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $ 147,636 $ 84,160 $ 378,658 $ 294,750
Taxes Paid $ 108,420 $ 15,000 $ 577,665 $ 182,865
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
<TABLE>
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<CAPTION>
Number of
Shares of $.50
Par Value Common Stock Capital
Common Stock Issued and in Excess of Retained
Outstanding Outstanding Par Value Earnings
---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Balance, March 31, 1994 2,374,240 $1,187,120 $835,029 $4,289,144
Issuance of Stock 6,400 3,200 14,800
Net Income 381,785
---------------- ---------------- ----------------- ----------------
Balance, March 31, 1995 2,380,640 1,190,320 849,829 4,670,929
Issuance of Stock 71,306 35,653 274,754
Net Income 1,234,723
---------------- ---------------- ----------------- ----------------
Balance, March 31, 1996 2,451,946 1,225,973 1,124,583 5,905,652
Issuance of Stock 177,324 88,662 785,793
Net Income 1,047,194
---------------- ----------------- ---------------- ----------------
Balance, Dec. 31, 1996 2,629,270 $1,314,635 $1,910,376 $6,952,846
================ ================ ================= ================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
Note 1 - Revolving Credit Agreement
- -----------------------------------
Borrowings under a secured revolving credit agreement with a bank which extends
through July 31, 1999 total $4,422,800 at December 31, 1996.
Maximum funds available under this credit agreement total $10,000,000. The
interest rate is the bank's prime lending rate or may be fixed for up to a
90-day period.
The revolving credit agreement contains, among other provisions, restrictions on
the annual amount of capital expenditures, restrictions on the annual amount of
expenditures made for the purpose of printing and distributing catalogs and
requirements for minimum amounts of tangible net worth.
Additionally, the company has pledged its personal property and fixtures,
including inventory and equipment, and its accounts receivable as collateral
security for the loan. Further, the company has agreed to pay to the lender an
amount equal to 1/4% of the unused portion of the total credit available. The
fee is payable quarterly. Total commitment fees paid on any unused lines of
credit under revolving credit agreements were immaterial in 1996 and 1995.
The company is in compliance with provisions of its loan agreement at December
31, 1996.
Note 2 - Inventories
- --------------------
The major classifications of inventory are as follows:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
---------- ----------
<S> <C> <C>
Raw Materials and Purchased Parts $1,586,686 $1,412,576
Work in Process 639,486 569,317
Finished Products 5,065,578 4,509,234
---------- ----------
$7,291,750 $6,491,127
========== ==========
</TABLE>
Note 3 - Stockholders' Equity
- -----------------------------
In August 1993, an incentive Stock Option plan was adopted; this plan was
amended in August 1995 and August 1996. Options are available to be granted to
employees under the 1993 Plan at prices not less than fair market value at the
date of grant and are exercisable in annual installments beginning at the date
of grant and expiring up to ten years later.
6
<PAGE> 7
The following table summarizes the transactions under the plan during 1996,
1995, and 1994:
<TABLE>
<CAPTION>
Option Price
Shares Per Share Aggregate
----------- ------------- -----------
<S> <C> <C> <C>
Balance, 3/31/94 97,300 $2.25-$4.00 $ 236,425
----------- ------------- -----------
Options Granted During the Year 163,600 4.25 695,300
Options Exercised During the Year (5,200) 2.25 (11,700)
Options Canceled During the Year (12,100) 2.25 (27,225)
----------- ------------- -----------
Balance, 3/31/95 243,600 2.25-4.25 892,800
Options Exercised During the Year (24,400) 2.25 (54,900)
Options Canceled During the Year (11,100) 2.25-6.25 (51,375)
Options Granted During the Year 194,450 4.25-6.63 995,581
----------- ------------- -----------
Balance, 3/31/96 402,550 2.25-6.63 1,782,106
Options Exercised During the Year (45,150) 2.25-4.25 (106,088)
Options Canceled During the Year (54,800) 2.25-6.50 (261,712)
Options Granted During the Year 60,280 6.50-8.375 401,195
----------- ------------- -----------
Balance, 12/31/96 362,880 $4.25-$8.375 $ 1,815,501
=========== ============= ===========
</TABLE>
On August 21, 1984, shareholders approved the Directors' Warrant Plan. This plan
was amended by shareholders in August 1995 and August 1996. The Plan provides
that warrants may be granted thereunder to non-employee directors of Transmation
to purchase in the aggregate not more than 100,000 shares of the company's
Common Stock. The purchase price for shares issued under the Directors' Warrant
Plan shall be equal to the fair market value of the stock on the date of the
grant of the warrant. A summary of activity under the 1984 Directors' Warrant
Plan is as follows:
7
<PAGE> 8
<TABLE>
<CAPTION>
Warrant
Shares Price Aggregate
------ ----- ---------
Balance - 3/31/95 32,500 $3.00 -$3.87 $ 110,625
------------------------------------
<S> <C> <C> <C>
Exercised During the Year (14,500) 3.00 -3.875 (54,875)
Granted During the Year 14,000 6.500 91,000
Canceled During the Year (2,000) 3.875 (7,750)
------- ------- -------
Balance - 3/31/96 30,000 3.00-6.50 139,000
Exercised During the Year (500) 3.00 (1,500)
Canceled During the Year (2,000) 1.50 (13,000)
Granted During the Year 12,000 8.375 100,500
------- ------- -------
Balance - 12/31/96 39,500 $3.00-$8.375 $ 225,000
====== ===== ====== =========
</TABLE>
On March 11, 1993, the Board of Directors granted the former President of the
company's Instrument Division a non-qualified stock option contract for the
purchase of 25,000 shares of the company's common stock at $3.00 per share, the
fair market value at the date of the grant. Upon his termination in January
1996, the former President of the company's Instrument Division exercised his
right to purchase 15,000 of such shares. The remainder of this grant was
canceled.
On August 15, 1995, the Board of Directors granted the then President of the
Company's Transcat division a non-qualified stock option contract for the
purchase of 23,950 shares of the Company's common stock at $6.25 per share, the
fair market value at the date of the grant. These shares are exercisable in
equal installments beginning at the date of the grant and expiring five years
later.
Note 4 - Net Income Per Share
- -----------------------------
The net income per share amounts in 1996 and 1995 were computed by dividing the
net income by the average number of shares actually outstanding plus common
equivalent shares resulting from the assumed conversion of the dilutive stock
options and warrants. Common and common equivalent shares averaged 2,913,846 in
1996 and 2,541,917 in 1995.
8
<PAGE> 9
Item 2.
- -------
Management's Discussion and Analysis of Financial Condition and Results of
- ----------------------------------------------------------------------------
Operations
- ----------
Sales increases during the current fiscal year have resulted from the
acquisition of Altek in April 1996 and from sales increases for both product and
service in the Company's Transcat division. Sales in the Company's Instrument
division are below plan and organizational changes and aggressive new product
efforts have been implemented to correct that condition.
Financial Condition
- --------------------
The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with a bank, its profitability, and through
management of its balance sheet. During the quarter ended December 31, 1996,
customer trade accounts receivable balances increased by $886,000 compared to
balances 90 days earlier. This was a temporary increase which resulted from the
timing of certain billings to customers in relationship to the end of the period
and has now essentially been reduced to earlier levels.
Results of Operations
- ---------------------
Comparison of OCTOBER 1, 1996 - DECEMBER 31, 1996
to
OCTOBER 1, 1995 - DECEMBER 31, 1995
Sales increased 23% in the quarter ended December 31, 1996 compared to the same
period one year ago. This increase resulted from the acquisition of Altek
Industries Corp in April of 1996 and from increases in the sale of both products
and services in the Company's Transcat division.
Cost of products sold totaled 60.4% of sales in the quarter ended December 31,
1996 compared to 63.4% of sales in the same quarter in 1995. This improvement is
the result of proportionately more sales of higher margin CalXpress services as
well as high margin Altek manufactured product in 1996 compared to 1995.
Research & Development costs totaled 3.3% of sales in 1996 compared to 2.7% of
sales in fiscal 1995. Interest expense totaled 1.3% of sales in 1996 versus 0.8%
of sales in 1995. These changes result from the Company's acquisition of Altek
Industries Corp in April of 1996.
Sales and Administrative expenses increased 37% in the period ended December 31,
1996 compared to the same period in 1995. This increase is the result of a
Company decision to increase sales efforts in both its Instrument and Transcat
Divisions and also results from our Altek acquisition in April of 1996.
9
<PAGE> 10
Results of Operations
- ---------------------
Comparison April 1, 1996 - December 31, 1996
- --------------------------------------------
to
April 1, 1995 - December 31, 1995
---------------------------------
Sales increased by more than 20% to $34,470,490 in the nine months ended
December 31, 1996 compared to sales of $28,584,813 for the nine-month period
ended December 31, 1995. This increase resulted from the inclusion of the sales
of Altek Industries Corp, which was acquired in April 1996, in the Company's
sales totals in 1996 together with increases in sales of product and services in
the Company's Transcat division.
Cost of product sold totaled 60.7% of sales in 1996 compared to 63.1% of sales
in 1995. This improvement is the result of proportionately greater sales of high
margin CalXpress services in 1996 compared to 1995 and of the inclusion of
manufactured product from Altek Industries Corp in 1996. Altek Industries Corp
products have higher gross margins than do other products manufactured by
Transmation, Inc.
Sales and Administrative expenses increased by 24.6% in the nine-month period
ended December 31, 1996 compared to the same period in 1995. This increase is
the result of the Company's decision to increase sales efforts in both its
Instrument and Transcat divisions and also results from our Altek acquisition in
April 1996.
Research & Development expenses increased 49% in 1996 compared to the same
nine-month period in 1995. This increase results from Transmation's acquisition
of Altek in April 1996.
10
<PAGE> 11
PART II
OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
None
Pursuant to the requirements 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.
TRANSMATION, INC.
Date 2/4/97 /s/ ROBERT G. KLIMASEWSKI
------------------------- --------------------------------
Robert G. Klimasewski
President
Date 2/4/97 /s/ JOHN A. MISIASZEK
------------------------- --------------------------------
John A. Misiaszek
Vice President, Finance
<PAGE> 12
INDEX TO EXHIBITS
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession
Not applicable.
(3) (a) Articles of Incorporation
Articles of Incorporation, as amended, are incorporated herein by
reference to Exhibit 4(a) to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-61665) as filed on
August 8, 1995 and amended by Exhibit I to our September 30,
1996 10Q.
(b) By-laws
Code of Regulations, as amended, are incorporated herein by
reference to Exhibit 3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1988.
(4) Instruments defining the rights of security holders, including
indentures
(a) The documents listed under Item (3) of this Index are
incorporated herein by reference.
(b) Revolving Credit Agreement between the Registrant and
Manufacturers and Traders Trust Company is incorporated herein
to Exhibit 1 to the Registrant's Form 10-Q for the quarter
ended September 30, 1994.
(c) Agreement and Amendment No. 1 to an Existing Revolving Credit
Facility Agreement between the Registrant and Manufacturers and
Trades Trust Company dated September 8, 1995 is incorporated
herein by reference to Exhibit 1 to the Registrant's Form 10-Q
for the quarter ended September 30, 1995.
(d) Agreement and Amendment No. 2 to an Existing Revolving Credit
Facility Agreement between the Registrant and Manufacturers and
Traders Trust Company dated December 15, 1995, is incorporated
herein by reference to Exhibit 4 to Registrant's Form 10-Q for
the quarter ended December 31, 1995. Upon written request, the
Registrant will provide to security holders copies of any of the
referenced omitted exhibits.
*(e) Agreement and Amendment No. 3 to an Existing Revolving Credit
Facility Agreement between the Registrant and Manufacturers and
Traders Trust Company dated December 18, 1996, together with a
brief identification of the contents of all omitted exhibits
thereto, is included herein as Exhibit 4. Upon written request,
the Registrant will provide to security holders copies of any of
the referenced omitted exhibits.
(10) Material Contracts
(a) The documents listed under Item (4) of this Index are
incorporated herein by reference.
12
<PAGE> 13
(b) Compensation agreements between the Registrant and William J.
Berk are incorporated herein by reference to Exhibit 10 to the
Registrant's Form 10-K for the fiscal year ended March 31, 1984,
and Exhibit 10(b) to the Registrant's Form 10-K for the fiscal
year ended March 31, 1991.
(c) Not used.
(d) Transmation, Inc. Directors' Stock Plan is incorporated herein by
reference to Exhibit 10(i) to the Registrant's Form 10-K for the
fiscal year ended March 31, 1995 and as amended by reference to
Exhibit 10(a) of the Registrant's Form 10-K for the fiscal year
ended March 31, 1996.
(e) Employment Agreement dated as of April 1, 1995 between the
Registrant and Robert G. Klimasewski is incorporated herein by
reference to Exhibit 10(ii) to the Registrant's Form 10-K for the
fiscal year ended March 31,1995 and amended by reference to
Exhibit 10(d) of the Registrant's Form 10-K for the fiscal year
ended March 31, 1996.
(f) Transmation, Inc. Amended and Restated Directors' Warrant Plan is
incorporated herein by reference to Exhibit 99(b) to the
Registrant's Registration Statement on Form S-8 (Registration No.
33-61665) as filed on August 8, 1995 and as amended by Exhibit II
attached hereto.
(g) Transmation, Inc. Amended and Restated 1993 Stock Option Plan is
incorporated herein by reference to Exhibit 99(c) to the
Registrant's Registration Statement on Form S-8 (Registration No.
33-61665) as filed on August 8, 1995 and as amended by Exhibit
III and Exhibit IV attached hereto.
(h) Transmation, Inc. Employees' Stock Purchase Plan is incorporated
herein by reference to Exhibit 99(e) to the Registrant's
Registration Statement on Form S-8 (Registration No. 33- 61665)
as filed on August 8, 1995 and as amended by reference to Exhibit
10(b) of the Registrant's Form 10-K for the fiscal year ended
March 31, 1996 and as amended by Exhibit V attached hereto.
(i) Amendment No. 1 to Transmation, Inc. Directors' Stock Plan is
included herein by reference to Exhibit 10(i) to the Registrant's
Form 10-Q for the quarter ended September 30, 1995.
(j) Non-Statutory Stock Option Agreement dated August 15, 1995
between Transmation, Inc. and Eric W. McInroy is included by
reference to Exhibit 10(j) to the Registrant's Form 10-
13
<PAGE> 14
Q for the quarter ended September 30, 1995 and as amended by
reference to Exhibit 10(c) of the Registrant's Form 10-K for the
fiscal year ended March 31, 1996.
(11) Statement re computation of per share earnings Computation can be
clearly determined from Note 4 to the financial statements filed with
Item 1.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security
holders Not applicable.
(23) Consents of experts and counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27 at pages
25 through 26 of this Report.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report
14
<PAGE> 1
EXHIBIT 4(e)
AGREEMENT AND AMENDMENT NO. 3
DATED AS OF DECEMBER 18, 1996
TO
REVOLVING CREDIT FACILITY AGREEMENT DATED AS OF SEPTEMBER 13, 1995
BETWEEN
MANUFACTURERS AND TRADERS TRUST COMPANY
AND
TRANSMATION, INC.
Underberg & Kessler
Attorneys for Manufacturers and
Traders Trust Company
1800 Chase Square
Rochester, New York 14604
Michael C. Dwyer, Esq.
Telephone: (716) 258-2825
<PAGE> 2
AGREEMENT AND AMENDMENT NO. 3
TO
REVOLVING CREDIT FACILITY AGREEMENT
This AGREEMENT AND AMENDMENT NO. 3 to REVOLVING CREDIT FACILITY
AGREEMENT is made as of November 22, 1996, by and between MANUFACTURERS AND
TRADERS TRUST COMPANY ("Bank"), a domestic corporation with an office and
principal place of business located at One M&T Plaza, Buffalo, New York 14240,
and TRANSMATION, INC. ("Borrower"), an Ohio corporation authorized to do
business in New York State, with an office and principal place of business
located at 977 Mt. Read Blvd., Rochester, New York 14606.
R E C I T A L S
R1. On or about September 13, 1994, Bank and Borrower entered into a
Revolving Credit Facility Agreement, which was amended pursuant to (i) Amendment
No. 1 to a Revolving Credit Facility Agreement, dated September 14, 1994
("Amendment No. 1"), (ii) Amendment No. 1 to an Existing Revolving Credit
Facility Agreement, dated September 8, 1995 ("Amendment"), and (iii) Agreement
and Amendment No. 2 to An Existing Revolving Credit Facility Agreement dated
December 15, 1995 ("Amendment No. 2"). Such Revolving Credit Facility Agreement,
as amended by Amendment No. 1, the Amendment and Amendment No. 2, is hereinafter
referred to as the Credit Agreement.
R2. Borrower owns real property located on Calkins Road in Henrietta,
New York, as more particularly described in EXHIBIT 1.20 (the "Calkins Road
Property"), and the Calkins Road Property is subject to the negative pledge
agreement between Borrower and Bank dated September 13, 1994 (the "Negative
Pledge Agreement") as well as the unrecorded Mortgage (as such term is defined
in SECTION 3.5 to the Credit Agreement), the Negative Pledge Agreement and the
Mortgage having been executed and delivered by Borrower to Bank pursuant to the
requirements of SECTION 3.5 of the Credit Agreement. Borrower desires to sell
the Calkins Road Property, which consists of vacant land, and the Bank wishes to
consent to such sale and to the release of the Calkins Road Property from the
Negative Pledge Agreement and the Mortgage.
R3. On March 28, 1996, the Bank delivered a letter to the Borrower
pursuant to which the Bank consented to Borrower's execution and performance of
its obligations under a Stock Purchase Agreement with E. Lee Garelick and James
N. Wurtz, pursuant to which Borrower acquired all of the issued and outstanding
stock of Altek Industries, Inc.("Altek"), subject to the conditions set forth
therein (the "Altek Consent Letter").
R4. Bank and Borrower desire to make certain changes to the Credit
Agreement, which changes are set forth below.
<PAGE> 3
NOW, THEREFORE, in consideration of the promises set forth below, Bank
and Borrower hereby agree as follows:
1. DEFINITIONS. Except as otherwise set forth herein, as used in this
Agreement and Amendment No. 3 (the "Amendment No. 3"), the terms defined in the
Credit Agreement shall have the meanings assigned to them in the Credit
Agreement.
2. AMENDMENTS. The Credit Agreement is hereby amended as set forth
below:
2.1 NEW DEFINITIONS. The following definitions are added to
SECTIONS 1.37 AND 1.38 of the Credit Agreement:
1.37 "Amendment No. 1" shall mean Amendment No. 1 to a
Revolving Credit Facility dated September 14, 1994.
1.38 "Amendment No. 3" shall mean Agreement and Amendment No.
3 to Revolving Credit Agreement dated as of November
22, 1996.
2.2 AMENDED DEFINITIONS. SECTIONS 1.4 (the first sentence
only), 1.17, 1.19, 1.20, 1.22, 1.35 AND 1.36 are
amended to read as follows:
1.4 The term "Borrowing Base" shall mean the sum of 80%
of Borrower's Eligible Accounts and 50% of
Borrower's Eligible Inventory, subject to a maximum
of $2,000,000.00 in Eligible Inventory.
1.17 The term "Maximum Credit" shall mean $10,000,000.00.
At any time that Bank in its sole discretion
notifies Borrower in writing that it is
reinstituting a formula-based Revolver, then from
the date of Bank's notice to Borrower, the term
"Maximum Credit" shall mean the lesser of
$10,000,000.00 or the then current Borrowing Base.
1.19 "Note" shall mean the Grid Note executed by Borrower
pursuant to SECTION 2.1.2 of the Agreement, as
extended, supplemented, modified, amended or
replaced from time to time.
1.20 "Real Property" shall mean real property owned by
Borrower at 977 Mt. Read Boulevard, Rochester, New
York, as more particularly described in EXHIBIT 2.2
to Amendment No. 3, and all references in the Credit
Agreement to "EXHIBIT 1.20" shall be deemed to refer
to EXHIBIT 2.2 to Amendment No. 3.
1.22 "Revolver Expiration Date" shall mean August 1,
1999.
1.35 "LIBOR Loan" means a loan made by Bank under the
Revolver which accrues interest for the selected
interest period at the LIBOR Rate.
<PAGE> 4
1.36 "LIBOR Rate" means, for the selected Interest Period
for a LIBOR Loan, the LIBOR Base Rate plus 2.25% per
annum.
2.3 REVOLVER. SECTION 2.1 is amended to read as follows:
"2.1 REVOLVER
2.1.1 Bank hereby establishes for Borrower a Revolver, the unpaid
principal balance of which shall not at any time exceed the Maximum Credit.
Within such limit, Borrower may borrow, repay and reborrow, for working capital
purposes only, through the Revolver Expiration Date, provided that the following
conditions are met at the time of each borrowing request:
2.1.1.1 Borrower is not in default under this Agreement, and
no condition exists or would be created by such borrowing which, with notice,
lapse of time or both, would constitute a default under this Agreement.
2.1.1.2 All representations and warranties contained in
SECTION 4 of this Agreement and elsewhere in the Agreement and/or in any
Document are true and correct as of the date of the requesting borrowing.
2.1.2 Unless sooner accelerated, all loans made under this
Revolver shall be repayable on the Revolver Expiration Date, pursuant to the
terms of Borrower's Note, which shall be in the form of EXHIBIT 2.3 to Amendment
No. 3, with blanks appropriately completed.
2.1.3 Each borrowing under this Revolver shall be processed by
debiting this Revolver and crediting Borrower's checking account with Bank for
the amount of the borrowing or otherwise making the loan proceeds available to
Borrower. The loan shall be deemed made immediately upon the crediting of the
loan proceeds to Borrower's checking account with Bank or by Bank otherwise
making the loan proceeds available to Borrower.
2.1.4 So long as Bank receives notice of a proposed borrowing,
other than a LIBOR Loan borrowing, by 1:00 p.m. on a Business Day, and the
conditions precedent set forth in SECTIONS 2.1.1.1 AND 2.1.1.2 are satisfied,
Bank will make advances duly authorized and permitted under this Revolver
available to Borrower by crediting Borrower's checking account maintained at
Bank's main office on that date. If Bank receives notice of a proposed
borrowing, other than a LIBOR Loan borrowing, after 1:00 p.m. on a Business Day
and such conditions precedent are satisfied, it will endeavor to make the
advance available on that date, but if Bank is unable to do so, Bank will make
the advance to Borrower by crediting Borrower's checking account maintained at
Bank's office no later than 10:00 a.m. of the next Business Day.
2.1.5 Except as provided in SECTION 2.1.7 and except for LIBOR
Loans, which shall accrue interest as specified in SECTION 2.1.6 below, the
unpaid principal balance of the Note shall at all times prior to acceleration,
accrue interest at the floating rate of Bank's Prime Rate per annum. In the
event there is a change in Bank's Prime Rate, the change in the accruing
interest rate on the portion of the unpaid principal balance of the Note not
accruing interest at
<PAGE> 5
a LIBOR Rate shall be effective on the day when the change in Bank's Prime Rate
is made by Bank, without notice to Borrower.
2.1.6 So long as the conditions precedent set forth in SECTIONS
2.1.1.1 AND 2.1.1.2 are satisfied at the time of the request, Borrower may on
two Business Days' (or less notice, at Bank's sole option) prior written notice
to Bank, request an advance under the Revolver that shall accrue interest at the
applicable LIBOR Rate for a designated Interest Period, or Borrower may convert
all or a portion of the unpaid principal balance of the Note then accruing
interest at the floating rate of Bank's Prime Rate, to a LIBOR Loan for the
selected Interest Period, or Borrower may renew a LIBOR Loan at the end of an
Interest Period at a LIBOR Rate determined by Bank for an additional designated
Interest Period. The written notice from Borrower shall specify the requested
amount of the LIBOR Loan plus the requested Interest Period. Once Borrower
requests a LIBOR Loan, the request shall be irrevocable. Upon receipt of the
written request, Bank shall determine the LIBOR Base Rate for the designated
Interest Period. After Bank determines the LIBOR Base Rate, Bank shall notify
Borrower of the LIBOR Rate for the requested LIBOR Loan. At the end of an
Interest Period, unless Borrower has timely requested in writing to renew the
LIBOR Loan at a new LIBOR Rate for an additional specified Interest Period, the
LIBOR Loan shall thereafter automatically accrue interest at the floating rate
of Bank's Prime Rate per annum. Unless required pursuant to SECTION 2.1.7,
principal on a LIBOR Loan may not be prepaid in whole or in part prior to the
end of the Interest Period for such LIBOR Loan without the prior written consent
of Bank. Bank may, at its sole option, refuse to allow such prepayment or allow
such prepayment upon payment to Bank of a prepayment premium satisfactory to
Bank.
2.1.7 In the event that the unpaid principal balance of the Note
at any time exceeds the Maximum Credit for any reason, including but not limited
to a change in the Borrowing Base and/or a decrease in the value of Eligible
Accounts Receivable and/or Eligible Inventory, then Borrower shall, without
notice, demand or protest, pay to Bank within ten days of the date the unpaid
principal balance of the Note exceeds the Maximum Credit, a sum sufficient to
reduce the principal balance of the Note to an amount equal to or less than the
Maximum Credit. Any unpaid principal balance of the Note which is in excess of
the Maximum Credit shall, until such excess is paid in full, or until Bank
accelerates payment of the Note, accrue interest at the floating rate of Bank's
Prime Rate plus 3% per annum. Any principal payment required pursuant to this
SECTION 2.1.7 shall be applied, to the extent possible, in such a way as to
avoid prepaying any LIBOR Loan prior to the end of the then current Interest
Period therefor. To the extent that such payment must be applied to prepay any
such LIBOR Loan, the Borrower shall, on Bank's demand, pay a prepayment premium
satisfactory to Bank.
2.1.8 Payments of all accrued interest on the Note (whether such
interest is accruing with reference to Bank's Prime Rate or at a LIBOR Rate),
shall be due and payable
<PAGE> 6
on the first Business Day of each month, commencing January 2, 1996, and when
Bank has accelerated payment of the Note, and on the Revolver Expiration Date,
and when the Note is paid in full. All interest that accrues under the Revolver
shall be computed on the basis of a 360 day year for the actual number of days
elapsed, regardless of whether the loan is accruing interest with reference to
Bank's Prime Rate or at a LIBOR Rate. If any payment due under the Note is not
made within five days of the date when due, Borrower shall pay a late charge
equal to the greater of 5% of the delinquent amount or $50.00, or Bank's then
current late charge. In the event Bank accelerates payment of the Note, interest
shall accrue on the unpaid principal balance of the Note (including the then
unpaid principal balance of all LIBOR Loans), at the floating rate of Bank's
Prime Rate plus 5.0% per annum, until the Note is paid in full.
2.1.9 Bank is authorized to act on the telephone requests for
borrowing and/or prepayment, of any person identifying himself as an Authorized
Person and Borrower will be bound by such instructions. Borrower hereby
indemnifies and holds Bank harmless from any liability (including Bank's
reasonable attorneys' fees), which may arise as a result of Bank's good faith
reliance on telephone requests for borrowing and/or prepayment from any person
identifying himself as an Authorized Person.
2.1.10 Borrower shall pay to Bank a commitment fee equal to 1/4
of 1% per annum (calculated on the basis of a 360 day year), on the daily
average of the difference between the amount set forth in the first sentence of
SECTION 1.17 (subject to permanent reduction, as specified in SECTION 2.1.11
below), and the aggregate principal amount outstanding under the Revolver. This
commitment fee shall be payable in arrears and calculated by Bank as of the
first Business Day of each January (commencing January 2, 1996), April, July and
October, on the Revolver Expiration Date and when payment of the Note is
accelerated. The commitment fees shall be due and payable by Borrower within ten
days of the date that Bank bills Borrower for the commitment fee.
2.1.11 On five Business Days' written notice to Bank, Borrower
may elect to reduce the amount set forth in the first sentence of SECTION 1.17
to a lesser amount selected by Borrower. Upon such election, the reduction shall
be permanent and irrevocable, and if the then unpaid principal balance of the
Note exceeds the revised Maximum Credit, Borrower shall immediately pay to Bank
a sum sufficient to reduce the unpaid principal balance of the Note to the new
Maximum Credit; provided, that if such prepayment is applied to any portion of
the principal amount of any LIBOR Loan on a day other than the last day of the
then current Interest Period for such Loan, Borrower shall not be permitted to
make the reduction described in the first sentence of this SECTION 2.1.11.
3. SALE OF CALKINS ROAD PROPERTY. The Bank hereby consents to
Borrower's sale of the Calkins Road Property and agrees to waive the provisions
of the Credit Agreement to the extent necessary to permit such sale. The
Borrower and the Bank agree that the Calkins
<PAGE> 7
Road Property is hereby released from the restrictions set forth in the Negative
Pledge Agreement and the Bank agrees to execute such document as may be
necessary to evidence such release. In addition, Borrower and the Bank agree
that Schedule A attached to the Mortgage is hereby amended to delete therefrom
the description of the Calkins Road Property contained therein, and the Bank
shall replace such Schedule A with a new Schedule A describing only the Real
Property owned by Borrower at 977 Mt. Read Boulevard, Rochester, New York, as
more particularly described in EXHIBIT 2.2 to this Amendment No. 3.
4. DOCUMENTS/ALTEK TRANSACTION. The parties agree that the following
documents executed pursuant to the Altek Consent Letter are included within the
definition of "Documents" as set forth in the Credit Agreement:
4.1 Subordination Agreement dated as of April 3, 1996 by
Bank, Borrower, E. Lee Garelick and James N. Wurtz.
4.2 Continuing Guaranty dated April 3, 1996 and executed by Altek
in favor of the Bank. Such Guaranty shall also be deemed a "Guaranty", and Altek
shall be deemed a "Guarantor" as such terms are defined in the Credit Agreement.
4.3 General Security Agreement dated April 3, 1996 and executed
by Altek in favor of the Bank.
4.4 Landlord/Mortgagee Waivers executed by 210 Commerce Drive,
Inc. in favor of the Bank and dated April 3, 1996.
4.5 All financing statements and other documents executed
pursuant to the documents described in SECTIONS 4.1 THROUGH 4.4 above. The
foregoing description shall not be deemed in any way to limit the definition
of "Documents" as set forth in the Credit Agreement.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks that:
5.1 CORPORATE POWER AND AUTHORITY; NO CONFLICTS. The execution,
delivery and performance by the Borrower of this Amendment No. 3 have been duly
authorized by all necessary corporate action and do not and will not: (a)
require any consent or approval of its stockholders; (b) contravene its charter
or by-laws; (c) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation (including, without
limitation, Regulation U), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the Borrower
or any of its Subsidiaries; (d) result in a breach of or constitute a default or
require any consent under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; (e) result in, or require, the
creation or imposition of a Lien, upon or with respect to any of the properties
now owned or hereafter
<PAGE> 8
acquired by the Borrower; or (f) cause the Borrower (or any Subsidiary) to be in
default under any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, agreement, lease or
instrument.
5.2 LEGALLY ENFORCEABLE AGREEMENT. This Amendment No. 3, all
Documents previously executed, all Documents executed pursuant to this Amendment
No. 3, and the Credit Agreement and Documents, as amended by this Amendment No.
3, are legal, valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with their respective terms, except to the extent
that such enforcement might be limited by applicable bankruptcy, insolvency or
other similar laws affecting creditors' rights generally.
5.3 NO DEFAULT. On and as of the date of this Amendment No. 3,
and after giving effect to this Amendment No. 3, no event has occurred and is
continuing which constitutes a default under SECTION 6 of the Credit Agreement
or which, with the giving of notice or the passage of time or both would
constitute such a default.
5.4 REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in the Credit Agreement are, and the information set forth
in EXHIBIT 3.1 is, true and correct as of the date of this Amendment No. 3 as if
fully set forth herein.
5.5 MATERIAL ADVERSE CHANGE. Since March 31, 1996, there has been
no material adverse change in the condition (financial or otherwise), business,
operations or prospects of the Borrower or any of its Subsidiaries.
6. EFFECTIVENESS. This Amendment No. 3 shall be of no force or
effect unless and until all of the following conditions are met:
6.1 COUNTERPARTS. The Borrower and the Bank have each received a
counterpart of this Amendment No. 3 duly executed by the Borrower and the Bank.
6.2 RESOLUTIONS. The Bank shall have received a certified copy of
the resolutions of the board of directors of the Borrower in form and content
reasonably satisfactory to the Agent, authorizing the execution, delivery and
performance of this Amendment No. 3 and all Documents to be executed by Borrower
in connection herewith.
6.3 OPINION. The Bank shall have received an opinion of
Harter, Secrest and Emery, counsel for the Borrower, in substantially the form
of EXHIBIT 6.3 to this Amendment No. 3.
6.4 NOTE. The Bank shall have received the Note duly executed by
the Borrower.
6.5 GUARANTORS' ACKNOWLEDGEMENTS. The Bank shall have received
an Acknowledgement of Guaranties, in the form of EXHIBIT 6.5 to this Amendment
No. 3, properly executed by each of the Borrower's subsidiaries.
6.6 SUBORDINATING CREDITORS' ACKNOWLEDGEMENTS. Borrower
shall have received an Acknowledgement of Subordinating Creditors, in the form
of EXHIBIT 6.6 to this Amendment No. 3, executed by each of Messrs. E. Lee
Garelick and James N. Wurtz.
<PAGE> 9
7. BANK'S EXPENSES. Borrower agrees to pay the Bank for all costs,
expenses and charges (including, without limitation, fees and charges of
external legal counsel for the Bank and costs allocated by its internal legal
department) incurred by the Bank in connection with the negotiation, preparation
and execution of this Amendment No. 3 and the documents executed in connection
herewith.
8. MISCELLANEOUS. Except as expressly provided in this Amendment No.
3, the Credit Agreement and each of the Documents shall remain unchanged and in
full force and effect, except that each reference in the Credit Agreement, in
the Note, and in any of the other Documents, and in any agreements, certificates
and notices simultaneously herewith or hereafter executed under or pursuant to
the Credit Agreement or the other Documents, to the "Credit Agreement", "this
Agreement", "hereof", "herein" and similar terms referring to the Credit
Agreement, shall be deemed to refer to the Credit Agreement as amended by this
Amendment No. 3.
This Amendment No. 3 shall be governed by and construed in accordance
with the laws of the State of New York, and may not be amended or terminated
orally. Any litigation involving this Amendment No. 3 and/or the Credit
Agreement and/or any of the Documents shall at Bank's sole option, be triable
only in a court located in Monroe County, New York. BORROWER WAIVES THE RIGHT TO
A JURY TRIAL IN ANY LITIGATION OF ANY NATURE OR KIND IN WHICH BORROWER AND BANK
ARE PARTIES. No other Entity is a third party beneficiary of this jury trial
waiver. Borrower also waives the right to require Bank to post an undertaking in
any action commenced by Bank against Borrower, or in any action in which Bank
and Borrower are both parties, including but not limited to an action under
Article 71 of the CPLR.
The section headings in this Amendment No. 3 are inserted for
convenience only and shall not be a part of this instrument.
This Amendment No. 3 may be signed in counterparts, each of which
shall be an original, with the same effect as if the signature thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, Bank and Borrower have executed this Amendment No.
3 on the date first written above.
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
--------------------------------------------
J. Theodore Smith
Vice President
TRANSMATION, INC.
<PAGE> 10
By:
-----------------------------------------------
Robert G. Klimasewski
President
STATE OF NEW YORK )
COUNTY OF MONROE ) ss:
On this ______ day of ____________, 1996, before me personally came J.
Theodore Smith, to me known, who, being by me duly sworn, did depose and say
that he is an Assistant Vice President of MANUFACTURERS AND TRADERS TRUST
COMPANY, the corporation described in and which executed the above instrument;
and that he signed his name thereto by order of the board of directors of said
corporation.
--------------------------------
Notary Public
STATE OF NEW YORK )
COUNTY OF MONROE ) ss:
On this ______ day of ____________, 1996, before me personally came J.
Robert G. Klimasewski, to me known, who, being by me duly sworn, did depose and
say that he is President of TRANSMATION, INC., the corporation described in and
which executed the above instrument; and that he signed his name thereto by
order of the board of directors of said corporation.
--------------------------------
Notary Public
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