<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the fiscal year ended March 31, 1998
----------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
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
------------------------------
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
- --------------------------------- -----------------------------------------
None None
- --------------------------------- -----------------------------------------
- --------------------------------- -----------------------------------------
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
- --------------------------------------------------------------------------------
(Title of Class)
Common Stock $0.50 Par Value
- --------------------------------------------------------------------------------
(Title of Class)
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
----- -----
TOTAL PAGES - 68
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Indicate by check mark (X) if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $34,956,479 as of the close of business June 16, 1998. Market
value is determined by reference to the final NASDAQ quotation of the price paid
for Transmation stock as of that date.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the close of business on June 5, 1998.
Class Number of Shares Outstanding
Common 5,832,945
------ ----------------------------
Documents incorporated by reference and the part of Form 10-K into which they
are incorporated are listed hereunder.
Part of Form 10-K Document Incorporated
----------------- ---------------------
Part III Registrant's definitive Proxy Statement
for Annual Meeting of Shareholders to be
held on August 18, 1998
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<PAGE> 3
Part I
------
Item 1. Business
- -----------------
Transmation, Inc., the "Company", an Ohio corporation organized in 1964, is
primarily engaged in the sale and distribution, development, manufacture and
service of electronic instrumentation which is used principally for measurement,
indication and transmission of information. The principal products sold and
serviced by Transmation fall within two main categories:
* Test, measurement and calibration equipment - Instruments used
for calibrating, measuring and testing many physical
parameters in industry and science. These products are
manufactured by Transmation or by other manufacturers and are
distributed and serviced by Transmation.
* Process monitoring instrumentation - A line of instrumentation
which measures low level signals, proportional to some
parameter such as temperature, and then amplifies the
measurement to permit transmission to a receiving device which
may be used to alter the process or trigger an alarm. Certain
of these products may be used to monitor one or more points of
a process by multiplexing information into one or more digital
devices. These products are manufactured, distributed and
serviced by Transmation.
Products and services sold range in price from $100 for a single calibration
service to more than $200,000 for a large multiplexing system.
The principal market for Transmation's products and services is within the
process industry and is primarily directed to the petroleum refining and
chemical manufacturing industries, and secondarily to the pulp and paper, gas
pipeline and primary metals industries. Transmation's sales are accomplished
through a catalog distribution division, the Transcat Division ("Transcat"), a
manufacturing division, the Instrument Division, a manufacturing subsidiary,
Altek Industries Corp. ("Altek"), and four foreign sales subsidiaries.
Sales of test, measurement and calibration equipment and services are
principally made through Transcat, which sells through a catalog distributed to
existing and prospective customers, and through salespeople in selected
locations in the United States and Canada. Transcat sells
Transmation-manufactured products and re-sells the products of approximately 200
other manufacturers through an annual catalog, which is currently approximately
550 pages. To date, more than one million catalogs have been distributed through
this part of Transmation's sales and marketing effort. In addition to the annual
catalog, Transcat makes periodic mailings to existing and prospective customers
to spur additional sales as well as to generate names for future catalog or
product mailings.
In addition to catalog sales, Transmation engages in direct sales of test,
measurement and calibration equipment and services as well as process monitoring
instrumentation. The Company employs over 30 direct sales people in Transcat and
four sales managers in the Instrument Division and Altek. Two sales people are
employed in Australia to manage Far Eastern sales representative or distributor
organizations and to direct sell in Australia. The Company also maintains one
regional sales manager in Singapore. In addition, the Company has arrangements
with over 60 sales representative and distributor organizations, each employing
one or more sales engineers, located in other areas of concentrated demand for
Transmation's products in the United States, Canada, the Far East, Central and
South America, Australia, the Middle East and Eastern and Western Europe. These
sales representatives and distributors either promote Transmation's products on
a commission basis or purchase them from Transmation at a discount and resell to
end users at a gross price.
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The Company's Transcat CalXpress operations, which are ISO 9002 registered,
provide periodic calibration and repair services for customers owning
instrumentation manufactured by others and by Transmation. At March 31, 1998,
there were Transcat CalXpress facilities in 14 locations in the United States
and Canada.
The Company's two manufacturing operations, both located in Rochester, New York,
primarily develop, manufacture and sell electronic and pneumatic instrumentation
used to calibrate and test instrumentation used primarily in the process
industries. The Instrument Division's facility has ISO 9001 registration.
The Company's value added operations, which customize, modify and repair analog
gauges, are located in Dayton, Ohio and Baltimore, Maryland.
Since the beginning of fiscal 1997, Transmation has expanded its business
through two acquisitions:
Altek Acquisition. In April 1996, the Company acquired all of the stock
of Altek, a manufacturer of electronic calibration equipment, for cash and notes
aggregating $4.8 million, and 300,000 shares of Common Stock. As a result of
this acquisition, the Company's sales have increased by more than $5 million
annually.
EIL Acquisition. In April 1997, the Company acquired substantially all
of the assets of the Sales and Service Divisions of E.I.L. Instruments, Inc. a
distributor and servicer of electronic test, measurement and calibration
instrumentation, for $22 million in cash and the value of certain assumed
liabilities. As a result of this acquisition, the Company has added a
significant base of potential new customers, a value added meter modification
business and several new product lines, and has significantly increased its
overall capabilities to provide repair, calibration and certification services.
Transmation's future performance will depend substantially on its
ability to integrate and manage its acquired businesses and operations, to
respond to competitive developments, to further develop markets for its products
and services, and to anticipate future customer needs and to provide solutions
for customers in a timely, cost-effective manner.
The Company's principal executive offices are located at 10 Vantage
Point Drive, Rochester, New York 14624. Its telephone number is (716) 352-7777.
The following information is set forth as it is deemed material to an
understanding of the business of the registrant:
COMPETITION. The market to which the Company sells the products it
manufactures is highly competitive, and the Company expects that competition
will increase in the future. Failure to keep pace with rapid technological
advances, which characterize the industry, could adversely affect the Company's
competitive position with respect to the products it manufactures and the way it
distributes its products. In its manufacturing operations, the Company competes
on the basis of price, performance, inventory availability, quality, reliability
and customer service and support. To maintain its competitive position with
respect to manufactured product, the Company must continue to develop new
products, periodically enhance its existing products, reduce its cost of
manufacturing such products, maintain the quality of its products and compete
effectively in the areas described above. Although the Company believes that its
products are competitive in each of the above-described areas, there can be no
assurance that existing or future competitors, some of which have greater
financial resources than the Company, will not introduce comparable or superior
products incorporating more advanced technology at lower prices. The Company's
competitors are numerous, ranging from large corporations to many relatively
small and highly specialized firms. Although no single company competes in all
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of the Company's product markets, some of the major competitors which compete in
the Company's individual product markets include Fluke Corporation, Beta (a
division of Hathaway Corporation) and certain divisions of Ametek Corporation.
Some of these competitors have more extensive sales, distribution, engineering,
manufacturing and/or marketing capabilities and substantially greater financial,
technological and personnel resources than does the Company.
The markets to which the Company, through Transcat, sells products and
related services is also highly competitive. Competition for sales in
distribution and service is quite fragmented and ranges from large, well
financed national distributors to small local distribution organizations and
service providers, as well as the manufacturers of the products themselves.
Transcat competes on the basis of price, inventory availability, service quality
and customer service and support. To maintain its competitive position with
respect to such products and services, the Company must continually demonstrate
to customers its commitment to achieving the highest level of performance
possible for a distributor and compete effectively in the areas described above.
Significant Customers
---------------------
There were no sales to any customer or controlled group which amounted
to 10 percent or more of the Company's consolidated net sales during the years
1998-1996, nor is the Company dependent on a single customer or a few customers,
the loss of any one or more of which would have a material adverse effect on the
Company.
Backlog
-------
At the close of the fiscal year ended March 31, 1998, Transmation had a
firm order backlog of approximately $2,485,000 as compared to $1,460,000 in 1997
and $1,347,000 in 1996.
It is anticipated that 100 percent of Transmation's backlog existing on
March 31, 1998 will be filled by shipments in fiscal year 1999. Transmation's
cycle of sales to delivery at the present time is 1 day to 12 weeks on all
product categories except for process monitoring systems, where the cycle is
10-40 weeks. However, backlog has generally not been a significant factor in
Transmation's business.
Seasonality
-----------
Transmation does not believe that its line of business has any
significant seasonal factor.
Raw Materials
-------------
Finished products required for the Transcat division's catalog sales
are generally available from only one source per product (the manufacturer)
although on occasion substitutions of product are possible. Additionally, while
the raw materials and components essential to Transmation's manufacturing
business are available from a number of sources of supply, a portion of the
Company's manufacturing operations is dependent on the ability to deliver
completed products, sub-assemblies or components in time to meet critical
distribution and manufacturing schedules. In certain instances, important parts
and components are available through fewer suppliers than Transmation deems
suitable. If such suppliers should fail in deliveries, delays in Transmation's
production could result which in turn could have a material adverse effect on
the Company's business, prospects, results of operations and financial
condition. Periodically, Transmation has experienced delays in obtaining certain
parts and components or finished products. Such delays are primarily
attributable to demand for parts or products and long lead times. In order to
minimize such delays, Transmation has placed scheduled blanket purchase orders,
has sought out alternate sources of supply, has provided vendors with greater
lead time in filling such orders and has placed certain finished product in its
inventory.
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<PAGE> 6
Transmation believes that such delays have not had a material adverse effect on
its business to date, although it cannot predict what effect such delays may
have in the future.
Patents
-------
The Company's success and ability to compete depends in part upon
protecting its proprietary rights in its products, its name and its trade names.
There can be no assurance that the measures taken by the Company will be
adequate to deter misappropriation of its products, its name and its trade names
or independent third-party development of its products, or that its intellectual
property rights can be successfully enforced or defended if challenged. Given
the continuing development of technology, there can be no assurance that certain
aspects of the Company's products do not or will not infringe upon the existing
or future proprietary rights of others or that, if licenses or rights are
required to avoid infringement, such licenses or rights could be obtained on
terms that would not have a material adverse effect on the Company, if at all.
It is the opinion of management that the obtaining of patent protection
is not essential to the conduct of Transmation's business. Transmation has,
however, sought patent protection for its manufactured products in certain
instances and presently holds several United States patents, the most recent of
which was granted in 1994; patents expire at various dates through 2012.
Transmation believes that the patents obtained provide a short-term marketing
benefit, particularly when marketing products against similar products produced
by competitors. However, Transmation does not believe that the patents have a
significant impact on its business.
Transmation has registered numerous trademarks in the United States
Patent and Trademark Office, including Transcat(R), Quick-Cal(R), CalXpress(R)
and Shop Access(R).
Research and Development
------------------------
During the fiscal year ended March 31, 1998, Transmation expended
approximately $1,660,110 in research and development as compared with an
approximate expenditure of $1,560,974 in 1997 and $1,099,508 in 1996. The
research and development costs in fiscal 1998 reflected the Company's efforts in
all of its product lines in its Instrument Division and Altek subsidiary.
Research and Development is Company sponsored. Approximately 26 of its
employees and several consultants are engaged in product development. All such
employees hold technical degrees.
Many of the instruments which the Company designs and manufactures are
used in the petroleum refining and chemical manufacturing industries. The
tolerance for error in the design, manufacture or use of these products may be
small or non-existent. If an instrument designed or manufactured by the Company
is found to be defective, whether due to design or manufacturing defects,
improper use of the product or other reasons, the instrument may need to be
recalled, possibly at the Company's expense. Furthermore, the adverse effect of
a product recall on the Company might not be limited to the cost of the recall
to the Company. Recalls, especially if accompanied by unfavorable publicity or
termination of customer contracts, could result in substantial costs, loss of
revenues and diminution of the Company's reputation, each of which could have a
material adverse effect on the Company's business, prospects, results of
operations and financial condition. In addition, the manufacture and sale of the
instruments manufactured by the Company also involves the risk of product
liability claims. The Company evaluates its insurance coverage from time to time
in view of developments in its business and products currently under
development. Product liability insurance is expensive and, in the future, may
not be available on acceptable terms, in sufficient amounts, or at all. A
successful claim brought against the Company in excess of its insurance coverage
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or any material claim for which insurance coverage is denied or limited could
have a material adverse effects on the Company's business, prospects, results of
operations and financial condition.
Employees
---------
Transmation employed 407 persons (including 3 part-time employees) as
of March 31, 1998 in all aspects of its business. At March 31, 1997, Transmation
employed 250 persons of which 2 were part-time. The EIL acquisition on April 4,
1997 increased Transmation's number of employees to 496. At March 31, 1996, the
Company employed 211 persons of which 3 were part-time. None of Transmation's
employees is subject to collective bargaining agreements.
Since April 1996, the Company has acquired one manufacturing business
and one business engaged in the distribution and service of products. This has
resulted in a 150% increase in the Company's work force, the addition of one
manufacturing facility, the addition of three value added operations and the
addition of ten service facilities. The Company is in the process of integrating
the acquired operations and efforts are underway to assimilate into Transmation
the products and services formerly sold independently by the acquired
businesses, their operations, corporate cultures, product lines, personnel,
management information systems, financial control systems, facilities
infrastructure and customer relationships. There can be no assurance that the
Company will be successful in these efforts. If the Company is unable to
integrate and manage all of the elements of these acquisitions effectively and
efficiently, it could have a material adverse effect on the Company's business,
prospects, results of operations and financial condition.
In addition, if the Company continues to experience rapid growth, a significant
strain may be placed on its financial, management and other resources. The
Company's ability to manage growth effectively will require it to continue to
improve its operational and financial control systems, infrastructure and
management information systems, and to attract, train, motivate, manage and
retain key employees. There can be no assurance that the Company will be
successful in doing so. Failure to manage its growth effectively could have a
material adverse effect on the Company's business, prospects, results of
operations and financial condition.
Environmental Matters
---------------------
Registrant does not believe that compliance with Federal, State or
local provisions relating to the protection of the environment have any material
effect on its capital expenditures, earnings or competitive position.
<TABLE>
<CAPTION>
Information as to classes of similar products:
----------------------------------------------
Percent of Net Sales
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Test, Measurement & Calibration Equipment
and Service 97.9 94.2 93.3
Process Monitoring Instrumentation
and Service 2.1 5.8 6.7
</TABLE>
The change in sales mix from 1997 to 1998 and from 1996 to 1997 is
primarily the result of increased sales of resale product and service of test,
measurement and calibration equipment to the U.S. marketplace resulting from
increases in the number of company employed sales personnel in the Company's
Transcat division and from significant catalog mailings to customers and
prospective customers during fiscal 1998-1996 in the Company's Transcat
division. Additionally, all sales resulting from the Company's Altek Industries
Corp. subsidiary, acquired on April 3, 1996, were of calibration products and
sales which resulted from the Company's acquisition of the sales and service
division of EIL Instruments in April 1997 were of service and calibration
products.
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Information Regarding Export Sales
----------------------------------
Approximately 19.1 percent of Transmation's sales in 1998 resulted from
sales in foreign countries. This compares with 27.8 percent of sales in 1997 and
20.7 percent of sales in 1996. In 1998, the percentage of foreign sales
decreased as compared to 1997 as the result of the Company's acquisition of the
assets of EIL Instruments. The EIL business acquired was and is primarily
conducted in the U.S. The increase in 1997 compared to 1996 is primarily the
result of increased sales in the international marketplace of products
distributed through the Company's Transcat division. Sales in foreign countries
generate relatively the same profit margins as domestic sales. Management
believes that the relative lower value of the dollar compared to foreign
currencies that existed for several years through 1997 had a positive effect on
international sales. During fiscal 1998, many Asian currencies weakened
significantly compared to the U.S. dollar. The Company believes the stronger
U.S. dollar contributed to reduced sales in 1998; below levels which would
otherwise have been anticipated from Asian markets. Those markets are areas of
significant market potential for the Company. Management believes that continued
weakness in Asian currencies will continue to have a negative influence on our
future sales to Asia although it is impossible to predict the magnitude of such
impact. In addition, Transmation's revenues are subject to the customary risks
of operating in an international environment, including the potential imposition
of trade or foreign exchange restrictions, tariff and other tax increases,
fluctuations in exchange rates and unstable political situations, any one or
more of which could have a material adverse effect on the Company's business,
prospects, results of operations and financial condition.
The information contained in Notes 2 and 3 to the Financial Statements
of this report is incorporated herein by reference.
Item 2. Properties
- -------------------------
Transmation's manufacturing operation is housed in owned facilities located at
977 Mt. Read Boulevard, Rochester, New York comprising 26,800 square feet of
plant, storage and office space.
In addition, Transmation has leased an additional 19,000 square feet of space in
Rochester. This space is being used for certain executive, administrative,
sales, service and manufacturing purposes. The lease for this space will expire
in October, 2002.
Transmation also leases an additional 9,500 square feet which houses the
operations of its Altek subsidiary. This lease will expire in fiscal 2000.
Various sales office and CalXpress space is leased by the Company and its
subsidiary, Transmation (Canada), Inc., and is considered adequate to meet both
present and future needs in those locations. (See Note 7 to the Financial
Statements.)
Generally, Transmation's present facilities are being fully utilized and are
considered suitable for its current needs and there is no present requirement
for significant additional space. Any expansion or change in business facilities
as the result of a consolidation of manufacturing operations will be made in the
future if necessary.
Item 3. Legal Proceedings
- --------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------------
Not applicable.
Part II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
-------
The Company's Common Stock is traded in the NASDAQ National Market System. A
record of actual transactions in Transmation's stock is reflected in the table
below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1997 High $5.31 $4.635 $5.375 $8.00
Low 2.75 3.310 3.750 4.56
1998 High $9.75 $9.875 $9.75 $9.00
Low 6.00 6.875 6.75 7.00
</TABLE>
At June 5, 1998 there were approximately_969 shareholders. The Company has paid
no cash dividends since its inception, and under terms of a revolving credit
agreement with a bank may not pay such dividends without prior bank approval.
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Item 6.
- -------
TRANSMATION, INC.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Y E A R E N D E D M A R C H 31,
----------------------------------------------------------------------
1998 1997 1996
------------------- -------------------- -------------------
<S> <C> <C> <C>
Net Sales $78,483,565 $47,311,224 $38,449,758
------------------- -------------------- -------------------
Operating Income $4,187,289 $3,435,961 $2,165,037
------------------- -------------------- -------------------
Net Income $997,971 $2,059,736 $1,234,723
------------------- -------------------- -------------------
Income Per Share
Basic $.17 $.37 $.26
----- ----- -----
Income Per Share
Diluted $.16 $.35 $.24
------------------- -------------------- -------------------
Total Assets $51,875,214 $25,858,358 $15,701,727
------------------- -------------------- -------------------
Long-Term Debt $21,752,922 $6,000,000 $2,050,800
------------------- -------------------- -------------------
<CAPTION>
1995 1994
------------------- --------------------
<S> <C> <C>
Net Sales $37,293,872 $33,984,430
------------------- --------------------
Operating Income (Loss) $915,481 ($523,129)
------------------- --------------------
Net Income (Loss) $381,785 ($586,234)
------------------- --------------------
Income(Loss) Per Share
Basic $.08 ($.12)
----- ------
Income (Loss) Per Share
Diluted $.08 ($.12)
------------------- --------------------
Total Assets $16,293,407 $17,525,838
------------------- --------------------
Long-Term Debt $4,064,426 $5,100,000
------------------- --------------------
</TABLE>
The Company has paid no cash dividends since its inception.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
Increases (Decreases) in Consolidated Operating Results Compared To Prior Year
<TABLE>
<CAPTION>
$000
-------------------------------------------------
1998 1997
-------------------------------------------------
Change from Change from
Prior Year % Prior Year %
---------- -- ---------- --
<S> <C> <C> <C> <C>
Net Sales $ 31,172 66 $ 8,861 23
Costs and Expenses:
Cost of Product Sold 24,707 86 4,375 18
Selling & Admin. Expenses 5,614 41 2,754 25
Research & Develop. Costs 99 6 461 42
Interest Expense 1,914 301 300 90
-------------------------------------------------
Income from Operations (1,162) (41) 971 53
Other Income (479) 479 --
-------------------------------------------------
Income Before Income Taxes (1,641) (50) 1,450 79
Provision for Income Taxes (580) (47) 625 104
-------------------------------------------------
Net Income ($ 1,061) (52) $ 825 67
-------------------------------------------------
Earnings Per Share -Diluted ($ .19) (54) $ .11 46
-------------------------------------------------
</TABLE>
Net Sales
- ---------
The 66% sales increase in 1998 was attributable to the Company's acquisition of
the assets of the Sales and Service divisions of E.I.L. Instruments Inc. in
April 1997.
The sales increase in 1997 of 23% is attributable to the Company's acquisition
of Altek Industries Corp. in April 1996 and to increased sales of products and
services by the Company's Transcat division in fiscal 1997. The effect of having
added salesmen in areas of significant market concentration in Transcat during
fiscal 1996, together with improved customer mail list techniques, resulted in
improved market penetration and increased sales in 1997 compared to 1996.
Cost of Product Sold
- --------------------
Cost of product sold increased by 86% in 1998 compared to 1997. This increase
resulted from proportionately greater sales through the Company's Transcat
division in 1998 compared to 1997. Gross margins on distribution and service
sales achieved through the Company's Transcat division are lower than in the
Company's manufacturing division.
Costs of product sold increased by 18% but as a percentage of sales decreased by
2.7% in 1997 compared to 1996. The improvement in 1997 is the result of the
addition of high margin Altek products to Transmation's sales and of
improvements in gross margins of both resale and service billings in the
Company's Transcat division.
Selling and Administrative Expenses
- -----------------------------------
Selling and administrative expenses in 1998 increased by 41% compared to 1997
but as a percentage of sales fell to 24.4% from 28.7%. The increased spending
was the result of increases in sales and marketing related costs which were
added as the result of the Company's April 1997 acquisition of the Sales and
Service divisions of E.I.L. Instruments Inc. Additionally, goodwill amortization
resulting from acquisitions totaled $1,007,000 in 1998 compared to
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$313,600 in 1997. Overall, economies of scale resulted in lower total sales and
administrative expenses as a percentage of sales in 1998 compared to 1997.
Selling and administrative expenses increased by 25% in 1997 compared to 1996;
however, as a percentage of sales, the increase is .6%. Increased spending
represents the full year effect of direct salespeople added in the Company's
Transcat division in areas of significant market potential. Additionally,
amortization of goodwill totaling $313,600 resulting from Transmation's April
1996 acquisition of Altek Industries Corp. is included in 1997 costs and there
were no similar costs in 1996.
Research and Development
- ------------------------
Research and development costs increased by 6% in 1998 compared to 1997.
Spending in this area is considered appropriate to enable the Company to
maintain its strong competitive position in the marketplace.
Research and development costs increased by 42% in 1997 compared to 1996. This
increase is the result of the acquisition of Altek Industries Corp. by the
Company in April 1996.
Interest Expense
- ----------------
Interest expense increased by 301% in 1998 compared to 1997. This increase is
the result of financing the Company's acquisition of the assets of the Sales and
Service divisions of E.I.L. Instruments in April 1997.
Interest expense increased by 90% in 1997 compared to 1996. This increase is the
result of financing the Company's acquisition of Altek Industries Corp. in April
1996.
Other Income
- ------------
Other income in 1997 is comprised primarily of the sale of land. The Company
sold a parcel of land it owned in a Rochester suburb which did not have a part
in the Company's future plans, resulting in a one-time net gain of $479,000.
Income Taxes
- ------------
The Company's effective tax rate was 39.2% of pretax profits in 1998 compared to
37.2% of profits in 1997. The higher tax rate in 1998 compared to 1997 is
primarily the result of the necessity to file returns in additional states as
the result of the Company's acquisition of the assets of the Sales and Service
divisions of E.I.L. Instruments in April 1997.
The Company's effective tax rate was 37.2% of pretax profits in 1997 compared to
32.6% of pretax profits in 1996. In 1997 and 1996 the Company used tax benefits
from foreign subsidiaries which will become available against future tax
liabilities in the determination of its income tax expense.
Impact of Inflation
- -------------------
The effects of inflation have not been significant to Transmation during
1998-1996 because inflation rates have been relatively low.
Year 2000 Issue
- ---------------
The Company has reviewed all of its current computer applications with respect
to the Year 2000 issue. The Company believes all of its relevant applications
are Year 2000 compliant and that no material costs with respect to Year 2000
compliance will be incurred by the Company. The Company is unable to determine
the effects of the Year 2000 compliance issue, if any, by its suppliers and
customers.
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LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
Cash Flows
- ----------
<TABLE>
<CAPTION>
$000's
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Provided (used) by:
Operating Activities $2,852 $1,561 $2,249
Investing Activities ($24,084) ($5,088) ($966)
Financing Activities $21,117 $4,118 ($1,703)
</TABLE>
Operating Activities
- --------------------
Net cash from operations totaled $2,852,000 in 1998, an increase of $1,291,000
from 1997. Although net income decreased by $1,062,000 in 1998 compared to 1997,
depreciation and amortization increased by $1,701,000, trade accounts receivable
were reduced by $701,000 from amounts outstanding one year ago (after giving
consideration to receivables purchased in the EIL asset acquisition).
Inventories increased by $643,000 in 1998 and trade accounts payable increased
by $295,000 as an offset to the inventory increase. Other liabilities,
principally interest which resulted from additional borrowings in 1998 compared
to 1997 as the result of the EIL acquisition, increased by $793,000 in 1998 vs
1997. Income taxes payable were $454,000 lower in 1998 compared to 1997 due to
Transmation's lower profitability in 1998 vs 1997.
Net cash from operations totaled $1,561,000 in 1997 which was down by
approximately $688,000 from cash generated from operations in 1996. Net Income
in 1997 increased by $825,000 compared to 1996 and depreciation and amortization
increased by $521,000 in 1997 versus 1996. The effect of these cash generators
was offset in 1997 by an increase in accounts receivable of $776,000 and in
inventories of $457,000 which were the result of increased business through the
Company's Transcat division and of its purchase in April 1996 of the stock of
Altek Industries Corp.
Investing Activities
- --------------------
Cash used in investing activities totaled $24,084,000 in 1998 compared to
$5,088,000 in 1997. The Company invested $22,000,000 in its purchase of the
sales and service divisions of EIL Instruments in April 1997 and $6,637,500 in
its purchase of Altek Industries Corp in April 1996. Capital assets acquired
totaled $2,084,000 in 1998 compared to $815,000 in 1997.
Financing Activities
- --------------------
Financing activities generated $16,999,000 more cash in 1998 than in 1997.
$21,109,000 of additional bank debt was added in 1998 to finance the Company's
operations, acquire the assets of the former sales and service divisions of EIL
Instruments and to repay $600,000 of debt related to the Company's April 1996
acquisition of Altek Industries Corp. During 1998, employees and directors
exercised options and warrants which provided $261,000 more cash to the Company
as the result of such transactions in 1998 compared to 1997.
During 1997, financing activities generated $5,821,000 more cash than in 1996.
In addition, $1,838,000 worth of Company stock was issued as partial payment for
the stock of Altek Industries Corp., an additional $36,000 of stock was sold to
employees and directors under various stock option and warrant plans in 1997
versus 1996, and $5,184,000 of additional bank and other debt was added in 1997
compared to 1996 to finance the Company's operations and to acquire the stock of
Altek Industries Corp.
Forward-Looking Statements
- --------------------------
This Report may contain forward-looking statements based on current
expectations, estimates and projections about Transmation's industry,
13
<PAGE> 14
management's beliefs and assumptions made by management. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to forecast. Therefore, actual results may differ materially from
those expressed or forecast in any such forward-looking statements. Transmation
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------------
Not applicable.
14
<PAGE> 15
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------------
TRANSMATION, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Document Page
- -------- ----
<S> <C>
Report of Independent Accountants 16
Consolidated Balance Sheet - March 31, 1998, 1997 17
Consolidated Statement of Income - March 31, 1998, 1997, 1996 18
Consolidated Statement of Cash Flows - March 31, 1998, 1997, 1996 19
Consolidated Statement of Stockholders' Equity -
March 31, 1998, 1997, 1996 20
Notes to Consolidated Financial Statements 21 - 32
Schedule VIII - Valuation and Qualifying Accounts -
March 31, 1998, 1997, 1996 33
</TABLE>
All other schedules have been omitted because they are not applicable or the
required information is shown in the Financial Statements or notes thereto.
15
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Transmation, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Transmation, Inc. and its subsidiaries at March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended March 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.
PRICE WATERHOUSE LLP
Rochester, New York
May 15, 1998
16
<PAGE> 17
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, March 31,
ASSETS: 1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash $652,664 $758,215
Accounts Receivable, less allowance
for doubtful accounts of $592,000 in 1998
and $404,000 in 1997 12,540,347 6,773,669
Inventories 10,675,829 7,790,166
Prepaid Expenses and Deferred Charges 1,344,799 956,235
Deferred Tax Assets 540,172 394,402
------------ ------------
Current Assets 25,753,811 16,672,687
Properties, at cost, less accumulated
Depreciation 6,405,053 2,355,757
Goodwill, less accum. Amortization of $1,320,500 in
1998 and $313,600 in 1997 19,199,947 5,947,558
Deferred Charges 204,308 118,214
Deferred Income Taxes 58,582 226,352
Other Assets 253,513 537,790
------------ ------------
$51,875,214 $25,858,358
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $2,500,000 $600,000
Current Portion, Long-Term Debt 2,856,000
Accounts Payable 7,861,779 3,596,365
Accrued Payrolls, Commissions & Other 2,174,389 2,008,698
Income Taxes Payable 234,984 689,461
------------ ------------
Current Liabilities 15,627,152 6,894,524
Long-Term Debt 21,752,922 6,000,000
Deferred Compensation 509,981 594,026
------------ ------------
37,890,055 13,488,550
------------ ------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock, par value $.50 per share -
Authorized - 15,000,000 shares - issued and outstanding -
5,830,942 in 1998 (including 2,853,692 shares
issued on 7/22/97) and 2,826,412 in 1997 2,915,471 1,413,206
Capital in Excess of Par Value 2,227,117 3,121,746
Accumulated Translation Adjustment (120,788) (130,532)
Retained Earnings 8,963,359 7,965,388
------------ ------------
13,985,159 12,369,808
------------ ------------
$51,875,214 $25,858,358
============ ============
</TABLE>
See notes to consolidated financial statements
17
<PAGE> 18
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ending March 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net Sales $78,483,565 $47,311,224 $38,449,758
-------------- -------------- --------------
Costs and Expenses:
Cost of Product Sold 53,441,287 28,733,887 24,358,437
Selling & Administrative Expenses 19,194,879 13,580,402 10,826,776
Research & Development Costs 1,660,110 1,560,974 1,099,508
Interest Expense 2,547,218 633,638 333,414
-------------- -------------- --------------
76,843,494 44,508,901 36,618,135
-------------- -------------- --------------
1,640,071 2,802,323 1,831,623
Other Income 479,013
-------------- -------------- --------------
Income Before Income Taxes 1,640,071 3,281,336 1,831,623
Provision for Income Taxes 642,100 1,221,600 596,900
-------------- -------------- --------------
Net Income $997,971 $2,059,736 $1,234,723
============== ============== ==============
Earnings Per Share - Basic $0.17 $0.37 $0.26
============== ============== ==============
Earnings Per Share - Diluted $0.16 $0.35 $0.24
============== ============== ==============
</TABLE>
See notes to consolidated financial statements
18
<PAGE> 19
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income 997,971 $2,059,736 $1,234,723
Adjustments to reconcile net income to
net cash provided from operating
activities:
Depreciation and Amortization 2,711,779 1,010,656 489,462
(Increase) Decrease in CSV of
Life Insurance Policies (2,196) 21,728 (14,377)
Provision for Losses on Accounts Receivable 37,191 (32,000) (37,000)
Deferred Income Taxes 22,000 (205,094) (77,708)
Gain on Sale of Land, Net (479,013)
Changes in Assets and Liabilities
Accounts Receivable 700,688 (776,027) 240,248
Inventories (642,593) (457,470) 255,909
Prepaid Expenses & Deferred Charges (219,878) 23,475 297,072
Other Assets 284,277 (286,473)
Accounts Payable 295,054 122,865 (606,054)
Other Liabilities (793,304) 358,216 157,507
Income Taxes Payable (454,477) 288,895 407,956
Deferred Compensation (84,045) (88,567) (98,287)
-------------- -------------- --------------
Net Cash Provided by Operating Activities 2,852,467 1,560,927 2,249,451
-------------- -------------- --------------
Cash Flows from Investing Activities:
Purchase of EIL Instruments (22,000,000)
Proceeds from Sale of Land, Net 527,749
Purchase of Altek Industries Corp. (4,800,000)
Purchase of Properties (2,084,320) (815,349) (965,643)
-------------- -------------- --------------
Net Cash used in Investing Activities (24,084,320) (5,087,600) (965,643)
-------------- -------------- --------------
Cash Flows from Financing Activities:
Increase in Notes Payable 1,900,000 600,000
Current Portion of Long-Term Debt 2,856,000
Issuance of Common Stock 607,636 346,896 310,407
Borrowings (Repayments) of Long Term Debt 15,752,922 3,170,659 (2,013,626)
-------------- -------------- --------------
Net Cash Provided by(used by) Financing Activities 21,116,558 4,117,555 (1,703,219)
-------------- -------------- --------------
Effect of Exchange Rates on Cash 9,744 (36,713) 15,694
-------------- -------------- --------------
Net (Decrease)Increase in Cash (105,551) 554,169 (403,717)
Cash at Beginning of Period 758,215 204,046 607,763
-------------- -------------- --------------
Cash at End of Period $652,664 $758,215 $204,046
============== ============== ==============
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $2,517,840 $555,069 $367,739
Taxes Paid $1,052,268 $1,043,883 $124,750
</TABLE>
See notes to consolidated financial statements
19
<PAGE> 20
TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of
Shares of $.50
Par Value Common Stock Capital Accumulated
Common Stock Issued and in Excess of Retained Translation
Outstanding Outstanding Par Value Earnings Adjustment
----------------- ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 2,380,640 $1,190,320 $849,829 $4,670,929 ($109,513)
Issuance of Stock 71,306 35,653 274,754
Currency Translation Activity 15,694
Net Income 1,234,723
----------------- ----------------- ----------------- ----------------- ----------------
Balance, March 31, 1996 2,451,946 1,225,973 1,124,583 5,905,652 (93,819)
Issuance of Stock 374,466 187,233 1,997,163
Currency Translation Activity (36,713)
Net Income 2,059,736
----------------- ----------------- ----------------- ----------------- ----------------
Balance, March 31, 1997 2,826,412 1,413,206 3,121,746 7,965,388 (130,532)
Two for One Stock Split
on 7/22/97 2,853,692 1,426,846 (1,426,846)
Issuance of Stock 150,838 75,419 532,217
Currency Translation Activity 9,744
Net Income 997,971
----------------- ----------------- ----------------- ----------------- ----------------
Balance, March 31, 1998 5,830,942 $2,915,471 $2,227,117 $8,963,359 ($120,788)
================= ================= ================= ================= ================
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 21
TRANSMATION, INC.
-----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 1998, 1997, AND 1996
---------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. The preparation of 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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Principles of Consolidation
The financial statements include the accounts of wholly-owned subsidiaries. All
intercompany transactions have been eliminated.
Foreign Operations
The accounts of Transmation's foreign subsidiaries are maintained in the local
currency of the countries in which they operate and have been translated to U.S.
dollars in accordance with the Statement of Financial Accounting Standards No.
52. Accordingly, accounts representing assets and liabilities, except for
long-term intercompany and equity accounts, have been translated at the year-end
rates of exchange and related revenue and expense accounts have been translated
at average rates of exchange during the year. Gains and losses arising from
translation of subsidiaries' balance sheets into U.S. dollars are recorded
directly to the accumulated translation adjustment component of stockholders'
equity. Currency gains and losses on business transactions are included in net
income. In 1998, transaction losses totaled $59,303, in 1997 and 1996,
transaction gains totaled $1,336 and $20,652 respectively.
Inventories
Inventories are valued at the lower of standard cost or market. Standard costs
approximate the average cost method of inventory valuation.
Depreciation and Amortization
The cost of properties is depreciated over the estimated useful lives of the
assets. Depreciation is determined on a straight-line basis. For income tax
purposes, depreciation is determined by accelerated methods as permitted under
tax regulations. Additions and betterments are capitalized; maintenance and
repairs are charged to income. The cost and accumulated depreciation of assets
retired or otherwise disposed of are eliminated from the accounts and any
resulting gain or loss is credited or charged to income. Leasehold improvements
are amortized over the terms of the related leases.
Income Taxes
The Company accounts for certain income and expense items differently for
financial reporting purposes than for income tax reporting purposes. Deferred
income taxes are provided in recognition of these temporary differences.
21
<PAGE> 22
Deferred Catalog Costs
Costs relating to mail order catalogs are amortized over a two-year period
beginning in the month of distribution. Such amortization periods approximate
the estimated productive life of a catalog. Prepaid expenses and deferred
charges at March 31, 1998, 1997, and 1996 consist principally of the unamortized
balance of costs associated with the catalogs. Catalog costs expensed in 1998,
1997, and 1996 were $1,059,418, $1,040,716, and $1,240,752 respectively.
Fiscal Year
The Company operates within a conventional 52 week accounting fiscal year ending
on March 31 of each year.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
Goodwill
Goodwill represents the excess of acquisition cost over fair value of assets
acquired at the time subsidiaries were purchased. The excess acquisition cost is
being amortized over 20 years on a straight-line basis. The Company evaluates
the carrying value of the excess acquisition costs of its subsidiaries whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The carrying value of excess acquisition costs is considered
impaired when the projected undiscounted future cash flows from the related
business unit is less than its carrying value. The Company measures impairment
based on the amount by which carrying value exceeds fair market value. Fair
market value is determined primarily using the projected future cash flows
discounted at a rate commensurate with the risk involved.
Stock Options
The Company follows the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for its stock
option and warrant activity in the financial statements. The Company granted all
options currently outstanding at an exercise price equal to the market price at
the date of grant and, therefore, under APB 25, no compensation expense is
recorded. The Company follows the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Commitments and Contingent Liabilities
Management is unaware of any litigation which is likely to result in any
material adverse impact on the Company.
22
<PAGE> 23
Note 2 - Business Segments
- --------------------------
The Company and its subsidiaries sell in one basic industry, instrumentation
products for the process industry. Sales are made by the Company and its
subsidiaries to end users and engineering contractors in the United States and
other countries. The Company's domestic operations include manufacturing, sales
and service; the Company's foreign operations are limited to sales and service.
A summary of 1998, 1997, and 1996 operating data relating to the Company and its
subsidiaries is as follows:
<TABLE>
<CAPTION>
ADJUSTMENTS
AND CONSOLI-
1998 UNITED STATES CANADA OTHER ELIMINATIONS DATED
- ------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUE FROM
UNAFFILIATED
CUSTOMERS $73,317,493 $5,166,072 $78,483,565
INTERCOMPANY
SALES AND
CREDITS 624,791 $1,489,598 ($2,114,389)
--------------- --------------- --------------- --------------- ---------------
TOTAL REVENUE $73,942,284 $5,166,072 $1,489,598 ($2,114,389) $78,483,565
=============== =============== =============== =============== ===============
NET INCOME $277,773 $222,172 $548,075 ($50,248) $997,971
=============== =============== =============== =============== ===============
IDENTIFIABLE
ASSETS $49,240,409 $1,451,495 $1,388,336 ($205,026) $51,875,214
=============== =============== =============== =============== ===============
<CAPTION>
ADJUSTMENTS
AND CONSOLI-
1997 UNITED STATES CANADA OTHER ELIMINATIONS DATED
- ------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUE FROM
UNAFFILIATED
CUSTOMERS $42,518,794 $4,792,430 $47,311,224
INTERCOMPANY
SALES AND
CREDITS 622,954 $1,445,577 ($2,068,531)
--------------- --------------- --------------- --------------- ---------------
TOTAL REVENUE $43,141,748 $4,792,430 $1,445,577 ($2,068,531) $47,311,224
=============== =============== =============== =============== ===============
NET INCOME $1,473,236 $265,790 $323,526 ($2,816) $2,059,736
=============== =============== =============== =============== ===============
IDENTIFIABLE
ASSETS $24,341,603 $1,338,863 $875,650 ($697,758) $25,858,358
=============== =============== =============== =============== ===============
<CAPTION>
ADJUSTMENTS
AND CONSOLI-
1996 UNITED STATES CANADA OTHER ELIMINATIONS DATED
- ------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUE FROM
UNAFFILIATED
CUSTOMERS $32,071,157 $3,839,411 $2,539,190 $38,449,758
INTERCOMPANY
SALES AND
CREDITS 1,208,369 544,321 ($1,752,690)
--------------- --------------- --------------- --------------- ---------------
TOTAL REVENUE $33,279,526 $3,839,411 $3,083,511 ($1,752,690) $38,449,758
=============== =============== =============== =============== ===============
NET INCOME $1,063,362 $318,813 ($168,104) $20,652 $1,234,723
=============== =============== =============== =============== ===============
IDENTIFIABLE
ASSETS $14,483,246 $939,003 $848,474 ($568,996) $15,701,727
=============== =============== =============== =============== ===============
</TABLE>
23
<PAGE> 24
Sales and transfers among the United States, Canada and Other are made on a
formula basis intended to reflect market value. Net income is revenue less costs
and operating expenses.
Total consolidated sales to additional separate foreign geographic areas except
Canada, as defined by the Company, did not aggregate more than 10 percent of
total consolidated sales during the years 1998-1996. Sales in foreign countries,
including Canada, represented 19.1 percent of sales in 1998, 27.8 percent of
sales in 1997, and 20.7 percent of sales in 1996.
Note 3 - Foreign Net Assets
- ---------------------------
The consolidated balance sheet includes net assets of Transmation's foreign
subsidiaries of $1,262,323 in 1998, and $983,401 in 1997.
Note 4 - Inventories
- --------------------
The major classifications of inventory are as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Raw Materials and
Purchased Parts $4,221,730 $2,088,533
Work in Process 629,545 519,280
Finished Products 6,529,564 5,710,854
------------ ------------
11,380,839 8,318,667
Less Inventory Reserve (705,010) (528,501)
------------ ------------
$10,675,829 $7,790,166
============ ============
</TABLE>
Note 5 - Properties
- -------------------
The major classifications of properties are as follows:
<TABLE>
<CAPTION>
March 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Land and Improvements $118,445 $118,445
Buildings 321,267 317,411
Machinery, Equipment &
Software 9,209,697 4,799,721
Tools, Dies and Molds 649,249 449,325
Furniture & Fixtures 1,532,980 828,241
Vehicles 81,951 135,174
Leasehold Improvements 153,553 110,193
----------- -----------
12,067,142 6,758,510
Less - Accumulated
Depreciation & Amort 5,662,089 4,402,753
----------- -----------
$6,405,053 $2,355,757
=========== ===========
</TABLE>
Useful lives are estimated to be 15 to 30 years for buildings, 5 to 10 years for
machinery, equipment and software, 3 years for tools, dies and molds, 5 to 10
years for furniture and fixtures, and 3 years for vehicles. Leasehold
improvements are amortized over the terms of the related leases.
Note 6 - Borrowings
- -------------------
Notes payable consists of amounts payable to the former owners of Altek
Industries Corp. resulting from the purchase of Altek by the Company in April
1996. Interest on this note is payable at the rate of 8%.
At March 31, 1998, the Company has a $31,286,000 Revolving Credit and Term Loan
agreement with banks. At March 31, 1998, $14,286,000 is borrowed under the term
loan. The term loan, dated April 4, 1997, extends through January 1, 2003, and
24
<PAGE> 25
requires 21 consecutive quarterly installment payments which commenced January
1, 1998. Interest is payable on a formula basis, at the Company's option, at
rates above prime or above LIBOR determined on the basis of Company performance
as determined by its leverage ratio. On March 31, 1998, interest to be paid
under the Term Loan was at 2.50% above LIBOR or 1.00% above the bank's prime
lending rate. At March 31, 1998, $10,322,922 was borrowed under the Revolving
Credit portion of the Company's credit facility. The term of the Revolving
Credit facility, dated April 4, 1997, extends through January 4, 2001. Interest
is payable under the revolving credit facility on a formula basis, at the
Company's option, at rates above prime or above LIBOR determined on the basis of
Company performance as determined by its leverage ratio. On March 31, 1998,
interest to be paid under the Revolving Credit Agreement was at 2.25% above
LIBOR or .75% above the bank's prime lending rate. At March 31, 1998, interest
was payable on the above loans at rates ranging from 7.94% to 9.25%.
Required payments under the term loan are as follows:
April 1, 1998 - March 31, 1999 $2,856,000
April 1, 1999 - March 31, 2000 $2,857,000
April 1, 2000 - March 31, 2001 $2,857,000
April 1, 2001 - March 31, 2002 $2,858,000
April 1, 2002 - March 31, 2003 $2,858,000
The revolving credit and term loan agreement contains, among other provisions,
restrictions on the annual amount of capital expenditures, payment of dividends,
the annual amount of expenditures made for the purpose of printing and
distributing catalogs.
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 and total commitment fees paid on any unused lines of
credit under revolving credit agreements were immaterial in all years 1996-1998.
The Company also agreed to pay a closing fee in the amount of $80,000 and an
agency fee in the amount of $45,000 in conjunction with the Revolving Credit and
Term Loan facility; both fees are being amortized over the term of the loans.
The Company is in compliance with provisions of its loan agreement as of March
31, 1998.
Note 7 - Leases
- ---------------
The Company has operating leases under renewable agreements covering sales
office and manufacturing space. At March 31, 1998, minimum future rental
payments due under such leases for space which had an initial non-cancelable
term in excess of one year were $2,593,829 due in monthly installments. Amounts
due under these leases are as follows:
1999 - $781,665
2000 - $722,539
2001 - $569,555
2002 - $328,337
2003 - $186,263
2004 - $5,470
Total rental expense under these leases was $840,955 in 1998, $350,076 in
1997,and $325,857 in 1996.
25
<PAGE> 26
Note 8 - Stockholders' Equity
- -----------------------------
In August 1993, an incentive Stock Option plan was adopted. This plan was
amended and restated in August 1995, 1996 and 1997. 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. A plan adopted in
August 1981 has now expired; however, certain options under that plan were
exercised during 1997.
The following table summarizes the transactions under the plans during 1998,
1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------- ------------------------------- -------------------------------
Weighted Weighted Weighted
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Shares Price Shares Price Shares Price
------------------------------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of Year 1,493,870 3.70 805,100 2.22 487,200 1.84
Add (Deduct)
Granted 539,520 7.10 878,520 4.65 388,900 2.56
Exercised (82,410) 2.66 (94,460) 1.24 (48,800) 1.13
Canceled (329,990) 5.22 (95,790) 2.29 (22,200) 2.32
-------------- -------------- --------------- -------------- -------------- ---------------
End of Year 1,620,990 4.58 1,493,370 3.70 805,100 2.22
-------------- -------------- --------------- -------------- -------------- ---------------
Exercisable, End of Year 648,435 3.65 253,434 3.28 97,800 1.23
============== ============== =============== ============== ============== ===============
Available, End of Year 187,940 176,630 - - - - -
============== =============== ==============
</TABLE>
The following options were outstanding or exercisable as of March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------------
Weighted
Average Weighted Weighted
Remain. Average Average
No. of Contractual Exercise No. of Exercise
Shares Life Price Shares Price
-------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Range of Exercise Prices:
$2.125 - $3.125 505,050 1.90 yrs $2.31 362,500 $2.30
$3.25 - $3.3125 75,300 3.04 yrs $3.26 36,650 $3.26
$4.1875 - $5.25 590,280 3.86 yrs $4.73 142,770 $4.70
$6.9375 - $9.25 450,360 4.13 yrs $7.13 106,515 $7.01
</TABLE>
On August 21, 1984, shareholders approved the Directors' Warrant Plan. This Plan
was amended and restated in August 1995. The Plan provides that warrants may be
granted to non-employee directors of Transmation to purchase in the aggregate
not more than 200,000 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:
26
<PAGE> 27
<TABLE>
<CAPTION>
Shares Warrant Price
------- -------------
<S> <C> <C> <C>
Balance, 3/31/96 60,000 $1.50 - $3.25
Granted During 1997 24,000 4.19
Exercised During 1997 (8,400) 1.50 - 4.19
Canceled During 1997 (9,600) 3.25 - 4.19
------- -------------
Balance, 3/31/97 66,000 1.50 - 4.19
Granted During 1998 24,000 8.13
Exercised During 1998 (26,000) 1.50
------- -------------
64,000 $3.25 - $8.13
======= =============
</TABLE>
On August 15, 1995, the Board of Directors granted the then President of the
Company's Transcat Division a non-qualified stock option to purchase 47,900
shares of the Company's common stock at $3.13 per share, the fair market value
at the date of the grant. These shares are exercisable in equal annual
installments beginning at the date of the grant and expiring five years later.
During 1997, the Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 introduced a fair value
method of accounting for stock-based compensation. To calculate the fair value
of the options and warrants awarded, the Company elected to use the
Black-Scholes pricing model which produced a weighted average fair value of
options granted of $3.90, $4.65 and $2.35 in 1998, 1997 and 1996 respectively.
The following assumptions were used in the pricing model: a weighted average
expected option life of five years; an annualized volatility rate of 54.4% for
1998, 58.6% for 1997, and 63.6% for 1996; a weighted average risk-free rate of
return of 6.64% in 1998, 6.31% in 1997, and 6.37% for 1996; and no dividends in
any year. The Company elected to account for terminations when they occur rather
than include an attrition factor into its model.
If compensation cost had been measured based on the fair-value based accounting
method under SFAS 123, the following would have been disclosed for March 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Pro Forma
Net (Loss)Income ($458,150) $746,932 $1,071,103
Earnings Per Share
Basic ($.08) $.13 $.22
Diluted ($.08) $.13 $.21
</TABLE>
The effect of applying SFAS 123 in the current year is not representative of the
effect on income for future years since each subsequent year will reflect
expense for additional year's vesting.
On June 23, 1997, the Company declared a two-for-one stock split effected in the
form of a 100% stock dividend to shareholders of record on July 22, 1997.
Accordingly, $1,426,846 was transferred from Capital in Excess of Par Value to
Common Stock, representing the par value of additional shares issued. All
references in the consolidated financial statements referring to shares, share
prices, per share amounts and stock plans have been adjusted retroactively for
the two-for-one stock split.
Note 9 - Net Earnings Per Share
- -------------------------------
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share," which requires
disclosure of basic and diluted earnings per share. Basic earnings per share is
computed based on the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the assumed conversion of
dilutive stock options and warrants. In computing the per share effect of
assumed conversion, funds which would have been received from the exercise of
options and warrants are considered to have been used to purchase common shares
at average market prices for the period, and the resulting net additional common
27
<PAGE> 28
shares are included in the calculation of average common shares outstanding. All
previously reported earnings per share amounts were restated upon adoption of
SFAS No. 128.
The table below summarizes the amounts used to calculate basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7 1 9 9 6
--------------------------------- ----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE
NET OUTSTAND. PER NET OUTSTAND. PER NET OUTSTAND. PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE EARNINGS SHARES SHARE
----------- ----------- -------- ------------ ------------ --------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings
Per Share $997,971 5,729,599 $0.17 $2,059,736 2,803,376 $0.73 $1,234,723 2,414,865 $0.51
Stock Split 7/22/97 2,803,376 ($0.36) 2,414,865 ($0.25)
Basic Earnings
After Stock Split 997,971 5,729,599 $0.17 2,059,736 5,606,752 $0.37 1,234,723 4,829,730 $0.26
Effect of Dilutive
Options & Warrants 545,039 335,658 240,876
Diluted Earnings
Per Share ----------- ----------- -------- ------------ ------------ --------- ------------- ----------- --------
$997,971 6,274,638 $0.16 $2,059,736 5,942,410 $0.35 $1,234,723 5,070,606 $0.24
=========== =========== ======== ============ ============ ========= ============= =========== ========
</TABLE>
Certain anti-dilutive outstanding stock options and warrants were excluded from
the calculation of average shares outstanding since their exercise prices
exceeded the average market price of common shares during the period. The
anti-dilutive stock options and warrants so excluded at the end of each of the
last three years and their associated exercise prices are summarized below. The
options expire at various times between 1999 and 2002.
<TABLE>
<CAPTION>
Number of Exercise
Options and Warrants Price
-------------------- -----
<S> <C> <C> <C> <C>
1998 70,520 $8.13 - $9.25
1997 None None
1996 88,000 $3.13 - $3.31
</TABLE>
28
<PAGE> 29
Note 10 - Income Taxes
- ----------------------
The provisions for income tax determined in accordance with FAS 109 for the
years ended March 31, 1998, 1997, and 1996 are comprised of:
<TABLE>
<CAPTION>
1998 Current Deferred Total
---- ------- -------- -----
<S> <C> <C> <C>
Federal $ 312,800 $ 18,200 $ 331,000
State 77,500 3,800 81,300
Foreign 229,800 229,800
-------------- -------------- --------------
$ 620,100 $ 22,000 $ 642,100
============== ============== ==============
<CAPTION>
1997 Current Deferred Total
---- ------- -------- -----
<S> <C> <C> <C>
Federal $ 1,085,400 ($ 201,400) $ 884,000
State 81,454 (3,694) 77,760
Foreign 259,840 259,840
-------------- -------------- --------------
$ 1,426,694 ($ 205,094) $ 1,221,600
============== ============== ==============
<CAPTION>
1996 Current Deferred Total
---- ------- -------- -----
<S> <C> <C> <C>
Federal $ 405,100 $ 112,000 $ 517,100
State 24,000 (4,000) 20,000
Foreign 245,508 (185,708) 59,800
-------------- -------------- --------------
$ 674,608 ($ 77,708) $ 596,900
============== ============== ==============
</TABLE>
The following is a reconciliation of the "expected" federal income tax provision
computed by applying the statutory U.S. federal income tax rate and the income
tax provision reflected in the statement of income:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Computed "Expected"
Federal Income Tax $557,600 $1,115,650 $622,750
State Income Taxes 38,300 56,100 13,200
Foreign Sales Corp. (126,600) (69,400) (11,225)
Book Expense not
Deductible for taxes 150,300 106,600
Foreign Taxes 44,000 50,800 23,000
Valuation Allowance,
Foreign (17,900) (14,200) (45,100)
R&D Credit (12,300)
Other, Net (3,600) (23,950) 6,575
----------- ----------- -----------
$642,100 $1,221,600 $596,900
=========== =========== ===========
</TABLE>
During 1998, 1997, and 1996, $17,900, $14,200 and $45,100 respectively of a
foreign valuation allowance was recognized due to the increase in the likelihood
that benefits will be recognized. Management believes net deferred tax assets
are more likely than not to be recognized.
29
<PAGE> 30
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred Tax Assets:
Foreign Net Operating
Loss Carryforward $ 133,235 $ 154,857 $ 171,620
Deferred Compensation 209,069 226,749 265,938
Accrued Vacation Pay 216,211 150,474 132,805
Allowance for Doubtful
Accounts and Warranties 221,474 134,865 137,190
Reserves for Inventory Obsolescence 289,023 201,737 52,015
Amortizations of Leaseholds 35,150 53,293
Valuation Allowance (30,800) (45,000)
-------------- -------------- --------------
Gross Deferred Tax Assets 1,104,162 891,175 714,568
============== ============== ==============
Deferred Tax Liabilities:
Goodwill 94,721
Depreciation 224,150 177,747 146,561
Accelerated Catalog & Postage
Write-Offs 186,537 92,674 203,347
-------------- -------------- --------------
Gross Deferred Tax Liabilities 505,408 270,421 349,908
------- ------- -------
Net Deferred Tax Assets $ 598,754 $ 620,754 $ 364,660
============== ============== ==============
</TABLE>
The Company has available foreign net operating loss carryforwards totaling
approximately $358,000. These carryforwards have an unlimited expiration period
and their use is limited to the Company's future taxable income.
Note 11 - Other Income
- ----------------------
Other income in 1997 was comprised primarily of the gain on the sale of land.
Note 12 - Consulting Agreement
- ------------------------------
On February 28, 1995, William J. Berk, former President of Transmation, Inc.
retired. In accordance with terms of a deferred compensation agreement between
the Company and Mr. Berk, payments due under such agreement commenced on March
1, 1995. Mr. Berk is entitled to annual payments amounting to $96,456 for life.
His wife will receive 60% of the annual benefit for her lifetime should she
survive him. This deferred compensation agreement was not funded and the
estimated present value of the future benefits was recorded as an expense and a
liability over the term of Mr. Berk's actual employment. There were no charges
to expense for retirement benefits to be paid to Mr. Berk under his now expired
employment contract during 1996-1998.
Note 13 - Deferred Profit Sharing
- ---------------------------------
Effective April 1, 1981, the Transmation, Inc. Deferred Profit Sharing Plan was
adopted. Effective April 1, 1987, this plan was amended from a non-contributory
to a contributory defined contribution plan and renamed the Transmation, Inc.
Long-Term Savings and Deferred Profit Sharing Plan. All United States employees
of Transmation, Inc. are eligible to participate in the plan providing certain
qualifications are met. Employer contributions are made to the plan at the
discretion of the Board of Directors of the Company. Payments of benefits
accrued for plan participants will be made upon retirement or upon termination
of employment prior to retirement providing certain conditions have been met by
the employee prior to termination. There were no company profit sharing
contributions made under this plan in any of the periods 1996-1998.
Note 14 - Fair Value of Financial Instruments
- ---------------------------------------------
30
<PAGE> 31
The Company has determined the fair value of its debt and other financial
instruments using available market information and appropriate valuation
methodologies as follows:
Cash and accounts receivable:
The carrying amounts reported in the balance sheet for cash
and receivables approximate their fair value.
Long-term debt:
The carrying amount of debt under the Company's floating rate
revolving credit agreement with a bank approximates it fair
value.
Note 15 - Supplemental Information
- ----------------------------------
Supplemental cash flow information and non-cash investing and financing
activities are as follows:
<TABLE>
<CAPTION>
Acquisitions: 1998 1997
---- ----
<S> <C> <C>
Fair value of assets acquired $12,670,050 $ 1,905,003
Liabilities assumed $ 4,929,355 $ 1,528,617
Fair value of assets exchanged $22,000,000 $ 4,800,000
Stock issued $ 1,837,500
</TABLE>
Note 16 - Acquisitions
- ----------------------
On April 4, 1997, the Company acquired certain assets of E.I.L. Instruments,
Inc. for $22,000,000 cash and the value of certain defined assumed liabilities.
The transaction was accounted for under the purchase method of accounting and,
accordingly, the results of operations of E.I.L. for the period April 4, 1997
through March 31, 1998 are included in the accompanying consolidated financial
statements. The purchase price has been allocated to assets acquired and
liabilities assumed based on fair market value at the date of the acquisition.
The following unaudited pro forma financial information for the Company gives
effect to the E.I.L. acquisition had it occurred on April 1, 1996. 1997 amounts
include results for Transmation's year ended March 31, 1997 added together with
results for E.I.L. for their fiscal year ended October 31, 1996, the last year
for which such results are available. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of results of
operations which actually would have resulted if the acquisition had occurred on
the date indicated, or which may result in the future.
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
1997
----
<S> <C>
Net Sales $92,203,824
Income before provision
For Income Taxes $ 2,505,236
Net Income $ 1,540,946
Diluted Earnings Per Share $.26
</TABLE>
On April 3, 1996 the Company acquired all of the common stock of Altek
Industries Corp. (Altek), a manufacturer of electronic calibration equipment,
for a purchase price of $4,800,000 in cash and notes plus 300,000 shares of
Transmation, Inc. common stock. The transaction was accounted for under the
purchase method of accounting, and accordingly, the results of operations of
Altek for the period April 3, 1996 through March 31, 1997 are included in the
accompanying consolidated financial statements. The purchase price has been
allocated to assets acquired and liabilities assumed based on fair market value
at the date of the acquisition.
31
<PAGE> 32
The following unaudited pro forma financial information for the company gives
effect to the Altek acquisition had it occurred on April 1, 1995. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which actually would have
resulted if the acquisition had occurred on the date indicated, or which may
result in the future.
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
1996
----
<S> <C>
Net Sales $42,487,000
Income before provision
For Income Taxes $1,759,500
Net Income $1,144,000
Diluted Earnings Per Share $.20
</TABLE>
Note 17 - Quarterly Financial Information (Unaudited)
- -----------------------------------------------------
<TABLE>
<CAPTION>
DILUTED
EARNINGS
1998 NET SALES GROSS PROFIT NET INCOME PER SHARE
- ---------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Fourth Quarter $19,982,735 $6,610,609 $332,896 $.05
Third Quarter $19,775,043 $6,162,063 $158,700 $.03
Second Quarter $19,612,705 $6,232,345 $264,753 $.04
First Quarter $19,113,082 $6,037,261 $241,622 $.04
<CAPTION>
DILUTED
EARNINGS
1997 NET SALES GROSS PROFIT NET INCOME PER SHARE
- ---------------------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Fourth Quarter $12,840,734 $5,022,125 $1,012,542 $.17
Third Quarter $12,210,882 $4,833,515 $427,538 $.07
Second Quarter $11,211,991 $4,407,536 $315,782 $.06
First Quarter $11,047,617 $4,314,161 $303,874 $.05
</TABLE>
32
<PAGE> 33
TRANSMATION, INC.
-----------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------
Y E A R E N D E D M A R C H 3 1,
-----------------------------------
<TABLE>
<CAPTION>
Additions
Balance at Charged to Acquired Bal. at
Beginning of Profit and in End of
Year Loss Acquisition Year
---- ---- ----------- ----
1998
----
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts $404,000 $37,000 $151,000 $592,000
======== ======= ======== ========
<CAPTION>
1997
----
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts $436,000 ($33,000) $404,000
======== ========= ========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
None
33
<PAGE> 34
Part III
--------
The information required by each of the following items is presented in
the definitive proxy statement to be filed pursuant to Regulation 14A which
Transmation will file within the period prescribed in connection with the annual
meeting of shareholders to be held on August 18, 1998 and which is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
Report of Independent Accountants
Consolidated Balance Sheet - March 31, 1998, 1997
Consolidated Statement of Income - March 31, 1998, 1997, 1996
Consolidated Statement of Cash Flows - March 31, 1998, 1997, 1996
Consolidated Statement of Stockholders' Equity - March 31, 1998,
1997, 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts -
March 31, 1998, 1997
All other schedules have been omitted because they are not
applicable or the required information is shown in the Financial
Statements or notes thereto.
3. Index to Exhibits
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession.
NOT APPLICABLE
(3) Articles of Incorporation and By-Laws
(i) The 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) filed on August 8,
1995. Certificate of Amendment thereto is
incorporated herein
34
<PAGE> 35
by reference to Exhibit I to the
Registrant's Form 10-Q for the quarter ended
September 30, 1996.
(ii) Bylaws, as amended through August 18, 1987,
are incorporated herein by reference to
Exhibit (3) to the Registrant's Form 10-K
for the year ended March 31, 1988.
(4) Instruments defining the rights of security holders,
including indentures.
Revolving Credit Agreement between the Registrant and
Manufacturers and Traders Trust Company is incorporated
herein by reference to Exhibit 1 to the Registrant's
Form 10-Q for the fiscal quarter ended September 30,
1994. Agreement and Amendment No. 1 thereto is
incorporated herein by reference to Exhibit 4(c) to the
Registrant's Form 10Q for the fiscal quarter ended
September 30, 1995. Agreement and Amendment No. 2
thereto is incorporated herein by reference to Exhibit
4(d) to the Registrant's Form 10Q-A for the fiscal
quarter ended December 31, 1995. Agreement and Amendment
No. 3 thereto is incorporated herein by reference to
Exhibit 4(e) to the Registrant's Form 10Q for the fiscal
quarter ended December 31, 1996.
Revolving Credit and Term Loan Agreement dated April 4,
1997 among Transmation, Inc. and Manufacturer's and
Traders Trust Company and State Street Bank and Trust
Company is incorporated herein by reference to Exhibit
4(c) to the Registrant's Form 8-K dated April 18, 1997.
*Amendment No. 1 thereto is included herein as Exhibit
4(a). Upon written request, the Registrant will provide
to security holders copies of any of the referenced
omitted schedules.
(9) Voting Trust Agreement
NOT APPLICABLE
(10) Material Contracts
The documents listed under (4) are incorporated herein
by reference.
Amendment No. 1 to Transmation, Inc. Amended and
Restated Directors' Warrant Plan is incorporated herein
by reference to Exhibit II to the Registrant's Form 10-Q
for the quarter ended September 30, 1996.
Amendments No. 1 and No. 2 to the Transmation, Inc.
Amended and Restated 1993 Stock Option Plan are
incorporated herein by reference to Exhibits III and IV
to the Registrant's Form 10-Q for the quarter ended
September 30, 1996.
Amendment No. 2 to the Transmation, Inc. Employee's
Stock Purchase Plan is incorporated herein by reference
to Exhibit V
35
<PAGE> 36
to the Registrant's Form 10-Q for the quarter ended
September 30, 1996.
Stock Purchase Agreement dated March 28, 1996 among the
Registrant, E. Lee Garelick and James N. Wurtz is
incorporated herein by reference to Exhibit 2(a) to the
Registrant's Form 8-K dated April 3, 1996.
Asset Purchase Agreement dated April 4, 1997 between
Transmation, Inc. and E.I.L. Instruments, Inc. is
incorporated herein by reference to Exhibit 2(a) to the
Registrant's Form 8-K dated April 18, 1997.
Amendment No. 3 to the Transmation, Inc. Directors'
Stock Plan is incorporated herein by reference to
Exhibit 10(a) to the Registrant's Form 10K for the year
ended March 31, 1997.
Amendment No. 1 to Stock Purchase Agreement dated
February 5, 1997 among the Registrant, E. Lee Garelick
and James N. Wurtz is incorporated herein by reference
to Exhibit 10(b) to the Registrant's Form 10K for the
year ended March 31, 1997.
Amendment No. 4 to the Transmation, Inc. Directors'
Stock Plan is incorporated herein by reference to
Exhibit 10(h) to the Registrant's Form 10-Q for the
quarter ended June 30, 1997.
Amendment No. 2 to the Transmation, Inc. Amended and
Restated Directors' Warrant Plan is incorporated herein
by reference to Exhibit 10(i) to the Registrant's Form
10-Q for the quarter ended June 30, 1997.
Amendments No. 3 and 4 to the Transmation, Inc. Amended
and Restated 1993 Stock Option Plan are incorporated
herein by reference to Exhibit 10(j) to the Registrant's
Form 10-Q for the quarter ended September 30, 1997.
Amendment No. 3 to the Transmation, Inc. Employees'
Stock Purchase Plan is incorporated herein by reference
to Exhibit 10(k) to the Registrant's Form 10-Q for the
quarter ended September 30, 1997.
Second Amendment to the Stock Registration and
Repurchase Agreement dated December 12, 1997 between the
Registrant and William J. Berk is incorporated herein by
reference to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-42345).
(a)* Amendment No. 5 to the Transmation, Inc. Directors'
Stock Plan is included herein as Exhibit 10(a).
(b)* Amended and Restated Employment Agreement dated as
of April 1, 1998 by and between Transmation, Inc. and
Robert G. Klimasewski is included herein as Exhibit
10(b).
(c)* Employment Agreement dated as of April 1, 1998 by
and between Transmation, Inc. and Eric W. McInroy is
included herein as Exhibit 10(c).
36
<PAGE> 37
(d)* Non-Statutory Stock Option Agreement dated as of
April 21, 1998 by and between Transmation, Inc. and
Barry F. Wharity is included herein as Exhibit 10(d).
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 9 to the
Financial Statements included herein at Item 8.
(12) Statements re Computation of Ratios
NOT APPLICABLE
(13) Annual Report to Security Holders, Form 10-Q on
Quarterly Report to Security Holders
NOT APPLICABLE
(16) Letter re Change in Certifying Accountant
NOT APPLICABLE
(18) Letter re Change in Accounting Principles
NOT APPLICABLE
(21) Subsidiaries of Registrant
*Subsidiaries of the Registrant are included herein as
Exhibit 21.
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders
NOT APPLICABLE
(23) Consents of Experts and Counsel
*Consent of Price Waterhouse LLP is included herein as
Exhibit 23.
(24) Power of Attorney
NOT APPLICABLE
(27) Financial Data Schedule
*Financial Data Schedule is included herein as Exhibit
27.
(99) Additional Exhibits
NOT APPLICABLE
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1998.
(c) See (a) 3. above.
37
<PAGE> 38
(d) (1) NOT APPLICABLE
(2) NOT APPLICABLE
(3) See Item 8
38
<PAGE> 39
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TRANSMATION, INC.
By: /s/ Robert G. Klimasewski By: /s/ Cornelius J. Murphy
- ----------------------------------- ----------------------------------
Robert G. Klimasewski Cornelius J. Murphy
President & Chief Executive Officer Chairman of the Board of Directors
(Principal Executive Officer)
Date: June 16, 1998 Date: June 16, 1998
- ----------------------------------- ----------------------------------
By: /s/ Angelo J. Chiarella By: /s/ Harvey J. Palmer
- ----------------------------------- ----------------------------------
Angelo J. Chiarella, Director Dr. Harvey J. Palmer, Director
Date: June 16, 1998 Date: June 16, 1998
- ----------------------------------- ----------------------------------
By: /s/ E. Lee Garelick By: /s/ Arthur M. Richardson
- ----------------------------------- ----------------------------------
E. Lee Garelick, Director Arthur M. Richardson, Director
Date: June 16, 1998 Date: June 16, 1998
- ----------------------------------- ----------------------------------
By: /s/ Nancy D. Hessler By:
- ----------------------------------- ----------------------------------
Nancy D. Hessler, Director Philip P. Schulp, Director
Date: June 16, 1998 Date: June 16, 1998
- ----------------------------------- ----------------------------------
By: /s/ John W. Oberlies By: /s/ John A. Misiaszek
- ----------------------------------- ----------------------------------
John W. Oberlies, Director John A. Misiaszek
Vice President, Finance
(Principal Financial Officer and
Principal Accounting Officer)
Date: June 16, 1998 Date: June 16, 1998
- ----------------------------------- ----------------------------------
39
<PAGE> 1
EXHIBIT 4(a)
AMENDMENT NO. 1
DATED AS OF MARCH 31, 1998
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
DATED AS OF APRIL 4, 1997
among
TRANSMATION, INC.
as "Borrower"
and
MANUFACTURERS AND TRADERS TRUST COMPANY
and
STATE STREET BANK AND TRUST COMPANY
as "Banks"
and
MANUFACTURERS AND TRADERS TRUST COMPANY
as "Agent"
40
<PAGE> 2
AMENDMENT NO. 1 TO REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS AGREEMENT, dated as of March 31, 1998, is among TRANSMATION, INC.
(the "BORROWER"), MANUFACTURERS AND TRADES TRUST COMPANY (a "BANK,"), STATE
STREET BANK AND TRUST COMPANY (a "BANK") and MANUFACTURERS AND TRADERS TRUST
COMPANY, as Agent for the Banks (in such capacity, together with its successors
in such capacity, the "AGENT").
R E C I T A L S :
R.1 The parties have entered into a Revolving Credit and Term Loan
Agreement dated as of April 4 ,1997 (the "CREDIT AGREEMENT"). Terms defined in
the Credit Agreement are used herein as so defined.
R.2 The parties wish to terminate the Guarantees and the security
agreements that were executed by the non-U.S. Subsidiaries on or about the
Closing Date; and the parties wish to amend the pledge agreement executed by the
Borrower on or about the Closing Date, with respect to the shares of the capital
stock of Borrower's non-U.S. Subsidiaries.
R.3 The parties wish to amend the Credit Agreement as hereinafter set forth, to
amend and restate the Guarantees executed by Altek Industries, Inc. ("Altek") on
or about the Closing Date, and to take certain other actions as herein provided.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Except as otherwise set forth herein, as used in this
Agreement No. 1, 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 DEFINITIONS. The definition of Applicable Margin is amended to
read as follows:
"APPLICABLE MARGIN" means the appropriate percentages corresponding
to the Adjusted Leverage Ratio in effect as of the most recent
Calculation Date as shown below:
<TABLE>
<CAPTION>
Revolving Credit Loans Term Loans
---------------------- ----------
Pricing Adjusted Eurodollar Base Rate Eurodollar Base Rate
Level Leverage Ratio Rate Plus Plus Rate Plus Plus
- ----- -------------- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C>
I >4.0 2.75% 1.25% 3.00% 1.50%
II >3.5 and <=4.0 2.50% 1.00% 2.75% 1.25%
III >3.0 and <=3.5 2.25% 0.75% 2.50% 1.00%
IV >2.5 and <=3.0 2.00% 0.50% 2.25% 0.75%
V >2.0 and <=2.5 1.75% 0.25% 2.00% 0.50%
VI >1.5 and <=2.0 1.50% 0.00% 1.75% 0.25%
</TABLE>
"Applicable Margin" shall be determined and adjusted quarterly on
the date (each a "CALCULATION DATE") five Business Days after the
date by which the Borrower is required to provide the Chief
Financial Officer's certificate in accordance with the provisions of
SECTION 5.03(E); provided that the initial Applicable Margin shall
be based on Pricing Level III (as shown above) and shall remain at
Pricing Level III until the first Calculation Date subsequent to
41
<PAGE> 3
March 31, 1998 and, thereafter, the pricing level shall be
determined by the then current Adjusted Leverage Ratio; and provided
further that if the Borrower fails to provide the Chief Financial
Officer's certificate required by SECTION 5.03(e) on or before any
Calculation Date subsequent to March 31, 1998, the Applicable Margin
shall be based on Pricing Level I from such Calculation Date until
such time as an appropriate Chief Financial Officer certificate is
provided, whereupon the pricing level shall be determined by the
Adjusted Leverage Ratio reflected on such Chief Financial Officer
certificate until the next Calculation Date. Except as provided in
the preceding sentence, each determination of the Applicable Margin
shall be effective from one Calculation Date until the next
Calculation Date. Any adjustment in the Applicable Margin shall be
applicable to all existing Loans, as well as to any new Loans made
thereafter.
2.2 DEFINITIONS. The following definition is added to SECTION 1.01
of the Credit Agreement:
"AMENDMENT NO. 1" shall mean Amendment No. 1 dated as of March 31,
1998 to Revolving Credit and Term Loan Agreement dated as of April
4, 1997.
2.3 DEFINITIONS. The definitions of the following terms set forth in
SECTION 1.01 of the Credit Agreement are amended to read as follows:
"CLOSING DATE" shall mean April 4, 1997.
"LOAN DOCUMENTS" shall mean collectively, (i) this Agreement and the
Notes, (ii) all Guarantees, stock pledge agreements, security
agreements, mortgages, subordination agreements and other agreements
or documents referred to in ARTICLE IV of this Agreement, (iii) all
other documents, certificates and instruments executed in connection
with this Agreement and all amendments to this Agreement and (iv)
all documents designated as "Loan Documents" in any amendment to
this Agreement.
2.4 CLOSING DATE. The introductory paragraph of SECTION 4.01 shall
be amended to read as follows:
SECTION 4.01 CLOSING DATE. The obligations of the Banks to make
Loans hereunder shall become effective on the Closing Date, subject
to termination of the Commitments under the circumstances provided
in the closing paragraph to this Section:
2.5 OPINIONS OF COUNSEL. SECTION 4.01(b) shall be amended to read as
follows:
(b) The Agent shall have received a favorable written opinion
(addressed to the Agent and the Banks and dated the Closing Date) of
Harter, Secrest and Emery, U.S. counsel for the Borrower,
substantially in the form of SCHEDULE 4.01(b) and covering such
other matters relating to the parties, the Loan Documents or the
Acquisition as the Required Lenders shall reasonably request. The
Borrower hereby requests such counsel to deliver such opinion.
2.6 SUBSIDIARY GUARANTEE. SECTION 4.01(f) shall be amended to read
as follows:
(f) The Agent shall have received a counterpart of the U.S.
Subsidiary Guarantee Agreement, in the form of SCHEDULE 4.01(f),
signed on behalf of each U.S. Subsidiary.
2.7 PLEDGE AGREEMENTS. SECTION 4.01(g) shall be amended to read as
follows:
(g) The Agent shall have received (i) counterparts of the (x) the
Foreign Subsidiary Pledge Agreement, in the form of SCHEDULE
42
<PAGE> 4
4.01(g), signed on behalf of the Borrower, and (y) the U.S.
Subsidiary Pledge Agreement, in the form of SCHEDULE 4.01(g-1),
signed on behalf of the Borrower, (ii) stock certificates
representing the shares of capital stock of each Subsidiary owned by
or on behalf of the Borrower or any Subsidiary and pledged pursuant
to each such pledge agreement and (iii) stock powers and instruments
of transfer, endorsed in blank, with respect to such stock
certificates.
2.8 SECURITY AGREEMENTS. SECTION 4.01(h) is amended to read as
follows:
(h) The Agent shall have received (i) counterparts of (x) the
Borrower Security Agreement, in the form of SCHEDULE 4.01(h), signed
on behalf of the Borrower (y) the Subsidiary Security Agreement, in
the form of SCHEDULE 4.01(h-1), signed on behalf of each U.S.
Subsidiary and (ii) all documents and instruments, including uniform
commercial code financing statements, required by law or reasonably
requested by the Agent to be filed, registered or recorded to create
or perfect the liens intended to be created under such security
agreements.
2.9 CONDITIONS SUBSEQUENT. The concluding paragraph of SECTION 4.01
shall be amended to read as follows:
The Commitments of the Banks shall terminate unless each of the
conditions described in SCHEDULE 2.9 to Amendment No. 1 is satisfied
(or waived by all of the Banks) at or prior to 5:00 p.m., Rochester
time on March 31, 1998.
2.10 INTERCOMPANY DEBT. SECTION 6.01(d) is amended to read as
follows:
(d) Subordinated Debt of the Borrower to any Subsidiary and Debt of
any Subsidiary to the Borrower permitted pursuant to SECTION
6.06(e).
2.11 PERMITTED DEBT OF BORROWER. SECTION 6.01(f) is amended to read
as follows:
(f) Debt of the Borrower consisting of reimbursement obligations
related to letters of credit issued for the account of the Borrower,
acceptances of the Borrower, and Debt of the Borrower secured by
purchase money liens permitted pursuant to SECTION 6.02, provided
that the aggregate principal amount of all such Debt at any time
outstanding shall not exceed $250,000;
2.12 SUBSIDIARY DEBT. SECTION 6.01(g) is amended to read as follows:
(g) Debt incurred by any Subsidiary in respect of reimbursement
obligations related to letters of credit issued for the account of
such Subsidiary, acceptances of such Subsidiary or Debt of such
Subsidiary secured by purchase money liens permitted by SECTION
6.02, provided that the aggregate principal amount of all such Debt
at any time outstanding with respect to any such Subsidiary shall
not exceed $250,000.
2.13 SECTION 6.01(h). SECTION 6.01(h) is hereby deleted and of no
further force or effect and the Section designation 6.01(h) is hereby reserved.
2.14 LEASES. The text of SECTION 6.03, prior to the table, is
amended to read as follows:
SECTION 6.03. LEASES. Create, incur, assume or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal
property except: (a) leases existing on the date of this Agreement,
as described in SCHEDULE 6.03, and any extensions or
43
<PAGE> 5
renewals thereof; (b) leases (other than Capitalized Lease
Obligations) in which neither the Borrower nor any of its
Subsidiaries is lessor, which do not in the aggregate require the
Borrower and its Subsidiaries on a consolidated basis to make
payments (including taxes, insurance, maintenance and similar
expense which the Borrower or any Subsidiary is required to pay
under the terms of any lease) in any Fiscal Year of the Borrower in
excess of the amount set forth with respect to such Fiscal Year in
the table following this paragraph; (c) Capitalized Lease
Obligations permitted by SECTION 6.02; and (d) leases for the
replacement of existing motor vehicles and office space.
2.15 GUARANTEES. CLAUSE (ii) of SECTION 6.04 is amended to read as
follows:
(ii) except Guarantees of obligations of Persons other than the
Borrower and any of its Subsidiaries aggregating not more than 10%
of the amount of its tangible net worth from time to time, which
Guarantee obligations shall be included in Indebtedness, Debt, or
Funded Debt, as appropriate, depending on the terms of the
guaranteed obligations.
2.16 INVESTMENTS. SECTION 6.06(e) is amended to read as follows:
(e) advances to or investments in Subsidiaries, provided that the
aggregate of all such advances or investments outstanding at any one
time (i) to Altek shall not exceed the amount of the fair saleable
value of Altek's assets, valued on a going concern basis, less the
total amount of Altek's liabilities; and (ii) to each of the
following Subsidiaries, the amount set forth after its name:
<TABLE>
<CAPTION>
Subsidiary Maximum Amount
---------- --------------
<S> <C>
Transmation (Canada) Inc. $250,000
Transmation Australia Pty. Ltd. $500,000
Transmation Singapore Pte. Ltd. $250,000
</TABLE>
2.17 LEVERAGE RATIO. SECTION 7.04 of the Credit Agreement is amended
to change the Adjusted Leverage Ratio required to be maintained at the end of
each of the Fiscal Quarters indicated below to the respective Maximum Ratio set
forth below:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING MAXIMUM RATIO
--------------------- -------------
<S> <C> <C>
03/31/98 4.00
06/30/98 3.75
09/30/98 3.50
12/31/98 3.25
03/31/99 3.00
06/30/99 and thereafter 2.75
</TABLE>
3. TERMINATION OF CERTAIN GUARANTEES, SECURITY AGREEMENTS AND
SUBORDINATION AGREEMENT. (a) The Guarantees executed by each of Transmation
Australia Pty. Ltd., Transmation Singapore Pte. Ltd., Transcat F.S.C. and
Transmation (Canada) Inc. and the security agreement executed by Transmation
(Canada), Inc., copies of which are attached as SCHEDULE 3 to this Amendment No.
1, are terminated and of no further force or effect, and the rights of the Banks
and the Agent, and the obligations of the Subsidiaries executing each such
document, under and pursuant to each such document are terminated and released;
and (b) the Guarantees executed by Altek are amended and restated, and replaced
by the Guarantees required by SECTION 5.4 below to be executed and delivered by
Altek. Each Subsidiary referred to in this Section shall be a third party
beneficiary of this Section.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to the Banks that:
4.1 CORPORATE POWER AND AUTHORITY: NO CONFLICTS. The execution,
delivery and performance by each of the Borrower and Altek, as the case may be,
of this Amendment No. 1 and of each other Loan Document to be executed by it
44
<PAGE> 6
pursuant hereto, 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 or Affiliates (other
than any appropriate disclosure required to be contained in periodic reports to
be filed by the Borrower pursuant to the Securities Exchange Act of 1934 and
applicable regulations thereunder); (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 or any of its
Subsidiaries or Affiliates is a party or by which any of them or their
properties may be bound or affected; (e) result in, or require, the creation or
imposition of a Debt or Guarantee of Borrower or any of its Subsidiaries or
Affiliates, or any lien upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower or any of its Subsidiaries or Affiliates;
or (f) cause the Borrower or any of its Subsidiaries or Affiliates, as the case
may be, 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.
4.2 LEGALLY ENFORCEABLE AGREEMENT. Each of this Amendment No. 1,
each other Loan Document required to be executed in connection herewith, the
Credit Agreement as amended hereby and each other Loan Document as amended by
each such other Loan Document, is a legal, valid and binding obligation of the
Borrower and Altek, as the case may be, enforceable against the Borrower and
Altek in accordance with its terms, except to the extent that such enforcement
may be limited by applicable bankruptcy, insolvency or other similar laws
affecting creditors' rights generally.
4.3 NO DEFAULT. On and as of the date of this Amendment No. 1, and
after giving effect to this Amendment No. 1 and to each other Loan Document
required to be executed in connection herewith, no event has occurred and is
continuing which constitutes a Default or Event of Default.
4.4 INVESTMENTS IN SUBSIDIARIES. SCHEDULE 4.4 to this Amendment No.
1 sets forth the total amount of advances to and direct investments in the
Subsidiaries made by Borrower and outstanding as of the date of this Amendment
No. 1.
5. EFFECTIVENESS. This Amendment No. 1 shall be of no force or effect
unless and until all of the following conditions are met, and unless each such
condition is either met or waived by both Banks on or before March 31, 1998,
this Amendment shall not become effective. Upon this Amendment No. 1 becoming
effective, each document delivered pursuant to this ARTICLE 5 shall constitute a
"Loan Document":
5.1 COUNTERPARTS. The Borrower and the Agent have each received
counterparts of this Amendment No. 1 duly executed by the Borrower, the Agent,
and the Banks.
5.2 RESOLUTIONS. The Agent shall have received certified copies of
the resolutions of the boards of directors of the Borrower and Altek, in form
and content reasonably satisfactory to the Agent, authorizing the execution,
delivery and performance of this Amendment No. 1 and of all other documents
required to be executed by Borrower or Altek, as the case may be, pursuant
hereto.
5.3 ALTEK GUARANTEE. The Agent shall have received a Guarantee in
favor of each Bank, in the form of SCHEDULE 5.3 to this Amendment No. 1,
executed and delivered by Altek.
5.4 OPINION. The Agent shall have received an opinion of counsel to
the Borrower and Altek to the effect that the execution, delivery and
performance of this Amendment No. 3, and the Loan Documents to be executed by
Borrower and/or Altek pursuant to SECTION 5.3 AND 5.6 of this Amendment No. 1,
have been duly and validly authorized on behalf of the Borrower and Altek, as
45
<PAGE> 7
the case may be, and do not conflict with any legal or contractual provision or
restriction applicable to Borrower and Altek, as the case may be, or to any of
the property of either, and that this Amendment No. 1 and the Credit Agreement
and such other loan Documents, as amended hereby, are enforceable against
Borrower and Altek.
5.5 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties set forth in ARTICLE 4 to this Amendment No. 1 shall be true and
correct on and as of the date on which this Amendment No. 1 becomes effective.
5.6 AMENDMENT OF FOREIGN SUBSIDIARY PLEDGE AGREEMENT. Each of the
Borrower and the Agent shall have executed an amendment, in the form of SCHEDULE
5.6 to this Amendment No. 1, to the Foreign Subsidiary Pledge Agreement.
6. AGENT'S EXPENSES. Borrower agrees to pay the Agent for all costs,
expenses and charges (including, without limitation, fees and charges of
external legal counsel for the Agent and costs allocated by its internal legal
department) incurred by the Agent in connection with the negotiation,
preparation and execution of this Amendment No. 1 and the documents executed in
connection herewith.
7. ADJUSTED LEVERAGE RATIO REPORT. Reference is made to a letter dated
February 12, 1998 executed by the Banks and the Agent and addressed to the
Borrower (the "2/12/98 Letter"). Pursuant to paragraph 1 of the 2/12/98 Letter,
the Borrower agreed to provide to the Agent, on March 31, 1998, a statement
regarding the Adjusted Leverage Ratio as of such date. The Borrower is hereby
released from its obligation to provide such statement and from its agreements
set forth in paragraph 3 of the 2/12/98 Letter.
8. MISCELLANEOUS. Except as expressly provided in or pursuant to this
Amendment No. 1, the Credit Agreement and each other Loan Document shall remain
unchanged and in full force and effect, except that each reference in the Credit
Agreement and in any of the other Loan Documents, and in any agreements,
certificates and notices simultaneously herewith or hereafter executed under or
pursuant to the Credit Agreement or the other Loan Documents, (a) 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. 1 and (b) to any other Loan Document, shall be
deemed to refer to such Loan Document as amended pursuant to any documents
executed pursuant to the requirements of this Amendment No. 1.
This Amendment No. 1, and each Loan Document executed by the Borrower
pursuant hereto, shall be governed by and construed in accordance with the laws
of the State of New York.
The section headings in this Amendment No. 1 are inserted for
convenience only and shall not be a part of this instrument.
This Amendment No. 1 may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signature thereto
and hereto were upon the same instrument.
TRANSMATION, INC.
By /s/ John Misiaszek
---------------------------
Name: John Misiaszek
Title: Vice President, Finance
SEPARATE SIGNATURE PAGE FOR EACH BANK TO FOLLOW ON PAGES ______ THROUGH _______
46
<PAGE> 8
MANUFACTURERS AND TRADERS TRUST COMPANY
Individually and as Agent,
By /s/ J. Theodore Smith
--------------------------------
Name: J. Theodore Smith
-----------------------------
Title: Vice President
----------------------------
47
<PAGE> 9
STATE STREET BANK AND TRUST COMPANY
By /s/ David G. Case
--------------------------------
Name: David G. Case
-----------------------------
Title: Vice President
----------------------------
48
<PAGE> 1
Exhibit 10(a)
AMENDMENT NO. 5
TO THE
TRANSMATION, INC.
DIRECTORS' STOCK PLAN
EFFECTIVE NOVEMBER 1, 1997
WHEREAS, Transmation, Inc., an Ohio corporation (the "Company"), has
established the Transmation, Inc. Directors' Stock Plan, effective January 17,
1995, as last amended on April 25, 1997 (the "Plan"); and
WHEREAS, deeming it appropriate and advisable so to do, and pursuant to
Section 8 of the Plan, the Board of Directors of the Company has authorized,
approved and adopted the further amendment to the Plan set forth herein;
NOW, THEREFORE, the Plan is hereby further amended, effective November
1, 1997, as follows:
1. Amendment No. 1 to the Plan, which amended Section "3(b)
AWARDS FOR BOARD MEETINGS ATTENDED." of the Plan so as to fix a maximum number
of Board meetings per fiscal year for which shares would be awarded under the
Plan, is hereby repealed and rescinded and is of no further force or effect.
2. Except as amended hereby, the Plan (including Section 3(b)
thereof as it existed prior to the adoption of Amendment No. 1 to the Plan)
shall remain in full force and effect in accordance with its terms.
THIS AMENDMENT NO. 5 TO THE TRANSMATION, INC. DIRECTORS' STOCK PLAN WAS
AUTHORIZED, APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS OF THE COMPANY ON
OCTOBER 28, 1997.
/s/ John A. Misiaszek
-------------------------------
John A. Misiaszek, Secretary
49
<PAGE> 1
EXHIBIT 10 (b)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") has
been made as of April 1, 1998 by and between TRANSMATION, INC., an Ohio
corporation (the "Corporation"), and ROBERT G. KLIMASEWSKI (the "Employee").
WHEREAS, the parties have previously entered into a certain Employment
Agreement dated as of April 1, 1995, as extended and amended as of April 1, 1996
(the "Original Agreement"), and they now desire to extend the term of the
Original Agreement, to amend its provisions in certain respects and to restate
the Original Agreement in its entirety;
NOW, THEREFORE, the Original Agreement is hereby extended, amended and
restated in its entirety, effective this date, to provide as follows:
1. MUTUAL AGREEMENT OF THE PARTIES. The Corporation hereby agrees to
continue to employ the Employee, and the Employee hereby agrees to accept such
continued employment, for the period and on the terms and conditions set forth
in this Agreement.
2. TERM OF EMPLOYMENT.
(a) TERM. The term of this Agreement and of the Employee's
employment hereunder (the "Term") shall commence on the date hereof and shall
expire on March 31, 1999, subject to the further provisions of Section 2(b)
hereof and in all cases subject to earlier termination as provided by Section 9
hereof. As used herein, the term "Year" shall mean any period during the Term
commencing on April 1 and ending on the next succeeding March 31.
(b) RENEWAL. On April 1, 1999, the Term shall renew for one Year and
expire on March 31, 2000 if each party shall have given the other, on or before
February 1, 1999, written notice that the Term shall renew. If such notice is
not given by each party, then the Term shall expire on March 31, 1999.
3. AUTHORITY AND DUTIES. During the Term the Employee shall be the
Chairman of the Board of Directors of the Corporation (the "Board of
Directors"). As such, he shall: (i) report and be responsible to the Board of
Directors; (ii) work in an advisory and consultative capacity with the President
and Chief Executive Officer; (iii) perform the duties set forth in the letter
annexed hereto as Exhibit A (which is incorporated herein by reference as if set
forth herein in full); and (iv) have and exercise such powers and authority as
are customarily enjoyed by a chairman of the board of directors of a
corporation, subject to direction by the Board of Directors. The Employee shall
devote such time to the affairs of the Corporation as is necessary for the
performance of his duties hereunder, and shall use his best efforts to promote
its best interests.
4. COMPENSATION. During the Term the Corporation shall pay to the
Employee, and the Employee shall accept, as compensation for all services
rendered under this Agreement, a cash salary at the rate of $175,000 per Year.
Such salary shall be payable at such intervals (but not less often than
bi-weekly or semi-monthly) as the Corporation pays the salaries of other senior
executives during the Term.
50
<PAGE> 2
5. BENEFITS. During the Term:
(a) VACATION. The Employee shall be entitled to the same amount of
paid vacation time per annum as the Corporation provides its other senior
executives.
(b) AUTOMOBILE ALLOWANCE. The Corporation shall provide the Employee
with an automobile allowance in the amount of $750 per month.
(c) CLUB MEMBERSHIP. The Corporation shall, at its expense, provide
the Employee with membership in one country club of his choosing.
(d) OTHER BENEFITS. The Corporation shall, at its expense, provide
in the name and for the benefit of the Employee and his designated beneficiaries
all fringe benefit plans and programs which the Corporation then provides for
its senior executives, except if and to the extent that the Employee shall waive
his rights thereto. Nothing contained herein shall be deemed to restrict or
limit the right of the Corporation at any time to modify, amend or terminate any
or all such fringe benefit plans and programs.
6. BUSINESS EXPENSES. The Corporation shall pay or reimburse the
Employee for all reasonable travel and other expenses incurred or paid by him in
connection with the performance of his duties under this Agreement, upon
presentation to the Corporation of expense statements or vouchers and such other
supporting documentation as it may, from time to time, reasonably require;
provided, however, that the amount available for such expenses may, at any time
or from time to time, be fixed in advance by the Board of Directors.
7. NON-COMPETITION. The Employee agrees that during the Term he shall
not, without the express written consent of the Corporation, engage directly or
indirectly (whether by means of stock ownership or otherwise) in any business
which is in competition, directly or indirectly, with the business of the
Corporation. A direct or indirect investment by the Employee in less than 5
percent of the total capital of any such competitive enterprise or business
whose stock is publicly traded shall not be deemed a violation of this Section
7.
8. CONFIDENTIALITY. The Employee acknowledges that in the course of his
employment by the Corporation he has had and will have access to confidential
information relating to the business and affairs of the Corporation, including
without limitation information relating to business ideas, trade secrets,
product development, secret processes, plans and/or materials, statistical
information and customer lists. The Employee agrees that he will not, either
during the Term or after its expiration, without the prior express written
consent of the Corporation, disclose, divulge, furnish, release or otherwise
make available to any person or entity any of such confidential information,
except for: (a) disclosures made, in furtherance of the Corporation's interests,
with the approval or at the direction of investment bankers retained by the
Corporation, and (b) disclosures of information which, through no breach of the
Employee's obligations under this Section 8, is no longer confidential.
9. TERMINATION; SEVERANCE.
(a) TERMINATION. This Agreement and the Employee's employment
hereunder shall terminate at the close of business on the earliest of the
following dates:
(i) the applicable date of expiration of the Term provided by
Section 2 hereof; or
(ii) the date of the Employee's death; or
51
<PAGE> 3
(iii) the thirtieth day following the date on which the
Corporation receives written notice of the Employee's termination of
this Agreement; or
(iv) the thirtieth day following the date on which the Employee
receives written notice of the Board of Directors' termination of this
Agreement with or without "Cause" (as defined in Section 9(b) hereof).
(b) CAUSE FOR TERMINATION. For purposes of this Agreement, the term
"Cause" shall mean a reasonable determination by vote of a majority of the
members of the Board of Directors then holding office (other than the Employee
if he shall then be a director) that one of the following conditions exists or
one of the following events has occurred:
(i) the willful misconduct or gross negligence of the Employee
in connection with the performance of his duties hereunder; or
(ii) the Employee's conviction of any crime or offense involving
money, property or personnel of the Corporation, or of any other crime
which constitutes a felony; or
(iii) the Employee's use, possession or being under the
influence of any narcotic or controlled substance while at work, or his
being under the influence of any alcoholic beverage while at work.
(c) SEVERANCE PAYMENT IF TERMINATION WITHOUT CAUSE. In the event
that the Board of Directors shall terminate this Agreement without Cause, the
Corporation shall pay to the Employee as severance an amount equal to the total
compensation (including without limitation salary, bonuses (if any), benefits
(if any) and compensation (if any) in the form of stock or options to purchase
stock) payable to the Employee by the Corporation during the 12 months
immediately preceding the date of termination specified in Section 9(a)(iv)
hereof (the "Termination Date"). Such severance amount shall be paid to the
Employee in cash within 30 days following the Termination Date unless and to the
extent that the Employee determines otherwise. For purposes of calculating the
cash amount of such severance payment, any such compensation that had been
payable to the Employee other than in cash shall be valued at its fair market
value on the date it was payable.
10. IN GENERAL.
(a) BINDING OBLIGATION. This Agreement shall be binding upon and
shall inure to the benefit of the Employee and his personal representatives, and
the Corporation and its successors and assigns, including without limitation any
successor to the business of the Corporation, whether by way of merger,
reorganization, transfer of assets or otherwise. The term "Corporation" as used
herein shall include such successors and assigns.
(b) NOTICES. Any notice required or permitted by this Agreement
shall be given by hand or by certified mail, return receipt requested, addressed
to the Corporation at its then principal office, or to the Employee at his then
residence address, or to either party at such other address as it or he may from
time to time specify for the purpose in a notice similarly given to the other
party.
(c) APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
52
<PAGE> 4
(d) ENTIRE AGREEMENT, ETC. This Agreement contains the entire
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties with respect to the subject matter hereof, including
the Original Agreement. No modification of this Agreement shall be valid unless
it is in writing and signed by the Corporation and by the Employee. A waiver of
the breach of any term or condition of this Agreement shall not be deemed to
constitute a waiver of any subsequent breach of the same or any other term or
condition.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
TRANSMATION, INC.
By: /s/ Cornelius J. Murphy
--------------------------------------
Cornelius J. Murphy
Chairman of the Executive Committee
of the Board of Directors
/s/ Robert G. Klimasewski
----------------------------------------
ROBERT G. KLIMASEWSKI
53
<PAGE> 5
EXHIBIT A
TRANSMATION, INC.
10 VANTAGE POINT DRIVE
ROCHESTER, NEW YORK 14624
April 1, 1998
Robert G. Klimasewski
Chairman of the Board
Transmation, Inc.
10 Vantage Point Drive
Rochester, New York 14624
Dear Bob:
In your capacity as Chairman of the Board of the Company, I would like
you to be responsible for the following matters during the 1998-99 fiscal year
of the Company:
(i) acquisitions
(ii) banking and other financial relationships
(iii) investor relations
(iv) mentoring me
(v) mentoring John Misiaszek
(vi) strategic planning with respect to employee benefits, and
(vii) special projects as may be assigned to you by the Board of
Directors on my recommendation.
I look forward to working with you.
Very truly yours,
TRANSMATION, INC.
Eric W. McInroy
President and Chief Executive Officer
54
<PAGE> 1
EXHIBIT 10 (c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") has been made as of April
1, 1998 by and between TRANSMATION, INC., an Ohio corporation (the
"Corporation"), and ERIC W. MCINROY (the "Employee").
The parties hereby as follows:
1. MUTUAL AGREEMENT OF THE PARTIES. The Corporation hereby agrees to
continue to employ the Employee, and the Employee hereby agrees to accept such
continued employment, for the period and on the terms and conditions set forth
in this Agreement.
2. TERM OF EMPLOYMENT.
(a) TERM. The term of this Agreement and of the Employee's
employment hereunder (the "Term") shall commence on the date hereof and shall
expire on March 31, 1999, subject to the further provisions of Section 2(b)
hereof and in all cases subject to earlier termination as provided by Section 9
hereof. As used herein, the term "Year" shall mean any period during the Term
commencing on April 1 and ending on the next succeeding March 31.
(b) RENEWAL. On April 1, 1999, the Term shall renew for one Year and
expire on March 31, 2000 if each party shall have given the other, on or before
February 1, 1999, written notice that the Term shall renew. If such notice is
not given by each party, then the Term shall expire on March 31, 1999.
3. AUTHORITY AND DUTIES. During the Term the Employee shall be the
President and Chief Executive Officer of the Corporation. As such, he shall: (i)
report and be responsible to the Board of Directors of the Corporation (the
"Board of Directors"); (ii) be responsible for all of the business and
operations of the Corporation, except for those responsibilities which have been
delegated to the Chairman of the Board of the Corporation pursuant to an
employment agreement of even date herewith between the Corporation and the
Chairman of the Board; and (iii) have and exercise such powers and authority as
are customarily enjoyed by a president and chief executive officer of a
corporation, subject only to direction by the Board of Directors. The Employee
shall devote his full business time, attention and energies to the affairs of
the Corporation, and shall use his best efforts to promote its best interests.
4. COMPENSATION. During the Term the Corporation shall pay to the
Employee, and the Employee shall accept, as compensation for his services
rendered under this Agreement, the compensation provided by this Section 4.
(a) SALARY. The Corporation shall pay the Employee a cash salary at
the rate of $210,000 per Year. Such salary shall be payable at such intervals
(but not less often than bi-weekly or semi-monthly) as the Corporation pays the
salaries of other senior executives during the Term.
(b) ANNUAL BONUS. The Corporation shall pay the Employee, in respect
of each Year during the Term, a bonus paid under and pursuant to the terms of
the Corporation's Annual Executive Bonus Plan adopted by the Board of Directors
(as recommended by the Compensation and Benefits Committee thereof) for that
Year.
55
<PAGE> 2
5. BENEFITS. During the Term:
(a) VACATION. The Employee shall be entitled to the same amount of
paid vacation time per annum as the Corporation provides its other senior
executives.
(b) AUTOMOBILE ALLOWANCE. The Corporation shall provide the Employee
with an automobile allowance in the amount of $1,000 per month.
(c) CLUB MEMBERSHIP. The Corporation shall, at its expense, provide
the Employee with membership in one country club of his choosing.
(d) OTHER BENEFITS. The Corporation shall, at its expense, provide
in the name and for the benefit of the Employee and his designated beneficiaries
all fringe benefit plans and programs which the Corporation then provides for
its senior executives. Nothing contained herein shall be deemed to restrict or
limit the right of the Corporation at any time to modify, amend or terminate any
or all such fringe benefit plans and programs.
6. BUSINESS EXPENSES. The Corporation shall pay or reimburse the
Employee for all reasonable travel and other expenses incurred or paid by him in
connection with the performance of his duties under this Agreement, upon
presentation to the Corporation of expense statements or vouchers and such other
supporting documentation as it may, from time to time, reasonably require;
provided, however, that the amount available for such expenses may, at any time
or from time to time, be fixed in advance by the Board of Directors.
7. NON-COMPETITION. The Employee agrees that during the Term he shall
not, without the express written consent of the Corporation, engage directly or
indirectly (whether by means of stock ownership or otherwise) in any business
which is in competition, directly or indirectly, with the business of the
Corporation. A direct or indirect investment by the Employee in less than 5
percent of the total capital of any such competitive enterprise or business
whose stock is publicly traded shall not be deemed a violation of this Section
7.
8. CONFIDENTIALITY. The Employee acknowledges that in the course of his
employment by the Corporation he has had and will have access to confidential
information relating to the business and affairs of the Corporation, including
without limitation information relating to business ideas, trade secrets,
product development, secret processes, plans and/or materials, statistical
information and customer lists. The Employee agrees that he will not, either
during the Term or after its expiration, without the prior express written
consent of the Corporation, disclose, divulge, furnish, release or otherwise
make available to any person or entity any of such confidential information,
except for: (a) disclosures made, in furtherance of the Corporation's interests,
with the approval or at the direction of investment bankers retained by the
Corporation, and (b) disclosures of information which, through no breach of the
Employee's obligations under this Section 8, is no longer confidential.
9. TERMINATION; SEVERANCE.
(a) TERMINATION. This Agreement and the Employee's employment
hereunder shall terminate at the close of business on the earliest of the
following dates:
(i) the applicable date of expiration of the Term provided by
Section 2 hereof; or
(ii) the date of the Employee's death; or
56
<PAGE> 3
(iii) the thirtieth day following the date on which the
Corporation receives written notice of the Employee's termination of
this Agreement; or
(iv) the thirtieth day following the date on which the Employee
receives written notice of the Board of Directors' termination of this
Agreement with or without "Cause" (as defined in Section 9(b) hereof).
(b) CAUSE FOR TERMINATION. For purposes of this Agreement, the term
"Cause" shall mean a reasonable determination by vote of a majority of the
members of the Board of Directors then holding office (other than the Employee
if he shall then be a director) that one of the following conditions exists or
one of the following events has occurred:
(i) the willful misconduct or gross negligence of the Employee
in connection with the performance of his duties hereunder; or
(ii) the Employee's conviction of any crime or offense involving
money, property or personnel of the Corporation, or of any other crime
which constitutes a felony; or
(iii) the Employee's use, possession or being under the
influence of any narcotic or controlled substance while at work, or his
being under the influence of any alcoholic beverage while at work.
(c) SEVERANCE PAYMENT IF TERMINATION WITHOUT CAUSE. In the event
that the Board of Directors shall terminate this Agreement without Cause, the
Corporation shall pay to the Employee as severance an amount equal to the total
compensation (including without limitation salary, bonuses (if any), benefits
and compensation (if any) in the form of stock or options to purchase stock)
payable to the Employee by the Corporation during the 12 months immediately
preceding the date of termination specified in Section 9(a)(iv) hereof (the
"Termination Date"). Such severance amount shall be paid to the Employee in cash
within 30 days following the Termination Date unless and to the extent that the
Employee determines otherwise. For purposes of calculating the cash amount of
such severance payment, any such compensation that had been payable to the
Employee other than in cash shall be valued at its fair market value on the date
it was payable.
10. IN GENERAL.
(a) BINDING OBLIGATION. This Agreement shall be binding upon and
shall inure to the benefit of the Employee and his personal representatives, and
the Corporation and its successors and assigns, including without limitation any
successor to the business of the Corporation, whether by way of merger,
reorganization, transfer of assets or otherwise. The term "Corporation" as used
herein shall include such successors and assigns.
(b) NOTICES. Any notice required or permitted by this Agreement
shall be given by hand or by certified mail, return receipt requested, addressed
to the Corporation at its then principal office, or to the Employee at his then
residence address, or to either party at such other address as it or he may from
time to time specify for the purpose in a notice similarly given to the other
party.
(c) APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
(d) ENTIRE AGREEMENT, ETC. This Agreement contains the entire
understanding of the parties relating to the subject matter hereof, and
57
<PAGE> 4
supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties with respect to the subject matter hereof. No
modification of this Agreement shall be valid unless it is in writing and signed
by the Corporation and by the Employee. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
TRANSMATION, INC.
By: /s/ Cornelius J. Murphy
--------------------------------------
Cornelius J. Murphy
Chairman of the Executive Committee
of the Board of Directors
/s/ Eric W. Mcinroy
-----------------------------------------
ERIC W. MCINROY
58
<PAGE> 1
EXHIBIT 10 (d)
NON-STATUTORY STOCK OPTION AGREEMENT
THIS NON-STATUTORY STOCK OPTION AGREEMENT is made as of April 21, 1998
by and between TRANSMATION, INC., an Ohio corporation (the "Company"), and BARRY
F. WHARITY (the "Optionee").
The parties agree as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee an option
(the "Option") to purchase an aggregate of 25,000 Shares under the terms and
conditions hereof. As used in this Agreement, the term "Shares" shall mean
shares of the Company's common stock, par value $.50 per share (the "Common
Stock"), or other securities resulting from an adjustment under Section 9.
2. TERM. The Option shall become exercisable and terminate in accordance
with the schedule set forth in Section 5(a); provided, however, that the Option
shall lapse and terminate on the earliest of the following dates:
(a) the date that is one year after the date of the Optionee's
death, provided that the Optionee's death occurs (i) while he is an
employee of the Company or of any subsidiary of the Company (a
"Subsidiary") or (ii) within three months after termination of such
employment;
(b) the date that is one year after the date that the Optionee's
employment by the Company or a Subsidiary is terminated because of his
permanent and total disability;
(c) the date that is three months after the date on which the
Optionee's employment by the Company or a Subsidiary terminates for any
other reason; or
(d) April 20, 2003.
Upon such termination of the Option, the Optionee's rights under this Agreement,
including the right to exercise the Option, shall thereupon terminate. In the
event of any exercise of the Option after the Optionee's death or other
termination of employment, as permitted by this Section 2, the Option shall be
exercisable only to the extent that it was exercisable under the terms hereof on
the date of death or such other termination, and subject to all of the
conditions on exercise imposed hereby.
3. NON-TRANSFERABILITY, ETC.
(a) The Option is not transferable other than by will or the laws of
descent and distribution. Except as provided by Section 3(b), the Option shall
be exercisable only during the Optionee's lifetime, and only by him.
(b) In the event that the Optionee shall die (i) while he is an
employee of the Company or a Subsidiary, or within three months after
termination of such employment, and (ii) prior to the complete exercise of the
Option, then the Option may be exercised, within the applicable term provided by
Section 2, by the Optionee's estate or by such person(s) to whom the Optionee's
rights hereunder shall have passed under his will or the laws of descent and
distribution. In such event, as used herein the term "Optionee" shall mean the
Optionee's estate or such person(s).
4. PRICE. The price of each Share purchased upon exercise of the Option
shall be $7.25 (that being the last transaction price of the Common Stock on
April 21, 1998 quoted by The Nasdaq Stock Market).
59
<PAGE> 2
5. SCHEDULE AND METHOD OF EXERCISE.
(a) Subject to the provisions of Section 2, the Option shall be
exercisable as follows:
(i) as to 5,000 Shares beginning on April 21, 1998 and
terminating on April 20, 2003;
(ii) as to an additional 5,000 Shares beginning on April 21,
1999 and terminating on April 20, 2003;
(iii) as to an additional 5,000 Shares beginning on April 21,
2000 and terminating on April 20, 2003;
(iv) as to an additional 5,000 Shares beginning on April 21,
2001 and terminating on April 20, 2003; and
(v) as to an additional 5,000 Shares beginning on April 21,
2002 and terminating on April 20, 2003.
(b) The Option, to the extent exercisable under Section 5(a), may be
exercised in whole or in part, provided that the Option may not be exercised for
less than one Share in any single exercise transaction.
(c) The Option shall be exercised by written notice given by the
Optionee to the Company specifying the number of Shares that the Optionee elects
to purchase and the purchase price being paid, accompanied by full payment of
such purchase price. Upon each exercise, the Option price shall be payable by
one or any combination of the following methods, as determined by the Optionee
and specified in his notice of exercise: (i) in cash, or (ii) by delivery of
Shares already owned by the Optionee. Any Shares that are so delivered to pay
the Option price shall be valued at their fair market value on the date of such
Option exercise. Upon determining that compliance with this Agreement has
occurred, including compliance with such reasonable requirements as the Company
may impose pursuant to Section 10, the Company shall issue certificate(s) for
the Shares purchased.
6. NO ISO TREATMENT. The Option is not an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
7. NO RIGHTS OF SHAREHOLDER. No person, estate or other entity shall
have the rights of a shareholder of the Company with respect to any of the
Shares subject to the Option until a certificate for such Shares has been
delivered to the Optionee.
8. RIGHTS OF THE COMPANY. This Agreement does not affect the Company's
right to take any corporate action whatsoever, including without limitation its
right to recapitalize, reorganize or make other changes in its capital structure
or business, merge or consolidate, issue bonds, notes, Shares or other
securities, including preferred stock, or options therefor, dissolve or
liquidate, or sell or transfer any part of its assets or business.
9. ADJUSTMENT PROVISIONS. In the event that (a) in connection with a
merger or consolidation of the Company or a sale by the Company of all or a part
of its assets, the outstanding Shares are exchanged for a different number or
class of shares of stock or other securities of the Company, or for shares of
the stock or other securities of any other entity; or (b) new, different or
additional Shares or other securities of the Company or of another entity are
received by the holders of Shares, whether by way of recapitalization or
otherwise; or (c) any dividend in the form of stock is made to the holders of
Shares, or any stock split or reverse split pertaining to Shares is effected;
then appropriate adjustment shall be made to (i) the number and kind of Shares
60
<PAGE> 3
or other securities that may be issued upon exercise of the Option; and (ii) the
Option price per Share to be paid upon exercise of the Option. Under no
circumstance shall the Optionee be entitled to an adjustment hereunder to
reflect dilution resulting from the issuance or acquisition of Shares or other
securities by the Company, except as expressly provided in the preceding
sentence, regardless of whether such Shares or other securities are issued for
less than the exercise price of the Option.
10. TAXES; SECURITIES LAWS MATTERS.
(a) The exercise of the Option shall be conditioned upon the
Optionee making arrangements satisfactory to the Company for the payment to the
Company of the amount of all taxes required by any governmental authority to be
withheld and paid over by the Company to the governmental authority on account
of the exercise. The payment of such withholding taxes to the Company may be
made by either or a combination of the following methods: (i) in cash, or (ii)
by the Company withholding such taxes from any other compensation owed to the
Optionee by the Company or a Subsidiary.
(b) As a precondition to the Company's execution of this Agreement
and the issuance of the Option hereunder, the Optionee represents to the Company
that the Option is being, and (unless a Registration Statement with respect
thereto shall then be effective under the Securities Act of 1933, as amended
(the "Act")) any Shares acquired by him upon exercise of the Option shall be,
acquired by him solely for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
selling, transferring or disposing of the same.
(c) The Optionee acknowledges and agrees that the Option may not be
offered for sale, sold, pledged, hypothecated or otherwise transferred or
disposed of in any manner inconsistent with this Agreement. The Optionee agrees
and consents that any Shares acquired upon exercise of the Option may not be
offered for sale, sold or otherwise transferred or disposed of unless (i) a
registration statement with respect thereto shall then be effective under the
Act, and the Optionee shall have provided proof satisfactory to counsel for the
Company that he has complied with all applicable state securities laws, or (ii)
the Company shall have received an opinion of counsel in form and substance
satisfactory to counsel for the Company that the proposed offer for sale, sale
or transfer of the Shares is exempt from the registration requirements of the
Act and may otherwise be effected in compliance with any other applicable law,
including all applicable state securities laws. The Optionee agrees that unless
a Registration Statement with respect thereto shall then be effective under the
Act, a legend to this effect may be placed on each certificate, and that a stop
transfer order may be placed against his account, relating to such Shares. In
addition, each such certificate shall bear such additional legends and
statements as the Company deems advisable to assure compliance with all Federal
and state laws and regulations, including securities laws and regulations.
(d) The Optionee confirms that the Company is relying upon his
representations contained in this Section 10 in connection with the issuance to
him of the Option and the Shares underlying the Option. In consideration of the
issuance to the Optionee of the Option and the Shares upon any exercise of the
Option, the Optionee hereby indemnifies and holds harmless the Company, and the
officers, directors, employees and agents thereof, from and against any and all
liability, losses, damages, expenses and attorneys' fees which they may
hereafter incur, suffer or be required to pay by reason of the falsity of, or
his failure to comply with, any representation or agreement contained in this
Section 10.
11. TENURE. The Optionee's right, if any, to continue to serve the
Company or a Subsidiary as an officer, employee or otherwise will not be
enlarged or otherwise affected by this Agreement. This Agreement does not
61
<PAGE> 4
restrict the right of the Company or any Subsidiary to terminate the Optionee's
employment at any time.
12. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State.
13. NOTICES. All notices and other communications required or permitted
under this Agreement shall be written, and shall be either delivered personally
or sent by registered or certified first-class mail, postage prepaid and return
receipt requested, or by telex or telecopier, addressed as follows: if to the
Company, to the Company's principal office, Attention: Corporate Secretary; and
if to Optionee or his successor, to the address last furnished by such person to
the Company. Each such notice and other communication delivered personally shall
be deemed to have been given when delivered. Each such notice and other
communication delivered by mail shall be deemed to have been given when it is
deposited in the United States mail in the manner specified herein, and each
such notice and other communication delivered by telex or telecopier shall be
deemed to have been given when it is so transmitted and the appropriate
answerback is received. A party may change its address for the purpose hereof by
giving notice in accordance with the provisions of this Section 13.
14. IN GENERAL. This Agreement is the final, complete and exclusive
expression of the understanding between the parties and supersedes any prior or
contemporaneous agreement or representation, oral or written, between them.
Modification of this Agreement or waiver of a provision hereof must be written
and signed by the party to be bound. In the event that any provision of this
Agreement shall be held to be illegal or unenforceable, such provision shall be
severed from this Agreement and the entire Agreement shall not fail on account
thereof, but shall otherwise remain in full force and effect. As used herein,
the term "Section" shall mean the appropriate section of this Agreement.
IN WITNESS WHEREOF, the Optionee and the Company have executed this
Agreement as of the date first above written.
TRANSMATION, INC.
By: /s/ Eric W. Mcinroy
----------------------------------
Eric W. McInroy
President and Chief Executive Officer
/s/ Barry F. Wharity
-------------------------------------
BARRY F. WHARITY
62
<PAGE> 1
Exhibit 21
Subsidiaries of Registrant
Subsidiary Jurisdiction
---------- ------------
Altek Industries Corp. New York
Transmation Singapore Pte. Ltd. Singapore
Transmation (Canada) Inc. Canada
Transcat, FSC U.S. Virgin Islands
Transmation Australia Pty. Ltd. Australia
63
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Registration Nos. 33-61665, 33-08779 and 33-08781) of
Transmation, Inc. of our report dated May 15, 1998 with respect to the financial
statements of Transmation, Inc. contained in the foregoing Annual Report on Form
10-K.
PRICE WATERHOUSE LLP
Rochester, New York
June 22, 1998
64
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 652,664
<SECURITIES> 0
<RECEIVABLES> 13,132,347
<ALLOWANCES> 592,000
<INVENTORY> 10,675,829
<CURRENT-ASSETS> 25,753,811
<PP&E> 12,067,142
<DEPRECIATION> 5,662,089
<TOTAL-ASSETS> 51,875,214
<CURRENT-LIABILITIES> 15,627,152
<BONDS> 0
0
0
<COMMON> 2,915,471
<OTHER-SE> 11,069,688
<TOTAL-LIABILITY-AND-EQUITY> 51,875,214
<SALES> 78,483,565
<TOTAL-REVENUES> 78,483,565
<CGS> 53,441,287
<TOTAL-COSTS> 74,296,276
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<INTEREST-EXPENSE> 2,547,218
<INCOME-PRETAX> 1,640,071
<INCOME-TAX> 642,100
<INCOME-CONTINUING> 997,971
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