SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-4539
TRANS-INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2598139
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1780 Opdyke Court, Auburn Hills, MI 48326
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (248) 364-0400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, NASDAQ SmallCap Market
par value $.10 per share
Securities registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark 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. [ ]
INDICATE BY CHECK MARK IF THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE ACT). YES [ ] NO [X]
As of June 30, 2004, there were 3,139,737 shares of Common Stock
outstanding and the aggregate market value of the Common Stock held by
non-affiliates of the registrant (based upon the last sale price on the NASDAQ
SmallCap Market) was $3,959,309.
EXPLANATORY NOTE
On April 15, 2005, Trans-Industries, Inc. ("Trans-Industries" or the
"Company"), filed with the Securities and Exchange Commission (the "SEC") its
Annual Report on the Form 10-K for the year ending December 31, 2004. In
accordance with General Instruction G to the Form 10-K, the information required
by Items 10, 11, 12, 13 and 14 of Part III was not included in the body of the
Form 10-K as filed, but was incorporated by reference to the Company's proxy
statement. The Company is not in fact filing its proxy statement within the
120-day period required in order to incorporate by reference information from
the proxy statement, and accordingly the Company is filing this Form 10-K/A
("Amendment No. 1") to amend the Form 10-K for the purpose of providing the
information required by Items 10, 11, 12, 13 and 14 of Part III of Form 10-K. In
addition, Item 9A of Part II is amended and restated in its entirety as set
forth below. Unless otherwise expressly stated, this Amendment No. 1 does not
reflect events occurring after the filing of the original Form 10-K, or modify
or update in any way disclosures contained in the original Form 10-K, other than
with regard to Item 9A as set forth below.
PART II
ITEM 9A. CONTROLS AND PROCEDURES.
As of December 31, 2004, an evaluation was carried out under the
supervision and with the participation of the Company's management, including
our then acting Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Securities
Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were not effective during the quarter ended
December 31, 2004.
This determination was made because of our then acting Chief Executive
Officer and Chief Financial Officer's belief that the Company's resources were
insufficient to address its financial reporting requirements in a timely fashion
during the quarter ended December 31, 2004. The Company has had to extend the
filing deadlines for this Form 10-K, its fiscal year 2003 Form 10-K, its
September 30, 2003 Form 10-Q and three of its fiscal year 2004 Form 10-Qs
because it lacked the resources to address the financial reporting related to
significant and complex business transactions.
In particular, the Company has suffered from insufficient personnel
resources. Additionally, the Company has struggled with complying with the
increased reporting requirements that have resulted from the Sarbanes-Oxley Act
and new National Association of Security Dealers, Inc. ("NASD") rules. Areas of
the Company's internal controls and procedures that are insufficient include
inventory quantity determination, inventory valuation, revenue recognition,
warranty obligations, controls over fair value of equity securities, basic
controls over the accuracy of general ledger information and controls over
accounting for income taxes and required disclosure. Certain of these areas were
recently brought to the our attention by the Company's auditors and we are
currently assessing these areas. The Company's internal controls and procedures
are also ineffective in ensuring that material information relating to the
Company is made known to the our Chief Executive Officer and Chief Financial
Officer by others within the Company.
Specifically, our independent auditors have advised the Company that
internal controls over the following aspects of the Company's accounting are
insufficient or non-existent and represent reportable conditions that they
believe to be material weaknesses: inventory quantity determination, inventory
valuation, revenue recognition, warranty obligations, controls over fair value
of equity securities, basic controls over the accuracy of general ledger
information and controls over accounting for income taxes and required
disclosure.
The Company reported in its September 30, 2004 Form 10-Q that as a part
of its evaluation of internal controls and procedures, it expected that Company
personnel would have additional time to devote to financial reporting in the
fourth quarter of 2004, that an employee was added to the Company's staff
responsible for compliance with reporting obligations in November 2004, and that
the Company expected that its disclosure controls and procedures would be fully
effective during the fourth quarter of 2004 or soon thereafter. However, the
additional staff and employee time was insufficient to provide the company with
necessary resources to adequately address its internal controls and procedures.
In addition, Company staff utilized additional time to adjust to the procedures
of its new auditor.
The Company, including its new Chief Executive Officer appointed on
March 16, 2005, is continuing to evaluate its resources for addressing its
financial reporting and making appropriate changes to provide sufficient
resources and time to
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prepare and file periodic reports within the time periods specified in
Securities and Exchange Commission ("SEC") rules and regulations and provide for
reviews by management, the Audit Committee and the Board of Directors. Our Chief
Executive Officer and Chief Financial Officer are, in connection with the
evaluation, reviewing our personnel, resources and disclosure controls and
procedures. The evaluation is intended to lead to changes that will ensure that
our disclosure controls are effective at a reasonable assurance level.
Specifically, the evaluation is aimed at ensuring that our disclosure controls
are effective for gathering, analyzing and disclosing in a timely manner the
information we are required to disclose in our reports filed under the
Securities Exchange Act of 1934.
There were no changes in the Company's internal controls over financial
reporting that occurred during our last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting. However, as noted above, the Company has
taken, and is continuing to take, certain actions designed to enhance the
Company's internal control over financial reporting and its disclosure controls
and procedures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The persons named in the table below are all of the current directors
and executive officers of the Company. The information concerning the nominees
and their security holdings has been furnished to the Company by the nominees.
PRINCIPAL OCCUPATION AND
NAME OF ORGANIZATION DIRECTOR AND/OR
NAME AND AGE IN WHICH CARRIED ON OFFICER SINCE
------------ ------------------- -------------
Richard A. Solon (51) Chairman of the Board, Chief 2004
Executive Officer and President of
the Company
Dale S. Coenen (76) Director, private investor, retired 1967
as Chairman of the Board and
Chief Executive Officer
of the Company in March 2005
Harry E. Figgie, Jr. (81) Director, private investor, 2000
Chairman of the Board,
Clark-Reliance Corporation, a
manufacturer of liquid flow
meters and valves
Robert J. Ruben (81) Director, retired judge, arbitrator, 2001
retired as Secretary
Of the Company in June, 2001
James O'Brien (60) Director, Managing Director of 2004
Catapult Advisors, LLC, an
investment advisory company
H. Sean Mathis (58) Director, President of Litchfield 2005
Asset Holdings, an investment
advisory company, and Managing
Director of Miller, Mathis & Co.,
LLC, a restructuring investment
banking firm
3
PRINCIPAL OCCUPATION AND
NAME OF ORGANIZATION DIRECTOR AND/OR
NAME AND AGE IN WHICH CARRIED ON OFFICER SINCE
------------ ------------------- -------------
Kai Kosanke (54) Chief Financial Officer and Vice 1987
President of the Company
Robert P. Anderson (45) Secretary of the Company and 2002
Practicing Attorney
Keith LaCombe (45) Assistant Treasurer 2002
Of the Company
Each of the directors and executive officers has been engaged in the
principal occupation set forth above for more than the past five years except
for Mr. O'Brien, Mr. Solon and Mr. LaCombe. Mr. O'Brien, prior to being Managing
Director for Catapult Advisors, LLC beginning in January 2003, was the owner of
The Wellston Group, a consulting group from 1995 to December 2002; and Chief
Operating Officer of Swingster Company, a manufacturer and distributor of
corporate logo merchandise, from 1994 through 1995. Additionally, Mr. O'Brien
serves on the Board of Directors of Young Innovations, Inc. and has done so
since 1998. Young Innovations develops, manufactures, and markets supplies and
equipment used to facilitate the practice of dentistry and to promote oral
health. Mr. Solon, from 2000 to 2004 was president and CEO of Orion Bus
Industries, a manufacturer of transit buses. Prior to his employment with Orion,
Mr. Solon was president of Snorkel International, a manufacturer of aerial lift
equipment. Mr. LaCombe in the year 2001 was controller for Hicks Construction
Company; and was a staff accountant for Plante & Moran PLLC for the years 1999
to 2001.
MEETINGS OF THE BOARD OF DIRECTORS
In addition to various informal conferences and meetings, the Board of
Directors held six regular meetings during 2004. Mr. Dale S. Coenen and Mr.
Robert Ruben attended all of such meetings. Mr. Harry E. Figgie Jr., Mr. Richard
A. Solon and Mr. James O'Brien did not attend the first meeting held in 2004 as
they were not directors at that time. Of the remaining five meetings, Mr. Solon
and Mr. O'Brien attended all such meetings and Mr. Figgie attended four of the
meetings.
TERMS OF DIRECTORS
Each of the directors was elected at the 2004 Annual Meeting of
Stockholders until the next annual meeting and until their successors have been
elected and qualified.
INDEPENDENCE OF BOARD MEMBERS
The Board of directors reviews the independence of its members on an
annual basis. No director will be deemed to be independent unless the Board
affirmatively determines that the director in question has no material
relationship with the Company, directly or as an officer, stockholder, member or
partner of an organization that has a material relationship with the Company.
The Board observes all criteria for independence established by NASDAQ (where
the Company's common stock is listed for trading) and other applicable laws and
regulations.
In its annual review of director independence, the Board considers all
commercial, banking, consulting, legal, accounting, charitable or other business
relationships any director may have with the Company. As a result of its annual
review in 2004, the Board determined that all of the directors were independent,
with the exception of Messrs. Richard A. Solon and Dale S. Coenen because they
were executive officers of the Company. Mr. Solon continues to be an executive
officer, while Mr. Coenen, who retired as an executive officer in March 2005,
cannot be considered an independent director under NASD rules because he was an
executive officer in within the three past fiscal years. In making its
independence determination with respect to Harry E. Figgie, Jr., the Board
considered (i) Mr. Figgie's ownership of shares of Common Stock, (ii) certain
arrangements pursuant to which Mr. Figgie or an affiliate of his may acquire
additional shares of capital stock of the Company, and (iii) certain
arrangements to which Mr. Figgie or an affiliate of his is a party that relate
to voting of shares of capital stock of the Company that include provisions
which provide Mr. Figgie or his affiliates with the right to elect one-half of
the Board of Directors, control the selection of individuals for certain
management positions and certain other rights that relate to voting of shares of
capital stock of the Company and/or grant
4
certain rights with respect to the Company to Mr. Figgie or an affiliate of his.
See the disclosure in Item 13 of this Amendment for more information on Mr.
Figgie's situation.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has four standing committees: (i) an Audit
Committee; (ii) a Compensation Committee (iii) a Nomination Committee and (iv) a
Management Committee.
The Audit Committee is currently composed of James O'Brien
(Chairman), H. Sean Mathis, and Robert Ruben. The Board of Directors has
determined that the Audit Committee will be comprised entirely of independent
directors as defined under the NASDAQ listing standards and Section 10A(m)(3) of
the Securities Exchanges Act of 1934, as amended. The Board of Directors has
determined that James O'Brien is the audit committee financial expert for the
Company, as defined by the SEC and he qualifies as an independent Director. The
Board of Directors also certifies that Mr. O'Brien meets the requirements of a
"financially sophisticated audit committee member" under the NASDAQ listing
standards. The Audit Committee is charged with assisting the Board in its
oversight of (i) the qualifications, independence and performance of the
Company's independent accountants and the performance of the Company's internal
auditors and internal audit function; (ii) the integrity of the Company's
financial statements and the Company's financial reporting processes and systems
of internal control; and (iii) the Company's compliance with legal and
regulatory requirements. The Audit Committee provides an avenue of
communications among management, the independent accountants, the internal
auditors and the Board. In carrying out its responsibilities, the audit
committee also meets with the independent auditors in executive session, without
members of management present. The Audit Committee met five times during the
2004 fiscal year.
The Compensation Committee is composed of Harry E. Figgie Jr.
(Chairman), Robert Ruben and Jim O'Brien. The Compensation Committee is
comprised entirely of independent directors. The Compensation Committee is
charged with assisting the Board in; (i) developing and periodically reviewing
compensation policies for the Company, including stock options, consistent with
and linked to the Company's strategies; (ii) evaluating the performance of the
Company's Chief Executive Officer ("CEO") and determining his compensation
annually; (iii) recommending the compensation of the Company's other officers to
the Board annually; (iv) reviewing management's recommendations on executive
compensation policies and programs; (v) recommending to the Board the fees to be
paid to outside directors; and (vi) reviewing benefit plan administration. The
Compensation Committee met once during the 2004 fiscal year.
The Nominating Committee is composed of Robert Ruben (Chairman), Jim
O'Brien and Harry E. Figgie Jr. The Nominating Committee is composed entirely of
independent directors. The Board of Directors has adopted a formal written
charter for the Nominating Committee addressing the nominations process and
other related matters. The Nominating Committee is charged with assisting the
Board in (i) establishing criteria for Board membership; (ii) searching for and
screening candidates to fill vacancies on the Board; (iii) recommending an
appropriate slate of candidates for election each year; (iv) evaluating the
performance of individual directors; (v) assessing the overall performance of
the Board; (vi) considering issues regarding the composition and size of the
Board; and (vii) monitoring a process to assess Board effectiveness. The
Nominating Committee met once during the 2004 fiscal year.
The Management Committee is composed of Dale S. Coenen, James O'Brien
and Harry E. Figgie, Jr. Mr. Figgie has the right to appoint two of the three
members of the Management Committee. The Management Committee meets bi-monthly
during months the full Board of Directors does not meet. Company management
consults with, and reports to, the Management Committee as requested by the
Management Committee. Notwithstanding the foregoing, the ultimate decision
making authority for the Company rests with Board of Directors.
COMMUNICATIONS WITH THE BOARD
In order to provide the Company's stockholders and other interested
parties a direct and open line of communication to the Board of Directors, we
have adopted the following procedures for communications with the Board.
Stockholders of the Company and other interested persons may
communicate with the chairman of the Nominating Committee, Audit Committee or
Compensation Committee or with the independent directors as a group by sending
such communication by regular mail or overnight delivery service to: the
Corporate Secretary, Trans-Industries, Inc., 1780 Opdyke Court, Auburn Hills, MI
48326. The mail should specify which of the foregoing is the intended recipient.
5
All communications received in accordance with these procedures will be
reviewed initially by Richard A. Solon or Kai Kosanke who will relay all such
communications to the appropriate director or directors unless he determines
that such communication:
o Does not relate to the business or affairs of the Company or the
functioning or constitution of the Board of Directors or any of its
committees; or
o Relates to routine or insignificant matters that do not warrant the
attention of the Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and Directors and persons who own 10% or
more of a registered class of the Company's equity securities to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "Commission") and the applicable securities exchanges.
Officers, Directors and 10% or greater stockholders are required by Commission
regulations to furnish the Company with copies of all Forms 3, 4 and 5 they
file.
With the exception of the following, based solely on the information
provided to the Company during or with respect to fiscal 2004 by persons
required to file such reports, the Company believes that its officers, Directors
and owners of 10% or more of the Common Stock have complied with all applicable
Section 16(a) filing requirements:
Due to administrative oversight, Form 4 filings on behalf of Harry E.
Figgie, Jr., regarding the acquisition of the Series B-1 shares, and on behalf
of Richard A. Solon, regarding his acquisition of 60,000 SARs and options to
purchase 100,000 shares of Common Stock, as well as Form 3 filings for Richard
A. Solon at the time of his appointment as a director and executive officer of
the Company and for H. Sean Mathis at the time of his appointment as a director
of the Company, were inadvertently omitted. These filings are currently being
processed and the Company anticipates that they will be filed promptly.
CODE OF ETHICS
The Sarbanes-Oxley Act and related rules adopted by the SEC require
publicly traded companies to disclose whether they have adopted a code of ethics
that applies to a company's principal executive officer, principal financial
officer and principal accounting officer or controller, or persons performing
similar functions. The rules also define what constitutes a code of ethics. The
Company has adopted such a code of ethics. The Company will provide to any
person without charge, upon request, a copy of its code of ethics. To receive a
copy of the Company's code of ethics, requests should be sent to:
Trans-Industries, Inc.
Attn: Chief Financial Officer
1780 Opdyke Court
Auburn Hills, MI 48326
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ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the compensation
for services in all capacities to the Company and its subsidiaries for the years
ended December 31, 2004, 2003 and 2002 of those persons who were, at December
31, 2004, (i) the Chief Executive Officer and (ii) the next four most highly
compensated executive officers of the Company and its subsidiaries (the "Named
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- AWARDS
------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS UNDERLYING COMPENSATION
POSITION YEAR ($) (3) ($) (1) (3) OPTIONS/SHARES ($) (2) (3)
- ---------------- ----- --------- ----------- --------------- -------------------
Dale S. Coenen (retired 3/18/05) 2004 $ 320,000 $ -0- - $ -0-
Former Chairman of the Board 2003 320,000 -0- - -0-
and Chief Executive Officer 2002 320,000 -0- - -0-
Trans-Industries, Inc.
Richard A. Solon (5) 2004 227,724 -0- 100,000(4) -0-
Chairman of the Board, 2003 -0- -0- - -0-
Chief Executive Officer 2002 -0- -0- - -0-
and President of
Trans-Industries, Inc.
Kai Kosanke 2004 152,500 -0- - 2,288
Vice President of 2003 150,417 -0- - 2,256
Trans-Industries, Inc. 2002 140,000 -0- - 2,111
Jack Stratford 2004 128,570 -0- - -0-
Sr. Vice President of 2003 128,570 -0- - -0-
Transmatic, Inc. 2002 128,570 -0- - -0-
Joseph Trimai 2004 122,500 -0- - 1,838
Sr. Vice President of 2003 120,417 -0- - 1,806
Transmatic, Inc. 2002 110,000 -0- - 1,661
(1) The bonuses reported in the table are indicated for the year earned, not
necessarily the year paid.
(2) "All Other Compensation" consists of discretionary contributions to the
Company's Defined Contribution Plan and Company matching contributions to
the 401(K) Plan.
(3) The incremental cost to the Company and its subsidiaries of providing
incidental personal benefits to executive officers of the Company did not,
for the 2004 fiscal year, exceed the lesser of $50,000 or 10% of the total
of annual salary and bonus for any individual named in the Summary
Compensation Table.
(4) Mr. Solon was granted 50,000 stock options and 30,000 stock appreciation
rights ("SARs") on February 23, 2004 and an additional 50,000 stock options
and 30,000 SARs on August 17, 2004. The options and SARs were granted in
tandem and accordingly the exercise of one terminates the other.
(5) Mr. Solon was appointed as a Director and President of the Company on
February 23, 2004. On March 18, 2005, in conjunction with Mr. Coenen's
retirement, Mr. Solon was appointed Chief Executive Officer and Chairman of
the Board.
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OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes options and SARs granted to Named
Officers in the year ended December 31, 2004. No options or SARs were granted to
Named Officers in the years ended December 31, 2003 or 2002.
Individual Grants
-----------------------------------------------------------------
Percent of Potential realizable value
Number of total at assumed annual rates of
securities option/SARs stock price appreciation
underlying granted to Exercise for option term
option/SARs employees in price per Expiration
Name Year granted fiscal year share date 5% (1) 10% (1)
- ---- ---- ------- ----------- ----- ---- ------ -------
Richard A. 2004 50,000 (2) 50% $2.51 2-23-2014 $78,926 $200,013
Solon 2004 50,000 (2) 50% $1.76 8-17-2014 $55,343 $140,241
President and
Chief Executive
Officer;
Director
(1) The potential realizable value of the options, if any, granted in the
year ended December 31, 2004 to the Named Executive Officers was
calculated by multiplying those options by the excess of (a) the
assumed market value, as of the expiration date of options for Common
Stock if the market value of Common Stock were to increase 5% or 10% in
each year of the option's 5 year or 10-year term, over (b) the exercise
price shown. This calculation does not take into account any taxes or
other expenses that might be owed. The 5% and 10% assumed appreciation
rates are set forth in SEC rules and no representation is made that the
Common Stock will appreciate at these rates or at all.
(2) Mr. Solon was granted 50,000 options to purchase shares of Common Stock
and 30,000 SARs in tandem on each of February 23, 2004 and August 17,
2004. The exercise price of the options was set at the Common Stock's
closing price on the grant date. Exercise of an option or SAR would
result in the automatic termination of the corresponding option or SAR.
Twenty percent of the options become exercisable on each anniversary
thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee of the Board of Directors,
consisting of, during 2004, James O'Brien, Harry E. Figgie Jr., and Robert
Ruben, all independent directors. The Compensation Committee held one meeting
during the 2004 fiscal year. It reviewed compensation levels for salaried
personnel, approved recommended salary increases when merited, and compared
Company compensation levels with positions of similar scope and responsibility
with those among a peer group of companies. Harry E. Figgie, Jr. has engaged in
or has the potential to engage in the transactions described in Item 13 of this
Amendment.
DIRECTOR COMPENSATION
Independent directors are paid $4,000 for each board meeting they
attend and $2,000 for each committee meeting they attend. Directors who are also
employees of the Company do not receive additional compensation for
participating on the board. The independent directors earned the following fees
in 2004: Harry E. Figgie Jr. $38,000, James O'Brien $38,000, Robert Ruben
$30,000 and H. Sean Mathis $ 0.
PROFIT SHARING PLAN
A Defined Contribution Plan was adopted by the Company in 1977, and is
nondiscriminatory, portable, clifftype vesting, and completely Company financed
for all full time employees of Trans-Industries, Inc. and its subsidiaries with
one year or more of service who are not part of a collective bargaining unit.
Contributions are established annually by action of the Board of Directors based
on profits, cash flow, and other pertinent factors. For 2004, there was no
contribution made to the Plan. Distribution of accounts is made upon termination
of employment. Due to the variable circumstances surrounding the Company's
decision to contribute to the Plan in any given year, the Company has
8
determined that it is not feasible to project estimated annual benefits payable
upon retirement at normal retirement age for each of the "Named Officers."
Incorporated into the Defined Contribution Plan is a 401(K) feature,
whereby the Company matches the employee's deferrals at a rate of 25%. The
Company's contributions to the 401(K) plan amounted to $34,000 for 2004.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Company's compensation programs are intended to provide its
executive officers with a mix of salary, benefits and incentive compensation
arrangements that are: (i) consistent with the interests of stockholders, (ii)
competitive with the arrangements provided by other companies in the industry,
(iii) commensurate with each executive's performance, experience and
responsibilities, and (iv) sufficient to attract and retain highly qualified
executives. In making its recommendations concerning adjustments to salaries and
awards under the other compensation plans, the Compensation Committee considers
the financial condition and performance of the Company during the prior year and
the Company's success in achieving financial, operational and other strategic
objectives. The Compensation Committee also makes an assessment of the
contributions of the individual executive officer to the Company's performance
and to the achievement of its objectives, as well as the success of the
executive in achieving objectives which may have been set for such individual.
In assessing individual performance, the Compensation Committee also seeks to
recognize individual contributions during periods when the Company experienced
adverse business or financial conditions.
Each component of an executive's compensation package is intended to
assist in attaining one or more of the objectives outlined above. The Company
attempts to provide its executives with base salaries and benefits that are
competitive with those of comparable companies and commensurate with the
performance, experience and responsibilities of each executive. Through salary
adjustments and bonuses, the Company also seeks to provide its executives with
incentives to improve the Company's financial and operational performance by
providing a method for rewarding individual performance. Finally, the Company's
Employees' Stock Option Plan has been used to provide executive officers with an
opportunity to acquire a proprietary interest in the Company, thereby providing
these individuals with increased incentive to promote the long-term interests of
the Company's stockholders.
While the Compensation Committee seeks to assure that the Company's
compensation programs further the objectives described above and considers the
various factors outlined above in making compensation decisions, it does not
take a highly formalized or objective approach to determining compensation.
Instead, the Compensation Committee gives consideration to these various factors
in subjectively evaluating the compensation of each individual executive.
In 1993, Congress adopted Section 162(m) of the Internal Revenue Code.
Section 162(m) limits the ability of public companies to deduct compensation in
excess of $1,000,000 paid to certain executive officers, unless such
compensation is "performance based" within the meaning of Section 162(m).
Section 162(m) also imposes certain requirements on the composition of
compensation committees. The Compensation Committee satisfies these
requirements.
2004 COMPENSATION DECISIONS
Base Salary and Benefits. The base salaries and benefits provided to executive
officers for 2004 were established by the Compensation Committee in accordance
with the compensation philosophy discussed above. The Compensation Committee
made no individual salary adjustments in 2004 with respect to the base salaries
of the named officers due to operating losses incurred.
Bonuses. During 2004, the executive officers of the Company participated in
individual bonus arrangements tied to various measures of the Company's
performance. Under these arrangements, no executive officer received a cash
bonus for 2004.
Stock Options. During 2004, the Company awarded 60,000 SARs and options to
purchase 100,000 shares of the Company's Common Stock to Mr. Solon in connection
with his hiring as an executive officer of the Company.
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CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's compensation is determined on the basis
of the Compensation Committee's subjective assessment of the Chief Executive
Officer's performance, measured by the Company's financial condition, results of
operations and success in achieving strategic objectives. The Compensation
Committee also considers the responsibilities associated with the Chief
Executive Officer's position and the level of compensation provided to Chief
Executive Officers of other companies in the industry.
The Compensation Committee reviews Mr. Solon's salary and total compensation on
an annual basis, taking into account the actual and expected performance of the
Company and the industry. Mr. Solon joined the Company in February 2004 at a
base salary of $275,000 per year. Mr. Solon does not own any of the Company's
Common Stock. However, he did receive options to purchase 100,000 shares of
Company stock in 2004 and 60,000 SARs. Mr. Solon's initial compensation was
based on his prior compensation history and the Compensation Committee's
understanding of compensation standards in the industry for businesses
comparable to the Company.
THE 2004 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Harry E. Figgie Jr. (Chairman)
-------------------
James O'Brien
-------------------
Robert Ruben
-------------------
10
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock to the cumulative total return of a broad index of the
NASDAQ Market Index and an index of non-financial stocks for the period December
31, 1999 through December 31, 2004.
FIVE YEAR CUMULATIVE TOTAL RETURN
TRANS-INDUSTRIES, INC., NASDAQ MARKET INDEX (US COMPANIES)
AND NASDAQ NON-FINANCIAL STOCKS INDEX
[PERFOMANCE GRAPH]
Ending 12/31 1999 2000 2001 2002 2003 2004
NASDAQ Index 100 60 48 33 49 54
Non-Financial Index 100 58 45 29 45 48
Trans-Industries, Inc. 100 30 17 73 50 48
ASSUMES $100 INVESTED ON DECEMBER 31, 1999.
TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to Common Stock
owned on February 28, 2005, unless otherwise noted, by each person known by the
Company to own beneficially more than 5% of the Company's outstanding Common
Stock at such date, the number of shares owned by each such person and the
percentage of the outstanding shares represented thereby. The table also lists
beneficial ownership of Common Stock by each of the Company's directors, each
executive officer named in the summary compensation table set forth in this
Amendment, and all directors and executive officers as a group. Unless indicated
otherwise, the address of each director and executive officer is 1780 Opdyke
Court, Auburn Hills, MI 48326.
- ---------------------------------------------------------------------------------------
NAME AND ADDRESS OF SHARES OF COMMON STOCK PERCENTAGE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED AS OF FEBRUARY 28,
2005 (1)
- ---------------------------------------------------------------------------------------
Dale S. Coenen 579,389 13.7%
- ---------------------------------------------------------------------------------------
Duncan Miller 495,938 11.7%
- ---------------------------------------------------------------------------------------
Trans Industries Profit 340,694 8.1%
Sharing Plan
- ---------------------------------------------------------------------------------------
Ronald C. Lamparter 249,700 5.9%
7204 Sterling Ponds Court
Sterling Heights, MI
48312
- ---------------------------------------------------------------------------------------
Harry E. Figgie, Jr. 2,000,614 (2) 44.5% (2)
- ---------------------------------------------------------------------------------------
Kai Kosanke 34,392 (3) 0.8% (3)
- ---------------------------------------------------------------------------------------
Joseph Trimai 14,000 (4) 0.3% (4)
- ---------------------------------------------------------------------------------------
Robert Ruben 20,000 0.5%
- ---------------------------------------------------------------------------------------
Jack Stratford 5,000 (5) 0.1% (5)
- ---------------------------------------------------------------------------------------
Richard Solon 10,000 (6) 0.2% (6)
- ---------------------------------------------------------------------------------------
James O'Brien 20,000 0.5%
- ---------------------------------------------------------------------------------------
H. Sean Mathis -0- N/A
- ---------------------------------------------------------------------------------------
All directors and 2,683,395 (7) 59.1% (7)
executive officers as a
group (9 persons)
- ---------------------------------------------------------------------------------------
(1) The percentage calculations reflect total outstanding shares of Common
Stock of 4,221,135, calculated by adding 3,139,737 outstanding shares,
plus 581,397 shares on an converted basis from Series B Convertible
Preferred Stock ("Series B Stock"), plus 500,001 shares on an as
converted basis from Series B-1 Convertible Preferred Stock ("Series
B-1 Stock").
(2) Includes 581,397 shares on an converted basis from Series B Stock,
500,001 shares on an as converted basis from Series B-1 Stock, plus
270,348 shares issuable under immediately exercisable Warrants, all
held by Harry E. Figgie, Jr. trustee under the Trust Agreement dated
July 15, 1976, as modified (the "Investor"). Also includes 495,938
shares that Clark-Reliance Corporation ("Clark-Reliance"), an affiliate
of Mr. Figgie and the Investor, has the right to acquire within 60 days
of February 28, 2005. See the disclosure in Item 13 of this Amendment
for more information regarding Mr. Figgie's beneficial ownership
(3) Includes 20,000 shares of Common Stock which Mr. Kosanke has the right
to acquire within 60 days of February 28, 2005 through the exercise of
stock options.
(4) Includes 11,000 shares of Common Stock which Mr. Trimai has the right
to acquire within 60 days of February 28, 2005 through the exercise of
stock options.
(5) Includes 5,000 shares of Common Stock which Mr. Stratford has the right
to acquire within 60 days of February 28, 2005 through the exercise of
stock options.
(6) Includes 10,000 shares of Common Stock which Mr. Solon has the right to
acquire within 60 days of February 28, 2005 through the exercise of
stock options.
12
(7) Includes 812,286 shares of Common Stock which members of the group have
the right to acquire within 60 days of September 30, 2004 through the
exercise of stock options and other rights described above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, the Company does not know of any
transactions in which the amount involved exceeds $60,000 and in which any
director, officer, or any security holder who is known to the Company to own of
record or beneficially more than five percent of the Company's voting
securities, or any immediate family member of any such persons had a material
interest.
On February 25, 2004, the Board of Directors of the Company, acting in
the best interests of the Company and its stockholders, approved the Series B
Convertible Preferred Stock and Warrant Purchase Agreement (the "Purchase
Agreement") and other ancillary documents authorizing the Company to issue to
the Investor up to $3,000,000 of Series B Stock, Series B-1 Convertible
Preferred Stock and warrants ("Series B Warrants") to purchase up to 145,348
shares of Common Stock of the Company. The Purchase Agreement was entered into
on March 4, 2004 (the "Effective Date").
Pursuant to the Purchase Agreement, the Investor received approximately
193,799 shares of Series B Stock and Series B Warrants to purchase 145,348
shares of the Company's Common Stock at the closing on March 4, 2004. The
Purchase Price of $1,500,000 was paid to the Company in consideration for the
shares of Series B Stock and Series B Warrants. Each share of Series B Stock,
purchased at $7.74 a share, may be converted at any time into three (3) fully
paid non-assessable shares of Common Stock of the Company. The holders of the
Series B Stock will vote as a separate class and are entitled to elect three (3)
of the Company's six (6) directors.
In connection with the issuance of Series B Stock and related Series
B-1 Warrants described above, on the Effective Date, the Company entered into
certain ancillary agreements, described below, that provided the Investor and
Clark-Reliance with the opportunity to make additional equity acquisitions. As
part of these ancillary agreements, the Company granted an option ("Option") to
the Investor to purchase between 55,556 and 166,667 shares of Series B-1 Stock
and related common stock warrants ("Series B-1 Warrants" and together with
Series B-Warrants, "Warrants") for $9 per preferred share and warrant unit.
While the Investor had indicated a willingness to provide new capital
required by the Company's lender in the summer of 2004, the Investor was unable
to exercise the Option until approved by the Company's stockholders pursuant to
NASD Marketplace Rule 4350(i)(1)(B) that requires companies listed on the NASDAQ
SmallCap Market to obtain stockholder approval for transactions that could
result in a change in control. Therefore, on August 18, 2004, the Option
documentation was amended and the Investor loaned the Company $1,500,000 in
exchange for a convertible preferred note ("Note"). The principal and interest
due under the Note were convertible into a number of shares of Series B-1 Stock
calculated at a price of $9 per share and the Series B-1 Warrants.
The exercise price for the Series B-1 Warrants is $3 per share. The
Option and the Note were approved by the Company's stockholders at its annual
meeting on January 19, 2005. Immediately after approval by the stockholders of
the Company, the Note automatically converted into 166,667 Series B-1 Shares
(calculated at a price of $9.00 per share) that were issued to the Investor and
the Company also issued to the Investor the Series B-1 Warrants. Each Series B-1
Share is convertible into three shares of Common Stock. In addition, the shares
of Series B-1 Stock have conversion, redemption, and voting rights identical to
those of the shares of Series B Stock.
Pursuant to the Investor Rights Agreement entered into in connection
with the Series B stock transaction, the Company is required to offer the
Investor a right of first refusal to purchase all underlying securities prior to
a stock issuance ("Right of First Offer"). The Company is also required to not
undertake certain actions without the approval of the majority of Series B and
Series B-1 stockholders. These actions include the (1) authorization of any
additional class or series of stock that has a senior position to the Series B
and Series B-1 Stock; (2) increase in the amount of the authorized Series B and
Series B-1 stock; (3) consenting to any liquidation, dissolution or winding up
of the Company; and (4) merging with or into another entity.
Under the terms of the Rights of First Refusal Agreement, entered into
as of the Effective Date, as amended, Dale Coenen ("Coenen") is required to
provide notice to the Investors prior to transferring or otherwise disposing of
certain shares of capital stock of the Company. Upon receipt of such
notification, the Investors would have an opportunity to purchase some or all of
the securities offered thereby.
Under the terms of the Voting Agreement, dated as of the Effective
Date, the Coenen and Duncan Miller ("Miller") have agreed to vote all
beneficially owned securities of the Company in the following manner: (1) to
ensure that the size of the Board is set and shall remain at six directors; (2)
in favor of the Investor's designees for the Board of Directors and other
various management positions.
13
In addition, under the terms of the Share Purchase Agreement (the
"Clark-Reliance Agreement") dated December 10, 2003, Clark-Reliance is obligated
to purchase 495,938 shares of Common Stock from the Company. The purchase under
the Clark-Reliance Agreement has not yet been consummated.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
On May 18 2004, our Audit Committee was advised by the Company's former
independent auditors, Grant Thornton LLP ("Grant Thornton") that they declined
to stand for reelection as the Company's independent auditors. On July 15, 2004
the Company announced that the Audit Committee appointed Plante & Moran, PLLC as
its independent auditors, replacing Grant Thornton.
Grant Thornton's reports on the Company's consolidated financial
statements for each of the years ended December 31, 2003 and 2002 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles except that the 2003 Audit
Report expressed substantial doubt about the Company's ability to continue as a
going concern.
During the years ended December 31, 2003 and 2002 and through the
effective date of cessation of the client-auditor relationship between the
Company and Grant Thornton, there were no disagreements with Grant Thornton on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which, if not resolved to Grant
Thornton's satisfaction, would have caused it to make reference to the subject
matter of the disagreements in connection with its report on our consolidated
financial statements for such years.
Grant Thornton, based in Southfield, Michigan, had acted as the
Company's independent certified public accountants since 1994. Representatives
of Grant Thornton and Plante are expected to be present at the meeting and will
have an opportunity to make statements if they so desire. They are also expected
to be available to respond to appropriate questions.
All auditing and permissible non-audit services provided by the
Company's independent auditor are pre-approved by the Audit Committee in
accordance with the Audit Committee charter. No fees were billed to the Company
for the fiscal years ended December 31, 2002 and 2003 by Plante. The following
table sets forth the aggregate fees billed to the Company for the fiscal year
ended December 31, 2004 and 2003 by Plante and Grant Thornton:
2004 2003
---- ----
Audit Fees $ 83,000 $ 77,030
Audit Related Fees 20,640 17,600
Tax Fees - 32,300
All Other Fees 1,570 1,942
------------ ----------
$ 105,210 $ 128,872
============ ==========
The amounts shown above include out-of-pocket expenses incurred by the
independent accountants in connection with the provision of such services. The
amount shown for "Audit Fees" includes fees relating to quarterly reviews of
unaudited financial statements, and the amounts shown for "Audit Related Fees"
includes fees relating to audits of medical and deferred compensation plans. The
amount shown for "All Other Fees" represents fees paid for tax strategy and
planning services. All auditing and permissible non-audit services provided by
the Company's independent auditor are pre-approved by the Audit Committee. The
Audit Committee of the Board of Directors determined that Plante's provision of
the services generating "All Other Fees" is compatible with maintaining Plante's
independence.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRANS-INDUSTRIES, INC.
Date: May 2, 2005 By: /s/ RICHARD A. SOLON
---------------- -----------------------------------
Richard A. Solon
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons, which include
the Chairman, the President, the Chief Financial Officer, the Assistant
Treasurer, and a majority of the Board of Directors on behalf of the Registrant
and in the capacities and on the dates indicated:
/s/ Richard A. Solon Chairman, 5/2/2005
- --------------------------------- Chief Executive Officer and --------
(Richard A. Solon) President
/s/ Kai Kosanke Vice-President, 5/2/2005
- --------------------------------- Chief Financial Officer and --------
(Kai Kosanke) Principal Financial Officer
/s/ Keith LaCombe Assistant Treasurer 5/2/2005
- --------------------------------- and Principal Accounting Officer --------
(Keith LaCombe)
/s/ Dale S. Coenen Director 5/2/2005
- --------------------------------- --------
(Dale S. Coenen)
/s/ Robert J. Ruben Director 5/2/2005
- --------------------------------- --------
(Robert J. Ruben)
/s/ James O'Brien Director 5/2/2005
- --------------------------------- --------
(James O'Brien)
15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
Exhibit 31.1 Sarbanes-Oxley, Section 302 CEO certification.
Exhibit 31.2 Sarbanes-Oxley, Section 302 CFO certification.
Exhibit 32.1 Sarbanes-Oxley, Section 906 CEO certification.
Exhibit 32.2 Sarbanes-Oxley, Section 906 CFO certification.
16