1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
-----------------------------
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________to____________
Commission file number 0-3905
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TRANSMATION, INC.
- --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 16-0874418
- --------------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Vantage Point Drive, Rochester, NY 14624
- --------------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 716-352-7777
------------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark (X) whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Number of Shares Outstanding Date
- ----- ---------------------------- ----
Common 5,921,892 December 31, 1998
TOTAL PAGES - 19
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Part I
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FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
- -----------------------------
TRANSMATION, INC.
CONSOLIDATED BALANCE SHEET
Unaudited
Dec. 31, March 31,
ASSETS: 1998 1998
----------------- -----------------
Current Assets:
Cash $548,062 $652,664
Accounts Receivable, less allowance
for doubtful accounts of $510,000 at 12/31/98
and $592,000 at 3/31/98 10,777,484 12,540,347
Inventories 10,778,322 10,675,829
Prepaid Expenses and Deferred Charges 1,828,400 1,344,799
Deferred Tax Assets 540,172 540,172
----------------- -----------------
Current Assets 24,472,440 25,753,811
Properties, at cost, less accumulated
depreciation 6,049,474 6,405,053
Goodwill, less accum. Amortization of $2,109,995 at
12/31/98 and $1,320,500 at 3/31/98 18,410,452 19,199,947
Deferred Charges 277,779 204,308
Deferred Income Taxes 63,200 58,582
Other Assets 262,798 253,513
----------------- -----------------
$49,536,143 $51,875,214
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Notes Payable $2,500,000
Current Portion of Long Term Debt $2,000,000 2,856,000
Accounts Payable 7,120,921 7,861,779
Accrued Payrolls, Commissions & Other 1,642,149 2,174,389
Income Taxes Payable 365,086 234,984
----------------- -----------------
Current Liabilities 11,128,156 15,627,152
Long-Term Debt 23,197,300 21,752,922
Deferred Compensation 456,808 509,981
----------------- -----------------
34,782,264 37,890,055
----------------- -----------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common Stock, par value $.50 per share
Authorized - 15,000,000 shares - issued
and outstanding - 5,921,892 at 12/31/98,
5,830,942 at 3/31/98 (including 2,853,692
shares issued on 7/22/97) 2,960,946 2,915,471
Capital in Excess of Par Value 2,509,895 2,227,117
Accumulated Translation Adjustment (230,599) (120,788)
Retained Earnings 9,919,702 8,963,359
----------------- -----------------
15,159,944 13,985,159
Treasury stock, at cost, 105,358 shares at 12/31/98 (406,065)
----------------- -----------------
14,753,879 13,985,159
----------------- -----------------
$49,536,143 $51,875,214
================= =================
See Notes to Consolidated Financial Statements
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
10/1 - 10/1 - 4/1 - 4/1 -
12/31/98 12/31/97 12/31/98 12/31/97
-------------------------------- -------------------------------
Net Sales $16,830,499 $19,775,043 $51,128,617 $58,500,830
-------------------------------- -------------------------------
Costs and Expenses:
Cost of Product Sold 11,265,774 13,612,980 33,882,494 40,069,161
Selling & Admin. Expenses 4,220,271 4,854,704 12,954,517 14,206,816
Research & Develop. Costs 429,370 419,943 1,285,326 1,236,308
Interest Expense 529,446 639,461 1,676,481 1,931,265
-------------------------------- -------------------------------
16,444,861 19,527,088 49,798,818 57,443,550
-------------------------------- -------------------------------
385,638 247,955 1,329,799 1,057,280
Other Income, gain on sale of property 244,494 244,494
-------------------------------- -------------------------------
Income Before Taxes 630,132 247,955 1,574,293 1,057,280
Provision for Income Taxes
State and Federal 248,450 89,255 617,950 392,205
-------------------------------- -------------------------------
Net Income 381,682 158,700 956,343 665,075
Retained Earnings at
Beginning of Period 9,538,020 8,471,763 8,963,359 7,965,388
-------------------------------- -------------------------------
Retained Earnings at
End of Period $9,919,702 $8,630,463 $9,919,702 $8,630,463
================================ ===============================
Net Income Per Share
Basic $0.07 $0.03 $0.16 $0.12
================================ ===============================
Diluted $0.06 $0.03 $0.16 $0.10
================================ ===============================
See Notes to Consolidated Financial Statements
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
Three Months Ended Nine Months Ended
---------------------------- ------------------------------
12/31/98 12/31/97 12/31/98 12/31/97
---------------------------- ------------------------------
Cash Flows from Operating Activities
Net Income $381,682 $158,700 $956,343 $665,075
Items Not Requiring (Providing) Cash
Included in Income
Depreciation and Amortization 701,290 607,272 2,139,395 1,993,751
Provision for Losses on Accounts Receivable (17,000) (54,800) (82,000) (95,700)
Other Assets - (5,600) (9,285) 284,277
(Increase)Decrease in Accounts Receivable (62,411) 1,872,151 1,844,863 990,916
(Increase) in Inventories (170,556) (322,804) (102,493) (1,332,744)
(Increase) in Prepaid Expenses
& Deferred Charges (559,527) (30,859) (557,072) (869,333)
(Decrease)Increase in Accounts Payable 1,584,748 2,067,276 (740,858) 523,987
(Decrease) in Accrued Payrolls, Commissions
and Other Liabilities (203,928) (662,078) (532,240) (595,065)
Increase(Decrease) in Income Taxes Payable 151,967 87,254 130,102 (277,831)
(Decrease) in Deferred Compensation (17,724) (19,142) (53,173) (57,427)
(Increase) in Deferred Income Taxes (4,618) (4,618)
---------------------------- ------------------------------
Net Cash Provided by Operating Activities 1,783,923 3,697,370 2,988,964 1,229,906
---------------------------- ------------------------------
Cash Flows from Investing Activities:
Purchase of EIL Instruments, Inc. (22,000,000)
Disposition of Asset 175,996 175,996
Purchases of Properties (492,350) (397,362) (1,170,317) (1,749,150)
---------------------------- ------------------------------
Net Cash (used in) Investing Activities (316,354) (397,362) (994,321) (23,749,150)
---------------------------- ------------------------------
Cash Flows from Financing Activities:
(Dec)Inc. in Notes Payable & Current Portion of LTD 1,360,000 (3,356,000) 4,760,000
Exercise of Stock Options & Warrants 94,768 81,093 328,253 406,559
Increase(Decrease) in Long-Term Debt (1,234,900) (4,360,000) 1,444,378 17,177,493
Purchase of Treasury Stock (406,065) (406,065)
---------------------------- ------------------------------
Net Cash Provided by(used in) Financing Activities (1,546,197) (2,918,907) (1,989,434) 22,344,052
---------------------------- ------------------------------
Effect of Exchange Rate Changes on Cash (3,867) (27,574) (109,811) (2,320)
---------------------------- ------------------------------
Net Increase(Decrease) in Cash (82,495) 353,527 (104,602) (177,512)
Cash at Beginning of Period 630,557 227,176 652,664 758,215
---------------------------- ------------------------------
Cash at End of Period $548,062 $580,703 $548,062 $580,703
============================ ==============================
Cash Paid for Interest and Income Taxes is as follows:
Interest Paid $577,301 $688,456 $1,632,717 $1,464,029
Taxes Paid ($374) None $337,753 $682,715
See Notes to Consolidated Financial Statements
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TRANSMATION, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
UNAUDITED
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
----------------- ----------------- ----------------- ----------------- --------------
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)
Issuance of Stock 90,950 45,475 282,778
Currency Translation Activity (109,811)
Net Income 956,343
----------------- ----------------- ----------------- ----------------- --------------
Balance, Dec. 31, 1998 5,921,892 $2,960,946 $2,509,895 $9,919,702 ($230,599)
================= ================= ================= ================= ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1 - Borrowings
- -------------------
On August 7, 1998, the Company refinanced its existing bank debt and entered
into a new $32,000,000 Credit and Loan Agreement. This agreement is comprised of
a $15,000,000 revolving credit agreement which matures on July 1, 2001, and two
term loans. Term Loan A, in the amount of $8,500,000, requires quarterly
repayments of $500,000 extending through the Term Loan A maturity date of
January 1, 2003. Term Loan B, in the amount of $8,000,000, with a maturity date
of June 1, 2007, requires interest only payments through April 1, 2001.
Thereafter, aggregate quarterly payments sufficient to fully amortize the
outstanding balance of Term Loan B at its maturity date of June 1, 2007 are
required. Interest is payable on all Loans on a formula basis, at the Company's
option, at rates related to prime or above LIBOR determined on the basis of
Company performance as determined by its leverage ratio. At December 31, 1998,
interest paid on Term Loan A was at 1.60% above LIBOR or at prime; on Term Loan
B, interest was paid at 2.15% above LIBOR or at 37.5% above prime. At December
31, 1998, $8,697,300 was borrowed under the Revolving Credit Facility; interest
is determined on the revolving credit borrowings on the same basis that it is
determined under Term Loan A. At December 31, 1998, interest was payable on the
above loans at rates ranging from 7.16% to 7.75%.
Required payments under Term Loan A and Term Loan B are as follows:
Term Loan A Term Loan B
----------- -----------
Jan. 1, 1999 - Dec. 31, 1999 $2,000,000
Jan. 1, 2000 - Dec. 31, 2000 $2,000,000
Jan. 1, 2001 - Dec. 31, 2001 $2,000,000
Jan. 1, 2002 - Dec. 31, 2002 $2,000,000 $ 960,000
Jan. 1, 2003 - Dec. 31, 2003 $500,000 $1,280,000
Jan. 1, 2004 - Dec. 31, 2004 $1,280,000
Jan. 1, 2005 - Dec. 31, 2005 $1,280,000
Jan. 1, 2006 - Dec. 31, 2006 $1,280,000
Jan. 1, 2007 - Dec. 31, 2007 $ 640,000
The Company has entered into a contract whereby the base rate it will pay on
$10,000,000 of its debt equals LIBOR of 6.20% plus the appropriate markup over
LIBOR as indicated above. This contract extends for 5 years from the date of the
loan.
The Company is in compliance with all provisions of its loan agreement as of
December 31, 1998.
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Note 2 - Inventories
- --------------------
The major classifications of inventory are as follows:
December 31, March 31,
1998 1998
---- ----
Raw Materials & Purchased Parts $ 4,304,941 $ 4,221,730
Work in Process 641,953 629,545
Finished Products 6,658,262 6,529,564
----------- -----------
11,605,156 11,380,839
Less Inventory Reserves (826,834) (705,010)
----------- -----------
$10,778,322 $10,675,829
=========== ===========
Note 3 - Net Income 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
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:
NINE MONTHS ENDED DEC. 31, 1998 NINE MONTHS ENDED DEC. 31, 1997
--------------------------------------------- ---------------------------------------------
AVERAGE AVERAGE
NET OUTSTANDING PER NET OUTSTANDING PER
EARNINGS SHARES SHARE EARNINGS SHARES SHARE
-------------- --------------- ------------ -------------- --------------- ------------
Basic Earnings
Per Share $956,343 5,838,101 $0.16 $665,075 5,698,107 $0.12
Effect of Dilutive
Options & Warrants 204,674 716,709
-------------- --------------- ------------ -------------- --------------- ------------
Diluted Earnings
Per Share $956,343 6,042,775 $0.16 $665,075 6,414,816 $0.10
============== =============== ============ ============== =============== ============
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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 two interim periods and their associated exercise prices are summarized
below. The options expire at various times between 1999 and 2002.
Number of Exercise
Options and Warrants Price
-------------------- -----
1998 880,700 $4.19 - $9.25
1997 12,000 $9.25
Note 4 - Other Income, Gain on Sale of Property
- ----------------------------------------------
During the quarter ended December 31, 1998, the Company sold property formerly
owned in Rochester, New York in anticipation of relocating its Instrument
Division and Altek subsidiary to a single location. The pre-tax gain on that
transaction totaled $244,494.
Note 5- Other Matters
- ---------------------
On February 9, 1999, the Company acquired all of the outstanding shares of the
capital stock of Metermaster Inc., a Georgia corporation, by merging MM
Acquisition Corp., a New York corporation and wholly-owned subsidiary of the
Company, into Metermaster. A Form 8-K disclosing this transaction has been filed
and as soon as practicable, but not later than April 12, 1999, a Form 8-K/A with
required financial statements will be filed.
Item 2.
- -------
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
Financial Condition
- -------------------
The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with banks, its profitability and management of
its Balance Sheet.
During the quarter, accounts receivable balances owing to the Company increased
by $62,400 and Inventories owned by the Company increased by $170,600. Trade
accounts payable increased by $1,584,700 during the quarter. This increase
resulted from payment of amounts due others in accordance with our normal
payment terms. The Company will strive to improve its cash flows and reduce bank
borrowings from current levels during the balance of the current fiscal year
through increased profitability, by reducing both accounts receivable and
inventory balances, and by maintaining its trade payables at approximately that
level which existed at December 31, 1998.
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Results of Operations
- ---------------------
Comparison of October 1, 1998 - December 31, 1998
- -------------------------------------------------
to
October 1, 1997 - December 31, 1997
-----------------------------------
Sales totaled $16,830,500 in the quarter ended December 31, 1998. This compares
to sales of $19,775,000 last year and represents a reduction of 14.9% in 1998
compared to 1997. The reduced level of sales in 1998 results from uncertain
economic conditions which exist in Southeast Asia, an historically strong market
for the Company, uncertainty which resulted in the U.S. market as the result of
Asian uncertainty, and from the continuing low cost of oil which adversely
impacts spending programs of many of the Company's most significant customers.
Cost of Product Sold totaled 66.9% of sales in 1998 versus 68.8% of sales in
1997. This improvement is the result of cost improvements made primarily in the
Company's calibration services operation. Selling and Administrative expenses
were reduced by 13.1% in 1998 compared to 1997. These reductions were the result
of cost savings programs implemented by the Company in 1998. Interest Expense
was 17.2% lower in 1998 compared to 1997. In addition, interest rates were lower
in 1998 than they were in 1997.
Comparison of April 1, 1998 - December 31, 1998
- -----------------------------------------------
To
--
April 1, 1997 - December 31, 1997
---------------------------------
Sales totaled $51,128,617 in the nine-month period ended December 31, 1998. This
represents a reduction of 12.6% from the same period one year ago and is the
result of economic uncertainties which exist in Southeast Asia which adversely
impact markets for Transmation's products throughout the world and of the
continued low price of oil which also adversely impacts spending programs at
many of Transmation's major customer locations.
Cost of Product Sold totaled 66.3% of sales in the nine months ended December
31, 1998 compared to 68.4% of sales in the nine months ended December 31, 1997.
This improvement in 1998 is primarily the result of cost improvements made in
the Company's cal-lab operation.
Sales and Administrative expenses were reduced by 8.8% in 1998 compared to the
same nine month period in 1997. This reduction was the result of cost savings
programs implemented by the Company during 1998. Interest expense was 13.2%
lower in 1998 than in 1997 and is the result of lower average borrowings in 1998
compared to 1997 and lower rates.
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PART II
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OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a. See Index to Exhibits.
b. Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSMATION, INC.
Date February 5 , 1999 /s/ Eric W. McInroy
--------------------------------- -------------------------------------
Eric W. McInroy
President and CEO
Date February 5 , 1999 /s/ John A. Misiaszek
--------------------------------- -------------------------------------
John A. Misiaszek
Vice President, Finance
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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 by
reference to Exhibit I to the Registrant's Form 10-Q for the quarter
ended September 30, 1996.
(ii) By-laws, 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
(a) Credit and Loan Agreement dated August 7, 1998 between Transmation, Inc.
and KeyBank National Association is incorporated herein by reference to
Exhibit 4(a) to the Registrant's Form 10-Q for the quarter ended September
30, 1998.
(10) Material Contracts
The documents listed under (4) are incorporated herein by reference.
* (a) Amendment No. 4 to the Transmation, Inc. Directors' Stock Plan is
included herein as Exhibit 10(a) and supersedes Exhibit 10(h) to the
Registrant's Form 10-Q for the quarter ended June 30, 1997.
*(b) Non-Statutory Stock Option Agreement dated as of October 28, 1998 by
and between Transmation, Inc. and John A. Misiaszek is included herein as
Exhibit 10(b).
(11) Statement re Computation of Per Share Earnings
Computation can be clearly determined from Note 3 to the Financial
Statements included herein at Item 1.
(15) Letter re unaudited interim financial information
Not applicable.
(18) Letter re change in Accounting Principles
Not applicable.
(19) Report furnished to security holders
Not applicable.
(22) Published report regarding matters submitted to vote of security holders
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Not applicable.
(23) Consents of Experts and Counsel
Not applicable.
(24) Power of attorney
Not applicable.
*(27) Financial Data Schedule
The Financial Data Schedule is included herein as Exhibit 27.
(99) Additional Exhibits
Not applicable.
- -----------------
* Exhibit filed with this Report
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EXHIBIT 10(a)
as corrected November 30, 1998
AMENDMENT NO. 4
TO THE
TRANSMATION, INC.
DIRECTORS' STOCK PLAN
EFFECTIVE APRIL 25, 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 October 23, 1996 (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 April 25,
1997, as follows:
1. The first sentence of Section 3(a) "ANNUAL AWARDS" of Section 3.
"STOCK AWARDS" of the Plan is hereby amended to provide in its entirety as
follows (with the remainder of said Section 3(a) being unchanged and unaffected
by this Amendment and continuing in full force and effect):
"Each Participating Director shall receive an Award of 1,333 Shares for
each full year during which he serves as a Director; provided, however,
that if, on the date of any such Award, 1,333 Shares has an aggregate
market value in excess of $10,000, then such Award shall instead be in
the amount of the largest number of whole Shares that has an aggregate
market value not exceeding $10,000."
2. Except as amended hereby, the Plan shall remain in full force and
effect in accordance with its terms.
THIS AMENDMENT NO. 4 TO THE TRANSMATION, INC. DIRECTORS' STOCK PLAN WAS
AUTHORIZED, APPROVED AND ADOPTED BY THE BOARD OF DIRECTORS OF THE COMPANY ON
APRIL 22, 1997.
/s/ JOHN A. MISIASZEK
-------------------------------------
JOHN A. MISIASZEK, SECRETARY
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EXHIBIT 10(b)
NON-STATUTORY STOCK OPTION AGREEMENT
THIS NON-STATUTORY STOCK OPTION AGREEMENT is made as of October 28, 1998
by and between TRANSMATION, INC., an Ohio corporation (the "Company"), and JOHN
A. MISIASZEK (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) October 27, 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.
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(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 $3.785 (that being the last transaction price of the Common Stock on
October 28, 1998 quoted by The Nasdaq Stock Market).
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 October 28, 1998 and
terminating on October 27, 2003;
(ii) as to an additional 5,000 Shares beginning on October 28, 1999
and terminating on October 27, 2003;
(iii) as to an additional 5,000 Shares beginning on October 28, 2000
and terminating on October 27, 2003;
(iv) as to an additional 5,000 Shares beginning on October 28, 2001
and terminating on October 27, 2003; and
(v) as to an additional 5,000 Shares beginning on October 28, 2002
and terminating on October 27, 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.
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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
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
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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
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.
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IN WITNESS WHEREOF, the Optionee and the Company have executed this
Agreement as of the date first above written.
TRANSMATION, INC.
By:
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Eric W. McInroy
President and Chief Executive Officer
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JOHN A. MISIASZEK
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