-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TkLcpn4AKPmax7gT3yJ14S7nWASeW0W/SkZPa8OLe1cw8JdXHj8x6P/T7yhI+Yx4 5XkTlixvovT0Y6esD/QnAw== 0000950152-99-002750.txt : 19990331 0000950152-99-002750.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950152-99-002750 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVOTRONICS INC /DE/ CENTRAL INDEX KEY: 0000089140 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 160837866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 001-07109 FILM NUMBER: 99578707 BUSINESS ADDRESS: STREET 1: 1110 MAPLE ST CITY: ELMA STATE: NY ZIP: 14059 BUSINESS PHONE: 7166335990 MAIL ADDRESS: STREET 1: P O BOX 300 STREET 2: ELMA STATE: NY ZIP: 14059-0300 10KSB40 1 SERVOTRONICS, INC. 10KSB40 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-KSB X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 __ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________. Commission File No. 1-7109 SERVOTRONICS, INC. ----------------------------------------------------------- (Name of small business issuer as specified in its charter) Delaware 16-0837866 - ------------------------------- -------------------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 1110 Maple Street, Elma, New York 14059 - --------------------------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number: 716-655-5990 ----------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------- Common Stock, $.20 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x . No . ---- ---- Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for its most recent fiscal year: $17,571,000. As of March 3, 1999 the aggregate market value of the voting common stock held by non-affiliates of the registrant was $4,604,949.54 based on the average of sales prices reported by the American Stock Exchange on that day. As of March 3, 1999 the number of $.20 par value common shares outstanding was 2,405,488. DOCUMENTS INCORPORATED BY REFERENCE Document Part of Form 10-KSB -------- -------------------- 1999 Proxy Statement Part III Transitional Small Business Disclosure Format. Yes . No x . ---- ----- 2 PART I ------ Item 1. Description Of Business - ------- ----------------------- General - ------- Servotronics, Inc. and its subsidiaries (collectively the "Registrant" or the "Company") design, manufacture and market advanced technology products consisting primarily of control components and consumer products consisting of knives and various types of cutlery. The Registrant was incorporated in New York in 1959. In 1972, the Registrant was merged into a wholly-owned subsidiary organized under the laws of the State of Delaware, thereby changing the Registrant's state of incorporation from New York to Delaware. Products - -------- Advanced Technology Products ---------------------------- The Registrant designs, manufactures and markets a variety of servo-control components which convert an electrical current into a mechanical force or movement and other related products. The principal servo-control components produced include torque motors, electromagnetic actuators, proportional solenoids, hydraulic valves, pneumatic valves and similar devices, all of which perform the same general function. These are sold principally to the commercial, aerospace, missile, aircraft and government related industries. To fill most of its orders for components, the Registrant must either modify a catalog model or design a new item in order to satisfy the customer's particular requirements. The Registrant also produces unique products based on specifications provided by its' customers. The Registrant produces under long-term contracts and otherwise. The Registrant also produces metallic seals of various cross-sectional configurations. These seals fit between two surfaces, usually metal, to produce a more secure and leak-proof joint. They are generally designed for use under circumstances in which more conventional seals and gaskets do not perform adequately, such as exposure to extremes of temperature, high pressures, vacuums, radiation or corrosive atmospheres. The Registrant manufactures these seals to close tolerances from standard and special alloy steels. Ductile coatings are often applied to the seals in order to increase their effectiveness. -2- 3 From time to time, the Registrant has also produced other products of its own and/or of a given design to meet customers' requirements. The Registrant also designs and/or manufactures for its own use custom precision metal stampings. These stampings are produced from precision single stage and/or progressive dies which are also designed and manufactured by the Registrant. The progressive die performs, in a series of stages in one die, the stamping of a metal piece which could otherwise require stamping by a number of separate dies. Consumer Products ----------------- The Registrant designs, manufactures and sells a variety of cutlery products. These products include a wide range of knives such as steak, carving, bread, butcher and paring knives for household use and for use in restaurants, government installations, institutions and private industry and pocket and other types of knives for hunting, fishing and camping. The Registrant also produces and markets other cutlery items such as carving forks, sharpeners and various specialty tools such as putty knives, linoleum sheet cutters and field knives. The Registrant manufactures its cutlery products from stainless or high carbon steel in numerous styles, designs, models and sizes. Substantially all of the Registrant's cutlery and cutlery related products are intended for the medium to premium priced markets. The Registrant sells many of its cutlery products under its own brand names including "Old Hickory" and "Queen." Sales, Marketing And Distribution - --------------------------------- Advanced Technology Products ---------------------------- The Registrant's advanced technology products are marketed throughout the United States and are essentially nonseasonal in nature. These products are sold to the United States Government, government prime contractors and commercial manufacturers and end users. Sales are made primarily by the Registrant's professional staff. During the Registrant's last fiscal year, sales of advanced technology products pursuant to subcontracts with prime or subcontractors for various branches of the United States Government or pursuant to prime contracts directly with the government accounted for approximately 22% of the Registrant's total revenues. If the Registrant were deemed to be unqualified by the United States Government as a contractor or subcontractor, it would lose approximately 35% of its revenue of advanced technology products. In 1998 and 1997 sales of advanced technology products to -3- 4 AlliedSignal and United Technologies, through several of their subsidiaries and/or divisions, respectively, exceeded 10% of Registrant's total revenues. No other single customer represented more than 10% of the Company's revenues in any of these years. The Registrant's prime contracts and subcontracts with the Government are subject to termination for the convenience of the Government. In the event of such termination, the Registrant is ordinarily entitled to receive payment for its costs and profits on work done prior to termination. Since the inception of the Registrant's business, less than 1% of its government contracts have been terminated for convenience. Consumer Products ----------------- The Registrant's consumer products are marketed throughout the United States. Consumer sales are moderately seasonal. Sales are to hardware, supermarket, variety, department, discount, gift and drug stores. The Registrant also sells its cutlery products (principally machetes, survival knives and kitchen knives) to various branches of the United States Government. The Registrant sells its products through its own sales personnel and through independent manufacturers' representatives. Business Segments - ----------------- Business segment information is presented in Note 11 of the accompanying consolidated financial statements. Patents - ------- In the view of management, the Registrant's competitive position is not dependent on patent protection. The Registrant has rights under a number of patents. Research Activities - ------------------- The amount spent by the Registrant in research and development activities during its 1998 and 1997 fiscal years was not significant. Environmental Compliance - ------------------------ The Registrant does not anticipate that the cost of compliance with current environmental laws will be material. Manufacturing - ------------- The Registrant manufactures its consumer products in Franklinville, New York and Titusville, Pennsylvania and its advanced technology products in Elma, New York. -4- 5 Raw Materials And Other Supplies - -------------------------------- The Registrant purchases raw materials and certain components for its products from outside vendors. The Registrant is not generally dependent upon a single source of supply for any raw material or component used in its operations. Competition - ----------- Although no reliable industry statistics are available to enable the Registrant to determine accurately its relative competitive position with respect to any of its products, the Registrant believes that it is a significant factor with respect to certain of its servo-control components. The Registrant's share of the overall cutlery market is not significant. The Registrant encounters active competition with respect to its products from numerous companies, many of which are larger than it in terms of manufacturing capacity, financial resources and marketing organization. Its principal competitors vary depending upon the customer and/or the products involved. The Registrant believes that it competes primarily with more than 20 companies with respect to its consumer products, in addition to foreign imports. To the Registrant's knowledge, its principal competitors with regard to cutlery include ECKO Housewares, Inc., Russell Harrington Cutlery, Inc., W. R. Case & Sons Cutlery Company, Imperial Schrade Corporation and Camillus Cutlery Company. The Registrant has many different competitors with respect to servo-control components because of the nature of that business and the fact that these products also face competition from other types of control components which, at times, can accomplish the desired result. The Registrant markets most of its products throughout the United States. The Registrant believes that it competes in marketing its consumer products primarily on the basis of price, quality and delivery, and its control products primarily on the basis of operating performance, adherence to rigid specifications, quality, price and delivery. Employees - --------- The Registrant at March 3, 1999 had approximately 239 employees of which approximately 226 are full time. In excess of 85% of its employees are engaged in production, inspection, packaging or shipping activities. The balance are engaged in executive, engineering, administrative, clerical or sales capacities. -5- 6 Item 2. Description of Properties - ------- ------------------------- The Registrant's executive offices are located on premises leased by the Registrant at 1110 Maple Street, Elma, a suburb of Buffalo, New York. The Registrant owns and/or leases real property as set forth in the following table:
Number of Principal buildings and Approx. Approx. product type of floor area Location acreage manufactured construction (sq. feet) - ----------------------------------------------------------------------------------------------------------------- Elma, New York 38.4 Advanced 1-concrete block 82,000 technology and steel products Franklinville, 7.7 Cutlery products 1-tile and New York wood 85,000 Titusville, Pennsylvania .4 Cutlery products 2-brick 25,000
The Registrant leases approximately 38.4 acres of land and a facility from a local industrial development agency. The lease is accounted for as a capital lease and entitles the Registrant to purchase the property for a nominal amount for the end of the lease term. See the consolidated financial statements, including Note 8 thereto, for further information with respect to the Registrant's lease commitments. The Registrant possesses modern precision manufacturing and testing equipment suitable for the development, manufacture, assembly and testing of its advanced technology products. The Registrant designs and makes substantially all of the tools, dies, jigs and specialized testing equipment necessary for the production of the advanced technology products. The Registrant also possesses automatic and semi-automatic grinders, tumblers, presses and miscellaneous metal and wood finishing machinery and equipment for use in the manufacture of consumer products. Item 3. Legal Proceedings - ------- ----------------- There are no legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company. -6- 7 Item 4. Submission Of Matters To A Vote Of Security Holders - ------- --------------------------------------------------- Not applicable. -7- 8 PART II ------- Item 5. Market For Common Equity And Related Stockholder Matters - ------- -------------------------------------------------------- (a) Price Range Of Common Stock --------------------------- The following table shows the range of high and low prices for the Registrant's common stock as reported by the American Stock Exchange for 1998 and 1997.
HIGH LOW ---- --- 1998 Fourth Quarter $ 7-3/4 $ 6-5/8 Third Quarter 11 7-1/2 Second Quarter 13-3/8 8-3/8 First Quarter 10-1/2 7-5/16 1997 Fourth Quarter $ 13-3/8 $ 7-7/8 Third Quarter 9-3/8 6 Second Quarter 6 4-1/8 First Quarter 6-7/16 5-1/4
(b) Approximate number of holders of common stock ---------------------------------------------
Title Approximate number of of record holders (as of class December 31, 1998) ----- ------------------
Common Stock, $.20 par value 719 (c) Dividends on common stock ------------------------- No cash dividends were paid in 1998 or 1997. -8- 9 Item 6. Management's Discussion And Analysis Or Plan Of Operation --------------------------------------------------------- Summary - ------- The following table sets forth for the periods indicated the percentage relationship of certain items in the consolidated statement of income to net revenues and the percentage increase or decrease of such items as compared to the indicated prior period:
PERIOD TO RELATIONSHIP TO PERIOD NET REVENUES YEAR INCREASE ENDED (DECREASE) DECEMBER 31, YEAR ENDED 1998 1997 1998-97 ---- ---- ------- Net revenues: Advanced technology products 62.4% 60.0% 15.1% Consumer products 37.6 40.0 3.8 ------ ------ ------ 100.0 100.0 10.6 Cost of goods sold 68.2 68.0 11.0 ------ ------ ------ Gross profit 31.8 32.0 9.7 ------ ------ ------ Selling, general and administrative 18.1 19.3 3.8 Interest 1.8 2.1 -7.4 Depreciation 3.6 4.2 -6.2 ------ ------ ------ 23.5 25.6 -9.8 ------ ------ ------ Income before income taxes 8.3 6.4 44.2 Income tax provision 3.4 2.5 52.7 ------ ------ ------ Net income 4.9% 3.9% 38.8% ====== ====== ======
-9- 10 Management Discussion - --------------------- During the year ended December 31, 1998 and for the comparable period ended December 31, 1997, approximately 24% and 20% respectively of the Company's revenues were derived from contracts with agencies of the U.S. Government or their prime contractors. The Company's business is performed under fixed price contracts. It is noted that the many uncertainties in today's global economy and the difficulty in predicting defense appropriations (both actual and proposed) preclude any guarantees or even assurances that current programs will be continued or that programs in the prototype stages will ultimately result in production applications. It is because of such volatile uncertainties and because such adverse occurrences may not be counterbalanced with new programs or otherwise that cyclical downturns in operational performances are realistic expectations. See also Note 11 to the consolidated financial statements for information concerning business segment operating results. Results Of Operations - Year 1998 As Compared To 1997 - ----------------------------------------------------- The Company's consolidated results of operations for the year ended December 31, 1998 showed an approximate 10.6% increase in net revenues, which includes $210,000 of gross receipts on the settlement of disputes. Operating income as a percentage of net revenues increased from approximately 12.7% to 13.7% when compared to the same period in 1997. The increase in revenues is attributable to an approximate 15% increase in revenues at the Advanced Technology Group as the result of past and current engineering, marketing and other support efforts and new programs and applications, and an increase in revenues at the Consumer Products Group of approximately 4%. The respective amounts of the funded and unfunded sales backlog at December 31, 1998 and 1997 for the Advanced Technology Group were approximately $61,321,000 and $59,192,000, a year to year increase of 4%, of which $53,217,000 and $51,235,000 was unfunded in the respective comparable periods. Approximately $38,000,000 of the December 31, 1998 backlog is for product deliveries beyond 2001. The unfunded portion of the backlog is based on the Company's customers' estimated quantities for multi-year agreements for which the Company has not received firm orders. Income before income taxes increased $446,000 or 44.2% to $1,456,000 for the year ended December 31, 1998 from $1,010,000 for the year ended December 31, 1997. -10- 11 Selling, general and administrative costs increased by approximately 4% for the year ended December 31, 1998 when compared to the same period in 1997. This is primarily attributable to the increase in net revenues. Interest expense decreased by approximately 7% for the same comparable periods due to a decrease in interest rates and long-term debt while depreciation expense decreased due to a decrease in capital expenditures. Income taxes for the year ended December 31, 1998, as a percentage of income before taxes, increased when compared to the same period in 1997 because of the effects of variable state income taxes. Results of Operations - Year 1997 as Compared to 1996 - ----------------------------------------------------- The Company's consolidated results of operations for the year ended December 31, 1997 showed an approximate 2% increase in net revenues with an increase in operating income as a percentage of net revenues from approximately 11.5% to 12.7% when compared to the same period in 1996. The increase in revenues is attributable to a 16% increase in revenues at the Advanced Technology Group as the result of past and current engineering, marketing and other support efforts and new programs and applications, offset by a 14% decrease in revenues at the Consumer Products Group due to a decrease in customer demand and the phasing out of low margin product lines. The respective amounts of the funded and unfunded sales backlog at December 31, 1997 and 1996 for the Advanced Technology Group were approximately $59,192,000 and $46,462,000, a year to year increase of 27%, of which $51,235,000 and $38,075,000 was unfunded in the respective comparable periods. Approximately $38,000,000 of the December 31, 1997 backlog is for product deliveries beyond 2000. The unfunded portion of the backlog is based on the Company's customers' estimated quantities for multi-year agreements for which the Company has not received firm orders. Income before income taxes increased $188,000 or 23% to $1,010,000 for the year ended December 31, 1997 from $822,000 for the year ended December 31, 1996 when comparing net income before income taxes and the net gain on sale of assets. The net gain on the sale of assets of $639,000 was recognized in the year ended December 31, 1996 and no similar gain occurred in 1997. Selling, general and administrative costs increased by approximately 2% for the year ended December 31, 1997 when compared to the same period 1996. This is primarily attributable to the -11- 12 increase in net revenues. Interest expense remained relatively consistent for the same comparable periods while depreciation expense increased due to an increase in capital expenditures. Income taxes for the year ended December 31, 1997, as a percentage of income before taxes, decreased when compared to the same period in 1996 due to variable state income tax rates. Liquidity and Capital Resources - ------------------------------- Certain contracts of the Advanced Technology Group require engineering and other support costs in addition to hardware and the maintenance of inventory for replacement and/or overhaul. The replacement and/or overhaul units are billed at the time of shipment. The inventories at December 31, 1998 include costs associated with the initiation and maintenance of certain programs and costs in anticipation of increased demands upon the Company to support new programs and the request of customers' for shorter production lead time. Also included in inventory are $125,000 of capitalized costs associated with the introduction of new product lines. See also Note 2 to the consolidated Financial Statements for information concerning engineering and other support costs. During the year ended December 31, 1998, the Company expended $471,000 on capital expenditures. During the year ended December 31, 1997, the Company expended $685,000. The Company also has a $1,000,000 line of credit at December 31, 1998 on which there is no amount outstanding at December 31, 1998. There are no material commitments for capital expenditures at December 31, 1998. In 1991, the Company's Board of Directors authorized the purchase by the Company of up to 250,000 additional shares of its common stock in open and privately negotiated transactions for a total authorized purchase of up to 350,000 shares, of which 256,045 shares have been purchased. YEAR 2000 INITIATIVES The Company is reliant on systems that use time-based mechanisms for asset and information management. Management recognizes that such systems may have potential problems affecting their capabilities because of the Year 2000 date change. The Company also has relationships with vendors, services and product suppliers, customers and financial institutions among others, which are reliant on such systems. It is possible that Year 2000 problems encountered by the Company or these outside parties could result in a loss of business that is potentially material to the Company. -12- 13 During the previous and current years, the Company formulated, initiated and continued the implementation of a three-phase plan to determine and, when appropriate, address any internal or external Year 2000 problems to the extent they existed. Phase I identified internal and external (outside parties with a material relationship to the Company) Year 2000 compliance concerns. Phase II assessed the Year 2000 readiness of the Company. Phase III is the implementation of solutions and contingency plans for the potential problems identified during Phase I and Phase II. To date, the Company has assessed its internal computing systems and determined that there are no apparent material Year 2000 issues, although certain reprogramming of internal systems were determined to be desirable and are being accomplished. With respect to external compliance, the Company has developed and mailed a Year 2000 survey to its suppliers, customers and financial institutions to determine their Year 2000 readiness and compliance. As of March 18, 1999, the Company has not received notification from any such outside parties that any material Year 2000 readiness or compliance issues have been identified. The Company is implementing phase III and is in the process of making reprogramming changes to internal software as well as upgrading to Year 2000 compliant versions of purchased desktop software. The Company is unaware of any internal Year 2000 issues that will not be resolved by the end of 1999. Should the Company become aware of any internal or external Year 2000 issues that will not be resolved by the end of 1999, it will immediately formulate and implement the appropriate solutions and contingency plans. In any event, it is anticipated that the Company will complete all phases of its Year 2000 plan by the end of 1999. The Company does not believe that the costs of Year 2000 compliance will be material and anticipates such costs will be funded out of working capital. At this time, the Company cannot predict the final outcome of the on-going survey and assessment of the outside parties considered important to the Company's business or the ability of such outside parties to achieve Year 2000 Compliance by the end of 1999. Item 7. Financial Statements - ------- -------------------- The financial statements of the Registrant which are included in this Form 10-KSB Annual Report are described in the accompanying Index to Consolidated Financial Statements on Page F1. Item 8. Changes in and Disagreements with Accountants on Accounting and - ------- -------------------------------------------------------------- Financial Disclosure -------------------- None. -13- 14 PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; - ------- ------------------------------------------------------------- Compliance with Section 16(a) of the Exchange Act ------------------------------------------------- Information regarding directors and executive officers of the Registrant is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1998 fiscal year or such information will be included by amendment. Item 10. Executive Compensation - -------- ---------------------- Information regarding executive compensation is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1998 fiscal year or such information will be included by amendment. Item 11. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1998 fiscal year or such information will be included by amendment. Item 12. Certain Relationships and Related Transactions - -------- ---------------------------------------------- Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Registrant's definitive proxy statement if it is filed with the Commission within 120 days after the end of the Registrant's 1998 fiscal year or such information will be included by amendment. -14- 15 Item 13. Exhibits And Reports On Form 8-K - -------- -------------------------------- (a) Exhibits --------
Exhibit number Presentation Reference ------ ------------ --------- 3(A)(1) Certificate of Incorporation Exhibit 3(A)(1) to 1996 Form 10-KSB* 3(A)(2) Amendments to Certificate Exhibit 3(A)(2) to 1996 of Incorporation dated Form 10-KSB* August 27, 1984 3(A)(3) Certificate of designation Exhibit 4(A) to 1987 regarding Series I Form 10-K* preferred stock 3(A)(4) Amendments to Certificate Filed herewith of Incorporation dated June 30, 1998 3(B) By-laws Exhibit 3(B) to 1986 Form 10-K* 4(A) First amended and restated Exhibit 4(A) to 1993 term loan agreement with Form 10-KSB* Fleet Bank of New York dated October 4, 1993 4(B)(1) Letter of Credit Reimbursement Exhibit 4(B)(1) to Agreement with Fleet Bank 1994 10-KSB* dated as of December 1, 1994 4(B)(2) Agency Mortgage and Security Exhibit 4(B)(2) to Agreement dated as of 1994 10-KSB* December 1, 1994 from the Registrant and its subsidiaries 4(B)(3) Guaranty Agreement dated as Exhibit 4(B)(3) to of December 1, 1994 from the 1994 10-KSB* Registrant and its subsidiaries to the Erie County Industrial Development Agency ("ECIDA"), Norwest Bank Minnesota, N.A., as Trustee, and Fleet Bank 4(C) Shareholder Rights Plan Attachment B to Form dated as of August 13, 8-K filed August 17, 1992 1992* ------------------------------------------------------ *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
-15- 16
Exhibit number Presentation Reference ------ ------------ --------- 10(A)(1) Employment contract** Exhibit 10(A) to 1986 Form 10-K* 10(A)(2) Amendment to employment Filed herewith contract** 10(A)(3) Amendment to employment Filed herewith contract** 10(A)(4) Amendment to employment Filed herewith contract** 10(B) Form of Indemnification Exhibit 10(E) to 1986 Agreement between the Form 10-K* Registrant and each of its Directors and Officers** 10(C)(1) Loan agreement between Exhibit 10(C)(1) the Company and its to 1991 Form 10-K* employee stock ownership trust, as amended 10(C)(2) Stock purchase agreement Exhibit 10(D)(2) to between the Company 1988 Form 10-K* and its employee stock ownership trust 10(D)(1)(a) 1989 Employees Stock Exhibit A to Form Option Plan** 8: Amendment No. 1 to 1988 Form 10-K* 10(D)(1)(b) Amendment to 1989 Exhibit 10(D)(1)(b) Employees Stock Option to 1990 Form 10-K* Plan** 10(D)(1)(c) Amendment No. 2 to Exhibit 10(D)(1)(d) to 1989 Employees Stock 1991 Form 10-K* Option Plan** 10(D)(2) Stock Option Agreement Filed herewith for Donald W. Hedges dated March 24, 1998** -------------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
-16- 17
Exhibit number Presentation Reference ------ ------------ --------- 10(D)(3)(a) Stock Option Agreement Exhibit D to Form for Nicholas D. 8: Amendment Trbovich, Sr. dated No. 1 to 1988 March 29, 1989** Form 10-K* 10(D)(3)(b) Stock Option Agreement Filed herewith for Nicholas D. Trbovich, Sr. dated March 24, 1998** 10(D)(4) Stock Option Agreement Filed herewith for William H. Duerig dated March 24, 1998** 10(D)(5)(a) Stock Option Agreement Exhibit 10(D)(5) to 1990 for Nicholas D. Form 10-K* Trbovich, Jr. dated December 21, 1990** 10(D)(5)(b) Stock Option Agreement Filed herewith for Nicholas D. Trbovich, Jr. dated March 24, 1998** 10(D)(6)(a) Stock Option Agreement Exhibit 10(D)(6) to 1991 for Nicholas D. Form 10-K* Trbovich, Jr. dated October 17, 1991** 10(D)(6)(b) Stock Option Agreement Filed herewith for Nicholas D. Trbovich, Jr. dated March 24, 1998** 10(D)(7)(a) Stock Option Agreement Exhibit 10(D)(7) to 1991 for Lee D. Burns dated Form 10-K* October 17, 1991** 10(D)(7)(b) Stock Option Agreement Filed herewith for Lee D. Burns dated March 24, 1998** ------------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement
-17- 18
Exhibit number Presentation Reference ------ ------------ --------- 10(D)(8)(a) Stock Option Agreement Exhibit 10(D)(8) to 1991 for Raymond C. Zielinski Form 10-K* dated October 17, 1991** 10(D)(8)(b) Stock Option Agreement Filed herewith for Raymond C. Zielinski dated March 24, 1998** 10(D)(9) Land Lease Agreement between Exhibit 10(D)(9) to 1992 TSV, Inc. (wholly-owned Form 10-KSB* subsidiary of the Registrant) and the ECIDA dated as of May 1, 1992, and Corporate Guaranty of the Registrant dated as of May 1, 1992 10(D)(10) Amendment to Land Lease Exhibit 10(D) (11) to 1993 Agreement and Interim Form 10-KSB* Lease Agreement dated November 19, 1992 10(D)(11) Lease Agreement dated as of Exhibit 10(D)(11) to December 1, 1994 between 1994 10-KSB* the Erie County Industrial Development Agency ("ECIDA") and TSV, Inc. 10(D)(12) Sublease Agreement dated as Exhibit 10(D)(12) to of December 1, 1994 between 1994 10-KSB* TSV, Inc. and the Registrant 21 Subsidiaries of the Exhibit 22 to 1992 Registrant Form 10-KSB*
The Registrant hereby agrees that it will furnish to the Securities and Exchange Commission upon request a copy of any instrument defining the rights of holders of long-term debt not filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1998. ------------------------------------------------------------- *Incorporated herein by reference (File No. 1-7109) **Indicates management contract or compensatory plan or arrangement -18- 19 FORWARD-LOOKING STATEMENTS In addition to historical information, certain sections of this Form 10-KSB contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as those pertaining to the Company's capital resources and profitability. Forward-looking statements involve numerous risks and uncertainties. The Company derives approximately 24% of its revenues from contracts with agencies of the U.S. Government or their prime contractors. The Company's business is performed under fixed price contracts and the following factors, among others discussed herein, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: uncertainties in today's global economy, the growth of the national deficit and difficulty in predicting defense appropriations, the discontinuance of current defense programs, the vitality of the commercial aviation industry and its ability to purchase new aircraft, the willingness and ability of the Company's customers to fund and issue substantial follow-on orders to the Company for long-term programs, competitive products and pricing, difficulties in the development or commercialization of products, product demand and market acceptance, both for the Company's products and its customers' products which incorporate components supplied by the Company, enforceability of intellectual property rights, capacity and supply, the effects of foreign competition, and the Company's future accounting policies. The success of the Company also depends upon the trends of the economy, including interest rates, income tax laws, governmental regulation, legislation, population changes and those risk factors discussed elsewhere in this Form 10-KSB. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as the date hereof. The Company assumes no obligation to update forward-looking statements. -19- 20 SIGNATURES ---------- In accordance with of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SERVOTRONICS, INC. March 18, 1999 By /s/ Nicholas D. Trbovich, President ----------------------------------------- Nicholas D. Trbovich President, Chief Executive Officer and Chairman of the Board In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Nicholas D. Trbovich President, Chief Executive March 18, 1999 - ------------------------ Officer, Chairman of the Nicholas D. Trbovich Board and Director /s/ Lee D. Burns Treasurer and Secretary March 18, 1999 - ------------------------ (Chief Financial Officer) Lee D. Burns /s/ Donald W. Hedges Director March 18, 1999 - ---------------------- Donald W. Hedges /s/ William H. Duerig Director March 18, 1999 - ---------------------- William H. Duerig /s/ Nicholas D. Trbovich Jr. Director March 18, 1999 - ---------------------- Nicholas D. Trbovich Jr.
-20- 21 SERVOTRONICS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of independent accountants F2 Consolidated balance sheet at December 31, 1998 F3 Consolidated statement of income for the years ended December 31, 1998 and 1997 F4 Consolidated statement of cash flows for the years ended December 31, 1998 and 1997 F5 Notes to consolidated financial statements F6-F20
Financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. -F1- 22 Report of Independent Accountants To the Board of Directors and Shareholders of Servotronics, Inc. In our opinion, the consolidated financial statements listed in the accompanying index on page F1 present fairly, in all material respects, the financial position of Servotronics, Inc. and its subsidiaries at December 31, 1998 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Buffalo, New York March 18, 1999 -F2- 23 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1998 ($000's omitted except per share data)
Assets Current assets: Cash $ 1,009 Accounts receivable 2,198 Inventories 8,984 Prepaid income taxes 15 Deferred tax asset 539 Other 1,376 -------- Total current assets 14,121 Property, plant and equipment, net 7,210 Other assets 630 -------- $ 21,961 ======== Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term debt $ 249 Accounts payable 890 Accrued employee compensation and benefit costs 930 Other accrued liabilities 183 -------- Total current liabilities 2,252 -------- Long-term debt 6,144 Non-current deferred tax liability 477 Other non-current liability 277 Shareholders' equity: Common stock, par value $.20; authorized 4,000,000 shares; Issued 2,614,506 shares 523 Capital in excess of par value 13,324 Retained earnings 2,904 Accumulated other comprehensive income (43) -------- 16,708 Employee stock ownership trust commitment (2,741) Treasury stock, at cost 238,012 shares (1,156) -------- Total shareholders' equity 12,811 -------- $ 21,961 ========
See notes to consolidated financial statements -F3- 24 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME ($000's omitted except per share data)
Year Ended December 31, 1998 1997 ---- ---- Net revenues $17,571 $15,892 Costs and expenses: Cost of goods sold 11,983 10,800 Selling, general and administrative 3,188 3,071 Interest 312 337 Depreciation and amortization 632 674 ------- ------- 16,115 14,882 ------- ------- Income before income taxes 1,456 1,010 Income tax provision 597 391 ------- ------- Net income $ 859 $ 619 ------- ------- Net income per share - Basic $ 0.49 $ 0.37 ======= ======= Net income per share - Diluted $ 0.48 $ 0.36 ======= =======
See notes to consolidated financial statements -F4- 25 SERVOTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ($000's omitted)
Year Ended December 31, 1998 1997 ---- ---- Cash flows related to operating activities: Net income $ 859 $ 619 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 632 674 Deferred taxes 74 (85) Tax benefit from stock options 55 0 Change in assets and liabilities - Accounts receivable 4 512 Inventories (956) (821) Prepaid income taxes 23 (38) Other current assets 10 (257) Other assets 15 15 Accounts payable (140) 39 Accrued employee compensation & benefit costs 121 (65) Other accrued liabilities (76) 39 Accrued income taxes 0 (200) Employee stock ownership trust payment 101 101 ------- ------- Net cash provided by operating activities 722 533 ------- ------- Cash flows related to investing activities: Capital expenditures - property, plant & equipment (471) (685) ------- ------- Net cash used in investing activities (471) (685) ------- ------- Cash flows related to financing activities: Increase in demand loan 250 500 Payments on demand loan (450) (300) Principal payments on long-term debt (250) (252) Issuance of common stock 23 0 ------- ------- Net cash used in financing activities (427) (52) ------- ------- Net decrease in cash (176) (204) Cash at beginning of period 1,185 1,389 ------- ------- Cash at end of period $ 1,009 $ 1,185 ======= ======= Supplemental disclosures: Income taxes paid $ 451 $ 697 Interest paid $ 314 $ 334
See notes to consolidated financial statements -F5- 26 SERVOTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies ------------------------------------------ The principal accounting policies of Servotronics, Inc. (the Company) and subsidiaries are as follows: Principles of consolidation --------------------------- The consolidated financial statements include the accounts of Servotronics, Inc. and its wholly-owned subsidiaries. Cash and cash equivalents ------------------------- The Company considers cash and cash equivalents to include all cash accounts and short-term investments purchased with a maturity of three months or less. Revenue recognition ------------------- The Company incurred costs for certain contracts which are long term. These contracts are accounted for under the percentage of completion method (cost-to-cost) which recognizes revenue as the work progresses towards completion. Revenues on the remaining contracts are recognized when the terms of purchase orders are met. Included in other current assets is $683,000 of unbilled revenues which represents revenue earned under the percentage of completion method (cost-to-cost) not yet billable under the terms of the contracts. Inventories ----------- Inventories are stated generally at the lower of standard cost, which approximates actual cost (first-in, first-out), or market. -F6- 27 Property, plant and equipment ----------------------------- Property, plant and equipment is carried at cost; expenditures for new facilities and equipment and expenditures which substantially increase the useful lives of existing plant and equipment are capitalized; expenditures for maintenance and repairs are charged directly to cost or expenses as incurred. Upon retirement or disposal of properties, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is included in income. Depreciation is provided on the basis of estimated useful lives of depreciable properties, primarily by the straight-line method for financial statement purposes and by accelerated methods for tax purposes. Depreciation expense includes the amortization of capital lease assets. The estimated useful lives of depreciable properties are generally as follows: Buildings and improvements 5-39 years Machinery and equipment 5-15 years Tooling 3-5 years Income taxes ------------ The Company and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The Company follows the asset and liability approach to account for income taxes. This approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Employee stock ownership plan ----------------------------- Contributions to the employee stock ownership plan are determined annually by the Company according to plan formula. -F7- 28 Use of estimates ---------------- The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates employed by management include those used in revenue recognition, amortization of engineering and other support costs included in inventory (See Note 2). Actual results could differ from those estimates. 2. Inventories ------------
December 31, 1998 ----------------- ($000's omitted) Raw materials and common parts $ 1,425 Work-in-process (including engineering and other support costs of $2,615,000) 7,231 Finished goods 564 ---------- 9,220 Less common parts expected to be used after one year (236) ---------- $ 8,984 ==========
Engineering and other support costs are incurred in fulfilling certain contracts which have a production cycle longer than one year. A portion of these costs will therefore not be realized within one year. Start-up costs -------------- During 1997, the Company's CPG capitalized start-up costs of $251,000 relating to the introduction of new product lines. The costs associated with the introduction of these product lines were deferred and were being amortized using the half year convention over a three year period. No similar amounts were capitalized during 1998. The remaining unamortized balance at December 31, 1998 of -F8- 29 $125,000 will be written off on January 1, 1999 in accordance with Statement of Position No. 98-5 "Reporting on the Cost of Start-Up Activities". 3. Property, plant and equipment -----------------------------
December 31, 1998 ($000's omitted) Land $ 11 Buildings and improvements 6,154 Machinery, equipment and tooling 8,461 ---------- 14,626 Less accumulated depreciation (7,416) ---------- $ 7,210 ==========
4. Long-term debt
December 31, 1998 ----------------- ($000's omitted) Industrial Development Revenue Bonds; secured by a letter of credit from a bank with interest payable monthly at a floating rate (4.15% at December 31, 1998) $ 5,000 Unsecured term note; payable to a bank with interest at prime plus 1/4% (8.00% at December 31, 1998); quarterly principal payments of $34,439 through November 1, 2000 241 Various other secured term notes payable to government agencies 1,152 ---------- 6,393 Less current portion (249) ---------- $ 6,144 ==========
Industrial Development Revenue Bonds were issued by a government agency to finance the construction of the Company's new headquarters/Advanced Technology facility. Annual sinking fund payments of $170,000 commence December 1, 2000 and continue through 2013, with a final payment of $2,620,000 due December 1, 2014. The Company has agreed to reimburse the issuer of the letter of credit if there are draws on that letter of credit. The Company pays the letter of credit bank an -F9- 30 annual fee of 1% of the amount secured thereby and pays the remarketing agent for the bonds an annual fee of .25% of the principal amount outstanding. The Company's interest under the facility capital lease has been pledged to secure its obligations to the government agency, the bank and the bondholders. The letter of credit reimbursement agreement, the unsecured term note agreement and the secured term notes contain, among other things, covenants relative to maintenance of working capital and tangible net worth and restrictions on capital expenditures, leases and additional borrowings. On February 26, 1999, the company received a $1,000,000 loan from a financial institution payable in equal quarterly installments, maturing in 2006. The proceeds were used to pay off the unsecured term note as disclosed above and to finance purchases of equipment and working capital. $500,000 of the loan is at a rate of LIBOR plus 2% and the remaining $500,000, used to acquire equipment, is at a current rate of 5.86%, which is partially subsidized by New York State. Principal maturities of long-term debt are as follows: 2000 - $404,000; 2001 - $250,000; 2002 - $405,000, 2003 - $235,000, 2004 and thereafter $4,850,000. The Company also has a $1,000,000 line of credit on which there was no amount outstanding at December 31, 1998. 5. Employee benefit plans ---------------------- Employee stock ownership plan (ESOP) ------------------------------------ Under the Company's ESOP adopted in 1985, participating employees are awarded shares of the Company's common stock based upon salary levels and minimum service requirements. Upon inception of the ESOP, the Company borrowed $2,000,000 from a bank and lent the proceeds to the trust established under the ESOP to purchase shares of the Company's common stock. The Company's loan to the trust is at an interest rate approximating the prime rate and is repayable to the Company over a 40-year term ending in December 2024. During 1987 and 1988, the Company loaned an additional $1,942,000 to the trust under terms similar to the Company's original loan. Each year the Company makes contributions to the trust which the plan's trustees use to repay the principal and interest due the Company under the trust loan agreement. Shares held by the trust are allocated in the aggregate to participating employees in proportion to the amount of the loan repayment made by the trust to the Company. Since inception of the ESOP, approximately 314,000 shares have been allocated, exclusive of shares distributed to -F10- 31 ESOP participants. At December 31, 1998 and 1997, approximately 594,000 and 629,000 shares, respectively, purchased by the ESOP remain unallocated. Related compensation expense associated with the Company's ESOP, which is equal to the principal reduction on the loans receivable from the trust, amounted to $101,000 in 1998 and 1997. Included as a reduction to shareholders' equity is the employee stock ownership trust commitment which represents the remaining indebtedness of the trust to the Company. Employees are entitled to vote allocated shares and the ESOP trustees are entitled to vote unallocated shares and those allocated shares not voted by the employees. Defined benefit plan -------------------- During 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 132 "Employer' Disclosures about Pensions and other Post-Retirement Benefits" (FAS 132). Adoption of FAS 132 did not effect the Company's results of operations or financial position. A Consumer Products division subsidiary of the Company maintains a noncontributory defined benefit pension plan covering substantially all its employees. Plan benefits are based on stated amounts for each year of service; funding is in accordance with statutory requirements. Pension cost of $28,000 and $29,000 was recognized in 1998 and 1997, respectively, calculated using a weighted-average discount rate of 6.5% and 8.0%, respectively, and weighted-average expected rate of return on plan assets of 8.0% for both years. The projected benefit obligation under the plan at December 31, 1998 was $137,000, net of $149,000 of plan assets at fair value. Deferred compensation plan -------------------------- The Company maintains a deferred compensation program designed to achieve, among other things, benefit parity for an officer of the Company. During 1998 and 1997, no amount was accrued under this program. No amounts under this plan have been paid since its inception. Accrued in the December 31, 1998 consolidated balance sheet is $420,000. -F11- 32 6. Income taxes ------------ The provision for income taxes included in the consolidated statement of income consists of the following:
1998 1997 ---- ---- ($000's omitted) Current: Federal income tax $ 450 $ 387 State income tax 73 89 ------- ------- 523 476 ------- ------- Deferred: Federal income tax (benefit) 62 (72) State income tax (benefit) 12 (13) ------- ------- 74 (85) ------- ------- $ 597 $ 391 ======= =======
The reconciliation of the difference between the Company's effective tax rate based upon the total income tax provision and the federal statutory income tax rate is as follows:
1998 1997 ---- ---- Statutory rate 34% 34% Increase resulting from: State tax (net of federal benefit) 5% 5% Other 2% -% --- --- 41% 39% === ===
-F12- 33 At December 31, 1998, the deferred tax assets (liabilities) were comprised of the following:
($000's omitted) Inventory $ 208 Accrued pension 153 Accrued vacation 148 Other 59 -------- Gross deferred tax assets 568 Property, plant and equipment (468) Other (38) -------- Gross deferred tax liabilities (506) -------- Net deferred tax asset $ 62 ========
7. Common shareholders' equity
Common stock Accumulated Number Capital in other of shares excess of Retained Treasury Comprehensive comprehensive issued Amount par value earnings ESOP stock income income --------- --------- --------- --------- --------- --------- ------------- --------- ($000's omitted) Balance December 31, 1996 2,614,506 $ 523 $ 13,269 $ 1,485 ($ 2,943) ($ 1,240) -- -- Compensation expense -- -- -- -- 101 -- -- -- Net income -- -- -- 619 -- -- $ 619 -- --------- --------- --------- --------- --------- --------- ========= --------- Balance December 31, 1997 2,614,506 $ 523 $ 13,269 $ 2,104 ($ 2,842) ($ 1,240) -- Comprehensive income Net income -- -- -- $ 859 -- -- $ 859 -- Other comprehensive income, net of tax -- -- -- -- -- -- -- -- Minimum pension liability adjustment -- -- -- -- -- -- (43) (43) --------- Other comprehensive income -- -- -- -- -- -- (43) -- --------- Comprehensive income -- -- -- -- -- -- $ 816 -- ========= Issuance of common stock -- -- -- (59) -- -- -- Compensation expense -- -- -- -- 101 -- -- Treasury stock -- -- -- -- -- 84 -- Exercise of stock options -- -- 55 -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Balance December 31, 1998 2,614,506 $ 523 $ 13,324 $ 2,904 ($ 2,741) ($ 1,156) ($ 43) ========= ========= ========= ========= ========= ========= =========
-F13- 34 Earnings per share ------------------ Basic earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding during the period plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period.
($000's omitted, except per share data) 1998 1997 --------------------------------------- ---- ---- Net earnings $859 $619 Weighted average common shares outstanding (basic) 1,742 1,696 Incremental shares from assumed conversions of stock options 30 32 Weighted average common shares outstanding (diluted) 1,772 1,728 Earnings per share: Basic $0.49 $0.37 Diluted $0.48 $0.36
Comprehensive income -------------------- During 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 established standards for reporting and displaying comprehensive income and its components. Adoption of FAS 130 had no impact on the Company's results of operations or its financial position. The minimum pension liability adjustment of $43,000, net tax effect of $29,000, is the only component of other comprehensive income for 1998. Stock options ------------- Under the Servotronics, Inc. 1989 Employees Stock Option Plan (the Option Plan) and other separate agreements authorized by the Board of Directors, the Company -F14- 35 has granted non-qualified options to its Directors and Officers. The Company applies APB Opinion No. 25 and related interpretations in accounting for the Option Plan and the separate option agreements. Accordingly, no compensation expense has been charged to earnings in 1998 or prior years as stock options granted have an exercise price equal to the market price on the date of grant. At December 31, 1998, 3,200 shares of common stock were available under the Option Plan. Options granted under the Option Plan have durations of ten years. A summary of the status of options granted under all employee plans is presented below:
Weighted Weighted Average Average Options Exercise Options Exercise Outstanding Price Exercisable Price ---------------------------------------------------- Outstanding as of December 31, 1996 92,729 3.08 92,729 3.08 Granted in 1997 - - - Exercised in 1997 - - - Forfeited in 1997 - - - Outstanding as of December 31, 1997 92,729 3.08 92,729 3.08 Granted in 1998 93,000 8.50 47,250 8.50 Exercised in 1998 (25,186) 2.32 (25,186) 2.32 Forfeited in 1998 - - - Outstanding as of December 31, 1998 160,543 6.34 114,793 5.48
The following tables summarize information about options outstanding at December 31, 1998:
Weighted- Average Remaining Exercise Number contractual Options Prices ($) Outstanding Life Exercisable ------------------------------------------------------------------ 2.07 12,593 2 years 12,593 2.63 37,778 1 years 37,778 5.95 17,172 2 years 17,172 8.50 93,000 9 years 47,250 ------- ------- Total 160,543 114,793 ======= =======
The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). 47,250 of the 93,000 options granted in 1998 vested in 1998 and the -F15- 36 remaining options vest over a three year period. The options calculated estimated values, using the Black-Scholes option-pricing model as a basis, are amortized to expense over the options vesting period. If the compensation cost for these plans had been determined based on the Black-Scholes calculated values at the grant dates for awards consistent with the method prescribed by FAS 123, the pro forma effects on the years ended December 31, 1998 and 1997 are as follows:
1998 1997 ---------------------------- Net income: As reported 859,000 619,000 Pro forma 706,000 619,000 Earnings per common share: As reported - basic .49 .37 As reported - diluted .48 .36 Pro forma - basic .41 .37 Pro forma - diluted .40 .36
The Black-Scholes calculated estimated value of the options granted in 1998 was $5.48. The assumptions used to calculate this value include a risk-free interest rate of 5.63%, an expected term of 8 years, and an annual standard deviation (volatility) factor of 53%. The Black-Scholes option pricing model was developed for use in estimating values of traded options that have no vesting restrictions and are fully transferable. In addition, option pricing models require the use of highly subjective assumptions, including the expected stock price volatility. Because the Company's stock options are restricted and have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the calculated estimated values, in the Company's opinion the existing models do not necessarily provide a reliable measure of the value of the Company's stock options. The estimated value calculated by the Black-Scholes methodology is hypothetical and does not represent an actual tangible Company expense or an actual tangible monetary transfer to the optionee. Further, for the reasons stated above (among others) and especially because of the volatility factor used in the Black-Scholes calculations for the Company's 1998 options, the derived estimated value may be, in the Company's opinion, substantially higher than the value which may be realized in an arms-length transaction under the above stated and existing conditions. -F16- 37 Shareholders' rights plan ------------------------- During 1992, the Company's Board of Directors adopted a shareholders' rights plan (the "Rights Plan") and simultaneously declared a dividend of one Right for each outstanding share of the Company's common stock outstanding at August 28, 1992. The Rights do not become exercisable until the earlier of (i) the date of the Company's public announcement that a person or affiliated group other than Dr. Nicholas D. Trbovich or the ESOP trust (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 25% or more of the Company's common stock (excluding shares held by the ESOP trust) or (ii) ten business days following the commencement of a tender offer that would result in a person or affiliated group becoming an Acquiring Person. The exercise price of a Right has been established at $30.00. Once exercisable, each Right would entitle the holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock. In the event that any person becomes an Acquiring Person, each Right would entitle any holder other than the Acquiring Person to purchase common stock or other securities of the Company having a value equal to three times the exercise price. The Board of Directors has the discretion in such event to exchange two shares of common stock or two one-hundredths of a share of preferred for each Right held by any holder other than the Acquiring Person. 8. Commitments ----------- The Company leases certain equipment pursuant to operating lease arrangements. Total rental expense in 1998 and 1997 and future minimum payments under such leases are not significant. 9. Litigation ---------- There are no legal proceedings which are material to the Company currently pending by or against the Company other than ordinary routine litigation incidental to the business which is not expected to materially adversely affect the business or earnings of the Company. Included in 1998 net revenues is $210,000 of gross receipts resulting from the resolution of disputes, $85,000 of which was recognized in the fourth quarter. -F17- 38 10. Involuntary conversion ----------------------- During the fourth quarter of 1994, the Company suffered damages caused by a fire at one of its subsidiaries. The Company maintained property and business interruption insurance. Included in other current assets at December 31, 1998 is a receivable for an insurance claim of $275,000 which was subsequently paid on January 20, 1999. 11. Business segments ----------------- The Company operates in two business segments, Advanced Technology Products and Consumer Products. The Company's reportable segments are strategic business units that offer different products and services. The segments are separate corporations and are managed separately. Operations in Advanced Technology Products involve the design, manufacture, and marketing of servo-control components for government and commercial industrial applications. Consumer Products operations involve the design, manufacture and marketing of a variety of cutlery products for use by consumers and government agencies. The Company derives substantially all of its sales revenue from domestic customers. The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement revised the manner in which an enterprise must report information concerning its' operating segments. Adoption of this statement by the Company did not require significant changes in the way segments were disclosed. -F18- 39 Information regarding the Company's operations in these segments is summarized as follows:
Advanced Year ended Technology Consumer December 31, 1998 Products Products Consolidated ----------------- -------- -------- ------------ ($000's omitted) Revenues from unaffiliated customers $ 10,972* $ 6,599 $ 17,571 ======== ======== ======== Operating profit $ 2,185 $ 2 $ 2,187 ======== ======== Interest expense (312) General corporate expense (419) -------- Income before income taxes $ 1,456 ======== Identifiable assets $ 14,572 $ 5,698 $ 20,270 ======== ======== ======== Depreciation expense $ 352 $ 280 $ 632 ======== ======== ======== Capital expenditures $ 200 $ 271 $ 471 ======== ======== ========
Advanced Year ended Technology Consumer December 31, 1997 Products Products Consolidated ----------------- -------- -------- ------------ ($000's omitted) Revenues from unaffiliated customers $ 9,533 $ 6,359 $ 15,892 ======== ======== ======== Operating profit $ 2,049 $ (277) $ 1,772 ======== ======== Interest expense (337) General corporate expense (425) -------- Income before income taxes $ 1,010 ======== Identifiable assets $ 15,097 $ 5,636 $ 20,733 ======== ======== ======== Depreciation expense $ 369 $ 305 $ 674 ======== ======== ======== Capital expenditures $ 456 $ 229 $ 685 ======== ======== ========
* Includes $210,000 of gross receipts on the settlement of disputes. See note 9. -F19- 40 The Company engages in a significant amount of business with the United States Government through sales to its prime contractors and otherwise. Such contracts by the Advanced Technology segment accounted for revenues of approximately $3,828,000 in 1998 and $2,784,000 in 1997. Similar contracts by the Consumer Products segment accounted for revenues of approximately $325,000 in 1998 and $327,000 in 1997. Sales of advanced technology products to one prime contractor, including various divisions and subsidiaries of a common parent company, amounted to approximately 14% and 19% of total revenues in 1998 and 1997, respectively. Another customer amounted to approximately 21% of total revenues in 1998 and 18% of total 1997 revenues respectively. No other single customer represented more than 10% of the Company's revenues in any of these years. -F20- EX-3.A.4 2 EXHIBIT 3(A)(4) 1 Exhibit 3(A)(4) CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF SERVOTRONICS, INC. PURSUANT TO SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW Lee D. Burns, being the Treasurer of SERVOTRONICS, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Act"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were adopted setting forth a proposed amendment to the Certificate of Incorporation of the Corporation (the "Certificate") declaring said amendment advisable and directing that the proposed amendment be submitted to the Corporation's stockholders for consideration thereof. SECOND: That Article TWELFTH be added to the Certificate, which shall read as follows: "TWELFTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law hereafter is amended to further eliminate or limit the liability of a director, then a director of the Corporation, in addition to the circumstances in which a director is not personally liable as set forth in the preceding sentence, shall not be liable to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification." 2 THIRD: That thereafter, pursuant to a resolution of the Board of Directors, the proposed amendment was submitted to the Corporation's stockholders at the annual meeting duly called and held upon due notice to the stockholders of the Corporation of the proposed amendment, at which meeting the proposed amendment was authorized by the majority vote of all of the Corporation's stockholders entitled to vote thereon. FOURTH: That said amendment was duly adopted in accordance with Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has subscribed to this Certificate this 30th day of June 1998 and affirms that the statements made herein are true and correct under penalties of perjury. /s/ Lee D. Burns -------------------------------- Lee D. Burns, Treasurer EX-10.A.2 3 EXHIBIT 10(A)(2) 1 Servotronics, Inc. and Subsidiaries Exhibit 10(A)(2) As of October 6, 1998 Dr. Nicholas D. Trbovich 1110 Maple Street Elma, NY 14059 Subject: Amendment to Employment Agreement Dear Dr. Trbovich: The following amendment is made to the Amended and Restated Employment Agreement dated August 8, 1986 between Servotronics, Inc., ("Employer") and Dr. Nicholas D. Trbovich ("Employee"), and as subsequently amended as of October 1, 1986, October 1, 1987, July 20, 1988, October 1, 1988, October 1, 1989, May 1, 1990, May 1, 1991, May 1, 1992, May 1, 1993, March 28, 1994, May 1, 1994, May 1, 1995, May 1, 1996, May 1, 1997, March 9, 1998, and May 1, 1998 (the "Agreement"). Recitals Employee has and is serving as Founder, Chairman of the Board, President and Chief Executive Officer of Employer for over 39 years. In consideration of his exemplary services to Employer, the parties desire to continue certain Employee's benefits for the period after termination of Employee's employment by the Company. Terms of Amendment 14-A After termination of Employee's employment hereunder for any reason, Employer shall provide and pay for, at a minimum, the Employee's Post Employment disability, medical, hospital and other health care benefits and life insurance benefits that are no less than the maximum benefits which were provided to Employee during the term of Employee's employment and which do not require Employee to assume co-pay or employee contribution costs greater than he had been required to assume (if any) during that period of his employment when maximum benefits were provided to him. Employer shall pay the cost of all Post Employment Benefits. If Employer is unable to provide the Post Employment Benefits as part of the plan or plans which provide benefits to other employees of the Employer, it shall create a special or individual plan or plans to provide the benefits to Employee; and if Employer is unable to provide such benefits through a special or individual plan, it shall pay Employee monthly an amount which will equal the sum of the cost to Employee of his obtaining benefits equivalent to the Post Employment Benefits plus any additional federal and state income tax cost to Employee of receiving such payments in lieu of Post Employment Benefits. This amendment is effective as of October 6, 1998. 2 Servotronics, Inc. and Subsidiaries Page 2 Exhibit 10(A)(2) If the foregoing meets with your approval and you are willing to become bound hereby, will you please sign and return to the undersigned the enclosed copy of this letter. Very truly yours, SERVOTRONICS, INC. /S/Lee D. Burns Lee D. Burns, Treasurer/Secretary ACCEPTED AND AGREED /s/ Dr. Nicholas D. Trbovich - ----------------------------- Dr. Nicholas D. Trbovich EX-10.A.3 4 EXHIBIT 10(A)(3) 1 Servotronics, Inc. and Subsidiaries Exhibit 10(A)(3) As of May 1, 1998 Dr. Nicholas D. Trbovich 1110 Maple Street Elma, NY 14059 Dear Dr. Trbovich: You and Servotronics, Inc. (the "Company") are parties to an employment agreement, as amended and restated on August 8, 1986 and as subsequently amended as of October 1, 1986, October 1, 1987, July 20, 1988, October 1, 1988, October 1, 1989, May 1, 1990, May 1, 1991, May 1, 1992, May 1, 1993, March 28, 1994, May 1, 1994, May 1, 1995, May 1, 1996, May 1, 1997 and March 9, 1998 (the "Agreement"), pursuant to which you are employed by the Company. This will confirm your agreement and that of the Company (pursuant to a resolution of the Board of Directors passed at a meeting held on June 30, 1998) to amend Paragraph 3 of the Agreement to delete "$285,000.00" and insert in its place "$310,000.00". Except as specifically provided herein, all of the other terms and conditions of the Agreement shall remain in full force and effect. If the foregoing meets with your approval and you are willing to become bound hereby, will you please sign and return to the undersigned the enclosed copy of this letter. Very truly yours, SERVOTRONICS, INC. /S/Lee D. Burns Lee D. Burns, Treasurer/Secretary ACCEPTED AND AGREED /s/ Dr. Nicholas D. Trbovich - ---------------------------- Dr. Nicholas D. Trbovich EX-10.A.4 5 EXHIBIT 10(A)(4) 1 Servotronics, Inc. and Subsidiaries Exhibit 10(A)(4) March 9, 1998 Dr. Nicholas D. Trbovich 1110 Maple Street Elma, NY 14059 Dear Dr. Trbovich: You and Servotronics, Inc. (the "Company") are parties to an employment agreement, as amended and restated on August 8, 1986 and as subsequently amended as of October 1, 1986, October 1, 1987, July 20, 1988, October 1, 1988, October 1, 1989, May 1, 1990, May 1, 1991, May 1, 1992, May 1, 1993, March 28, 1994, May 1, 1994, May 1, 1995, May 1, 1996 and May 1, 1997 (the "Agreement"), pursuant to which you are employed by the Company. This will confirm your agreement and that of the Company (pursuant to a resolution of the Board of Directors passed at a meeting held on February 25, 1998) to amend Paragraph 1 of the Agreement to delete "September 30, 2001" and insert in its place "September 30, 2003". Except as specifically provided herein, all of the other terms and conditions of the Agreement shall remain in full force and effect. If the foregoing meets with your approval and you are willing to become bound hereby, will you please sign and return to the undersigned the enclosed copy of this letter. Very truly yours, SERVOTRONICS, INC. /S/Lee D. Burns Lee D. Burns, Treasurer/Secretary ACCEPTED AND AGREED /s/ Dr. Nicholas D. Trbovich - ---------------------------- Dr. Nicholas D. Trbovich EX-10.D.2 6 EXHIBIT 10(D)(2) 1 Exhibit 10(D)(2) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR DONALD W. HEDGES DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 12,600 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means Donald W. Hedges. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of this Agreement to administer this Agreement. The Committee is authorized to interpret this Agreement. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 12,600 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised with respect to 3,150 shares of Common Stock on or after September 24, 1998, and with respect to an additional 3,150 shares of Common Stock on or after each of the first three anniversaries of the Date of Grant, on a cumulative basis, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs and distributees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Option is not assignable or transferable by the Optionee except by will or the laws of descent and distribution and is exercisable, during the Optionee's lifetime, only by him. - 2 - 3 (g) If the Option has not already expired, it shall expire upon the termination of the Optionee's service as a director of the Company, whether by death or otherwise, and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that: (1) The Optionee may, within three months after the date of the termination of his service as a director of the Company, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of the termination of his service as a director. (2) Upon the death of any Optionee while serving as a director of the Company or within the three-month period referred to in Section 4(g)(1) above, the Optionee's estate or the person to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become exercisable in full as of the Change in Control, and the Committee may, subject to the agreement of the Optionee, (i) further accelerate the time at which the Option may be exercised - 3 - 4 so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for and offer the purchase of the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, provided such adjustments are not to the disadvantage of the Optionee, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option (of equal or greater value) for such Option. 6. No Right to Continue as Director. -------------------------------- Nothing in this Agreement shall confer upon the Optionee the right to continue as a director of the Company. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion reasonably, determine to be necessary, (b) the admission of such shares to listing on any stock exchange on which the Common Stock may then be listed, and (c) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, reasonably determine to be necessary or advisable. The Company agrees to use its best efforts to accomplish the above expeditiously and at no cost to the Optionee. 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount - 4 - 5 of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. 10. Construction. ------------- This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By ---------------------------- Nicholas D. Trbovich President ------------------------------- Donald W. Hedges - 5 - EX-10.D.3.B 7 EXHIBIT 10(D)(3)(B) 1 Exhibit 10(D)(3)(b) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR NICHOLAS D. TRBOVICH DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 37,800 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means Nicholas D. Trbovich, Sr. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of this Agreement to administer the Agreement. The Committee is authorized to interpret this Agreement. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 37,800 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised in whole or in part from time to time on or after September 24, 1998, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs, distributees, and transferees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Optionee may, during his lifetime, transfer the Option to any other person. (g) If the Option has not already expired, it shall expire upon the death of the Optionee, and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that the Optionee's estate or the person to whom such Optionee's rights - 2 - 3 under the Option are transferred by will or the laws of descent and distribution or any person to whom the Optionee had transferred the Option before his death may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. (h) The Optionee agrees that from and after the Date of Grant of the Option and during the term of the Option he will not, unless acting as an officer or employee of the Company or with the prior written consent of the Company, directly or indirectly, engage or participate in, or own, manage, operate, join, or control, or be connected as an officer, director, employee, partner, investor, or otherwise with, any business manufacturing or selling products or services similar to or competing with products or services manufactured or sold by the Company or its subsidiaries or otherwise engage directly or indirectly in competition with the Company or its subsidiaries. The Optionee acknowledges that the remedy at law for any breach by him of the foregoing will be inadequate and that the Company shall be entitled to injunctive relief. Furthermore, the Option shall expire upon any breach by the Optionee of the foregoing. Nothing contained in this Agreement, however, shall prevent the Optionee from purchasing for investment 3 percent or less of any outstanding class of securities of any company whose securities are held by the general public. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become - 3 - 4 exercisable in full as of the Change in Control, and the Committee may, subject to the agreement of the Optionee (i) further accelerate the time at which the Option may be exercised so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for and offer the purchase of the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, providing such adjustments are not to the disadvantage of the Optionee, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option (of equal or greater value) for such Option. 6. No Right to Continued Employment. -------------------------------- Nothing in this Agreement is a conferral upon the Optionee of additional the rights to continue in the employ of the Company. It is recognized and agreed that the Company's and the Optionee's obligations with respect to the Optionee's continued employment with the Company are contained in a separate agreement dated August 8, 1986, as amended. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion, reasonably determine to be necessary, (b) the admission of such shares to listing on any stock exchange on which the Common Stock may then be listed, and (c) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, reasonably determine to be necessary or advisable. The Company agrees to use its best efforts to accomplish the above expeditiously and at no cost to the Optionee. - 4 - 5 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. 10. Construction. ------------ This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By ------------------------------ Lee D. Burns Secretary and Treasurer --------------------------------- Nicholas D. Trbovich - 5 - EX-10.D.4 8 EXHIBIT 10(D)(4) 1 Exhibit 10(D)(4) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR WILLIAM H. DUERIG DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 12,600 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means William H. Duerig. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of this Agreement to administer this Agreement. The Committee is authorized to interpret this Agreement. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 12,600 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised with respect to 3,150 shares of Common Stock on or after September 24, 1998, and with respect to an additional 3,150 shares of Common Stock on or after each of the first three anniversaries of the Date of Grant, on a cumulative basis, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs and distributees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Option is not assignable or transferable by the Optionee except by will or the laws of descent and distribution and is exercisable, during the Optionee's lifetime, only by him. - 2 - 3 (g) If the Option has not already expired, it shall expire upon the termination of the Optionee's service as a director of the Company, whether by death or otherwise, and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that: (1) The Optionee may, within three months after the date of the termination of his service as a director of the Company, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of the termination of his service as a director. (2) Upon the death of any Optionee while serving as a director of the Company or within the three-month period referred to in Section 4(g)(1) above, the Optionee's estate or the person to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become exercisable in full as of the Change in Control, and the Committee may, subject to the agreement of the Optionee, (i) further accelerate the time at which the Option may be exercised - 3 - 4 so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for and offer the purchase of the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, provided such adjustments are not to the disadvantage of the Optionee, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option (of equal or greater value) for such Option. 6. No Right to Continue as Director. ------------------------------- Nothing in this Agreement shall confer upon the Optionee the right to continue as a director of the Company. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion reasonably, determine to be necessary, (b) the admission of such shares to listing on any stock exchange on which the Common Stock may then be listed, and (c) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, reasonably determine to be necessary or advisable. The Company agrees to use its best efforts to accomplish the above expeditiously and at no cost to the Optionee. 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount - 4 - 5 of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. 10. Construction. ------------ This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By --------------------------- Nicholas D. Trbovich President ------------------------------ William H. Duerig - 5 - EX-10.D.5.B 9 EXHIBIT 10(D)(5)(B) 1 Exhibit 10(D)(5)(b) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR NICHOLAS D. TRBOVICH, JR. DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 5,800 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means Nicholas D. Trbovich, Jr. (h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option Plan. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of the Plan to administer this Agreement. The Committee is authorized to interpret this Agreement and the Plan. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 5,800 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised in whole or in part from time to time on or after March 24, 1999, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs and distributees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Option is not assignable or transferable by the Optionee except by will or the laws of descent and distribution and is exercisable, during the Optionee's lifetime, only by him. (g) If the Option has not already expired, it shall expire upon the termination of the Optionee's employment with the Company, whether by death or otherwise, - 2 - 3 and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that: (1) The Optionee may, within three months after the date of the termination of his employment, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of the termination of his employment. (2) Upon the death of any Optionee while employed by the Company or within the three-month period referred to in Section 4(g)(1) above, the Optionee's estate or the person to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become exercisable in full as of the Change in Control, and the Committee in its sole discretion may (i) further accelerate the time at which the Option may be exercised so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for the purchase of the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the - 3 - 4 ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option for such Option. 6. No Right to Continue as Employee. -------------------------------- Nothing in this Agreement shall confer upon the Optionee the right to continue in the employ of the Company. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion, determine to be necessary, and (b) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, determine to be necessary or advisable. 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. - 4 - 5 10. Agreement Subject to Plan. ------------------------- Notwithstanding any provision to the contrary herein, this Agreement is subject to the provisions of the Plan, and if there shall be any conflict between the provisions of the Agreement and the Plan, then the provisions of the Plan shall take precedence. 11. Construction. ------------ This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By --------------------------- Nicholas D. Trbovich President ------------------------------ Nicholas D. Trbovich, Jr. - 5 - EX-10.D.6.B 10 EXHIBIT 10(D)(6)(B) 1 Exhibit 10(D)(6)(b) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR NICHOLAS D. TRBOVICH, JR. DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 12,600 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means Nicholas D. Trbovich, Jr. (h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option Plan. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of the Plan to administer this Agreement. The Committee is authorized to interpret this Agreement and the Plan. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 12,600 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised with respect to 3,150 shares of Common Stock on or after September 24, 1998, and with respect to an additional 3,150 shares of Common Stock on or after each of the first three anniversaries of the Date of Grant, on a cumulative basis, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs and distributees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Option is not assignable or transferable by the Optionee except by will or the laws of descent and distribution and is exercisable, during the Optionee's lifetime, only by him. - 2 - 3 (g) If the Option has not already expired, it shall expire upon the termination of the Optionee's employment with the Company, whether by death or otherwise, and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that: (1) The Optionee may, within three months after the date of the termination of his employment, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of the termination of his employment. (2) Upon the death of any Optionee while employed by the Company or within the three-month period referred to in Section 4(g)(1) above, the Optionee's estate or the person to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become exercisable in full as of the Change in Control, and the Committee in its sole discretion may (i) further accelerate the time at which the Option may be exercised so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for the purchase of - 3 - 4 the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option for such Option. 6. No Right to Continue as Employee. -------------------------------- Nothing in this Agreement shall confer upon the Optionee the right to continue in the employ of the Company. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion, determine to be necessary, and (b) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, determine to be necessary or advisable. 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. - 4 - 5 10. Agreement Subject to Plan. ------------------------- Notwithstanding any provision to the contrary herein, this Agreement is subject to the provisions of the Plan, and if there shall be any conflict between the provisions of the Agreement and the Plan, then the provisions of the Plan shall take precedence. 11. Construction. ------------ This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By ----------------------------- Nicholas D. Trbovich President -------------------------------- Nicholas D. Trbovich, Jr. - 5 - EX-10.D.7.B 11 EXHIBIT 10(D)(7)(B) 1 Exhibit 10(D)(7)(b) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR LEE D. BURNS DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 5,800 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means Lee D. Burns. (h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option Plan. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of the Plan to administer this Agreement. The Committee is authorized to interpret this Agreement and the Plan. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 5,800 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised in whole or in part from time to time on or after March 24, 1999, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs and distributees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Option is not assignable or transferable by the Optionee except by will or the laws of descent and distribution and is exercisable, during the Optionee's lifetime, only by him. - 2 - 3 (g) If the Option has not already expired, it shall expire upon the termination of the Optionee's employment with the Company, whether by death or otherwise, and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that: (1) The Optionee may, within three months after the date of the termination of his employment, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of the termination of his employment. (2) Upon the death of any Optionee while employed by the Company or within the three-month period referred to in Section 4(g)(1) above, the Optionee's estate or the person to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become exercisable in full as of the Change in Control, and the Committee in its sole discretion may (i) further accelerate the time at which the Option may be exercised so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for the purchase of - 3 - 4 the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option for such Option. 6. No Right to Continue as Employee. -------------------------------- Nothing in this Agreement shall confer upon the Optionee the right to continue in the employ of the Company. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion, determine to be necessary, and (b) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, determine to be necessary or advisable. 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. - 4 - 5 10. Agreement Subject to Plan. ------------------------- Notwithstanding any provision to the contrary herein, this Agreement is subject to the provisions of the Plan, and if there shall be any conflict between the provisions of the Agreement and the Plan, then the provisions of the Plan shall take precedence. 11. Construction. ------------ This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By ------------------------------ Nicholas D. Trbovich President --------------------------------- Lee D. Burns - 5 - EX-10.D.8.B 12 EXHIBIT 10(D)(8)(B) 1 Exhibit 10(D)(8)(b) SERVOTRONICS, INC. STOCK OPTION AGREEMENT FOR RAYMOND C. ZIELINSKI DATED MARCH 24, 1998 1. Definitions. ----------- As used in this Agreement: (a) "Company" means Servotronics, Inc. (b) "Common Stock" means the common stock, $.20 par value, of the Company. (c) "Fair Market Value" of a share of Common Stock on a given date means the average of the highest and lowest quoted sales prices of a share of Common Stock on the American Stock Exchange on that date or, if no such shares were traded on the American Stock Exchange on that date, on the next preceding date on which such shares were so traded. However, if shares of Common Stock have not been traded on the American Stock exchange for more than ten days immediately preceding the given date, the Fair Market Value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (d) "Option" means the option granted pursuant to this Agreement to purchase 5,800 shares of Common Stock, which option is intended to be a non-qualified stock option. (e) "Committee" means the Board of Directors of the Company or any committee of the Board that the Board has appointed to administer the Plan. (f) "Date of Grant" means March 24, 1998. (g) "Optionee" means Raymond C. Zielinski. (h) "Plan" means the Servotronics, Inc. 1989 Employees Stock Option Plan. 2 2. Administration. -------------- The Committee shall have all the powers vested in it by the terms of the Plan to administer this Agreement. The Committee is authorized to interpret this Agreement and the Plan. 3. Grant of Option. --------------- The Company grants to Optionee an option to purchase 5,800 shares of Common Stock pursuant to this Agreement. 4. Terms of Option. --------------- (a) The purchase price of each share of Common Stock subject to the Option is the Fair Market Value of a share of Common Stock on the Date of Grant of the Option, which is $8.50. (b) The Option may be exercised in whole or in part from time to time on or after March 24, 1999, provided that the Option shall not be exercisable later than the day preceding the tenth anniversary of the Date of Grant. (c) By executing this Agreement, the Optionee agrees on behalf of himself, his executor, administrator, heirs and distributees that any shares of Common Stock purchased pursuant to the Option are being acquired for investment and not with a view to distribution. (d) To exercise the Option, written notice should be given to the Secretary of the Company in the form attached to this Agreement. (e) The purchase price of any shares with respect to which the Option is exercised is payable in full on the date the Option is exercised, in cash or in shares of Common Stock or in a combination of cash and such shares. The value of a share of Common Stock delivered in payment of the purchase price shall be its Fair Market Value on the date the Option is exercised. (f) The Option is not assignable or transferable by the Optionee except by will or the laws of descent and distribution and is exercisable, during the Optionee's lifetime, only by him. (g) If the Option has not already expired, it shall expire upon the termination of the Optionee's employment with the Company, whether by death or otherwise, - 2 - 3 and no shares of Common Stock may thereafter be purchased pursuant to the Option, except that: (1) The Optionee may, within three months after the date of the termination of his employment, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of the termination of his employment. (2) Upon the death of any Optionee while employed by the Company or within the three-month period referred to in Section 4(g)(1) above, the Optionee's estate or the person to whom such Optionee's rights under the Option are transferred by will or the laws of descent and distribution may, within one year after the date of the Optionee's death, purchase any shares of Common Stock that the Optionee was entitled to purchase under the Option on the date of his death. Nothing in this subsection shall allow the exercise of the Option later than the day before the tenth anniversary of the Date of Grant of the Option. 5. Adjustment of Shares Available. ------------------------------ If there is any change in the number of outstanding shares of Common Stock of the Company through the declaration of stock dividends or through stock splits, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be automatically adjusted. If there is any change in the number of outstanding shares of Common Stock of the Company through any change in the capital account of the Company or through any other transaction referred to in section 424(a) of the Internal Revenue Code, then the number of shares subject to the Option and the purchase price of the shares subject to the Option shall be appropriately adjusted by the Committee, except to the extent the Committee takes other action pursuant to the following paragraph. Notwithstanding the provision of any other Section of this Agreement, if the Company shall not be the surviving corporation in any merger or consolidation, or if the Company is to sell all or substantially all of its assets, or if the ownership of more than 25 percent of the outstanding shares of Common Stock shall change as the result of a concerted action by one or more persons or corporations or if an attempt is so made to effect such a change of ownership, or if the Company is to be dissolved and liquidated (each such event shall be referred to in this paragraph as a "Corporate Change"), then the Option shall become exercisable in full as of the Change in Control, and the Committee in its sole discretion may (i) further accelerate the time at which the Option may be exercised so that the Option may be exercised in full on or before a date fixed by the Committee, (ii) provide for the purchase of the Option to the extent then outstanding for an amount of cash equal to the excess of the Fair Market Value of the shares subject to the Option (which in the event of a change in the - 3 - 4 ownership of more than 25 percent of the outstanding shares of Common Stock shall not be less than the amount of cash and the fair market value of other consideration tendered for such outstanding shares) over the aggregate purchase price of the shares subject to the Option, (iii) make such adjustments to the Option as the Committee finds appropriate to reflect such Corporate Change, or (iv) cause any surviving corporation in such Corporate Change to assume the Option or substitute a new option for such Option. 6. No Right to Continue as Employee. -------------------------------- Nothing in this Agreement shall confer upon the Optionee the right to continue in the employ of the Company. 7. Rights as Stockholder. --------------------- No person shall have the rights of a stockholder with respect to shares of Common Stock subject to the Option until the date of issuance, if any, of a stock certificate pursuant to the exercise of the Option. 8. Regulatory Approvals and Listing. -------------------------------- The Company shall not be required to issue any certificate or certificates for shares of Common Stock upon the exercise of the Option prior to (a) the obtaining of any approval from any government agency that the Company shall, in its sole discretion, determine to be necessary, and (b) the completion of any registration or other qualification of such shares under any state or Federal law or rulings or regulations of any governmental body that the Company shall, in its sole discretion, determine to be necessary or advisable. 9. Satisfaction of Tax Liabilities. ------------------------------- The Company shall not be required to issue any certificate for shares of Common Stock upon the exercise of the Option unless any Federal, state, or local tax withholding obligation incurred by the Company in connection with the exercise of the Option has been provided for by the Optionee through the Optionee's delivery of a sufficient amount of cash or shares of Common Stock to the Company or through the Company's retention of shares of Common Stock otherwise issuable on the exercise of the Option. The value of a share of Common Stock delivered or retained to provide for the tax withholding obligation incurred by the Company shall be its Fair Market Value on the date the Option is exercised. - 4 - 5 10. Agreement Subject to Plan. ------------------------- Notwithstanding any provision to the contrary herein, this Agreement is subject to the provisions of the Plan, and if there shall be any conflict between the provisions of the Agreement and the Plan, then the provisions of the Plan shall take precedence. 11. Construction. ------------ This Agreement shall be construed in accordance with the law of the State of Delaware. SERVOTRONICS, INC. By ------------------------- Nicholas D. Trbovich President ----------------------------- Raymond C. Zielinski - 5 - EX-27 13 EXHIBIT 27
5 0000089140 SERVOTRONICS 1,000 YEAR DEC-31-1998 DEC-31-1998 1,009 0 2,198 0 8,984 14,121 7,210 0 21,961 2,252 6,144 0 0 523 12,288 21,961 17,571 17,571 11,983 16,115 0 0 312 1,456 597 859 0 0 0 859 $0.49 $0.48
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