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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| Date of Report (Date of earliest event reported) | September 11, 2023 |
| Transcat, Inc. |
| (Exact name of registrant as specified in its charter) |
| Ohio | 000-03905 | 16-0874418 |
| (State or other jurisdiction | (Commission | (IRS Employer |
| of incorporation) | File Number) | Identification No.) |
| 35 Vantage Point Drive, Rochester, New York | 14624 |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code | (585) 352-7777 |
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.50 par value | TRNS | Nasdaq Global Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 1.01 | Entry into a Material Definitive Agreement. |
On September 11, 2023, Transcat, Inc. (the “Company”) entered into an amendment (the “Amendment”) to a Share Purchase Agreement dated August 31, 2021 (the “Purchase Agreement”) with John Cummins and Ross Lane (the “Sellers”) associated with the Company’s purchase of all of the outstanding capital stock of Cal OpEx Limited (d/b/a NEXA Enterprise Asset Management), a private Irish company which owns all of the issued and outstanding capital stock of its U.S.-based subsidiary, Cal OpEx Inc., a Delaware corporation (collectively, “NEXA”). As described below, the Amendment changes the conditions necessary for the Sellers to receive potential earn-out payments, changes the lines of business included in the calculation of earnings before income taxes, depreciation and amortization (“EBITDA”), and changes the outside due date of any potential earn-out payments. The Company entered into the Amendment to reflect the SteriQual, Inc. and the commissioning, qualification, and validation (“CQV”) businesses operated and purchased since August 31, 2021 that are now part of NEXA (collectively, the “Cost Control and Data Compliance Services”).
Pursuant to the Purchase Agreement, the Sellers were entitled to potential earn-out payments in an aggregate amount of up to $7,500,000 for the calendar years ending December 31, 2022, 2023, 2024, and 2025 (each, an “Earn-Out Year”) if NEXA’s consolidated gross revenue, as defined in the Purchase Agreement, equaled or exceeded 70% of the target revenue specified in the Purchase Agreement and NEXA’s consolidated EBITDA percentage, as defined in the Purchase Agreement, equaled or exceeded 25% for a given earn-out year. The potential earn-out payment of up to $375,000 for the 2022 Earn-Out Year did not become due pursuant to the terms of the Purchase Agreement.
Pursuant to the Amendment, the Sellers are now entitled to potential earn-out payments in an aggregate amount of up to $7,125,000 for the remaining Earn-Out Years (2023, 2024 and 2025) if NEXA’s consolidated EBITDA, as defined in the Amendment, equals or exceeds 70% of the target EBITDA specified in the Amendment for a given earn-out year. Pursuant to the Amendment, the definition of EBITDA was revised to include EBITDA from the CQV business and incremental EBITDA from the SteriQual, Inc. business. The maximum earn-out payment will be received if NEXA’s consolidated EBITDA equals or exceeds 150% of the target EBITDA specified in the Amendment. The earn-out payments, if any, will be paid in shares of the Company’s common stock, par value $0.50 per share (“Common Stock”), calculated using the volume-weighted average closing price of Common Stock for 30 consecutive trading days ending on the trading day that is two days prior to the date the earn-out payment is to be paid (“VWAP”). If the VWAP is less than $45.07 per share, then the Company may pay the earn-out payment in cash in lieu of shares of Common Stock.
The Company believes the shift from EBITDA percentage to EBITDA in calculating potential earn-out payments more accurately reflects the operations of the Cost Control and Data Compliance Services. As the Cost Control and Data Compliance Services continue to scale, the Company believes the need to manage them as complimentary lead generators for its calibration services segment is best accomplished with a focus on EBITDA and not on EBITDA percentage, consistent with the Amendment.
Pursuant to the Purchase Agreement, the earn-out payment, if any, for an Earn-Out Year was due within 30 days of the completion of the Company’s financial statement audit for the Earn-Out Year and not later than June 30 of the year following such Earn-Out Year. Pursuant to the Amendment, the earn-out payment, if any, for an Earn-Out Year is now due within 30 days of the completion of the Company’s financial statement audit for the Earn-Out Year and not later than May 31 of the year following such Earn-Out Year.
The Company currently expects that its total earn-out obligations under the Amendment will be between $3.7 million and $4.5 million and that it will incur a corresponding one-time expense of the same amount in its consolidated statement of income for the quarter ending September 23, 2023. The Company expects this to result in a one-time reduction of net income of between $2.7 million and $3.4 million for the quarter ending September 23, 2023 related to the expected total earn-out payments pursuant to the Amendment. The Company anticipates that the expense incurred as a result of the Amendment will not reduce adjusted EBITDA for the quarter ending September 23, 2023 or future periods.
The foregoing summary of the Amendment and Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment filed herewith as Exhibit 10.1 to this Current Report on Form 8-K and the Purchase Agreement filed with the Company’s Quarterly Report on Form 10-Q filed on November 3, 2021.
Forward-Looking Statements and Disclaimer
This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and thus are subject to risks, uncertainties and assumptions. Forward-looking statements are identified by words such as “believe,” “continue,” “expects,” “anticipates,” “will,” and other similar words. All statements addressing operating performance, events or developments that the Company expects or anticipates will occur in the future, including but not limited to statements relating to anticipated EBITDA for NEXA and its associated businesses, anticipated growth for NEXA and its associated businesses, the estimated earn-out payments under the Amendment and associated expenses to be recognized in the Company’s consolidated statement of income, the commercialization of software projects, sales operations, capital expenditures, cash flows, operating income, growth strategy, segment growth, potential acquisitions, integration of acquired businesses, market position, customer preferences, outlook and changes in market conditions in the industries in which the Company operates are forward-looking statements.
Forward-looking statements should be evaluated in light of important risk factors and uncertainties. These risk factors and uncertainties include those more fully described in the Company’s Annual Report and Quarterly Reports filed with the Securities and Exchange Commission, including under the heading entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of the Company’s underlying assumptions prove incorrect, actual results may vary materially from those currently anticipated. In addition, undue reliance should not be placed on the Company’s forward-looking statements, which speak only as of the date they are made. Except as required by law, the Company disclaims any obligation to update, correct or publicly announce any revisions to any of the forward-looking statements contained in this Current Report on Form 8-K, whether as the result of new information, future events or otherwise.
The Company’s expected total earn-out obligations under the Amendment, its expected related expense in its consolidated statement of income for the quarter ending September 23, 2023, and its expected related reduction of net income in its consolidated statement of income for the quarter ending September 23, 2023 reflected above are preliminary and unaudited, and they are based upon the Company’s preliminary estimates as of the date of this Current Report on Form 8-K. They are subject to further internal review by the Company’s management and the compilation of actual results. The Company has provided ranges for this data because its closing procedures for the quarter ended September 23, 2023 are not yet complete and, as a result, complete financial data for the quarter ending September 23, 2023 is not yet available. While the Company expects its actual results will be within the provided ranges, its actual results may differ materially from the preliminary estimates above.
The Company’s independent registered public accounting firm, Freed Maxick CPAs, P.C. (“Freed Maxick”), has not audited, reviewed, compiled, or performed any procedures with respect to the preliminary estimates. Accordingly, Freed Maxick does not express an opinion or any other form of assurance with respect to the preliminary estimates.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit No. |
Description | |
| 10.1 | Amendment to Share Purchase Agreement dated August 31, 2021 by and among Transcat, Inc., John Cummins and Ross Lane, dated September 11, 2023 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TRANSCAT, INC. | ||
| Dated: September 12, 2023 | By: | /s/ James M. Jenkins |
| James M. Jenkins | ||
| Chief Legal Officer, Corporate Development Officer and Corporate Secretary |
Exhibit 10.1
FIRST AMENDMENT TO
SHARE PURCHASE AGREEMENT
This First Amendment to Share Purchase Agreement (this “Amendment”) is made and effective as of September 11, 2023 (the “Amendment Effective Date”), by and between TRANSCAT, INC., an Ohio corporation (“Buyer”), and JOHN CUMMINS and ROSS LANE (each, a “Seller” and, collectively, “Sellers”). Buyer and Sellers are referred to herein, individually, as a “Party” and together as the “Parties”.
Recitals
A. The Parties entered into a Share Purchase Agreement dated August 31, 2021 (the “Agreement”).
B. Pursuant to Section 8.5 of the Agreement, the Parties desire to amend the Agreement to reflect certain changes relating to the calculation and payment of the Earn-Out Payments, as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and conditions hereinafter set forth, the Parties agree as follows:
1. Definitions. Capitalized terms used and not defined in this Amendment have the respective meanings assigned to them in the Agreement.
2. Amendment to Earn-Out Provision. Section 1.6 of the Agreement is amended and restated in its entirety to read as follows:
1.6 Earn Out.
(a) In addition to the Closing Consideration, Sellers shall be eligible to receive additional payments (“Earn-Out Payments”), calculated and paid out an annual basis with respect to the Earn-Out Years if the Company and Subsidiary achieve certain performance metrics, as described in this Section 1.6.
(b) Sellers will be entitled to an Earn-Out Payment in an Earn-Out Year only if the Consolidated EBITDA for such Earn-Out Year equals or exceeds 70% of the Target EBITDA set forth in the following table (the “Target EBITDA”) for such Earn-Out Year:
| Earn- Out Year |
Target EBITDA |
Target Earn Out |
EBITDA Low (70% of Target) |
EBITDA (150% of |
| 1 (2022) | $2,816,459 | $250,000 | $175,000 | $375,000 |
| 2 (2023) | $3,802,219 | $650,000 | $455,000 | $975,000 |
| 3 (2024) | $5,132,996 | $1,500,000 | $1,050,000 | $2,250,000 |
| 4 (2025) | $6,672,895 | $2,600,000 | 1,820,000 | $3,900,000 |
| Totals | $18,424,569 | $5,000,000 | $3,500,000 | $7,500,000 |
(c) If, in any Earn-Out Year, the Consolidated EBITDA equals or exceeds 70% of the applicable Target EBITDA, then Buyer will pay Sellers an Earn-Out Payment for such Earn-Out Year, in an aggregate amount determined by multiplying (i) the applicable Target Earn-Out Payment (as set forth in the table above) by (ii) the EBITDA Factor for such Earn Out Year. The “EBITDA Factor” for an Earn-Out Year is determined by dividing (1) the Consolidated EBITDA for such Earn-Out Year by (2) the Target EBITDA for such Earn-Out Year; provided, however, that in no event shall the EBITDA Factor exceed 1.5 (and, if the EBITDA Factor for an Earn-Out Year would exceed 1.5 based on such calculation, the EBITDA Factor shall be 1.5). If, in any Earn-Out Year, the Consolidated EBITDA is less than 70% of the applicable Target EBITDA, then no Earn-Out Payment shall be due for such Earn-Out Year.
(d) On or before the Earn-Out Due Date of the year following the expiration of an Earn-Out Year, Buyer shall deliver to Sellers (i) Buyer’s calculation of the Consolidated EBITDA and the Earn-Out Payment, if any, due for such Earn Out Year; and (ii) payment of the applicable Earn-Out Payment, in the manner described in this Section. Buyer shall pay any Earn-Out Payment due hereunder by the issuance to Sellers of the aggregate number of Buyer Shares having an aggregate value equal to the Earn-Out Payment, as determined based on the applicable Volume-Weighted Average Closing Price. The aggregate number of Buyer Shares that Buyer will issue in payment of an Earn-Out Payment will be determined by dividing (A) the amount of the Earn-Out Payment by (B) the applicable Volume Weighted Average Closing Price. Notwithstanding the foregoing, if the Volume-Weighted Average Closing Price applicable to any Earn-Out Payment is less than an amount equal to $45.07, then Buyer may, at its option, pay the applicable Earn-Out Payment in cash, rather than Buyer Shares. For the avoidance of doubt, the term “Buyer Shares” does not include any form of restricted stock or any stock that is otherwise subject to vesting, forfeiture, or any other restrictions (with the exception of any restrictions set forth in the Registration Rights Agreement). Rather, as provided in Section 9.1, the term “Buyer Shares” means shares of the common stock of Buyer.
(e) If there is a Change of Control prior to the end of the last Earn-Out Year, then Buyer will pay to Sellers, at the closing of the Change of Control transaction, a payment (a “Change of Control Payment”) in an aggregate amount equal to a 75% of the Target Earn-Out Payments that would have been payable for the Earn-Out Year in which the Change of Control occurs and for all subsequent Earn-Out Years (collectively, the “Accelerated Years”), as follows:
|
|
| Earn-Out Year in which Change of Control Occurs |
Aggregate Target Earn- Out Payments for Accelerated Years |
Change of Control Payment (75% of Target Earn-Out Payments for Accelerated Years) |
| 1 (2022) | $5,000,000 | $3,750,000 |
| 2 (2023) | $4,750,000 | $3,562,500 |
| 3 (2024) | $4,100,000 | $3,075,000 |
| 4 (2025) | $2,600,000 | $1,950,000 |
The Change of Control Payment will be in full satisfaction of Buyer’s obligation to pay any remaining Earn-Out Payments following the Change of Control transaction.
(f) After the Closing, Buyer shall have sole discretion with regard to all matters relating to the operation of the Company and Subsidiary. Notwithstanding the foregoing, during the Earn-Out Years, Buyer shall not (and shall cause the Company and Subsidiary to not), directly or indirectly, take any actions that would have the intended purpose of avoiding or reducing any of the Earn-Out Payments and the parties agree that the following principles attached hereto as Schedule B shall be applied for purposes of Buyer’s calculation of Consolidated EBITDA and the Earn-Out Payment.
(g) All calculations with respect to the Earn-Out Payments shall be in United States Dollars. For purposes of calculating Consolidated EBITDA, where any amounts relate to any currency other than the United States Dollar, such amount shall be converted into the United States Dollar at the prevailing exchange rate between the respective currencies as set forth in The Wall Street Journal on the last day of the applicable Earn-Out Year.
3. Definition of Consolidated EBITDA. The definition of “Consolidated EBITDA”, as set forth in Section 9.1 of the Agreement, is amended and restated in its entirety to read as follows:
“Consolidated EBITDA” means, with respect to any Earn-Out Year, (i) the EBITDA of the Company and Subsidiary from the operation of the Business, plus (ii) for each of 2023, 2024, and 2025, the adjusted EBITDA of the Company from the operation of its validation services business, calculated in a manner consistent with the example set forth on Schedule C attached hereto; plus (iii) for each of 2023 (for periods beginning on or after July 12, 2023), 2024, and 2025, the EBITDA of SteriQual LLC, a Delaware limited liability company and a subsidiary of the Company (“SteriQual”), if and to the extent such EBITDA exceeds (A) $318,542 in 2023 or (B) $695,000 in 2024 or 2025, in each case as determined in accordance with GAAP on a consolidated basis, as applicable). For the avoidance of doubt, “Consolidated EBITDA” shall not include any EBITDA resulting from any adjustment to the merger consideration for the “Revenue Adjustment Amount” pursuant to the Agreement and Plan of Merger, dated as of July 12, 2023, providing for the merger of Steriqual LLC, a Florida limited liability company, into SteriQual.”
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4. Definition of Earn-Out Due Date. The definition of “Earn-out Due Date”, as set forth in Section 9.1 of the Agreement, is amended and restated in its entirety to read as follows:
“Earn-Out Due Date” means, in relation to an Earn-Out Year, within thirty (30) days after completion of the financial statement audits, but not later than May 31 of any given year, unless such amount is disputed, in which event it shall mean. the day of agreement of the Parties with respect to the calculation of the Earn-Out Payment, if any, for such Earn-Out Year.”
5. Definition of EBITDA. Section 9.1 of the Agreement is amended to add the definition of “EBITDA”, which shall read as follows:
“EBITDA” means earnings, before interest, income taxes, depreciation and amortization.”
6. Amendment to Section 9.1. Section 9.1 of the Agreement is amended to delete the definition of “Consolidated Gross Revenue.”
7. Amendment to Section 9.2. Section 9.2 of the Agreement is amended to delete the following definitions from the table set forth therein: “Consolidated EBITDA Percentage”, “Earn-Out Conditions”, “Minimum EBITDA Percentage”, “Revenue Factor”, and “Target Revenue”.
8. Amendment to Schedule B. The first sentence in Section 1 of Schedule B to the Agreement is hereby amended by replacing “Minimum EBITDA Revenue” with “Consolidated EBITDA”.
9. Addition of Schedule C. The Agreement is amended to add a new Schedule C, which shall be in the form attached hereto as Schedule C.
10. Acknowledgment. The Parties agree that the amendment to Section 1.6 shall not apply to 2022, which was the first Earn-Out Year, and that no Earn-Out Payment was or will be due, pursuant to the terms of the Agreement, for such Earn-Out Year.
11. Effect on Agreement. Except as set forth in this Amendment, the Agreement shall continue in full force and effect in accordance with its terms.
12. Counterparts. This Amendment may be executed in one or more counterparts, each of which together shall constitute one and the same Amendment. For purposes of executing this Amendment, a PDF image delivered via email or a facsimile copy of this Amendment, including the signature pages, will be deemed an original.
[signature page follows]
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IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized officers, effective as of the Amendment Effective Date.
| TRANSCAT, INC. | ||
| By: | /s/ Lee D. Rudow | |
| Name: | Lee D. Rudow | |
| Title: | President and CEO | |
| SELLERS: | ||
| /s/ John Cummins | ||
| John Cummins | ||
| /s/ Ross Lane | ||
| Ross Lane | ||
[signature page to First Amendment to Share Purchase Agreement]