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<SEC-DOCUMENT>/in/edgar/work/20000811/0000950152-00-005916/0000950152-00-005916.txt : 20000921
<SEC-HEADER>0000950152-00-005916.hdr.sgml : 20000921
ACCESSION NUMBER:		0000950152-00-005916
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20000630
FILED AS OF DATE:		20000811

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TRANSMATION INC
		CENTRAL INDEX KEY:			0000099302
		STANDARD INDUSTRIAL CLASSIFICATION:	 [3825
]		IRS NUMBER:				160874418
		STATE OF INCORPORATION:			OH
		FISCAL YEAR END:			0331
</COMPANY-DATA>

		FILING VALUES:
			FORM TYPE:		10-Q
			SEC ACT:		
			SEC FILE NUMBER:	000-03905
			FILM NUMBER:		693960
</FILING-VALUES>

			BUSINESS ADDRESS:	
				STREET 1:		10 VANTAGE POINT DRIVE
				CITY:			ROCHESTER
				STATE:			NY
				ZIP:			14624
				BUSINESS PHONE:		7163527777
</BUSINESS-ADDRESS>

				MAIL ADDRESS:	
					STREET 1:		10 VANTAGE POINT DRIVE
					CITY:			ROCHESTER
					STATE:			NY
					ZIP:			14624
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>e10-q.txt
<DESCRIPTION>TRANSMATION, INC.    FORM 10-Q
<TEXT>

<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)
[ X ]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934.

For the quarterly period ended       June 30, 2000
                               --------------------------

                                       OR

[   ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
        Exchange Act of 1934.

For the transition period from                        to
                               ----------------------    ---------------------

                          Commission file number  0-3905
                                                ----------

                                Transmation, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                  Ohio                                 16-0874418
    -------------------------------        ------------------------------------
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)

10 Vantage Point Drive, Rochester, New York               14624
- -------------------------------------------             ----------
  (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code    716-352-7777
                                                  --------------------


- --------------------------------------------------------------------------------

Former name, former address and former fiscal year, if changed since last
report.

Indicate by check mark (X) whether the registrant, (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes  X     No
                                             -----      -----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class              Number of Shares Outstanding                 Date
- -----              ----------------------------                 ----

Common                       6,002,303                      July 24, 2000


                                Total Pages - 31


<PAGE>   2



                                Transmation, Inc.
                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                   June 30, 2000       March 31, 2000
                                                                                   -------------       --------------
<S>                                                                               <C>                  <C>
ASSETS:

Current Assets:
     Cash                                                                           $    314,241         $    508,453
     Accounts Receivable, less allowance for doubtful accounts of
          $331,500 at June 30, and $363,500 at March 31, 2000                         10,436,589           11,635,069
     Inventories                                                                       8,595,608            8,834,612
     Income Taxes Receivable                                                             814,856              963,343
     Prepaid Expenses and Deferred Charges                                             1,345,028            1,577,413
     Deferred Tax Assets                                                                 582,427              582,427
                                                                                    ------------         ------------
     Current Assets                                                                   22,088,749           24,101,317
Properties, at cost, less accumulated depreciation                                     6,192,296            6,542,814
Goodwill, less accumulated amortization of $4,066,530 at 6/30
     and $3,726,805 at 3/31                                                           20,930,794           21,245,824
Deferred Charges                                                                         158,069              185,379
Other Assets                                                                             283,394              283,394
                                                                                    ------------         ------------
                                                                                    $ 49,653,302         $ 52,358,728

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:
     Current Portion of Long-Term Debt                                              $  3,033,333         $  2,700,000
     Accounts Payable                                                                  6,496,044            7,103,734
     Accrued Payrolls, Commissions and Other                                           1,983,584            2,418,299
                                                                                    ------------         ------------
     Current Liabilities                                                              11,512,961           12,222,033
Long-Term Debt                                                                        24,692,267           26,693,400
Deferred Compensation                                                                    344,912              360,108
Deferred Tax Liabilities                                                                 269,480              269,480
                                                                                    ------------         ------------
                                                                                      36,819,620           39,545,021
                                                                                    ------------         ------------
Stockholders' Equity
     Common Stock, par value $.50 per share - Authorized - 30,000,000 shares           3,060,930            3,050,159
     Capital in Excess of Par Value                                                    2,865,783            2,826,208
     Accumulated Other Comprehensive Income                                             (191,690)            (131,695)
     Retained Earnings                                                                 7,551,974            7,522,350
                                                                                    ------------         ------------
                                                                                      13,286,997           13,267,022
Treasury Stock, at cost, 119,358 shares in 2000 and 1999                                (453,315)            (453,315)
                                                                                    ------------         ------------
                                                                                      12,833,682           12,813,707
                                                                                    ------------         ------------
                                                                                    $ 49,653,302         $ 52,358,728
                                                                                    ============         ============
</TABLE>



                 See Notes to Consolidated Financial Statements


                                       2
<PAGE>   3



                                Transmation, Inc.
                        Consolidated Statement of Income
                                    Unaudited

<TABLE>
<CAPTION>
                                              April 1, 2000       April 1, 1999
                                                    to                   to
                                              June 30, 2000       June 30, 1999
                                              -------------       -------------
<S>                                          <C>                <C>
Net Sales:                                      $18,800,009        $20,388,597

Costs and Expenses:
     Cost of Product Sold                        13,091,957         13,977,358
     Selling and Administrative Expenses          4,639,903          4,882,604
     Research and Development Costs                 366,442            383,360
     Interest Expense                               665,983            662,291
                                                -----------        -----------
                                                 18,764,285         19,905,613
                                                -----------        -----------
Income Before Taxes                                  35,724            482,984
Provision for Income Taxes
     State and Federal                                6,100            192,800
                                                -----------        -----------
Net Income                                           29,624            290,184
Retained Earnings at Beginning of Period          7,522,350         10,012,460
                                                -----------        -----------
Retained Earnings at End of Period              $ 7,551,974        $10,302,644
                                                ===========        ===========

Earnings Per Share - Basic                             $.01               $.05
Earnings Per Share - Diluted                           $.01               $.05
</TABLE>

                 See Notes to Consolidated Financial Statements


                                       3
<PAGE>   4



                                Transmation, Inc.
                      Consolidated Statement of Cash Flows
                                    Unaudited

<TABLE>
<CAPTION>
                                                                                             Three Months Ended
                                                                                     June 30, 2000       June 30, 1999
                                                                                     -------------       -------------
<S>                                                                                 <C>                 <C>
Cash Flow from Operating Activities:
     Net Income                                                                        $    29,624         $   290,184
     Items Not Requiring (Providing) Cash Included in Income
          Depreciation and Amortization                                                  1,188,257           1,157,840
          Provision for Losses on Accounts Receivable                                      (32,000)            (74,000)
     Decrease (Increase) in Accounts Receivable                                          1,230,480            (175,212)
     Decrease (Increase) in Inventories                                                    239,004          (1,245,516)
     Increase in Prepaid Expenses and Deferred Charges                                     (80,030)            (72,268)
     Decrease in Accounts Payable                                                         (607,690)         (2,400,208)
     (Decrease) Increase in Accrued Payrolls, Commissions and Other Liabilities           (434,715)             85,979
     Income Taxes Payable/Receivable                                                       148,487             125,118
     Decrease in Deferred Compensation                                                     (15,196)            (16,850)
                                                                                       -----------         -----------
Net Cash Provided (Used) by Operating Activities                                         1,666,221          (2,324,933)
                                                                                       -----------         -----------
Cash Flows from Investing Activities:
     Purchase of Metermaster, Inc.                                                                            (188,494)
     Purchase of Properties                                                               (182,984)         (1,116,999)
                                                                                       -----------         -----------
Net Cash Used in Investing Activities                                                     (182,984)         (1,305,493)
                                                                                       -----------         -----------
Cash Flows from Financing Activities:
     Increase in Notes Payable and Current Portion of LTD                                  333,333             125,000
     Issuance of Stock                                                                      50,346              71,451
     (Decrease) Increase in Long-Term Debt                                              (2,001,133)          3,646,500
                                                                                       -----------         -----------
Net Cash (Used) Provided by Financing Activities                                        (1,617,454)          3,842,951
                                                                                       -----------         -----------
Effect of Exchange Rate Changes on Cash                                                    (59,995)             37,061
                                                                                       -----------         -----------
Net (Decrease) Increase in Cash                                                           (194,212)            249,586
Cash at Beginning of Period                                                                508,453             282,625
                                                                                       -----------         -----------
Cash at End of Period                                                                  $   314,241         $   532,211
                                                                                       ===========         ===========

Cash Paid for Interest and Income Taxes is as follows:
     Interest Paid                                                                     $   665,984         $   613,849
     Taxes (Refund Received) Paid                                                      ($  150,000)        $    67,297
</TABLE>


                 See Notes to Consolidated Financial Statements



                                       4
<PAGE>   5



                                TRANSMATION, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                               Number of
                               of Shares
                                of $.50                                                 Accumulated
                               Par Value                                                  Other
                                Common      Common Stock   Capital in                  Comprehensive
                              Stock Out-    Issued and     Excess of       Retained        (Loss)       Treasury
                               standing     Outstanding    Par Value       Earnings        Income         Stock         Total
                              -----------   ------------   -----------    -----------  -------------    ----------   -----------
<S>                           <C>          <C>            <C>            <C>          <C>              <C>          <C>
Balance March 31, 1997          2,826,412     $1,413,206    $3,121,746     $7,965,388      ($130,532)                $12,369,808

Components of Compre-
   hensive Income:
     Net Income                                                               997,971                                    997,971
     Currency Translation                                                                      9,744                       9,744
                                                                                                                     -----------
Total Comprehensive  Income                                                                                            1,007,715
                                                                                                                     -----------
Issuance of Stock                 150,838         75,419       532,217                                                   607,636
Two for One Stock Split
   On July 22, 1997             2,853,692      1,426,846   (1,426,846)
                                ---------     ----------    ----------     ----------     ----------                 -----------

Balance March 31, 1998          5,830,942      2,915,471     2,227,117      8,963,359       (120,788)                 13,985,159

Components of Compre-
   hensive Income:
     Net Income                                                             1,049,101                                  1,049,101
     Currency Translation                                                                    (79,780)                    (79,780)
                                                                                                                     -----------
Total Comprehensive Income                                                                                               969,321
                                                                                                                     -----------
Issuance of Stock                 101,800         50,900       353,938                                                   404,838
Share Re-purchase                                                                                       ($453,315)      (453,315)
                                ---------     ----------    ----------     ----------     ----------    ---------    -----------

Balance March 31, 1999          5,932,742      2,966,371     2,581,055     10,012,460       (200,568)    (453,315)    14,906,003

Components of Compre-
   hensive Income:
     Net Loss                                                              (2,490,110)                                (2,490,110)
     Currency Translation                                                                     68,873                      68,873
                                                                                                                     -----------
Total Comprehensive Loss                                                                                              (2,421,237)
                                                                                                                     -----------
Issuance of Stock                 167,576         83,788       245,153                                                   328,941
                                ---------     ----------    ----------     ----------     ----------    ---------    -----------

Balance March 31, 2000          6,100,318      3,050,159     2,826,208      7,522,350       (131,695)    (453,315)    12,813,707
                                ---------     ----------    ----------     ----------     ----------    ---------    -----------

Components of Compre-
   hensive Income:
     Net Income                                                                29,624                                     28,224
     Currency Translation                                                                    (59,995)                    (59,995)
                                                                                                                        --------
Total Comprehensive Loss                                                                                                 (31,771)
                                                                                                                        --------
Issuance of Stock                  21,542         10,771        39,575                                                    50,346
                                ---------     ----------    ----------     ----------     ----------    ---------    -----------

Balance June 30, 2000           6,121,860     $3,060,930    $2,865,783     $7,551,974     ($191,690)    ($453,315)   $12,833,682
                                =========     ==========    ==========     ==========     =========     =========    ===========
</TABLE>


                 See Notes to Consolidated Financial Statements



                                       5
<PAGE>   6


Note 1 - Borrowings

At June 30, 2000, the Company has a $33,125,000 Revolving Credit and Term Loan
Agreement with banks dated August 8, 1998 and amended February 9, 1999 and June
23, 2000 and extending through June 1, 2007. At June 30, 2000, $18,125,000 was
borrowed under term loans. The term loans require annual repayments of amounts
outstanding, paid on a quarterly basis, as follows:

                 July 1, 2000 - June 30, 2001           $3,033,333
                 July 1, 2001 - June 30, 2002           $4,033,333
                 July 1, 2002 - June 30, 2003           $4,033,333
                 July 1, 2003 - June 30, 2004           $4,033,333
                 July 1, 2004 - June 30, 2005           $1,333,333

Interest is payable on a formula basis, at the Company's option, at rates above
prime or above LIBOR determined on the basis of Company performance as
determined by its leverage ratio. On June 30, 2000, interest to be paid under
Term Loans was 2.40% to 3.25% above LIBOR or .50% to 1.00% above the bank's
prime lending rate. At June 30, 2000, $9,600,600 was borrowed under the
Revolving Credit portion of the Company's credit facility. The term of the
Revolving Credit Facility dated August 8, 1998 matures on July 1, 2001. Interest
is payable under the Revolving Credit Facility on a formula basis, at the
Company's option, at rates above prime or above LIBOR determined on the basis of
the Company's performance as determined by its leverage ratio. On June 30, 2000,
interest to be paid under the Revolving Credit Agreement was 2.50% above LIBOR
or .50% above the bank's prime lending rate. At June 30, 2000, interest was
payable on the above loans at rates ranging from 9.16% to 10.00%. The Company
has entered into interest rate swaps resulting in a substantial portion of
floating interest rate debt being swapped into fixed interest rate debt.

The revolving credit and term loan agreement contains, among other provisions,
requirements to maintain minimum levels of net worth, to meet minimum fixed
charge coverage ratios and leverage ratios throughout the term of the loans.

Additionally, the Company has pledged its personal property and fixtures,
including inventory and equipment, and its accounts receivable as collateral
security for the loan. Further, the Company has agreed to pay to its lenders an
annual commitment fee from .125% to .25%, depending on performance of the
Company, of the unused portion of the Lenders' Revolving Credit committed
amount. The fee is payable quarterly and total commitment fees paid under any
unused lines of credit under Revolving Credit Agreements were immaterial in both
1999 and 2000. The Company agreed to pay a closing fee in the amount of $130,000
in conjunction with the Revolving Credit and Term Loan Facility and the
amendment thereto; fees are being amortized over the term of the loans.

The Company is in compliance with provisions of its loan agreement as of June
30, 2000.

Note 2 - Inventories

The major classifications of inventory are as follows:

<TABLE>
<CAPTION>
                                                June 30, 2000      March 31, 2000
                                                -------------      --------------

<S>                                            <C>                <C>
         Raw Materials and Purchased Parts        $ 3,747,286         $ 3,900,063
         Work in Process                              620,526             612,554
         Finished Products                          6,408,585           6,493,767
                                                  -----------         -----------
                                                   10,776,397          11,006,384
         Less Inventory Reserves                   (2,180,789)         (2,171,772)
                                                  -----------         -----------
                                                  $ 8,595,608         $ 8,834,612
                                                  ===========         ===========
</TABLE>
Note 3 - Net Income Per Share

Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
the assumed conversion of dilutive stock options and warrants. In computing the
per share effect of assumed conversion, funds which would have been received
from the exercise of options and warrants are considered to have been used to
purchase common shares at average market prices for the period, and the
resulting net additional common shares are included in the calculation of
average common shares outstanding.



                                       6
<PAGE>   7


The table below summarizes the amounts used to calculate basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                             Three Months Ended June 30, 2000           Three Months Ended June 30, 1999
                                             --------------------------------          ----------------------------------
                                                           Average                                     Average
                                                Net      Outstanding     Per              Net        Outstanding     Per
                                              Earnings      Shares      Share           Earnings        Shares      Share
                                             ---------   -----------    -----          ---------     -----------    -----
<S>                                         <C>         <C>            <C>            <C>           <C>            <C>
Basic Earnings Per Share                       $28,224    5,923,638      $.01          $290,184       5,844,549      $.05

Effect of Dilutive Options and Warrants                                                                 170,539
                                               -------    ---------      ----          --------       ---------      ----

Diluted Earnings Per Share                     $28,224    5,923,638      $.01          $290,184       6,015,088      $.05
                                               =======    =========      ====          ========       =========      ====
</TABLE>

Certain anti-dilutive outstanding stock options and warrants were excluded from
the calculation of average shares outstanding since their exercise prices
exceeded the average market price of common shares during the period. The
anti-dilutive stock options and warrants so excluded at the end of each of the
last two interim periods and their associated exercise prices are summarized
below. The options expire at various times between 2000 and 2005.

                          Number of Options and Warrants      Exercise Price

        2000                         1,550,732                 $2.41 - $9.25

        1999                         1,211,091                 $3.75 - $9.25

Item 2 - Management's Discussion and Analysis of Financial Condition and
         Results of Operations

Financial Condition

The Company's primary sources of liquidity and capital are funds provided
through its borrowing agreement with banks, its profitability and management of
its Balance Sheet.

During the quarter ended June 30, 2000, Accounts Receivable balances owing to
the Company by its customers decreased by $1,198,000 and inventories were
reduced by $230,000. Trade payables were reduced by approximately $608,000 in
the quarter ended June 30, 2000 and bank debt was reduced by $1,668,000. It is
the Company's intention to continue to aggressively manage its Balance Sheet so
that it can continue to reduce bank debt.

Results of Operations

Comparison of April 1, 2000 - June 30, 2000
                            to
              April 1, 1999 - June 30, 1999

Sales totaled $18,800,009 in the quarter ended June 30, 2000, a decrease of
7.8%, compared to sales of $20,388,597 recorded in the same quarter one year
ago. Seventy-six percent of the decrease resulted from lower sales in the
Company's meter modification operation. In 1999, significant shipments of such
products which had built up in Metermaster's backlog prior to its acquisition by
Transmation in February, 1999, were accomplished. Additionally, shipments of
products to export markets through Transcat declined 24% in the quarter ended
June 30, 2000 compared to shipments in the same quarter last year. Transmation
has hired new production management to reduce the delivery time to customers in
its meter modification business to enable it to better compete in the meter
modification marketplace. Transmation has also transferred experienced sales
management to this division to more aggressively seek out business
opportunities. Additionally, Transmation is currently revamping its sales
distribution network, particularly in Asian markets, to enable it to better
compete for business in that important market.

Cost of product sold totaled 69.6% of sales in 2000 compared to 68.6% of sales
in 1999. Lower shipments in the meter modification division led to higher per
unit overheads in 2000 compared to 1999.


                                       7
<PAGE>   8


Selling and administrative expenses were reduced by 5 percent in 2000 compared
to 1999, this despite selling and administrative spending of $276,000 in the
Company's MetersandInstruments.com subsidiary in 2000. MetersandInstruments.com
did not exist in the quarter ended June 30, 1999. The Company continuously
reviews selling and administrative spending to attempt to minimize such costs in
their relationship to sales.

Despite higher interest rates during the period, lower average borrowing levels
enabled the Company to hold interest costs to approximately the same level as in
1999.



                                       8
<PAGE>   9



                                     PART II

                                OTHER INFORMATION

Item 6 - Exhibits and Reports on Form 8-K

a.       See Index to Exhibits.

b.       Reports on Form 8-K.

         No reports on Form 8-K have been filed during the quarter for which
this report is filed.

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   TRANSMATION, INC.

Date   August 10, 2000             /s/ Robert G. Klimasewski
     --------------------          -------------------------------------------
                                   Robert G. Klimasewski, President and CEO


Date   August 10, 2000             /s/ John A. Misiaszek
     --------------------          -------------------------------------------
                                   John A. Misiaszek, Vice President - Finance



                                       9
<PAGE>   10



                                INDEX TO EXHIBITS

(2)      Plan of acquisition, reorganization, arrangement, liquidation or
         succession.

                  Not Applicable.

(3)      Articles of Incorporation and By-Laws.

         (i)      The Articles of Incorporation, as amended, are
                  incorporated herein by reference to Exhibit 4(a) to the
                  Registrant's Registration Statement on Form S-8 (Registration
                  No. 33-61665) filed on August 8, 1995, and to Exhibit 3(i) to
                  the Registrant's Form 10-Q for the quarter ended September 30,
                  1999.

         (ii)     By-Laws, as amended through August 18, 1987, are
                  incorporated herein by reference to Exhibit (3) to the
                  Registrant's Form 10-K for the year ended March 31, 1988.

(4)      Instruments defining the rights of security holders, including
         indentures.

         Credit and Loan Agreement dated August 7, 1998 between Transmation,
         Inc. and KeyBank National Association is incorporated herein by
         reference to Exhibit 4(a) to the Registrant's Form 10-Q for the quarter
         ended September 30, 1998.

         (a)      Third Amendment to Credit and Loan Agreement dated as of June
                  23, 2000 by and among Transmation, Inc., certain Lenders, and
                  KeyBank National Association is included herein as
                  Exhibit 4(a).

(10)     Material Contracts.

         The documents listed under (4) are incorporated herein by reference.

         (a)      Employment Agreement by and between Transmation, Inc. and
                  Robert G. Klimasewski dated as of April 1, 2000 is included
                  herein as Exhibit 10(a).

(11)     Statement re Computation of Per Share Earnings.

         Computation can be clearly determined from Note 3 to the Financial
         Statements included herein as Item 1.

(15)     Letter re unaudited interim financial information.

                  Not Applicable.

(18)     Letter re change in Accounting Principles.

                  Not Applicable.

(19)     Report furnished to security holders.

                  Not Applicable.

(22)     Published report regarding matters submitted to vote of security
         holders.

                  Not Applicable.

(23)     Consents of Experts and Counsel.

                  Not Applicable.




                                       10
<PAGE>   11


(24)     Power of Attorney.

                  Not Applicable.

(27)     Financial Data Schedule.

         The Financial Data Schedule is included herein as Exhibit 27.

(99)     Additional Exhibits.

                  Not Applicable.




                                       11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.A
<SEQUENCE>2
<FILENAME>ex4-a.txt
<DESCRIPTION>EXHIBIT 4(A)
<TEXT>

<PAGE>   1

                                                                    EXHIBIT 4(a)

                  THIRD AMENDMENT TO CREDIT AND LOAN AGREEMENT
                  --------------------------------------------

         THIS THIRD AMENDMENT (the "Amendment"),  effective as of June 23, 2000,
is made to that certain Credit and Loan  Agreement,  dated as of August 7, 1998,
as the same was amended by that certain First Amendment to Credit  Agreement and
Loan Agreement, dated as of October 6, 1998 and that certain Second Amendment to
Credit and Loan  Agreement,  dated as of  February 9, 1999 (  collectively,  the
"Loan  Agreement"),  by and among  TRANSMATION,  INC., an Ohio  corporation (the
"Borrower'),  THE LENDERS  PARTY THERETO FROM TIME TO TIME (the  "Lenders")  and
KEYBANK NATIONAL ASSOCIATION, a national banking association,  as Agent (in such
capacity, together with its successors in such capacity, the "Agent").

                                    RECITALS:

         WHEREAS,   the  Borrower  has  requested   that  certain   changes  and
modifications  be made to the Loan  Agreement,  and the Lenders are agreeable to
making the same in accordance  with the terms and  conditions  set forth herein,
commencing as of the effective date first written above.

         NOW,  THEREFORE,  in  consideration  of the  promises and of the mutual
covenants  herein  contained,  the receipt and  sufficiency  of which are hereby
mutually  acknowledged,  and intending to be legally  bound hereby,  the parties
hereto agree as follows:

         1. DEFINITIONS. All capitalized terms used and not otherwise defined in
this Amendment shall have the meanings ascribed to such terms in the Loan
Agreement.

         2. CERTAIN DEFINITIONS.

                  (a) The definition of "Fixed Charge Coverage Ratio" set forth
         in Section 1.01 of the Loan Agreement is amended in its entirety to
         read as follows: "Fixed Charge Coverage Ratio" shall mean, with respect
         to the Borrower, the ratio of (i) EBITDA less taxes paid to (ii)
         current maturities of long term debt plus interest expense.

                  (b) A definition of "Capital Expenditures" is hereby added to
         Section 1.01 of the Loan Agreement, to read in its entirety as follows:

"Capital Expenditures" for any period shall mean the sum of all expenditures
made, directly or indirectly, during such period for equipment, fixed assets,
real property or improvements, or for replacements or substitutions therefor or
additions thereto, that have been or should be, in accordance with GAAP,
reflected as additions to property, plant or equipment on a consolidated balance
sheet and all cash expenditures relating to catalog production, publication, and
distribution.

                  (c) The definition of "EBITDA" set forth in Section 1.01 of
         the Loan Agreement is amended in its entirety to read as follows:


<PAGE>   2

"EBITDA" shall mean, in respect of any period, Consolidated Net Income for such
period (i) minus, to the extent added in the computation of such Consolidated
Net Income, gains, net of losses, arising from the disposition of property other
than in the ordinary course of business; (ii) for calculating EBITDA for the
quarter ending December 31, 1999, minus the sum of $3,368,000 for inventory
write down, severance pay, bank and legal fees and increase in accounts
receivable reserve taken during that quarter; (iii) plus, to the extent deducted
in the computation of such Consolidated Net Income, each of the following:

                  1. Consolidated Interest Expense (i.e., all amounts
                     classified as interest expense of the Borrower and
                     its subsidiaries under generally accepted accounting
                     principles consistently applied),

                  2. taxes imposed on or measured by income or excess profits of
                     the Borrower and its subsidiaries and franchise taxes
                     however calculated,

                  3. the amount of all depreciation, depletion and amortization
                     allowances.

         3. COMMITMENT FEE. Section 2.02 (a) of the Loan Agreement is hereby
amended to read in its entirety as follows:

                  (a) The Borrower shall pay to the Agent for the account of
                  each Lender a commitment fee (the "Commitment Fee") equal to
                  the percentage per annum (based on a year of 360 days and
                  actual days elapsed) calculated in the following matrix, for
                  each day from and including the date hereof to but not
                  including the Revolving Credit Maturity Date, on the average
                  daily amount (not less than zero) by which such Lender's
                  Revolving Credit Committed Amount on such day, exceeds the
                  aggregate principal amount of Revolving Credit Loans
                  (including, without limitation, outstanding Swing Line
                  Advances) outstanding from such Lender. Such Commitment Fee
                  shall be due and payable for the preceding period for which
                  such fee has not been paid: (x) on every third (3rd) Regular
                  Payment Date, (y) on the date of each reduction of the
                  Revolving Credit Committed Amounts (whether optional or
                  mandatory) on the amount so reduced and (z) on the Revolving
                  Credit Maturity Date. Payments due from the Borrower pursuant
                  to clauses (x) and (z) of the preceding sentence shall be
                  billed by the Agent to the Borrower in arrears for the
                  applicable period and the Borrower shall pay the amount
                  thereof in full within five (5) Business Days following
                  receipt of such billing notice, the Borrower's obligations
                  hereunder surviving the termination or expiration of this
                  Agreement.
<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------
       APPLICABLE MARGIN RATIO (measured quarterly on rolling four (4) quarter basis)
                                                                                              COMMITMENT FEE
<S>                             <C>                                                        <C>
- ----------------------------------------------------------------------------------------------------------------------
                                greater than or equal to 2.25 but less than 4.10                    0.25%
- ----------------------------------------------------------------------------------------------------------------------
                                greater than or equal to 1.00 but less than 2.25                    0.1875%
- ----------------------------------------------------------------------------------------------------------------------
                                less than 1.00                                                      0.125%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>



                                       2
<PAGE>   3

4.       CERTAIN INTEREST RATES.

(a)      Section 2.04 is amended to read in its entirety as follows:

                      (a)  OPTIONAL  BASES OF  BORROWING.  The unpaid  principal
                      amount of the  Revolving  Credit Loans shall bear interest
                      for each day until due on one or more  bases  selected  by
                      the  Borrower  from among the  interest  rate  options set
                      forth below.  Subject to the provisions and limitations of
                      this Agreement,  the Borrower may select different Options
                      to apply  simultaneously  to  different  Revolving  Credit
                      Loans and may select  different  Funding  Periods to apply
                      simultaneously to different parts of each Fixed LIBOR Rate
                      Loan.

                      (i) FLOATING RATE OPTION.  A rate per annum (computed on a
                      basis of a year of 360 days and actual days  elapsed)  for
                      each day  equal to the Prime  Rate  plus or minus,  as the
                      case may be, the amount of basis  points  hereinafter  set
                      forth next to the Applicable  Margin Ratio in effect as of
                      the date the  Floating  Rate  Option  is  selected  by the
                      Borrower or otherwise  goes or remains in effect  pursuant
                      to this Agreement.
<TABLE>
<CAPTION>

               ------------------------------------------------------------------------------------------------------------
                   APPLICABLE MARGIN RATIO (measured as of the date the
                   Floating Rate Option selected by Borrower goes into                   PLUS OR MINUS, AS INDICATED,
                  effect or otherwise goes or remains in effect  pursuant to             THE FOLLOWING BASIS POINTS:
                                    this  Agreement)
               ------------------------------------------------------------------------------------------------------------
                <S>                                                                     <C>
                               greater than or equal to 4.00 but less than 4.10                         75
               ------------------------------------------------------------------------------------------------------------
                               greater than or equal to 3.50 but less than 4.00                         50
               ------------------------------------------------------------------------------------------------------------
                               greater than or equal to 3.25 but less than 3.50                         37.5
               ------------------------------------------------------------------------------------------------------------
                               greater than or equal to 2.25 but less than 3.25                         25
               ------------------------------------------------------------------------------------------------------------
                               greater than or equal to 1.00 but less than 2.25                          0
               ------------------------------------------------------------------------------------------------------------
                               less than 1.00                                                          -12.5
               ------------------------------------------------------------------------------------------------------------
</TABLE>

                      (ii) FIXED LIBOR RATE OPTION. A rate per annum (based on a
                      year of 360 days and  actual  days  elapsed)  for each day
                      during the  applicable  Funding  Period equal to the Fixed
                      LIBOR  Rate for such  Funding  Period  plus the  amount of
                      basis points  hereinafter set forth next to the Applicable
                      Margin Ratio in effect as of the date the Fixed LIBOR Rate
                      Option  is  selected  by  the  Borrower  (subject  to  the
                      provisions of Section 2.09 hereinafter set forth):



                                       3
<PAGE>   4

<TABLE>
<CAPTION>

                 -----------------------------------------------------------------------------------------------
                    APPLICABLE MARGIN RATIO (measured as of the
                    date the Fixed LIBOR Rate Option  selected by                       ADDITIONAL BASIS
                             Borrower  goes into  effect)                                     POINTS:
                 -----------------------------------------------------------------------------------------------
                        <S>                                                             <C>
                                   greater than or equal to 4.00 but less than 4.10            300
                 -----------------------------------------------------------------------------------------------
                                   greater than or equal to 3.50 but less than 4.00            250
                 -----------------------------------------------------------------------------------------------
                                   greater than or equal to 3.25 but less than 3.50            215
                 -----------------------------------------------------------------------------------------------
                                   greater than or equal to 2.25 but less than 3.25            185
                 -----------------------------------------------------------------------------------------------
                                   greater than or equal to 1.00 but less than 2.25            152.5
                 -----------------------------------------------------------------------------------------------
                                   less than 1.00                                              127.5
                 -----------------------------------------------------------------------------------------------
</TABLE>

                      The Agent shall give prompt notice to the Borrower and
                      each Lender (in any event within ten (10) Business Days of
                      its receipt of the quarterly financial statements or
                      annual reports described in Section 5.01 hereof) of (i)
                      the Floating Rate determined or adjusted in accordance
                      with the definition of the Floating Rate, (ii) the Fixed
                      LIBOR Rate determined or adjusted in accordance with the
                      definition of the Fixed LIBOR Rate, and (iii) the
                      Applicable Margin Ratio (and corresponding Basis Points
                      added or subtracted) determined in accordance with the
                      definition of the Applicable Margin Ratio based upon the
                      information set forth in the most recent quarterly
                      financial statements or annual reports described in
                      Section 5.01 hereof, which determinations or adjustments
                      shall be conclusive absent manifest error, each such
                      determination or adjustment to be effective as of the
                      first Business Day following the most recently concluded
                      fiscal quarter.

                  (b) Section 2.06 is amended to read in its entirety as
                      follows:


                      The unpaid principal amount of the Term Loan A shall bear
                      interest for each day until due on the basis selected by
                      the Borrower from between the interest rate options set
                      forth below.

                      (i) FLOATING RATE OPTION. A rate per annum (computed on a
                      basis of a year of 360 days and actual days elapsed) for
                      each day equal to the Prime Rate plus or minus, as the
                      case may be, the amount of basis points hereinafter set
                      forth next to the Applicable Margin Ratio in effect as of
                      the date the Floating Rate Option is selected by the
                      Borrower or otherwise goes or remains in effect pursuant
                      to this Agreement.



                                       4
<PAGE>   5

<TABLE>
<CAPTION>

               -------------------------------------------------------------------------------------------------------------
                   APPLICABLE MARGIN RATIO (measured as of the date the
                   Floating Rate Option selected by Borrower goes into
                   effect or otherwise goes or remains  in  effect  pursuant to         PLUS OR MINUS,  AS  INDICATED,
                                     this  Agreement)                                     THE FOLLOWING BASIS POINTS:
               -------------------------------------------------------------------------------------------------------------
                       <S>                                                              <C>
                                   greater than or equal to 4.00 but less than 4.10                      75
               -------------------------------------------------------------------------------------------------------------
                                   greater than or equal to 3.50 but less than 4.00                      50
               -------------------------------------------------------------------------------------------------------------
                                   greater than or equal to 3.25 but less than 3.50                      37.5
               -------------------------------------------------------------------------------------------------------------
                                   greater than or equal to 2.25 but less than 3.25                      25
               -------------------------------------------------------------------------------------------------------------
                                   greater than or equal to 1.00 but less than 2.25                       0
               -------------------------------------------------------------------------------------------------------------
                                   less than 1.00                                                       -12.5
               -------------------------------------------------------------------------------------------------------------
</TABLE>

                      (ii) Fixed LIBOR Rate Option. A rate per annum (based on a
                      year of 360 days and actual days elapsed) for each day
                      during the applicable Funding Period equal to the Fixed
                      LIBOR Rate for such Funding Period plus the amount of
                      basis points hereinafter set forth next to the Applicable
                      Margin Ratio in effect as of the date the Fixed LIBOR Rate
                      Option is selected by the Borrower (subject to the
                      provisions of Section 2.09 hereinafter set forth):

<TABLE>
<CAPTION>

                 --------------------------------------------------------------- -------------------------------
                    APPLICABLE MARGIN RATIO (measured as of the
                    date the Fixed LIBOR Rate Option selected by                        ADDITIONAL BASIS
                          Borrower  goes into  effect)                                       POINTS:
                 --------------------------------------------------------------- -------------------------------
                        <S>                                                        <C>
                            greater than or equal to 4.00 but less than 4.10                   300
                 --------------------------------------------------------------- -------------------------------
                            greater than or equal to 3.50 but less than 4.00                   250
                 --------------------------------------------------------------- -------------------------------
                            greater than or equal to 3.25 but less than 3.50                   215
                 --------------------------------------------------------------- -------------------------------
                            greater than or equal to 2.25 but less than 3.25                   185
                 --------------------------------------------------------------- -------------------------------
                            greater than or equal to 1.00 but less than 2.25                   152.5
                 --------------------------------------------------------------- -------------------------------
                            less than 1.00                                                     127.5
                 --------------------------------------------------------------- -------------------------------
</TABLE>

                      The Agent shall give prompt notice to the Borrower and
                      each Lender (in any event within ten (10) Business Days of
                      its receipt of the quarterly financial statements or
                      annual reports described in Section 5.01 hereof) of (i)
                      the Floating Rate determined or adjusted in accordance
                      with the definition of the Floating Rate, (ii) the Fixed
                      LIBOR Rate determined or adjusted in accordance with the
                      definition of the Fixed LIBOR Rate, and (iii) the
                      Applicable Margin Ratio (and corresponding Basis Points
                      added or subtracted) determined in accordance with the
                      definition of the Applicable Margin Ratio based upon the
                      information set forth in the most recent quarterly
                      financial statements or annual reports described in
                      Section 5.01 hereof, which determinations or adjustments
                      shall be conclusive absent manifest error, each such
                      determination or adjustment to be effective as of the



                                       5
<PAGE>   6


                      first Business Day following the most recently concluded
                      fiscal quarter.

                  (c) Section 2.08 is amended to read in its entirety as
                      follows:


                      The unpaid principal amount of the Term Loan B shall bear
                      interest for each day until due on the basis selected by
                      the Borrower from between the interest rate options set
                      forth below:

                      (i) FLOATING RATE OPTION. A rate per annum (computed on a
                      basis of a year of 360 days and actual days elapsed) for
                      each day equal to the Prime Rate plus or minus, as the
                      case may be, the amount of basis points hereinafter set
                      forth next to the Applicable Margin Ratio in effect as of
                      the date the Floating Rate Option is (A) selected by the
                      Borrower or (B) otherwise goes or remains in effect
                      pursuant to this Agreement:

<TABLE>
<CAPTION>

               ---------------------------------------------------------------------------------------------------------------
                   APPLICABLE MARGIN RATIO (measured as of the date the
                   Floating Rate Option selected by Borrower goes into                     PLUS OR MINUS, AS INDICATED,
                   effect or otherwise goes or remains in effect pursuant to                THE FOLLOWING BASIS POINTS:
                                    this  Agreement)
               ---------------------------------------------------------------------------------------------------------------
                   <S>                                                                          <C>
                           greater than or equal to 4.00 but less than 4.10                              150
               ---------------------------------------------------------------------------------------------------------------
                           greater than or equal to 3.50 but less than 4.00                              100
               ---------------------------------------------------------------------------------------------------------------
                           greater than or equal to 3.25 but less than 3.50                               75
               ---------------------------------------------------------------------------------------------------------------
                           greater than or equal to 2.25 but less than 3.25                               62.5
               ---------------------------------------------------------------------------------------------------------------
                           greater than or equal to 1.00 but less than 2.25                               37.5
               ---------------------------------------------------------------------------------------------------------------
                           less than 1.00                                                                 25
               ---------------------------------------------------------------------------------------------------------------
</TABLE>

                      Such interest rate shall change automatically from time to
                      time effective as of the effective date of each change in
                      the Prime Rate and each change in the Applicable Margin
                      Ratio.

                      (ii) FIXED LIBOR RATE OPTION. A rate per annum (based on a
                      year of 360 days and actual days elapsed) for each day
                      during the applicable Funding Period equal to the Fixed
                      LIBOR Rate for such Funding Period plus the amount of
                      basis points hereinafter set forth next to the Applicable
                      Margin Ratio in effect as of the date the Fixed LIBOR Rate
                      Option is selected by the Borrower (subject to the
                      provisions of Section 2.09 hereinafter set forth):



                                       6
<PAGE>   7

<TABLE>
<CAPTION>

                 -----------------------------------------------------------------------------------------------
                    APPLICABLE MARGIN RATIO (measured as of the
                    date the Fixed LIBOR Rate Option  selected by                       ADDITIONAL BASIS
                           Borrower  goes into  effect)                                      POINTS:
                 -----------------------------------------------------------------------------------------------
                       <S>                                                               <C>
                            greater than or equal to 4.00 but less than 4.10                   350
                 -----------------------------------------------------------------------------------------------
                            greater than or equal to 3.50 but less than 4.00                   325
                 -----------------------------------------------------------------------------------------------
                            greater than or equal to 3.25 but less than 3.50                   270
                 -----------------------------------------------------------------------------------------------
                            greater than or equal to 2.25 but less than 3.25                   240
                 -----------------------------------------------------------------------------------------------
                            greater than or equal to 1.00 but less than 2.25                   215
                 -----------------------------------------------------------------------------------------------
                            less than 1.00                                                     190
                 -----------------------------------------------------------------------------------------------
</TABLE>

                      The Agent shall give prompt notice to the Borrower and
                      each Lender (in any event within ten (10) Business Days of
                      its receipt of the quarterly financial statements or
                      annual reports described in Section 5.01 hereof) of (i)
                      the Floating Rate determined or adjusted in accordance
                      with the definition of the Floating Rate, (ii) the Fixed
                      LIBOR Rate determined or adjusted in accordance with the
                      definition of the Fixed LIBOR Rate, and (iii) the
                      Applicable Margin Ratio (and corresponding Basis Points
                      added or subtracted) determined in accordance with the
                      definition of the Applicable Margin Ratio based upon the
                      information set forth in the most recent quarterly
                      financial statements or annual reports described in
                      Section 5.01 hereof, which determinations or adjustments
                      shall be conclusive absent manifest error, each such
                      determination or adjustment to be effective as of the
                      first Business Day following the most recently concluded
                      fiscal quarter.

5.       CERTAIN FINANCIAL COVENANTS.

                  (a) Subsection (a) of Section 6.01 of the Loan Agreement
                      is amended as follows:


                      (a) (i) For the fiscal quarter ending June 30, 2000 permit
                      the Fixed Charge Coverage Ratio (measured as of the period
                      of the four (4) then most recently completed fiscal
                      quarters of the Borrower) to be less than 1.40 to 1.00;

                      (ii) for the fiscal quarter ending September 30, 2000
                      permit the Fixed Charge Coverage Ratio (measured as of the
                      period of the four (4) then most recently completed fiscal
                      quarters of the Borrower) to be less than 1.35 to 1.00;

                      (iii) for the fiscal quarter ending December 31, 2000
                      permit the Fixed Charge Coverage Ratio (measured as of the
                      period of the four (4) then most recently completed fiscal
                      quarters of the Borrower) to be less than 1.45 to 1.00;
                      and



                                       7
<PAGE>   8

                      (iv) for the fiscal quarter ending March 31, 2001 permit
                      the Fixed Charge Coverage Ratio (measured as of the period
                      of the four (4) then most recently completed fiscal
                      quarters of the Borrower) to be less than 1.50 to 1.00.

                      The Lenders hereby waive the Event of Default occurring by
                      reason of Borrower's default under the Loan Agreement due
                      to its failure to comply with this covenant for the fiscal
                      quarter ending March 31, 2000. This waiver shall not
                      extend to any other or subsequent Event of Default or
                      Potential Default or impair any right consequent thereto.

                  (b) Subsection (b) of Section 6.01 of the Loan Agreement
                      is amended as follows:

                      (b) Permit the consolidated Net Worth of Borrower and its
                      Subsidiaries to be less than the sum of:

                      (i)  $12,600,000 by June 30, 2000;

                      (ii) $12,600,000 by September 30, 2000;

                      (iii)$12,800,000 by December 31, 2000;

                      (iv) $13,100,000 by March 31, 2001.

                      If the Net Worth of Borrower as of March 31, 2000 is more
                      than $12,850,000, each of the amounts set forth in
                      Subsections (i), (ii), and (iii) above shall be increased
                      by the amount by which the Net Worth of Borrower as of
                      March 31, 2000 exceeds $12,800,000.

                      The Lenders hereby waive the Event of Default occurring by
                      reason of Borrower's default under the Loan Agreement due
                      to its failure to comply with this covenant for the fiscal
                      quarter ending March 31, 2000. This waiver shall not
                      extend to any other or subsequent Event of Default or
                      Potential Default or impair any right consequent thereto.

                  (c) Subsection (c) of Section 6.01 of the Loan Agreement
                      is amended as follows:

                      (c) Permit the ratio of consolidated Funded Debt of
                      Borrower and its Subsidiaries to the consolidated EBITDA
                      of Borrower and its Subsidiaries, calculated at the same
                      point in time, and measured as of the period of the four
                      (4) then most recently completed fiscal quarters of the
                      Borrower to be:

                         (i)  greater than 3.90 to 1.00 from April 1, 2000 to
                         and including June 30, 2000

                         (ii) greater than 3.80 to 1.00 from July 1, 2000 to and
                         including September 30, 2000;



                                       8
<PAGE>   9

                      (iii) greater than 3.50 to 1.00 from October 1, 2000 to
                      and including December 31, 2000;


                      (iv) greater than 3.25 to 1.00 from January 1, 2001 to and
                      including March 31, 2001.

                    The Lenders hereby waive the Event of Default occurring by
                    reason of Borrower's  default under the Loan Agreement due
                    to its failure to comply with this covenant for the fiscal
                    quarter  ending  March 31,  2000.  This  waiver  shall not
                    extend  to any other or  subsequent  Event of  Default  or
                    Potential Default or impair any right consequent thereto.

                  (d) Subsection (d) of Section 6.01 of the Loan Agreement
                      is hereby added, to read in its entirety as follows:


                    (d) Make or permit any of its Subsidiaries to make any
                        Capital Expenditures that would cause the aggregate of
                        all such Capital Expenditures made by Borrower and its
                        Subsidiaries in the fiscal year ending March 31, 2001 to
                        exceed $2,700,000.

           6. EVENTS OF DEFAULT.

           A new Subsection 7.01(o) is hereby added to read as follows:

           (o) Borrower and Lenders shall fail to agree upon financial covenants
           by June 15, 2001, to apply to the fiscal periods after March 31,
           2001.

           7. CONDITIONS TO ENTERING INTO AMENDMENT.

           The obligation of each Lender to enter into this Amendment and to
make Loans on the date hereof is subject to the satisfaction of the following
conditions precedent, in addition to the conditions precedent set forth in
Section 4.02 of the Loan Agreement:

           (a) AGREEMENT; NOTES. The Agent shall have received an executed
           counterpart of this Agreement for each Lender, duly executed by the
           Borrower, and executed Restated Term Loan A Notes and Restated Term
           Loan B Notes conforming to the requirements hereof, duly executed on
           behalf of the Borrower.

           (b) FEES, EXPENSES, ETC. All fees and other compensation to be paid
           to the Agent or the Lenders pursuant hereto, and pursuant to any
           other written agreement on or prior to the date hereof shall have
           been paid or received, and all invoiced expenses incurred by the
           Agent pursuant hereto shall have been paid.

           8. CERTAIN REPRESENTATIONS. Borrower represents and warrants to the
Agent and each Lender as follows:

           (a) All Conditions contained in Section 4.02 of the Loan Agreement
           have been satisfied in all material respects except as otherwise
           specifically set forth herein.



                                       9
<PAGE>   10

           (b) Borrower's Articles of Incorporation and Code of Regulations
           provided to Agent on August 7, 1998 have not been amended or
           repealed.

           9. CERTAIN COVENANTS. The Borrower hereby covenants to the Lenders as
           follows:

           (a) Borrower agrees to provide copies of the certificate of
           incorporation or articles of organization and all agreements between
           it and the other shareholders or members of the joint venture it
           proposes to form with Hilton Engineering, Inc., which shall be in
           form and substance satisfactory to Lenders and their counsel.
           Borrower also agrees to pledge at least 66.5% of its capital stock of
           such entity (or of the Borrower's or pledgor's interest in and to
           such entity, however characterized), together with any and all other
           financing statements, stock powers, stock certificates and other
           documents and instruments necessary to create and perfect a valid
           first priority security interest in and to such stock or security.

           10. MISCELLANEOUS. This Amendment is entered into pursuant to and in
accordance with Section 9.03 of the Loan Agreement. This Amendment may be
executed in counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument. Except as expressly
modified or amended herein, the Loan Agreement and each of the other Loan
Documents to which the Borrower is a party is hereby restated, ratified and
confirmed and shall remain in full force and effect.



                                       10
<PAGE>   11


           IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have caused this Third Amendment to Credit and Loan Agreement
to be duly executed and delivered as of the date first above written.

                                 TRANSMATION, INC.


                                 By:      /s/ Robert G. Klimasewski
                                        --------------------------------
                                 Name:  Robert G. Klimasewski
                                        --------------------------------
                                 Title:  President and Chief Executive Officer
                                        --------------------------------

                                 KEYBANK NATIONAL ASSOCIATION,
                                 as Agent and a Lender

                                 By:     /s/ Patrick J. Kelly
                                        --------------------------------
                                         Patrick J. Kelly, Vice President


                                 LENDERS:

                                 CITIZENS BANK OF MASSACHUSETTS, F/K/A STATE
                                 STREET BANK AND TRUST COMPANY


                                 By:     /s/ Donald R. Aldred
                                        --------------------------------
                                         Donald R. Aldred, Vice President,
                                         Corporate Banking



                                       11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.A
<SEQUENCE>3
<FILENAME>ex10-a.txt
<DESCRIPTION>EXHIBIT 10(A)
<TEXT>

<PAGE>   1

                                                                   EXHIBIT 10(a)

                              EMPLOYMENT AGREEMENT

           THIS EMPLOYMENT AGREEMENT (this "Agreement") has been made as of
April 1, 2000 by and between TRANSMATION, INC., an Ohio corporation (the
"Corporation"), and ROBERT G. KLIMASEWSKI (the "Employee").

         The parties agree as follows:

         1. MUTUAL AGREEMENT OF THE PARTIES. The Corporation hereby agrees to
continue to employ the Employee, and the Employee hereby agrees to accept such
continued employment, for the period and on the terms and conditions set forth
in this Agreement.

         2. TERM OF EMPLOYMENT. The term of this Agreement and of the Employee's
employment  hereunder  (the "TERM") shall  commence on the date hereof and shall
expire on March 31, 2003, subject to earlier  termination as provided by Section
9 hereof. As used herein,  the term "Year" shall mean any period during the Term
commencing on April 1 and ending on the next succeeding March 31.

         3.  AUTHORITY  AND DUTIES.  During the Term the  Employee  shall be the
President and Chief Executive Officer of the Corporation. As such, he shall: (a)
report and be  responsible  to the Board of  Directors of the  Corporation  (the
"BOARD OF DIRECTORS"); (b) be responsible for all of the business and operations
of the  Corporation;  and (c) have and exercise such powers and authority as are
customarily enjoyed by a president and chief executive officer of a corporation,
subject only to direction by the Board of Directors.  The Employee  shall devote
such time to the affairs of the  Corporation as is necessary for the performance
of his duties  hereunder,  and shall use his best  efforts  to promote  its best
interests.

         4. COMPENSATION. During the Term the Corporation shall pay to the
Employee, and the Employee shall accept, as compensation for all services
rendered under this Agreement, the compensation provided by this Section 4.

                  (a)  SALARY.  The  Corporation  shall pay the  Employee a cash
salary at the annual  rates of (i)  $275,000  during the first Year of the Term,
(i) $300,000  during the second Year of the Term, and (iii) $325,000  during the
third Year of the Term.  Such salary shall be payable at such intervals (but not
less often than biweekly or  semi-monthly)  as the Corporation pays the salaries
of other senior executives during the Term.

                  (b) ANNUAL BONUS. The Corporation  shall pay the Employee,  in
respect of each Year (or portion thereof) during the Term, a bonus (if any) paid
under and pursuant to the terms of the Corporation's Annual Executive Bonus Plan
adopted by the  Compensation,  Benefits and Stock Options Committee the Board of
Directors for that Year.


<PAGE>   2

         5. BENEFITS.

                  (a) VACATION.  During the Term, the Employee shall be entitled
to the same amount of paid vacation time per annum as the  Corporation  provides
its other senior executives.

                  (b) AUTOMOBILE ALLOWANCE. During the Term, the Corporation
shall provide the Employee with an automobile allowance in the amount of $1,000
per month.

                  (c) CLUB MEMBERSHIP. During the Term, the Corporation shall,
at its expense, provide the Employee with membership in one country club of his
choosing.

                  (d) OTHER BENEFITS. During the Term, the Corporation shall, at
its expense, provide in the name and for the benefit of the Employee and his
designated beneficiaries all fringe benefit plans and programs which the
Corporation then provides for its senior executives, except if and to the extent
that the Employee waives his rights thereto. Nothing contained herein shall be
deemed to restrict or limit the right of the Corporation at any time to modify,
amend or terminate any or all such fringe benefit plans and programs.

                  (e) ONE-TIME BENEFIT PAYMENT. As soon as practicable after the
date hereof, the Corporation shall pay to the Employee the amount of $48,970,
representing the cost to the Corporation of Corporation-provided benefits which
the Employee has waived since the commencement of his employment by the
Corporation in 1994.

         6. BUSINESS EXPENSES. The Corporation shall pay or reimburse the
Employee for all reasonable travel and other expenses incurred or paid by him in
connection with the performance of his duties under this Agreement, upon
presentation to the Corporation of expense statements or vouchers and such other
supporting documentation as it may, from time to time, reasonably require;
provided, however, that the amount available for such expenses may, at any time
or from time to time, be fixed in advance by the Board of Directors.

         7. NON-COMPETITION. The Employee agrees that during the Term he shall
not, without the express written consent of the Corporation, engage directly or
indirectly (whether by means of stock ownership or otherwise) in any business
which is in competition, directly or indirectly, with the business of the
Corporation. A direct or indirect investment by the Employee in less than 5
percent of the total capital of any such competitive enterprise or business
whose stock is publicly traded shall not be deemed a violation of this Section
7.

         8. CONFIDENTIALITY. The Employee acknowledges that in the course of his
employment by the Corporation he has had and will have access to confidential
information relating to the business and affairs of the Corporation, including
without limitation information relating to business ideas, trade secrets,
product development, secret processes, plans and/or materials, statistical
information and customer lists. The Employee agrees that he will not, either
during the Term or after its expiration, without the prior express written
consent of the Corporation, disclose, divulge, furnish, release or otherwise
make available to any person or entity any of such confidential information,
except for: (a) disclosures made, in furtherance of the Corporation's interests,
with the approval or at the direction of investment bankers (if any) retained by
the Corporation, and (b) disclosures of information which, through no breach of
the Employee's obligations under this Section 8, is no longer confidential.


                                       2
<PAGE>   3


         9. TERMINATION.

                  (a) TERMINATION. This Agreement and the Employee's employment
hereunder shall terminate at the close of business on the earliest of the
following dates:

                           (i) March 31, 2003; or

                           (ii) the date of the Employee's death; or

                           (iii) the thirtieth day following the date on which
         the Corporation receives written notice of the Employee's termination
         of this Agreement; or

                           (iv) the thirtieth day following the date on which
         the Employee receives written notice of the Board of Directors'
         termination of this Agreement with or without "Cause" (as defined in
         Section 9(b) hereof).

                  (b) CAUSE FOR TERMINATION. For purposes of this Agreement, the
term "Cause" shall mean a reasonable determination by vote of a majority of the
members of the Board of Directors then holding office (other than the Employee
if he shall then be a director) that one of the following conditions exists or
one of the following events has occurred:

                           (i) the willful misconduct or gross negligence of the
         Employee in connection with the performance of his duties hereunder; or

                           (ii) the Employee's conviction of any crime or
         offense involving money, property or personnel of the Corporation, or
         of any other crime which constitutes a felony; or

                           (iii) the Employee's use, possession or being under
         the influence of any narcotic or controlled substance while at work, or
         his being under the influence of any alcoholic beverage while at work;
         or

                           (iv) subject to the further provisions of this
         Section 9(b), the Corporation's failure to achieve as of the close of
         any Year during the Term the net income required by the budget for that
         Year adopted by the Board of the Directors, subject to the exception
         from the budget of such extraordinary items as the Board of Directors
         may, in its discretion, approve from time to time.

It is the intention of the Board of Directors and the Employee that the
circumstances contemplated by Section 9(b)(iv) hereof be fair reflections of the
Employee's performance as the Corporation's President and Chief Executive
Officer. To that end, the Board of Directors and the Employee shall both act in
good faith in the creation and adoption of each such budget and the
consideration of each such exception.

         10. SEVERANCE.

                  (a) CERTAIN DEFINITIONS. As used herein:



                                       3
<PAGE>   4

                           (i) "TOTAL COMPENSATION" means and includes without
                  limitation salary, bonuses (if any), benefits (if any) and
                  compensation (if any) in the form of stock or options to
                  purchase stock; provided, however, that any such compensation
                  that is payable to the Employee other than in cash shall be
                  valued for the purposes of this Section 10 at its fair market
                  value on the date it is payable.

                           (ii) "NORMAL TERMINATION DATE" means the applicable
                  date of termination specified in Section 9(a) hereof.

                           (iii) A "CHANGE IN CONTROL" shall have occurred if:

                                    (A) the Corporation is merged or
                  consolidated with another entity and as a result thereof less
                  than 50 percent of the outstanding voting securities of the
                  surviving or resulting entity shall then be owned in the
                  aggregate by the former shareholders of the Corporation; or

                                    (B) as a result of, or in connection with,
                  any tender offer or exchange offer, merger or other business
                  combination, or sale or other disposition of assets, or any
                  combination of the foregoing transactions, persons
                  constituting a majority of the Board on the date hereof shall
                  not constitute a majority of the board of directors of the
                  surviving or resulting entity; or

                                    (C) a tender offer or exchange offer for the
                  ownership of securities of the Corporation representing over
                  50 percent of the combined voting power of the Corporation's
                  then outstanding voting securities is made and consummated; or

                                    (D) any "person," including a "group" within
                  the meaning of Section 13(d)(3) of the Securities Exchange Act
                  of 1934, as amended, is or becomes, directly or indirectly,
                  the beneficial owner of securities of the Corporation
                  representing over 50 percent of the combined voting power of
                  the Corporation's then outstanding securities.

                           (iv) "SUCCESSOR" means any successor to the assets,
         rights or business of the Corporation as a result of a Change in
         Control, including without limitation the Corporation if it is the
         surviving or resulting entity of the Change in Control.

                           (v) "TRIGGER TERMINATION" means any termination,
         after the effective date of a Change in Control, of this Agreement,
         except for the following terminations which are not Trigger
         Terminations: (A) the Employee's voluntary termination for reasons
         other than a Material Change (as hereinafter defined); (B) termination
         upon the Employee's death or total disability; and (C) termination by
         expiration of the Term on March 31, 2003.

                           (vi) "MATERIAL CHANGE" means any or all of the
         following:



                                       4
<PAGE>   5


                                    (A) a change by the Successor in the nature
                  or scope of the Employee's authority, duties or
                  responsibilities, from those applicable to him immediately
                  prior to the Change in Control, that is so substantial and
                  material a reduction, or so substantially and materially
                  burdensome, as would make a reasonable person determine not to
                  continue such employment (it being the intent hereof to
                  include in the definition of "Material Change" a change that
                  would, in effect, force the Employee to terminate his
                  employment voluntarily, but to exclude from the definition of
                  "Material Change" a change that is ordinary and customary in
                  the course of any change in control of a business); or

                                    (B) any reduction in the aggregate annual
                  amount of compensation and benefits payable to the Employee by
                  the Successor from that payable to him by the Corporation
                  immediately prior to the Change in Control; or

                                    (C) a change in the location of the
                  Employee's principal place of employment, without his express
                  written consent, to a location which is outside the general
                  metropolitan area of Rochester, New York.

                  (b) SEVERANCE PAYMENT IF TERMINATION WITHOUT CAUSE. In the
event that the Board of Directors terminates this Agreement without Cause, the
Corporation shall pay to the Employee as severance an amount equal to the
greater of: (i) the Total Compensation payable to the Employee by the
Corporation during the 12 months immediately preceding the Termination Date; or
(ii) the Total Compensation that would have been payable to the Employee
hereunder from the Termination Date until March 31, 2003 had this Agreement not
been terminated. Such severance amount shall be paid to the Employee in cash
within 30 days following the Termination Date unless and to the extent that the
Employee determines otherwise.

                  (c) SEVERANCE PAYMENT IF TERMINATION IN CONNECTION WITH A
CHANGE IN CONTROL. In the event that a Trigger Termination occurs during the
Term, the Successor shall pay to the Employee as severance an amount equal to
300 percent of the Total Compensation payable to the Employee by the Corporation
or the Successor during the 12 months immediately preceding the effective date
of the Trigger Termination. Such severance amount shall be paid to the Employee
in cash within 30 days following the effective date of the Trigger Termination
unless and to the extent that the Employee determines otherwise.

                  (d) REDUCTION OF SEVERANCE AMOUNT IN CERTAIN CIRCUMSTANCES.

                           (i) Notwithstanding anything in this Agreement or any
         other agreement to the contrary, in the event that it is determined
         that any payment or distribution by the Successor, any affiliate
         thereof or any other person to or for the benefit of the Employee,
         whether paid or payable or distributed or distributable pursuant to the
         terms of this Agreement, pursuant to any other plan of deferred
         compensation, or pursuant to any other agreement or arrangement with
         the Successor or any affiliate thereof now or hereafter in effect (a
         "PAYMENT"), would be subject to the excise tax imposed by Section 4999,
         or the denial of deductions imposed by Section 280G, of the Internal
         Revenue Code of 1986, as amended, or any successor statute thereto (the
         "TAX PENALTY"), then the Payments made to or for the benefit of the
         Employee pursuant to this Agreement shall be reduced such that the
         aggregate present value is maximized without



                                       5
<PAGE>   6

         causing any payment to be subject to the Tax Penalty (the "REDUCED
         AMOUNT"). In the alternative, at the sole discretion of the Successor,
         the full amount of the Payments may be made to the Employee and the
         Employee shall be entitled to receive an additional payment (a
         "GROSS-UP PAYMENT") in an amount such that after payment by the
         Employee of all taxes (including any interest or penalties imposed with
         respect to such taxes), including any excise tax, imposed upon the
         Gross-Up Payment, Employee retains an amount of the Gross-Up Payment
         equal to the excise tax imposed upon the Payments.

                           (ii) An initial determination as to whether a Tax
         Penalty would be imposed, and the amount of the Reduced Amount required
         by Section 10(d)(i) hereof or any Gross-Up Payment elected by the
         Successor, shall be made by a national independent accounting firm not
         regularly engaged by the Employee or the Successor and mutually
         acceptable to Employee and the Successor (the "ACCOUNTING FIRM"). All
         fees, costs and expenses of the Accounting Firm shall be borne by the
         Successor, which shall pay such fees, costs and expenses as they become
         due. The Accounting Firm shall promptly provide detailed supporting
         calculations, acceptable to the Employee and the Successor, to them.
         The amount of the Reduced Amount or, if elected by the Successor, the
         full Payment plus the Gross-Up Payment, if any, as determined pursuant
         to this Section 10(d)(ii) shall be paid by the Successor to the
         Employee within five business days of receipt of the Accounting Firm's
         determination. If the Accounting Firm determines that no Tax Penalty
         would be imposed, the Successor and the Employee shall use their best
         efforts to ensure that the Accounting Firm furnishes both the Employee
         and the Successor with an unqualified opinion to that effect. Any such
         initial determination by the Accounting Firm of the Reduced Amount
         and/or the Gross-Up Payment shall be binding upon the Successor and the
         Employee.

                           (iii) In the event that it is determined that an
         excise tax will be imposed on any Payments, the Successor shall pay to
         the applicable governmental taxing authorities as excise tax
         withholding, the amount of the excise tax that the Successor has
         actually withheld from the Payments.

                  (e) RELATED MATTERS.

                           (i) The Employee shall not be required to mitigate
         the amount of any severance payable hereunder by seeking other
         employment or otherwise, nor shall the amount of any severance payable
         hereunder be reduced by any compensation earned by the Employee as the
         result of his employment by another employer or otherwise.

                           (ii) The provisions of this Section 10 shall not
         affect the Employee's right to receive all earned but unpaid salary or
         bonus, accrued but unpaid vacation pay, and submitted but outstanding
         travel or other expenses due and owing from the Corporation or the
         Successor on the effective date of termination of this Agreement, or
         any incentive compensation earned but unpaid prior to or coincidental
         with the effective date of such termination, all of which shall be paid
         to the Employee when ordinarily payable under the Corporation's or the
         Successor's plans, programs and practices.

                  (f) EXCLUSIVITY. The Employee shall not be entitled to any
severance except as expressly provided by this Section 10.



                                       6
<PAGE>   7

         11. IN GENERAL.

                  (a) BINDING OBLIGATION. This Agreement shall be binding upon
and shall inure to the benefit of the Employee and his personal representatives,
and the Corporation and its successors and assigns, including without limitation
the Successor and any other successor to the business of the Corporation,
whether by way of merger, reorganization, transfer of assets or otherwise. The
term "Corporation" as used herein shall include all such successors and assigns.

                  (b) NOTICES. Any notice required or permitted by this
Agreement shall be given by hand or by certified mail, return receipt requested,
addressed to the Corporation at its then principal office, or to the Employee at
his then residence address, or to either party at such other address as it or he
may from time to time specify for the purpose in a notice similarly given to the
other party.

                  (c) APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.

                  (d) ENTIRE AGREEMENT, ETC. This Agreement contains the entire
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, between the parties with respect to the subject matter hereof. No
modification of this Agreement shall be valid unless it is in writing and signed
by the Corporation and by the Employee. A waiver of the breach of any term or
condition of this Agreement shall not be deemed to constitute a waiver of any
subsequent breach of the same or any other term or condition.

         IN WITNESS  WHEREOF,  the parties have duly executed and delivered this
Agreement as of the day and year first above written.

                                           TRANSMATION, INC.

                                           By:  /s/ Cornelius J. Murphy
                                              ---------------------------------
                                                Cornelius J. Murphy
                                                Chairman of the Board

                                                /s/ Robert G. Klimasewski
                                           -------------------------------------
                                           ROBERT G. KLIMASEWSKI



                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>4
<FILENAME>ex27.txt
<DESCRIPTION>EXHIBIT 27
<TEXT>

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S JUNE 30, 2000 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          MAR-31-2001
<PERIOD-START>                             APR-01-2000
<PERIOD-END>                               JUN-30-2000
<CASH>                                         314,241
<SECURITIES>                                         0
<RECEIVABLES>                               10,768,089
<ALLOWANCES>                                   331,500
<INVENTORY>                                  8,595,608
<CURRENT-ASSETS>                            22,087,349
<PP&E>                                      14,404,022
<DEPRECIATION>                               8,211,726
<TOTAL-ASSETS>                              49,651,902
<CURRENT-LIABILITIES>                       11,512,961
<BONDS>                                     24,692,267
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                     3,060,930
<OTHER-SE>                                   9,771,352
<TOTAL-LIABILITY-AND-EQUITY>                49,651,902
<SALES>                                     14,382,712
<TOTAL-REVENUES>                            18,800,009
<CGS>                                       10,208,314
<TOTAL-COSTS>                               13,091,957
<OTHER-EXPENSES>                             4,905,725
<LOSS-PROVISION>                               100,620
<INTEREST-EXPENSE>                             665,983
<INCOME-PRETAX>                                 35,724
<INCOME-TAX>                                     6,100
<INCOME-CONTINUING>                             29,624
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    29,624
<EPS-BASIC>                                        .01
<EPS-DILUTED>                                      .01


</TABLE>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
