UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22190
ELTRAX SYSTEMS, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-1484525
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
Rush Lake Business Park
1775 Old Highway 8
St. Paul, Minnesota 55112-1891
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (612) 633-8373
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 _____.
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year. $880,000.
As of June 19, 1996, 6,576,563 shares of Common Stock of the Company
were outstanding, and the aggregate market value of the Common Stock of the
Company as of that date (based upon the last reported sale price of the Common
Stock reported on that date by the Nasdaq Small Cap Market), excluding
outstanding shares beneficially owned by directors and officers, was
approximately $45,214,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific sections are referred to herein) from the
Company's Proxy Statement for its Annual Meeting of Shareholders to be held July
23, 1996 (the "1996 Proxy Statement").
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
INTRODUCTION
Eltrax Systems, Inc. (Eltrax) and its wholly owned subsidiary, Nordata,
Inc. (dba Datatech) are in two distinct business segments. The historic business
unit, develops and markets patient card systems which expedite patient admission
and registration at health care facilities and enhances patients' sense of
membership and affiliation with specific health care providers. Datatech, which
was acquired on May 17, 1996 through a merger after the end of the Company's
most recent completed fiscal year, provides value added data communications
products and services to end-user corporate and government customers, and is a
distributor of data communications equipment to other value-added resellers.
Datatech's products and services include data communications equipment used in
remote access and enterprise-wide communications networks and the installation
and maintenance of that equipment.
The Company headquarters is located at 1775 Old Highway 8, St. Paul, MN
55112 and its telephone number is (612) 633-8373.
HISTORY
The Company was incorporated in Minnesota on March 20, 1984. In
September 1985, the Company acquired the exclusive rights to the rapid admit
card system by Medes, Inc. of Torrance, CA which specially formats high density
magnetic stripe plastic cards to store 800 to 900 characters of information used
in patient admissions to health care facilities.
In April 1991, the Company acquired through a merger the Mindax
Corporation ("Mindax"), a company in the digital image archiving business,
specializing in digitizing and archiving X-ray film and other medical
information images.
The Company completed its initial public offering on December 8, 1992
by issuing 1,552,500 shares of common stock at $3.00 share, with proceeds to the
Company from the offering of $3,858,396, net of offering costs.
During the fiscal years ended March 31, 1994 and 1995, the Company lost
a total of $2.26 million due primarily to expenditures on infrastructure, sales
and marketing, and research and development which far exceeded the amount
required to support the Company's sales levels. The other primary cause for
these losses was the Company's investments in certain short-term mutual funds,
the value of which decreased by approximately $600,000 over this time period.
During the most recent fiscal year ended March 31, 1996 and subsequent
thereto, several significant changes have taken place at the Company. Following
a strategic review by the Board of Directors begun at the end of the prior
fiscal year, staffing levels and overhead costs were reduced significantly. By
September 1995, a new senior management team was in place. Additional equity was
raised in June 1995, which enable the Company to exceed requirements to maintain
the Company's Nasdaq listing. During the fourth quarter of the fiscal year ended
March 31, 1996, the Company sold the assets acquired in the 1991 Mindax
acquisition to one of the founders of Mindax. Finally, on March 19, 1996 the
Company signed a letter of intent to acquire Datatech through a merger and
closed on the transaction on May 17, 1996. The consideration paid by Eltrax,
including a brokers fee, consisted of $1,176,000 in cash and 2,068,000 shares of
Eltrax common stock.
(B) NARRATIVE DESCRIPTION OF BUSINESS
DATA COMMUNICATIONS BUSINESS
PRODUCTS AND SERVICES
The Company's Datatech operations designs markets installs and
maintains communications networks. Equipment central to its operations includes
modems, routers, channel service unit's, digital service unit's, switches, hubs
and multiplexers used in communications networks. This type of equipment is used
by customers who need to (i) build and operate networks for remote access
computing; (ii) link local area networks together to form wide area networks;
(iii) provide secure and efficient access to the internet; and (iv) operate as
an internet service provider.
An example of the customers are corporate and governmental users who
need to develop greater efficiencies by providing telecommuting options to their
employees. Another example is corporate and governmental users with multiple
locations who require connections to those locations to share voice and data.
Further, customers include internet service providers and corporate and
government users seeking secure and efficient access to the internet.
Datatech also sells its products at wholesale price levels to other
value-added resellers who in turn resell to end-users.
Datatech derives service revenue by installing and maintaining certain
equipment it sells directly to end-users. Currently, Datatech purchases
equipment directly from certain manufacturers including Adtran, Ascend, Cisco,
Micom and Motorola. These manufacturers are constantly changing their
distribution policies and practices and there can be no assurance that these
relationships will continue. If these relationships are not continued,
Datatech's business could be materially adversely affected.
SALES AND MARKETING
Datatech sales activities are directed by the President of Datatech and
consist of a direct sales force of approximately twenty independent sales
executives selling to end-users and an in-house sales staff of six sales
professionals selling to other value-added resellers. The direct sales
executives are located in seven states and concentrate their efforts in close
proximity to their home locations. Sales directly to end-users account for
approximately 55% of Datatech sales revenue. The in-house sales professionals
cover the entire United States selling to other value-added resellers and
account for approximately 45% of Datatech sales revenue. No single customer
accounted for ten percent or more of Datatech's gross revenue during the last
two fiscal years.
COMPETITION
Datatech focuses on the products of leading edge manufacturers to sell
and distribute. Datatech is not limited to any single technology, manufacturer
or product line. The volume of purchasing that Datatech has been able to achieve
from these leading edge manufacturers has allowed it to achieve favorable
discounts off prices from its key manufacturer suppliers. These strengths have
allowed Datatech to compete on a level with much larger distributors like Ingram
Micro, Tech Data and Merisel, which have more significant resources than the
Company.
At the end-user level, Datatech competes with large systems integrators
like IBM and EDS by focusing on the communications aspect of the customer
requirements. Datatech does not deal with the applications of the devices
operating on the networks, only on the communications networks required to make
the applications operate effectively.
Datatech relies heavily on support and referrals from its suppliers for
sales leads.
MANUFACTURER RELATIONSHIPS
Datatech currently purchases equipment directly from Adtran, Ascend,
Cisco, Micom and Motorola on a purchase order basis. Datatech has cultivated
relationships with these manufactures and they have become an essential
ingredient in the Datatech business plan. Because these are not based on
long-term contracts, the purchases and sale terms (and prices) are constantly
changing. Any modification to the discounts offered by the manufacturers or
changes in their distribution plans can have a material adverse effect on
Datatech's results of operations. There can be no assurances that these
relationships will be maintained or the discount levels currently offered by the
manufacturers remain constant.
HEALTH CARE BUSINESS
PRODUCTS AND SERVICES
Eltrax Systems - Health Care Business, designs, develops and markets
patient admission and registration systems for the health care industry. The
Patient Card System products allow for the storage of vital patient information
and for the electronic access to a health care provider's data base, utilizing
proprietary software and magnetic stripe cards.
The Patient Card System offers the following benefits and features,
among others, to its customers:
(1) The system reduces time and effort involved in the
admission and registration process, especially
subsequent admissions, thereby reducing costs for the
health care provider and increasing patient
satisfaction.
(2) The Eltrax Card is a personalized admission card
which is an important marketing tool in an industry
where competition has become intense. The Eltrax Card
is intended to create a sense of affiliation in the
patient with a health care group and to contribute to
a hospital's efforts to differentiate itself from its
competitors.
(3) The option to install the system as a stand-alone
system, a distributed processing system, or as part
of an on-line system gives hospitals and other health
care providers increased flexibility in supporting
the admission and registration function.
The Company generates revenues as it installs computer hardware and
software in health care provider facilities and as it delivers plastic cards
formatted for use specifically by its customer. To date, the Company has
installed approximately 75 such systems, which represents an ongoing source of
revenue, through additional card sales and system upgrades.
Through a services bureau located at the Company headquarters in St.
Paul, MN, Eltrax provides, on a purchase order basis, formatting of data and
customizing of information services on the customers card order.
SALES AND MARKETING
The Company sells its Eltrax Patient Card Systems through a direct
sales force of three sales executives and one in-house sales professional, all
under the direct supervision of the Vice-President of the Health Care Business.
The three sales executives focus their efforts on complete new systems sales,
while the in-house sales professional supports new installations and sells
add-on services and cards to existing customers.
The Company is an Allied Partner of Shared Medical Systems, Inc. (SMS)
of Malvern, Pennsylvania which has over 1,000 hospital clients nationwide.
Additionally, the Company is a Business Partner of HBO & Company (HBO) of
Atlanta, Georgia with over 2,000 hospital clients nationwide. Each time an
Eltrax Patient Card System is installed at an SMS or HBO site, a fee is paid by
Eltrax to its partner. The Eltrax sales executives have begun to focus their
sales efforts using SMS and HBO as lead generators and qualifiers. The Company
expects this focus will shorten the lead times for sales and allow a smaller
sales force to be at least as effective as the larger one of 2-3 years ago.
COMPETITION
The Company believes there are a number of patient identification
products and technologies offering similar features and benefits to Eltrax's
customers. The Company has not attempted to perform a thorough analysis of all
technologies which may have applications competitive with Eltrax products. No
representation is or could be made that emerging technologies will not render
the Company's products obsolete. The Company competes by providing a complete
solution for its customers admission processing requirements.
MANUFACTURING AND SUPPLIES
The Company is dependent upon Magtek, Inc. of Carson, California to
supply a critical hardware component of the systems it sells to health care
providers. Magtek has informed the Company that it will be discontinuing this
product and replacing it with a newer more advanced model at an undisclosed
price. There can be no assurances that the Company will be able to have access
to these key components in the future, and if so, whether it would be at
historic price levels. All other components for the Health Care Business product
lines are readily available from numerous sources.
PATENTS AND LICENSES
The Company was awarded a U.S. patent in 1987 for the coding and
algorithm utilized in achieving the proprietary high density recording of data
on the Eltrax Card. However, management believes that the protection of its
software by patents or copyrights is insignificant.
OVERALL COMPANY
GOVERNMENT REGULATIONS
Prior to the divestiture of the Eltrax Digital Imaging Archiving System
business, it was necessary for Eltrax to maintain FDA approval for these
products and services. Currently, there are no such requirements for Eltrax.
The Telecommunications Reform Act of 1996 is expected to result in
greater competition throughout the telecommunications industry. This greater
competition is expected to create more opportunities for corporate and
government end-users to utilize communication facilities, thus generating
increasing needs for the equipment and services that Datatech provides.
RESEARCH AND DEVELOPMENT
The Company intends to do limited research and development of systems
using portable information technologies. During the 1996 and 1995 fiscal years,
the Company incurred costs of approximately $106,000 and, $217,000 respectively,
for research and development. During such fiscal years, no material amounts were
incurred for customer-sponsored research and development.
EMPLOYEES
As of June 19, 1996, the Company employed 28 persons on a full-time
basis, and 6 persons on a part-time basis, 11 of which are in the Health Care
Business and the balance in Datatech. In addition, Datatech engages the services
of approximately 20 independent sales executives acting as its direct sales
force. The Company's employees, including those of Datatech, are not covered by
any collective bargaining agreements and management believes its employee
relationships are good. The Company's ability to develop additional commercially
marketable products and to establish a market position in view of continuing
technological developments will depend in part upon its ability to attract and
retain qualified technical personnel. Competition for such personnel is intense.
ITEM 2 DESCRIPTION OF PROPERTY
FACILITIES
The Company's corporate headquarters and Health Care Business is
located at 1775 Old Highway 8, St. Paul, MN, and consist of 6,300 square feet.
Approximately 3,800 feet of this space is used for office space, 1,200 feet is
used for production space, and 1,300 feet is warehouse space. The lease on this
space currently provides for rent of $5,300 per month, including base rent and a
pro rata share of operating expenses and real estate taxes. This lease
terminates on September 30, 1998.
The Company's Data Communications Business facilities are located at
27126 A Paseo Espada, San Juan Capistrano, California, and consist of 5,400
square feet. Approximately 2,100 feet of this space is used for office space,
3,300 feet is used for warehouse space. The lease on this space currently
provides for rent of $4,768 per month, including base rent and a pro rata share
of operating expenses and real estate taxes. This lease terminates on December
31, 1996.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The Company's Common Stock is traded in the national over-the-counter
market on the Nasdaq Small Cap Market under the symbol ELTX. The following table
sets forth the quarterly high and low bid quotations, as reported by The Nasdaq
Small Cap Market. The prices set forth below do not include adjustments for
retail mark-ups, mark-downs or commissions and represent inter-dealer and do not
necessarily represent actual transactions.
Fiscal Year Ended March 31, 1996
--------------------------------
Quarter High Low
------- ---- ---
First $0.56 $0.31
Second $1.69 $0.31
Third $2.31 $1.38
Fourth $4.75 $1.44
Fiscal Year Ended March 31, 1995
--------------------------------
Quarter High Low
------- ---- ---
First $1.50 $1.13
Second $1.69 $0.63
Third $0.63 $0.50
Fourth $0.47 $0.38
As of March 31, 1996, there were approximately 240 shareholders of
record. The Company estimates that an additional 1,700 shareholders own stock
held for their accounts at brokerage firms and financial institutions. The
Company's, Board of Directors has never paid cash dividends on any of its
securities. The Company currently intends to retain any earnings for use in its
operations and does not anticipate paying cash dividends in the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
In March 1996, the Company sold its digital imaging archiving
("Imaging") business. All financial information has been reclassified to report
separately the operating results, net assets and cash flows of the discontinued
Imaging operations. The 1996 income from discontinued operations included a
$133,000 gain on the sale of the Company's investment in the Imaging business.
All financial information and related Management's Discussion and Analysis or
Plan of Operation discussed herein excludes the Imaging business sold and
Datatech, as the acquisition of Datatech closed on May 17, 1996, after the
Company's fiscal year ended March 31, 1996.
Total revenue for the fiscal year ended March 31, 1996 decreased by
21.4% to $880,000 when compared to total revenue of $1,120,000 for the prior
fiscal year. Card system sales decreased primarily due to a lower number of
sales people employed during the year. The decrease in revenues was partially
offset by card services offered by the Company's Service Center and by an
increase in revenues from existing customers when compared to the previous
fiscal year. Management expects card system sales to increase slightly during
fiscal year 1997.
The gross margin percentage increased to 66.6 percent in fiscal 1996
from 65.2 percent in fiscal 1995. This increase mostly reflects a larger
percentage of sales of higher margin card system sales, particularly plastic,
magnetic-stripe cards, which carry a higher gross margin. Management anticipates
that the gross margin will be approximately the same or slightly lower in future
periods.
Operating expenses decreased 24.5 percent to $1,071,000 in fiscal 1996,
compared to $1,417,000 in fiscal 1995. This decrease occurred with selling,
general and administrative expenses, which declined by $282,000, or 22.6 percent
verses the previous fiscal year. This decrease primarily reflects reduced
personnel costs following the Company's strategic review and lower production
and materials costs for sales literature.
Product development expenses, which totaled nearly $103,000 in fiscal
1996, decreased by nearly $65,000 from the previous year. This decrease mostly
reflects reduced development projects for the card systems, compared to the
previous fiscal year. The decrease in card development expenses reflects lower
staffing levels and consulting expenses in an effort to concentrate on our
existing products.
Although the Company continues to make additional software enhancements
to its existing products, no significant product development efforts are
currently underway. Management believes the Company's resources are better
utilized by acquiring or marketing products and services of other companies
rather than internally developing new products.
Net investment income (loss) was $114,000 in fiscal 1996 compared to a
loss of $322,000 in fiscal 1995. This increase between years primarily reflects
a $459,000 realized loss recorded in fiscal 1995 on the sale of short-term
investments versus a gain in fiscal year 1996 as explained in the next
paragraph.
In October 1995, the Company agreed to remain part of a class action
lawsuit in which the Company and other members of the class alleged various
securities law violations against Piper Jaffray Companies, Inc. and related
entities ("Piper") in connection with losses incurred with investments in
Piper's Institutional Government Income Portfolio Fund. In December 1995, the
final court order was signed which awarded the Company approximately $118,000.
Accordingly, the Company recorded a gain on settlement of $100,000 which
represents the Company's award less its share of legal expenses.
Loss from continuing operations decreased from $1,009,000 in fiscal
year 1995 to $270,000 in fiscal year 1996 as the Company instituted cost
reduction measures and realized substantially increased investment related
income.
Discontinued digital imaging archiving operations reflects the
Company's sale of its digital imaging archiving business in fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at March 31, 1996
totaled $1,865,000, compared to $1,370,000 at March 31, 1995. This increase is
due primarily due to the $380,000 of proceeds resulting from the issuance of
common stock in fiscal year 1996. Subsequent to year end, the Company used
approximately $1,000,000 in connection with its acquisition of Datatech.
Expenditures for furniture and equipment were nearly $22,000 in fiscal
year 1996, mostly reflecting ongoing purchases to support the sales and
marketing and product development efforts.
Datatech's tax return for its year ended December 31, 1993 is currently
under examination by the IRS. The Company expects to pay an additional tax and
interest as a result of this examination out of current operating revenues.
Additionally, the Company anticipates filing for a change of accounting method
with the IRS which may result in additional income and tax liability related to
the Datatech operations. The cash flow needs from this action is expected to
occur in future periods and has been reserved in the March 31, 1996 balance
sheet proforma (Information included Note 2 to the Company's financial
statements).
RECENT DEVELOPMENTS
On May 17, 1996, the Company closed on its acquisition by merger of
Datatech pursuant to an Agreement and Plan of Merger dated as of May 14, 1996
(the "Merger Agreement") by and among the Company, Datatech Acquisition
Corporation, Rudata Acquisition Corporation, Nordata, Inc. ("Nordata"), and
Rudata, Inc. ("Rudata"), and Howard B. and Ruby Lee Norton (collectively the
"Shareholders"). Pursuant to the Terms of the Merger Agreement, the Company
issued 1,983,000 shares of Eltrax common stock and paid $1,016,000 to Howard B.
and Ruby Lee Norton. The Shareholders repaid loans aggregating $186,000
previously owed to Nordata out of cash proceeds received upon the closing of the
merger. The 1,983,000 shares issued in connection with the Merger represented
approximately 25.2% of the outstanding shares of common stock after the closing,
and were restricted shares as defined under the Securities Act of 1933, as
amended, and which have certain Form S-3 demand registration rights, and certain
"piggyback" registration rights. All expenses of any such registration will be
borne by the Company. Of the 1,983,000 shares issued to the Shareholders,
453,000 shares were issued into an escrow account pursuant to an escrow
agreement between the Company, the Shareholders and Norwest Bank Minnesota,
N.A., the terms of which provide for the release of the escrowed shares to the
Shareholders on May 17, 1998, subject to certain claims and conditions.
Pursuant to a Broker Fee Agreement dated as of May 17, 1996 by and
among the Company, Garte Global Capital Markets, Harvey Garte, Richard M. Torre
and Steve Holmes, $160,000 cash was paid, and 85,000 shares of restricted Eltrax
common stock were issued, to Harvey Garte, Richard Torre and Steve Holmes in
consideration for broker services rendered in connection with the Merger.
For the year ended December 31, 1995, Datatech had unaudited sales in
excess of $15,000,000.
Further, in connection with the Merger, Nordata, now a wholly-owned
subsidiary of Eltrax, entered into an employment and non-competition agreement
with each of Howard B. and Ruby Lee Norton, the terms of which generally provide
for the employment by Nordata of Howard B. and Ruby Lee Norton for a period of
five years commencing May 17, 1996. In addition, the employment and
non-competition agreement of Howard B. Norton provides for the payment of
certain incentive payments to Howard B. Norton based upon the performance of
Nordata.
Information contained in this Annual Report contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "anticipate",
"estimate", or "continue" or the negative thereof or other variations thereon or
comparable terminology. These constitutecautionary statements which, depending
on various risks and uncertainties, may differ materially from those reflected
in such forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants........................................... 10
Balance Sheet as of March 31, 1996 and 1995................................. 12
Statement of Operations for the years ended March 31, 1996 and 1995......... 13
Statements of Shareholders' Equity for the years ended
March 31, 1996 and 1995................................................... 14
Statement of Cash Flows for the years ended March 31, 1996 and 1995......... 15
Notes to Financial Statements for the years ended March 31, 1996 and 1995... 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Eltrax Systems, Inc.:
We have audited the accompanying balance sheet of Eltrax Systems, Inc.
as of March 31, 1996, and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Eltrax Systems, Inc. as of March 31, 1995, were audited by other
auditors whose report expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 2, on May 17, 1996, the Company acquired all of
the outstanding shares of Nordata, Inc. and Rudata, Inc., doing business as
Datatech.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eltrax Systems, Inc.
as of March 31, 1996, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
June 26, 1996
Minneapolis, Minnesota
REPORT OF INDEPENDENT ACCOUNTANTS
To Eltrax Systems, Inc.:
We have audited the accompanying balance sheet of Eltrax Systems, Inc.
(a Minnesota corporation) as of March 31, 1995, and the related statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eltrax Systems, Inc.
as of March 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
May 5, 1995
Minneapolis, Minnesota
ELTRAX SYSTEMS, INC.
BALANCE SHEET
As of March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 480,523 $ 194,079
Short-term investments 1,384,886 1,175,822
Accounts receivable, net of reserves of $10,176 and $26,900 223,991 203,697
Inventories 57,091 69,611
Prepaid expenses 26,510 30,046
Note receivable - current 81,832 39,991
Net assets related to discontinued operations -- 269,744
----------- -----------
Total current assets 2,254,833 1,982,990
Furniture and equipment, net of accumulated
depreciation of $155,097 and $110,393 42,514 42,909
Note receivable - non current 198,658 69,984
----------- -----------
Total assets $ 2,496,005 $ 2,095,883
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable 65,537 84,940
Accrued expenses 74,199 120,209
Unearned revenue 70,807 89,740
----------- -----------
Total current liabilities 210,543 294,889
Commitments
Shareholders' Equity:
SeriesA convertible preferred stock, no par, $7.50 per share
liquidation preference; 4,000 and 7,715 shares issued
and outstanding 29,163 52,312
Common stock, $.01 par value, 8,000,000 shares authorized;
4,497,063 and 3,678,268 shares issued and outstanding 44,971 36,783
Additional paid-in capital 7,622,100 7,227,606
Accumulated deficit (5,410,772) (5,515,707)
----------- -----------
Total shareholders' equity 2,285,462 1,800,994
----------- -----------
Total liabilities and shareholders' equity $ 2,496,005 $ 2,095,883
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ELTRAX SYSTEMS, INC.
STATEMENT OF OPERATIONS
For the Years Ended March 31, 1996 and 1995
1996 1995
----------- -----------
REVENUE:
System sales $ 752,893 $ 1,027,250
Service contracts 127,411 92,668
----------- -----------
Total revenue 880,304 1,119,918
COST OF REVENUE:
System sales 254,877 350,492
Service contracts 39,077 39,352
----------- -----------
Total cost of revenue 293,954 389,844
----------- -----------
Gross Profit 586,350 730,074
OPERATING EXPENSES:
Selling, general and administrative 967,607 1,249,924
Product development 103,170 167,558
----------- -----------
Total operating expenses 1,070,777 1,417,482
----------- -----------
Operating loss (484,427) (687,408)
INVESTMENT INCOME (LOSS), NET 114,135 (321,611)
GAIN ON SETTLEMENT RELATED TO PAST
INVESTMENT LOSSES 100,000 --
Loss from continuing operations (270,292) (1,009,019)
DISCONTINUED DIGITAL IMAGING ARCHIVING OPERATIONS:
Income (loss) from discontinued operations 242,013 (252,944)
Gain on disposal of discontinued operations 133,214 --
----------- -----------
Net income (loss) $ 104,935 $(1,261,963)
=========== ===========
INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT:
CONTINUING OPERATIONS ($ 0.06) ($ 0.28)
=========== ===========
DISCONTINUED OPERATIONS $ 0.08 ($ 0.07)
=========== ===========
NET INCOME (LOSS) PER SHARE $ 0.02 ($ 0.35)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,653,473 3,609,227
=========== ===========
The accompanying notes are an integral part of these financial statements.
ELTRAX SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
--------------------------------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
March 31, 1994 16,175 $ 117,931 3,588,268 $ 35,883 $ 7,162,887 $(4,253,744) $ 3,062,957
Net loss -- -- -- -- -- (1,261,963) (1,261,963)
Conversion of
preferred shares
to common shares (9,000) (65,619) 90,000 900 64,719 -- --
-----------------------------------------------------------------------------------------------
BALANCE,
March 31, 1995 7,175 52,312 3,678,268 36,783 7,227,606 (5,515,707) 1,800,994
Net income -- -- -- -- -- 104,935 104,935
Conversion of
preferred shares
to common shares (3,175) (23,149) 31,750 317 22,832 -- --
Exercise of stock
options -- -- 26,173 262 29,270 -- 29,532
Private Placement -- -- 760,872 7,609 342,392 -- 350,001
-----------------------------------------------------------------------------------------------
BALANCE,
March 31, 1996 4,000 $ 29,163 4,497,063 $ 44,971 $ 7,622,100 $(5,410,772) $ 2,285,462
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
ELTRAX SYSTEMS, INC.
STATMENT OF CASH FLOW
For the Years Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 104,935 $(1,261,963)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation 76,727 86,034
Gain on sale of digital imaging archiving business (133,214) --
Gains and losses on marketable securities, net (100,000) 459,201
Changes in current operating items:
Accounts receivable 109,784 182,619
Inventories 20,399 16,845
Prepaid expenses 3,536 (9,590)
Accounts payable (31,727) (69,013)
Accrued expenses (52,010) (82,579)
Unearned revenue (23,073) (20,870)
----------- -----------
Net cash used for operating activities: (24,643) (699,316)
----------- -----------
INVESTING ACTIVITIES
Purchases of short-term investments (1,319,979) (2,159,388)
Proceeds from sales of short-term investments 1,110,915 2,891,383
Proceeds from settlement related to short-term investments 26,040 --
Purchases of furniture and equipment (22,080) (50,790)
Proceeds from notes receivable 36,658 --
Proceeds from sale of equipment -- 4,678
Proceeds from sale of digital imaging archiving business 100,000 --
----------- -----------
Net cash (used for) provided by investing activities: (68,446) 685,883
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuances of common stock 379,533 --
----------- -----------
Increase (decrease) in cash and cash equivalents 286,444 (13,433)
CASH AND CASH EQUIVALENTS
Beginning of period 194,079 207,512
----------- -----------
End of period $ 480,523 $ 194,079
=========== ===========
Supplemental disclosure of non-cash investing activities:
Notes receivable issued in connection with:
Disposition of digital imaging archiving business $ 133,214
Settlement related to short-term investments $ 73,960
</TABLE>
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Operations:
Eltrax Systems, Inc. ("Eltrax" or the" Company") primarily develops and
markets a patient card system which expedites patient admission and registration
at hospitals, clinics and other health care facilities and enhances a patient's
sense of membership and affiliation with a specific health care provider. The
system includes hardware, software and interfaces, as well as a variety of
services including customization, installation and training. Through the Eltrax
Service Center, the Company offers services for the systems - encoding patient
information onto cards and then mailing them directly to patients.
In March 1996, the Company sold its digital imaging archiving business,
see Note 4. In May 1996, the Company acquired Nordata, Inc. and Rudata, Inc.,
dba Datatech, see Note 2.
2. Significant Post-Balance Sheet Acquisition
On May 17, 1996, the Company acquired 100% of the outstanding shares of
Nordata, Inc. and Rudata, Inc. doing business as Datatech, which configures,
markets, installs and maintains data communications equipment for its customers'
computer and telecommunications systems over enterprise wide local area networks
and wide area networks. Consideration paid to the sellers included 1,983,000
unregisterd shares of the Company's common stock and cash of $1,016,000. In
addition, the Company paid broker fees consisting of 85,000 unregistered shares
of the Company's common stock and cash of $160,000. The Company expects other
acquisition expenses to total approximately $300,000. Of the shares issued to
the sellers, 453,000 shares were issued into an escrow account pursuant to an
escrow agreement, the terms of which provide for the release of the escrowed
shares to the sellers on May 17, 1998, subject to certain claims and conditions.
The Datatech acquisition is significant to the Company's financial
position, results of operations and cash flows. Unaudited pro forma balance
sheet information of the Company as of March 31, 1996 as if the acquisition of
Datatech had occurred on March 31, 1996, is as follows:
Current assets, principally accounts
receivable and inventories $ 7,400,000
Non-current assets, principally goodwill 7,500,000
============
Total Assets $ 14,900,000
Current liabilities, principally comprised of
accounts payable and accrued expenses $ 6,400,000
Shareholders' equity $ 8,500,000
The closing balance sheet of Datatech has not been finalized and, thus,
the above unaudited pro forma financial information of the Company has been
estimated and will change upon finalization of the Datatech balance sheet.
This acquisition will be accounted for as a purchase and, accordingly,
the results of Datatech's operations will be included in the Company's fiscal
year 1997 consolidated financial statements from the date of acquisition.
3. Summary of Significant Accounting Policies:
USE OF ESTIMATES
The preparation of the Company's financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results may differ from these estimates.
CASH EQUIVALENTS
The Company considers all investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of short-term money market instruments that are recorded at
cost, which approximates market.
SHORT-TERM INVESTMENTS
The Company's investments are classified as available-for-sale and are
reported at fair value with unrealized gains and losses recorded as a separate
component of shareholders' equity.
Short-term investments consist primarily of high-grade, fixed income
securities with original maturities beyond three months. At March 31, 1996 and
1995, the fair value of the Company's short-term investments approximated cost.
The fair value of available-for-sale debt securities by contracted maturity date
at March 31, 1996 was as follows:
Due in one year or less $ 679,886
Due after one year through five years 505,000
Thereafter 200,000
--------------
$ 1,384,886
==============
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed
using the straight-line method over estimated useful lives of two to five years.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
The Company is required to adopt SFAS No. 121 no later than fiscal year 1997.
Management currently believes that adoption of SFAS No. 121 in fiscal year 1997
will not have a significant impact on the Company's financial position or
results of operations.
REVENUE RECOGNITION
Revenue from system sales is recognized upon shipment.
During fiscal year 1996, no one customer represented more than 10% of
the total sales of the company. During fiscal year 1995, approximately 10.93% of
the Company's revenues resulted from sales to one customer. No other customer
accounted for more than 10% of revenues in fiscal year 1995.
RESEARCH AND DEVELOPMENT
The costs of product development activities are expensed as incurred.
NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Income (loss) per share data is determined by dividing income (loss) by
the weighted average number of common and common equivalent shares outstanding.
Common stock equivalents represent shares issuable upon the assumed exercise of
dilutive stock options and warrants.
4. Discontinued Digital Imaging Archiving Business
On March 1, 1996, the Company sold its digital imaging archiving
(Imaging) business for $100,000 in cash and a $180,000 non-interest bearing note
receivable due and payable over a five year period. This note was recorded at a
discounted amount assuming an effective interest rate of twelve percent. The
financial statements have been restated to present the results of the Imaging
business as discontinued operations. Income from discontinued operations
includes the following:
1996 1995
Net revenue $573,520 $601,864
Income (Loss) from operations 242,013 (252,944)
Gain on sale 133,214 --
Income (loss) from discontinued $375,227 $(252,944)
operations
5. Shareholders' Equity:
PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock, 30,000
of which were designated as Series A convertible preferred stock (the Preferred
Stock). The Preferred Stock is nonvoting, convertible into ten shares of common
stock for each share of Preferred Stock, subject to adjustment, and carries a
$7.50 liquidation preference. The preferred shareholders are entitled to
dividends as declared by the Company and no dividends may be paid on outstanding
common stock without concurrently declaring a dividend on the preferred stock in
an amount determined by the Company's board of directors. Additionally, the
Company has the option to redeem the preferred stock at fair value, as defined,
at any time on or after January, 1995.
STOCK OPTION PLAN
On May 31, 1995, the Company's Board of Directors adopted the 1995
Stock Incentive Plan (the "1995 Plan"), which was approved by the Company's
shareholders. The 1995 Plan, under which a minimum of 450,000 shares of Common
Stock of the Company are available for various stock incentive awards, replaced
the Company's 1992 Stock Incentive Plan (the "1992 Plan"), which was approved by
the shareholders of the Company and implemented on July 30, 1992. The 1992 Plan
will continue to exist until the stated termination date of such plan, or May
29, 2002, and any shares of the Company's Common Stock available for issuance
under the 1992 Plan which have either not been issued or have been issued but
were forfeited, or which become available for issuance due to forfeiture or
expiration, will become shares available for issuance under the 1995 Plan, in
addition to the base number of 450,000 shares of Common Stock available under
the 1995 Plan. The 1995 Plan provides that certain eligible individuals,
including salaried officers, Company employees, nonemployee directors, agents
and consultants, may be granted options for providing services to the Company.
The 1992 Plan and the 1995 Plan are administered by a compensation committee
(the Committee) consisting of two members of the board of directors. Options are
granted at per share amounts as determined by the Committee, but not less than
the fair market value, as defined in the 1995 Plan, at the date of the grant.
All outstanding options vest at various times, not to exceed 10 years, through
2006.
A summary of changes in options outstanding under the 1995 and 1992
Plans during fiscal 1996 and 1995 is as follows:
NUMBER PRICE PER
OF SHARES SHARE
---------------------------
Outstanding at
March 31, 1994 383,223 1.38-3.19
Granted 136,167 0.45-1.56
Expired (145,068) 0.72-3.19
---------------------------
Outstanding at
March 31, 1995 374,322 0.45-3.19
Granted 294,500 0.41-2.19
Expired (171,232) 0.45-2.19
---------------------------
Outstanding at
March 31, 1996 497,590 $0.45-$3.19
===========================
Exercisable at
March 31, 1996 381,465
========
Available for grant at
March 31, 1996 375,112
========
In addition to the 1995 Plan, the Company has granted nonqualified
options which are fully vested and become exercisable on various dates through
fiscal 2005. A summary of changes in the outstanding nonqualified options during
fiscal 1996 and 1995 is as follows:
NUMBER PRICE PER
OF SHARES SHARE
---------------------------
Outstanding at
March 31, 1994 35,000 $1.63-$1.75
Granted 10,000 $0.72
---------------------------
Outstanding at
March 31, 1995 45,000 $0.72-$1.75
---------------------------
Outstanding at
March 31, 1996 45,000 $0.72-$1.75
==========================
Exercisable at
March 31, 1996 45,000
======
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, a new standard of
accounting and reporting for stock-based compensation plans. The Company is not
required to adopt the new standard until fiscal year 1997. The Company expects
to continue to measure compensation cost for its stock option plans using the
intrinsic value based method of accounting it has historically used and,
therefore, the new standard is not expected to effect the Company's operating
results. The Company's financial statement disclosures will be expanded in
fiscal year 1997, as required, to include pro forma disclosures as if the fair
value based method of accounting had been followed.
STOCK WARRANTS
In connection with various financing transactions the Company has
issued warrants to purchase common stock of the Company. A summary of warrants
outstanding at March 31, 1996, is as follows:
Number Exercise
Year Issued of Warrants Price Expiration
----------- ----------- ----- ----------
1988 1,785 $5.60 November 1998
1990 16,045 $1.75 August 1996
1994 135,000 $3.60 December 1997
1995 500,000 $0.75-$1.00 June 2002
1996 166,667 $2.25 February 2003
-------
Total warrants
outstanding 819,497
=======
All of the above warrants are vested of March 31, 1996, except for
166,667 warrants issued in 1996, which vest periodically through February 2003.
STOCK PURCHASE RIGHT
The Company has agreements with all shareholders of record prior to May
19, 1986 (other than the incorporators) which restrict the sale or transfer of
common stock if such restricted shareholders are interested in selling their
shares, they must first offer such shares to the Company. If the Company does
not exercise its option within a specified number of days, the incorporating
shareholders will have the same number of days to purchase the shares. Upon the
expiration of the time period for both Rights, the shareholders would be free to
sell the shares to outside parties. The method of determining the purchase
price, if the stock purchase rights are exercised, is designated in each of the
agreements.
6. Operating Leases:
The Company leases office space and certain equipment under operating
leases which expire at various dates through 1999 with some leases containing
options for renewal. Rent expense under these leases was $85,300 in fiscal 1996
and $92,600 in fiscal 1995. As of March 31, 1996, approximate future commitments
under these operating leases, are as follows:
1997 $63,700
1998 63,700
1999 31,850
7. Income Taxes:
Deferred income taxes are recognized to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes with a
valuation allowance recognized to reflect the uncertainty of the realization of
the deferred tax assets. Significant components of the Company's deferred tax
assets are as follows:
1996 1995
------------------------------------------------------------------
Deferred tax assets and
(Liabilities):
Net operating loss
carryforwards $ 1,293,200 1,799,600
Capital loss
carryforwards 260,800 271,600
Unearned revenue 18,000 17,700
Reserves not deductible 12,500 26,200
General business credits 15,900 15,900
Other assets 9,200 20,300
Other liabilities (29,900) --
Valuation allowance (1,579,700) (2,151,300)
----------------------------
$ -- $ --
============================
At March 31, 1996 and 1995, the Company had established a full
valuation allowance due to uncertainty as to the likelihood and timing of future
taxable income. At March 31, 1996, the Company had net operating loss
carryforwards of approximately $3,233,000 expiring at various dates through
2010. In addition, the Company has capital loss carryforwards of approximately
$652,000.
8. Savings and Retirement Plan:
The Company sponsors a 401(k) savings and retirement plan which is
available to all eligible employees. Under the plan, the Company may make a
discretionary matching contribution equal to a percentage, as determined by the
Company, of employee contributions. Discretionary matching contributions were
approximately $7,400 in fiscal 1996 and $12,100 in fiscal 1995.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In May 1995, the Board of Directors of the Company decided to change
the Company's independent accountants to Divine, Sherzer & Brody, Ltd. The
Company's previous independent accountants, Arthur Andersen LLP, were dismissed.
The Company filed a current report on Form 8-K dated May 31, 1995 to report that
the Company dismissed Arthur Andersen LLP and retained new certifying
accountants, Divine, Sherzer & Brody, Ltd. After a new senior management team
was in place in the fall of 1995, the Board of Directors determined to change
independent accountants to Coopers & Lybrand L.L.P. The Company's then-existing
independent accountants, Divine, Sherzer & Brody, Ltd., were dismissed on
January 26, 1996. The Company filed an additional current report on Form 8-K
dated January 26, 1996 to report that the Company dismissed its prior certifying
accountants, Divine, Sherzer & Brody, Ltd., and retained Coopers & Lybrand
L.L.P. as its new certifying accountants to audit its financial statements for
the fiscal year ended March 31, 1996.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(C) DIRECTORS OF THE COMPANY
The information under the captions "Election of Directors Nomination",
- -- Information About Nominees" and "-Other Information About Nominees" in the
Company's 1996 Proxy Statement is incorporated herein by reference.
(D) EXECUTIVE OFFICERS OF THE COMPANY
The information under the captions "Election of Directors -- Director
Compensation" and "Executive Compensation and Other Benefits" in the Company's
1996 Proxy Statement is incorporated herein by reference.
(E) COMPLIANCE WITH SECTION 16(a)
The information under the caption "Section 16 Compliance" in the
Company's 1996 Proxy Statement is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Director
Compensation" and "Executive Compensation and Other Benefits" in the Company's
1996 Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1996 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(f) 1. Exhibits
The exhibits to this Report are listed in the Exhibit
Index on pages E-1 to E-3 below.
A copy of any of the exhibits listed or referred to
above will be furnished at a reasonable cost to any
person who was a shareholder of the Company as of
June 27, 1996, upon receipt from any such person of a
written request for any such exhibit. Such request
should be sent to Eltrax Systems, Inc., Rush Lake
Business Park, 1775 Old Highway 8, St. Paul,
Minnesota 55112; Attn.: Shareholder Relations.
2. Management Contracts
The following is a list of each management contract
or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form
10-KSB pursuant to Item 13(a):
A. Form of Incentive Stock Option Agreement
(incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on
Form S-18 (File No. 33-51456)).
B. From of Non-Statutory Stock Option Agreement
(incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on
Form S-18 (File No. 33- 51456)).
C. 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-18 (File
No. 33-51456)).
D. 1995 Stock Incentive Plan (incorporated by
reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-KSB for the year
ended March 31, 1995 (File No. 0-22190)).
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated May 31, 1995 to
report that the Company dismissed its then previous certifying accountants,
Arthur Andersen LLP, and retained new certifying accountants, Divine, Sherzer &
Brody, Ltd. The Company also filed a current report on Form 8-K dated January
26, 1996 to report that the Company dismissed its prior certifying accountants,
Divine, Sherzer & Brody, Ltd., and retained new certifying accountants, Coopers
& Lybrand L.L.P.
Subsequent to its fiscal year end the Company filed on form 8-K dated
June 3, 1996 a report detailing its acquisition of Datatech through a merger.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ELTRAX SYSTEMS, INC.
Date: June 26, 1996 By /s/ Mack V. Traynor
Mack V. Traynor, Chief Executive
Officer and President (principal
executive officer, acting
principal financial officer and
principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on June 26, 1996 by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
Signature and Title
/s/ Gene A. Bier
Gene A. Bier, Director
/s/ Patrick J. Dirk
Patrick J. Dirk, Director
/s/ Clunet R. Lewis
Clunet R. Lewis, Director
/s/ Thomas F. Madison
Thomas F. Madison, Director
/s/ Howard B. Norton
Howard B. Norton, Director
/s/ William P. O'Reilly
William P. O'Reilly, Chairman of the
Board
/s/ Mack V. Traynor
Mack V. Traynor, Director, Chief
Executive Officer and President
ELTRAX SYSTEMS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
For Fiscal Year Ended March 31, 1996
<TABLE>
<CAPTION>
Item No. Item Method of Filing
<S> <C> <C>
2.1 Agreement and Plan of Incorporated by reference
Reorganization dated March 7, to Exhibit 2.1 to the
1991, by and among Eltrax Company's Registration
Systems, Inc., Eltrax Acquisition Statement on Form S-18
Corporation and Mindax (File No. 33-51456).
Corporation.
2.2 Agreement and Plan of Merger Incorporated by reference
dated as of May 14, 1996 by and to Exhibit 2.1 to the
among Eltrax Systems, Inc., a Company's current report
Minnesota corporation and a on Form 8-K filed June 3,
wholly owned subsidiary of 1996 (File No. 0-22190).
Eltrax, Rudata Acquisition
Corporation, a Minnesota
Corporation and wholly owned
subsidiary of the Eltrax,
Nordata, Inc., a California
corporation ("Nordata") and
Rudata, Inc., A California
corporation ("Rudata") and Howard
B. and Ruby Lee Norton, as
amended pursuant to that First
Amendment to Agreement and Plan
of Merger dated as of May 17,
1996 by and among the same
parties.(1)
3.1 The Company's Restated Articles Incorporated by reference
of Incorporation, as amended. to Exhibit 3.1 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
3.2 The Company's Bylaws as amended. Incorporated by reference
to Exhibit 3.2 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
- --------
(1) Omitted from such exhibit, as files, are the remaining exhibits
referenced in such agreement. The registrant will furnish supplementally a copy
of any such exhibits to the Commission upon request.
Item No. Item Method of Filing
4.1 Specimen Form of the Company's Incorporated by reference
Common Stock Certificate. to Exhibit 4.1 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.1 Sales Agreement, dated January Incorporated by reference
14, 1986, between the Company and to Exhibit 10.1 to the
MagTek, Inc., as amended by Company's Registration
letter agreement dated June 24, Statement on Form S-18
1987 and April 20, 1990. (File No. 33-51456).
10.2 Purchase Agreement, dated Incorporated by reference
November 9, 1988, between the to Exhibit 10.2 to the
Company and Scripps Memorial Company's Annual Report on
Hospitals, as amended January 21, Form 10-KSB for the year
1991. ended March 31, 1995 (File
No. 0-22190).
10.3 Lease Agreement (commencing April Incorporated by reference
15, 1993) between The Skillman to Exhibit 10.3 to the
Corporation and the Company. Company's Annual Report on
Form 10-KSB for the year
ended March 31, 1993 (File
No. 0-22190).
10.4 1992 Stock Incentive Plan. Incorporated by reference
to Exhibit 10.4 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.5 Marketing Agreement, dated Incorporated by reference
October 18,1989, between the to Exhibit 10.5 to the
Company and Shared Medical Company's Registration
Systems Corporation, as amended Statement on Form S-18
June 29, 1992. (File No. 33-51456).
10.6 Form of Incentive Stock Option Incorporated by reference
Agreement. to Exhibit 10.6 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.7 Form of Non-Statutory Option Incorporated by reference
Agreement. to Exhibit 10.7 to the
Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.8 License Agreement, dated April Incorporated by reference
15, 1992, between E.I. DuPont de to Exhibit 10.8 to the
Nemours Company and the Company. Company's Registration
Statement on Form S-18
(File No. 33-51456).
10.9 Purchase Agreement, dated Incorporated by reference
September 5, 1985, between the to Exhibit 10.9 to the
Company and Medes, Inc., as Company's Registration
amended August 28, 1989. Statement on Form S-18
(File No. 33-51456).
10.10 Form of Non-Employee Director Incorporated by reference
Stock Option Agreement. to Exhibit 10.10 to the
Company's Annual Report on
Form 10KSB for the year
ended March 31, 1993 (File
No. 0-22190).
10.11 1995 Stock Incentive Plan Incorporated by reference
to Exhibit 10.12 to the
Company's Annual Report on
Form 10-KSB for the year
ended March 31, 1995 (File
No. 0-22190).
10.12 Asset Purchase Agreement dated Filed herewith.
February 19, 1996 between the
Company and Emerald Archiving,
Inc.
10.13 Employment Agreement dated June Filed herewith.
7, 1996 between Robert Taylor and
the Company.
10.14 Employment and Noncompetition Incorporated by reference
Agreement dated as of May 17, to Exhibit 2.4 to the
1996 by and between Nordata, Company's current report
Inc., and Ruby Lee Norton, an on Form 8-K filed June 3,
individual residing in the state 1996 (File No. 0-22190).
of California.
10.15 Employment and Noncompetition Incorporated by referenced
Agreement dated as of May 17, to Exhibit 2.5 to the
1996 by and between Nordata, Company's current report
Inc., and Howard B. Norton, an on Form 8-K filed June 3,
individual residing in the state 1996 (Form No. 0-22190).
of California.
21.0 List of Subsidiaries. Filed herewith.
</TABLE>
CORPORATE OFFICER CORPORATE INFORMATION
Mack V. Traynor, III CORPORATE HEADQUARTERS
President, Chief Executive
Officer, Director, Rush Lake Business Park
Acting Chief Financial Officer 1775 Old Highway 8
St. Paul, Minnesota 55112
BOARD OF DIRECTORS Telephone: (612) 633-8373
Facsimile: (612) 633-8372
William P. O'Reilly SHAREHOLDER INFORMATION
Chairman of the Board,
Eltrax Systems, Inc. A copy of the Company's 1996 Annual
Chairman of the Board Report on Form 10-KSB as filed with
the Securities and Exchange
Mack V. Traynor, III Commission is available by writing
President, Chief Executive Officer, to Mack V. Traynor, III, Chief
Acting Chief Financial Officer Executive Officer, at the corporate
Eltrax Systems, Inc. headquarters of Eltrax Systems, Inc.
Patrick J. Dirk
Eltrax Systems, Inc. ANNUAL MEETING
Chairman of the Board
Pierce Companies, Inc. Shareholders, employees and friends
are invited to attend the Annual
Gene A. Bier Meeting of Eltrax Systems, Inc. on
Retired Vice President and Chief Tuesday, July 23, 1996, at 10:00a.m.
Executive Officer at the Sheraton Park Place Hotel,
Minnesota Northwestern Bell 1500 Park Place Boulevard,
Minneapolis, Minnesota
Clunet R. Lewis
STOCK LISTING
Howard B. Norton
Vice President Datatech NASDAQ SmallCap Market System
symbol: ELTX
Thomas F. Madison
President and Chief Executive Officer
MLM Partners LEGAL COUNSEL
INDEPENDENT ACCOUNTANTS Oppenheimer Wolff & Donnelly
45 South Seventh Street
Coopers & Lybrand L.L.P. Suite 3400
IBM Park Building, Suite 1300 Minneapolis, Minnesota 55402
650 Third Avenue South
Minneapolis, Minnesota 55102-4333 TRANSFER AGENT AND REGISTRAR
CORPORATE SECRETARY Norwest Bank Minnesota, N.A.
Stock Transfer Department
Thomas R. Marek 161 North Concord Exchange
Secretary So. St. Paul, Minnesota 555075-0738
Partner
Oppenheimer Wolff & Donnelly Communications concerning change of
address or stock certificates should
be directed to the transfer agent.
ASSET PURCHASE AGREEMENT
BETWEEN
ELTRAX SYSTEMS, INC.,
AND
EMERALD ARCHIVING, INC.
Dated February 19, 1996
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C> <C> <C>
ARTICLE I SALE AND PURCHASE OF ASSETS.............................................................. 1
1.1 Transfer of Assets....................................................................... 1
1.2 Excluded Assets.......................................................................... 2
1.3 Assumed Liabilities by Buyer............................................................. 2
1.4 Liabilities Not Assumed.................................................................. 3
1.5 Sublease................................................................................. 3
ARTICLE II PURCHASE PRICE........................................................................... 3
2.1 Purchase Price and Payment............................................................... 3
2.2 Allocation of Purchase Price............................................................. 3
ARTICLE III CLOSING.................................................................................. 4
3.1 Closing Date............................................................................. 4
3.2 Deliveries of Seller..................................................................... 4
3.3 Deliveries of Buyer...................................................................... 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER................................................. 5
4.1 Seller's Organization.................................................................... 5
4.2 Due Authorization, Execution and Delivery; Effect of Agreement........................... 5
4.3 Financial Statements..................................................................... 5
4.4 Absence of Certain Changes or Events..................................................... 5
4.5 Title to Assets.......................................................................... 6
4.6 Real Properties.......................................................................... 6
4.7 Patents, Trademarks, Etc................................................................. 6
4.8 Commitments.............................................................................. 6
4.9 Litigation............................................................................... 6
4.10 Compliance with Laws..................................................................... 6
4.11 Taxes.................................................................................... 7
4.12 Consents................................................................................. 7
4.13 Assets of Business....................................................................... 7
4.14 Brokers.................................................................................. 7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER.................................................. 7
5.1 Buyer's Organization..................................................................... 7
5.2 Due Authorization, Execution and Delivery; Effect of Agreement........................... 7
ARTICLE VI CLOSING CONDITIONS....................................................................... 8
6.1 Conditions to Buyer's Obligation to Close................................................ 8
6.2 Conditions to Seller's Obligation to Close............................................... 8
ARTICLE VII COVENANTS................................................................................ 9
7.1 Confidentiality Agreement of Seller After Closing........................................ 9
7.2 Non-Competition by Seller................................................................ 10
7.3 Access to Business....................................................................... 10
7.4 Transactional Tax Undertakings........................................................... 10
7.5 Eltrax Employees......................................................................... 10
7.6 Escrow Arrangement....................................................................... 11
7.7 Future UCC Financing Statements.......................................................... 12
7.8 Payment of Assumed Liabilities........................................................... 12
ARTICLE VIII SURVIVAL, LIMITATION, INDEMNIFICATION AND
RELATED MATTERS.......................................................................... 12
8.1 Survival................................................................................. 12
8.2 Indemnification by Seller................................................................ 12
8.3 Limitation............................................................................... 12
8.4 Indemnification by Buyer................................................................. 13
8.5 Notice of Indemnification Claim.......................................................... 13
8.6 Reduction of Indemnification Claims...................................................... 13
8.7 Indemnification Procedure for Third-Party Claims......................................... 13
8.8 Exclusive Remedy......................................................................... 14
ARTICLE IX TERMINATION.............................................................................. 14
9.1 Methods of Termination................................................................... 14
9.2 Procedure Upon Termination............................................................... 14
ARTICLE X MISCELLANEOUS............................................................................ 15
10.1 Entire Agreement......................................................................... 15
10.2 Successors and Assigns................................................................... 15
10.3 Counterparts............................................................................. 15
10.4 Headings................................................................................. 15
10.5 Modifications and Waivers................................................................ 15
10.6 Expenses................................................................................. 15
10.7 Notices.................................................................................. 16
10.8 Governing Law............................................................................ 17
10.9 Public Announcements..................................................................... 17
10.10 Further Assurances....................................................................... 17
10.11 Severability............................................................................. 17
10.12 No Third Party Beneficiaries............................................................. 17
10.13 Arbitration.............................................................................. 17
EXHIBITS
2.1 Form of Purchase Price Promissory Note
3.2(a) Form of Sublease, Consent and Estoppel Certificate
3.2(c) Form of Opinion of Seller's Counsel
3.3(f) Form of Opinion of Buyer's Counsel
6.2(e) Form of Transfer and Assumption Agreement
SCHEDULES
Disclosure Schedule
1.1(a) List of Furnishings and Equipment
1.1(b) Inventory List
1.1(f) List of Contracts and Commitments
1.1(g) Customer and Vendor Materials
1.3 Accounts Payable by Buyer
2.2 Allocation of Purchase Price
4.8 Commitments
7.5(a) Terminated Employees
7.5(b) Loaned Employees
7.5(c) Production Supervisor
</TABLE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, made and entered into this 19th day of
February, 1996, is by and between Eltrax Systems, Inc., a Minnesota corporation
("Seller"), and Emerald Archiving, Inc., a Florida corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Seller is primarily engaged in the business of providing
services to its clients to convert radiographic film to digitized images and
data and to store these images and data onto optical laser disks (the
"Business"); and
WHEREAS, Buyer desires to purchase, and Seller desires to sell, the
assets and properties of Seller employed or held in connection with the
Business, and, as part of such purchase and sale, Buyer is willing to assume
certain obligations and liabilities pertaining to the Business;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Transfer of Assets. Subject to the terms and conditions of this
Agreement, and except as otherwise provided in Section 1.2 hereof, Seller agrees
to sell, assign, transfer, convey and deliver to Buyer, and Buyer agrees to
purchase, acquire and accept from Seller, all of Seller's right, title and
interest in and to the following assets, properties, rights and contracts
employed in connection with the Business, wherever located, whether tangible or
intangible, real, personal or mixed (collectively the "Assets"), free and clear
of all liens, security interests, or other encumbrances of any character
whatsoever ("Encumbrances"). The Assets include the assets, properties, rights,
contracts and claims described in the following paragraphs (a) through (g):
(a) title to all the furnishings, furniture, office supplies, vehicles,
spare parts, tools, machinery and equipment that are used in the operation of
the Business as set forth on Schedule 1.1(a) (the "Equipment");
(b) all quantities of inventory, including, without limitation, raw
materials, work-in-process, finished goods, and supplies, used in connection
with the Business as set forth on Schedule 1.1(b);
(c) all rights of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
in connection with products or services of the Business, or affecting the Assets
to the extent assignable;
(d) all rights and interests of Seller, if any, in and to research,
development and commercially practiced processes, trade secrets, know-how,
inventions and other technical information whether owned by Seller or licensed
from third parties by Seller which are used in connection with the Business;
(e) all information and material necessary to maintain compliance with
all applicable requirements of the United States Food and Drug Administration
("FDA") related to the Business, and all rights and interests of Seller in and
to the FDA clearance for the Eltrax optical disk image archiving system, to the
extent assignable;
(f) all contracts, agreements, arrangements of any kind to which Seller
is a party (including the Commitments as defined in Section 4.8) which relate to
the Business or the Assets, which are set forth on Schedule 1.1(f), to the
extent assignable; and
(g) all customer and vendor lists relating to the Business, and all
files and documents (including credit information) relating to such customers
and vendors, and other business and financial records, files, books and
documents relating to the Assets and/or the Business, including, but not limited
to, computer programs (including computer modeling programs), manuals and data,
sales and advertising materials, sales, distribution and purchase correspondence
relating to the Assets and/or the Business, all as set forth on Schedule 1.1(g);
provided, however, that Seller will be permitted to keep originals (and provide
copies to Buyer) of those documents that Seller reasonably believes it must
maintain for audit purposes. Seller will make such original documents available
for inspection by Buyer upon Buyer's reasonable request.
1.2 Excluded Assets. The parties to this Agreement expressly understand
and agree that Seller is not hereunder selling, assigning, transferring or
conveying to Buyer any of the following assets, rights and properties (the
"Excluded Assets"):
(a) any policies of liability and other insurance relating to the
Business or the Assets or any rights thereunder;
(b) except as otherwise set forth in the last sentence of Section 1.3
hereof, any right, title and interest under all leases, contracts, agreements,
licenses, permits, exemptions, franchises, variances, waivers, consents,
approvals and other authorizations which are not transferable without consent
(unless such consent has been obtained);
(c) all assets related to the Eltrax rapid admit card system and the
business related thereto,
(d) cash and accounts receivable, whether or not related to the
Business.
1.3 Assumed Liabilities by Buyer. Buyer hereby assumes and agrees to
pay, indemnifies, perform and discharge as and when due the following
liabilities and obligations, to the extent relating to or arising from the
Business:
(a) Only those payables related to the Business incurred in the
ordinary course of business of Seller and reflected on Schedule 1.3, including
without limitation certain equipment maintenance agreements, plus those payables
related to the Business incurred in the ordinary course of business after the
Closing Date, together with any interest or other carrying charges that may be
due or become due thereon ("Accounts Payable"); and
(b) All liabilities and obligations of Seller not performed or
satisfied as of the date hereof under all Commitments (as defined in Section
4.8).
1.4 Liabilities Not Assumed. Except as specifically set forth in
Section 1.3, Buyer does not assume and will not be liable for any liabilities or
obligations of Seller, whether known, unknown, contingent, absolute, determined,
indeterminable or otherwise on the date hereof, whether incurred or accruing
prior to, on or after the date hereof, and whether or not relating to or arising
from the Business.
1.5 Sublease. Buyer and Seller agree to enter into a Sublease, Consent
and Estoppel Certificate in the form attached hereto as Exhibit 3.2(a). Such
Sublease shall cover a mutually agreeable portion of Seller's current premises,
and the term of which shall expire on June 30, 1996.
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price and Payment. The purchase price to be paid by Buyer
to Seller for the Assets (in addition to the assumed liabilities as set forth in
Section 1.3 hereof) will be an amount equal to Two Hundred Eighty Thousand
Dollars ($280,000.00) (the "Purchase Price"), payable as follows:
(a) Cash at Closing. At the Closing, Buyer will pay to Seller
One Hundred Thousand Dollars ($100,000) by delivering to Seller either
a cashier's check or via wire transfer.
(b) Purchase Price Promissory Note. Buyer will also deliver to
Seller a Promissory Note in the principal amount of One Hundred Eighty
Thousand Dollars ($180,000), under which interest will accrue on the
entire outstanding principal thereof only if and when a principal
payment is not made within sixty (60) days after it is due, which
interest would accrue at the annual rate of ten percent (10%), and
which note will be secured through Buyer's grant of a second lien
perfected security interest in and to the Assets behind only a first
lien security interest in favor of Buyer's lender, GE Capital Small
Business Finance, a unit of General Electric Capital Corporation ("GE")
(the "Purchase Price Note"). The Purchase Price Note will be
accompanied by a security agreement in a form acceptable to Seller. The
Purchase Price Note will be payable as follows: (i) eight monthly
payments of $2,500.00 each beginning on a date thirty (30) days after
the Closing Date and ending eight (8) months after Closing; (ii)
fifty-three (53) monthly payments of $3,000.00 each beginning in the
ninth (9th) month following the Closing Date, and ending on the
sixty-first (61st) month after Closing; and (iii) one payment of
$1,000.00 in the sixty-second (62nd) month after the Closing.
2.2 Allocation of Purchase Price. The Purchase Price will be allocated
among the Assets in accordance with Schedule 2.2. Seller and Buyer will prepare
their federal, state, local and foreign tax returns in a manner which is
consistent with such allocation.
ARTICLE III
CLOSING
3.1 Closing Date. The consummation of the transactions contemplated by
this Agreement will take place at the Closing on Friday, January 12, 1996, at
10:00 a.m. at the offices of Oppenheimer Wolff & Donnelly, 45 South Seventh
Street, Minneapolis, Minnesota, or at such other place or time as the parties
shall mutually agree, provided that all conditions to the Closing have been
satisfied or waived in writing and the Closing of this transaction shall be
deemed effective as of the close of business on the Closing Date.
3.2 Deliveries of Seller. Seller will deliver the following documents
to Buyer:
(a) an executed Sublease for the facility and Consent to Sublease (with
Estoppel Certificate) in the form of Exhibit 3.2(a) hereto;
(b) a receipt for the Purchase Price;
(c) the opinion of counsel for Seller, in the form of Exhibit 3.2(c)
hereto;
(d) certified resolutions of the Seller's board of directors approving
this transaction;
(e) assignment and assumption agreements with consent thereto with
respect to Seller's maintenance agreements with Fujitsu and DuPont;
(f) Seller's letter advising FDA of the closing of the transaction
contemplated by this Agreement; and
(g) physical possession of all the Assets.
3.3 Deliveries of Buyer. Buyer will deliver to Seller the following:
(a) one hundred thousand dollars ($100,000.00), in accordance with
Section 2.1 hereof;
(b) the Purchase Price Note in the form of Exhibit 2.1 hereof;
(c) an executed security agreement granting Seller a second lien
security interest in the Assets in a form satisfactory to Seller;
(d) UCC-1's (for filings in Minnesota and Florida) in a form
satisfactory to Seller;
(e) an executed Sublease in the form of Exhibit 3.2(a) hereto;
(f) the opinion of counsel for Buyer, in the form of Exhibit 3.3(f)
hereto; and
(g) certified resolutions of the Buyer's board of directors and
shareholders approving this transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer that:
4.1 Seller's Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota
and has all requisite corporate power and authority to carry on its business as
it is now being conducted, and to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby.
4.2 Due Authorization, Execution and Delivery; Effect of Agreement. The
execution, delivery and performance by Seller of this Agreement and the
consummation by Seller of the transactions contemplated hereby has been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly and validly executed and delivered by Seller and
constitutes the legal, valid and binding obligation of Seller, enforceable
against it in accordance with its terms, except to the extent that such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(b) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The
execution, delivery and performance by Seller of this Agreement and the
consummation by Seller of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, (i) violate any
provision of law, rule or regulation to which Seller is subject, (ii) violate
any order, judgment or decree applicable to Seller, or (iii) conflict with, or
result in a breach or default under, the articles of incorporation, the bylaws
of Seller; except, in each case, for violations, conflicts, breaches or defaults
which in the aggregate would not materially hinder or impair the consummation of
the transactions contemplated hereby or have a material adverse effect on the
Business.
4.3 Financial Statements. Seller has furnished to Buyer unaudited
balance sheets as of September 30, 1995 and June 30, 1995 and its unaudited
balance sheet as of March 31, 1995 (the Seller's September 30, 1995 balance
sheet is hereinafter referred to as the "Latest Balance Sheet") and related
statements of income and changes in shareholders' equity for the year to date
and year then ended, respectively (together, the "Financial Statements"). To
Seller's knowledge, the Financial Statements are in accordance with the books
and records of Seller, have been prepared in conformity with generally accepted
accounting principles consistently applied throughout the periods, and fairly
present the financial position of Seller as of the respective dates thereof, the
results of the operations and changes in financial position for the periods then
ended, all in accordance with generally accepted accounting principles
consistently applied throughout the periods.
4.4 Absence of Certain Changes or Events. Since September 30, 1995,
Seller has not (a) suffered any damage, destruction or casualty loss materially
and adversely affecting the Business; (b) discharged or, to Seller's knowledge,
incurred any material obligation or liability with respect to the Business,
except in the ordinary course of business; (c) entered into any transaction with
respect to the Business not in the ordinary course of its business, except as
permitted in or contemplated by other sections of this Agreement; or (d) sold or
disposed of, or encumbered, any Asset, except sales and other dispositions in
the ordinary course of business.
4.5 Title to Assets. Seller has good title or a valid lease with
respect to all of the Assets which are material to the Business (including those
material Assets related to the Business reflected on the Latest Balance Sheet,
except for such Assets sold, consumed or otherwise disposed of in the ordinary
course of business since the date of the Latest Balance Sheet), free and clear
of all Encumbrances, except Encumbrances which, individually or in the
aggregate, do not have a material adverse effect on the Business.
4.6 Real Properties.
(a) Seller is tenant under a Lease Agreement dated March 1, 1993,
between Skillman Corporation and Seller, under which Seller leases office and
warehouse space for 9,121 square feet located at 1775 Old Highway 8, Saint Paul,
Minnesota. The Lease expires on September 30, 1998.
(b) The Lease is in full force and effect and enforceable in accordance
with its terms and to Seller's knowledge there does not exist any violation,
breach or default thereof or thereunder.
(c) Seller has not received any written notice of any pending,
threatened or contemplated condemnation proceeding affecting the Leasehold
Properties or any part thereof, or of any sale or other disposition of the
Leasehold Properties or any part thereof in lieu of condemnation.
4.7 Patents, Trademarks, Etc. Seller does not own any United States or
foreign trade names, patents, registered trademarks, copyrights, or applications
for any of the foregoing that relate to the Business (the "Patent and Trademark
Rights"). To the Seller's knowledge, the conduct of the Business does not
conflict with or infringe on any valid trade names, patents, registered
trademarks, copyrights or trade secrets of others in any way which materially
and adversely affects the business or financial condition of Seller. To Seller's
knowledge, Seller is not obligated or under any liability to make any payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, a patent, trademark, tradename, copyright, or other intangible
asset with respect to the use of the intangible property in connection with
Seller's conduct of the Business.
4.8 Commitments. Schedule 4.8 contains a list of all contracts,
agreements and commitments to which Seller is a party and which are individually
material to the Business (collectively, the "Commitments"). To Seller's
knowledge, Seller is not in default under any of the Commitments, which default
would have a material adverse effect on the Business.
4.9 Litigation. To Seller's knowledge, there is no action or proceeding
in any court or before any governmental authority ("Litigation") pending or
threatened (a) against Seller in connection with the conduct of the Business,
which, if determined adversely to Seller, would materially and adversely affect
the Business, or (b) which seeks to enjoin or obtain damages in respect to the
consummation of the transactions contemplated hereby.
4.10 Compliance with Laws. To Seller's knowledge Seller is operating
the Business in compliance in all material respects with all laws, rules,
regulations and orders applicable to the Business, the violation of which would
have a material adverse effect on the Business.
4.11 Taxes. All required federal, state and other tax returns have been
duly filed and all federal, state and other taxes, assessments and other related
governmental charges on Seller or the Assets, which are due and payable, have
been paid. There are no deficiencies in taxes existing, or to Seller's
knowledge, threatened or existing or proposed for any year, not disclosed in the
Financial Statements.
4.12 Consents. Other than consents or approvals from the United States
Food and Drug Administration, no consent, approval or authorization of, or
exemption by, or filing with, any governmental or regulatory authority is
required in connection with the execution, delivery or performance by Seller of
this Agreement or the taking by Seller of any other action contemplated hereby,
excluding, however, consents, approvals, authorizations, exemptions and filings,
if any, which Buyer is required to obtain or make.
4.13 Assets of Business. The Assets constitute all of the tangible
assets held for use or used primarily in connection with the Business and all
Assets are sold "as is, where is".
4.14 Brokers. Seller has not employed any broker, finder, or financial
advisor or incurred any liability for any brokerage fee or commission, finders
fee or financial advisory fee, in connection with the transactions contemplated
hereby, nor is there any basis known to Seller for any such fee or commission to
be claimed by any person or entity.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Buyer's Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Florida, will be
registered as a foreign corporation in good standing in the State of Minnesota
by the Closing Date, and has all requisite corporate power and authority to
carry on its business as it is now being conducted, and to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby.
5.2 Due Authorization, Execution and Delivery; Effect of Agreement. The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, except to the extent that such
enforceability (a) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally, and
(b) is subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, (i) violate any
provision of law, rule or regulation to which Buyer is subject, (ii) violate any
order, judgment or decree applicable to Buyer, or (iii) conflict with, or result
in a breach or default under, the Articles of Incorporation, By-laws or other
similar charter documents of Buyer, or any agreement or other instrument to
which it is a party or by which it may be bound; except, in each case, for
violations, conflicts, breaches or defaults which in the aggregate would not
materially hinder or impair the consummation of the transactions contemplated
hereby.
ARTICLE VI
CLOSING CONDITIONS
6.1 Conditions to Buyer's Obligation to Close. The obligation of Buyer
to purchase the Assets under this Agreement and consummate the transactions
contemplated hereunder is subject to the satisfaction, at or before the Closing
Date, of all the conditions set forth in this Section 6.1. Buyer may waive any
or all of these conditions in whole or in part without prior notice.
(a) Representations and Warranties of Seller. The representations and
warranties of Seller contained in this Agreement will be true and correct in all
respects on the date hereof and on the Closing Date.
(b) FDA Compliance. Seller will have duly transferred to Buyer all
information and material elements necessary to maintain compliance of the
Business with all applicable requirements of the FDA.
(c) Business Records. Seller will have furnished to Buyer all records
related to the Business that Buyer may have reasonably requested.
(d) Opinion of Counsel. Seller will have delivered to Buyer an opinion
of counsel for Seller, dated the Closing Date, substantially in the form of
Exhibit 3.3(f).
6.2 Conditions to Seller's Obligation to Close. The obligation of
Seller to sell the Assets under this Agreement and consummate the transactions
contemplated hereunder is subject to the satisfaction, at or before the Closing
Date, of all the conditions set forth in this Section 6.2. Seller may waive any
or all of these conditions in whole or in part without prior notice.
(a) Representations and Warranties of Buyer. The representations and
warranties of Buyer contained in this Agreement will be true and correct in all
respects on the date hereof and on the Closing Date.
(b) Performance of this Agreement. Buyer will have duly performed or
complied with all material obligations to be performed or complied with by Buyer
under the terms of this Agreement on or prior to the Closing Date.
(c) Material Contracts. Seller will have received an executed transfer
and assumption agreement or letter release from the Hennepin County Medical
Center ("HCMC") providing for the release of Seller and the prospective
assignment of all rights and obligations under the Agreement dated March 15,
1991, between Seller and HCMC, as amended most recently on March 22, 1995 (the
"HCMC Contract") and a transfer and assumption agreement with respect to all
such other material customer agreements between Seller and the unrelated third
parties which are set forth on Schedule 4.8.
(d) Opinion of Counsel. Buyer will have delivered to Seller an opinion
of counsel for Buyer, dated the Closing Date, substantially in the form of
Exhibit 3.3(f) hereto.
ARTICLE VII
COVENANTS
7.1 Confidentiality Agreement of Seller After Closing.
(a) From and after the date hereof, except as otherwise consented to by
Buyer in writing, (i) Seller will not directly or indirectly disclose or use in
a manner adverse to Buyer any Business Confidential Information (as defined
below) except as required by the terms of a valid and effective subpoena or
order issued by a court of competent jurisdiction or by a governmental body;
(ii) the Business Confidential Information will be the exclusive property of
Buyer and, any time on or after the date hereof, if requested by Buyer, Seller
will promptly deliver to Buyer all Business Confidential Information, including
all copies thereof, which are in the possession, or under the control, of Seller
or its agents or representatives, without making or retaining any copies or
extracts thereof (except Seller may maintain such originals as contemplated by
Section 1.1(g) herein); and (iii) if Seller, its agents or representatives
receive a request to disclose all or any part of the Business Confidential
Information, Seller will (A) immediately notify Buyer of the existence, terms
and circumstances surrounding such request, (B) consult with Buyer on the
advisability of taking legally available steps to resist or narrow such request,
and (C) if disclosure of such information is required, and at Buyer's cost and
expense, exercise its best efforts to obtain an order or other reliable
assurance that confidential treatment will be accorded such portion of the
disclosed information which Buyer so designates.
(b) "Business Confidential Information" means any and all information
relating to the management, operations, finances, products, trade secrets,
technology or services of the Business, including, but not limited to, any and
all financial data, computer programs and systems, computer based information,
plans, projections, existing and proposed and contemplated projects or
investments, formulae, processes, methods, products, manuals, drawings, supplier
lists, customer lists, purchase and sales records, marketing information,
commitments, correspondence and other information relating to the Business,
whether written, oral or computer generated, other than such information as may
at any time be or become lawfully available to the general public.
(c) Buyer will be permitted to disclose Business Confidential
Information as it deems necessary, only in the ordinary course of business or
for such other purposes as it deems necessary for the continued operation of the
Business.
(d) The covenants and undertakings contained in this Section 7.1 relate
to matters which may be of a special, unique and extraordinary character and a
violation of any of the terms of this Section 7.1 may cause irreparable injury
to Buyer, the amount of which may be impossible to estimate or determine and for
which adequate compensation may not be available. Therefore, Buyer will be
entitled to an injunction, restraining order or other equitable relief from a
court of competent jurisdiction, restraining any violation or threatened
violation of any such terms by Seller and such other persons as the court
orders.
7.2 Non-Competition by Seller. (a) Seller will not, for three (3) years
from the date hereof, either directly or indirectly, alone or with others, enter
into or engage in the sale, distribution or marketing of products or services
that compete with products or services sold or marketed in the Business. Seller
will not, for three (3) years from the date hereof, either hire or directly or
indirectly, alone or with others, solicit or assist anyone else in the
solicitation of, any of Buyer's employees (including only those employees
employed by Seller as of the date hereof) to terminate their employment with
Buyer and to become employed by any business enterprise with which Seller may
then be associated, affiliated or connected.
(b) The covenants and undertakings contained in this Section 7.2 relate
to matters which may be of a special, unique and extraordinary character and a
violation of any of the terms of this Section 7.2 may cause irreparable injury
to Buyer, the amount of which may be impossible to estimate or determine and for
which adequate compensation may not be available. Therefore, Buyer will be
entitled to an injunction, restraining order or other equitable relief from a
court of competent jurisdiction, restraining any violation or threatened
violation of any such terms by Seller and such other persons as the court
orders.
7.3 Access to Business. Seller will afford Buyer and its officers,
counsel, accountants and other authorized representatives full access to the
facilities, properties, books and records of the Business so that Buyer may have
appropriate opportunity to make all reasonable investigations as it may desire;
provided, however, that any such investigation will be conducted in such a
manner as not to interfere unreasonably with the business operations of Seller,
and Buyer will be required to restore all property to the condition it was in
prior to Buyer's investigation.
7.4 Transactional Tax Undertakings. The parties hereto will cooperate
to make any necessary filings with state and local taxing authorities with
respect to the transactions contemplated herein. In the event that any sales or
use tax, or any tax in the nature of a sales or use tax, or any transactional
tax is payable or assessed relative to the transactions contemplated herein,
Seller and Buyer will each pay one-half of such taxes. If either party pays the
taxes owing, the non-paying party will promptly reimburse the other.
7.5 Eltrax Employees.
(a) Employees. On the Closing Date, Seller will terminate all employees
whose names are set forth on Schedule 7.5(a) hereto (the "Terminated
Employees"). On the Closing Date, and concurrently with such termination, Buyer
agrees to hire the Terminated Employees on substantially the same terms as such
Terminated Employee had with Seller (including prior service credit) for all
salary, bonus, benefits (including without limitation health insurance,
disability insurance, and participation, if any, in any other employee benefit
plans of Seller, except the Seller's 401(k) plan). Additionally, Buyer agrees to
provide each Terminated Employee with no less than four weeks' notice prior to
terminating any Terminated Employee (except in cases of "for cause"
termination).
(b) After the Closing Date, Seller will make one or two of its
employees (as listed on Schedule 7.5(b) hereof) available to provide maintenance
and repair work concerning the Business on behalf of the Buyer at no cost to
Buyer; provided, that such employee(s) on a confirmed basis will not be required
to, and will not be asked to, work for Buyer for more than an aggregate
twenty-five (25) hours per week. Any work by such employee(s) outside of regular
business hours of Seller shall be counted toward the twenty-five (25) hour
maximum. Buyer and Seller agree that such arrangement will terminate not later
than the close of business on June 30, 1996, and such individuals will remain
employees of Seller.
(c) After the Closing Date, Seller will make available one production
supervisor on a full-time basis as listed on Schedule 7.5(c), or on such other
basis as Buyer may reasonably request of Seller after fourteen (14) days notice.
Buyer will promptly reimburse Seller for all salary, employee benefits and
related employment expenses incurred by Seller related to such person's
employment with Seller. Buyer agrees to promptly reimburse Seller within five
(5) business days of receiving an invoice for such services, which will be on no
more frequent a basis than the basis on which Seller incurs such employment
related expenses.
(d) Buyer agrees to indemnify and hold Seller harmless from and against
any and all liabilities, damages and expenses related to or arising out of the
activities and omissions of all such employees of Seller who are working in the
Business under the direction of Buyer while performing activities by and on
behalf of Buyer.
7.6 Escrow Arrangement. Buyer and Seller agree that the prepayments
paid to Seller and Buyer by Hennepin County Medical Center ("HCMC") for services
to be rendered under the HCMC Contract, as defined in Section 6.2(c) hereof,
will be deposited into a segregated bank account in the name of Eltrax Systems,
Inc., which bank account will be used exclusively as an escrow arrangement for
the purposes described herein (the "Escrow Account"). The amount initially to be
deposited in the Escrow Account at or immediately prior to Closing is estimated
to be Thirty Thousand Dollars ($30,000) on the Closing Date. Cash in the Escrow
Account will be invested only in money market funds and other investments where
principal may not decrease.
(a) Withdrawals. Buyer and Seller agree that withdrawals may be made
upon the joint written instruction of Seller and Buyer as specified below for
any of the following purposes:
(i) as Buyer provides services to HCMC under the HCMC
contract, the usual bonafide invoices prepared and sent by Buyer to
HCMC may be paid directly out of the Escrow Account; and
(ii) if Seller does not receive any monthly payment of
principal or interest when due under the Purchase Price Note, such sums
shall be withdrawn, in the sole discretion of Seller, from the Escrow
Account.
(b) Deposits. Buyer and Seller agree that all prepaid and unearned
income (which include payments received from HCMC for billings in excess of
amounts invoiced by Eltrax and Buyer) under the HCMC Contract will be promptly
deposited into the Escrow Account, and utilized for the purposes described
herein.
(c) Interest. Interest earned on the Escrow Account shall accrue in
such account and be added to principal amount therein and shall be used first to
pay all expenses associated with maintaining such account (including without
limitation fees for writing checks and making withdrawals), and all interest
earned on such account (less any taxes due to be paid thereon, which Seller may
withdraw funds to pay) shall be paid to Buyer at the time such account is
closed.
(d) Duration. The Escrow Account shall remain in effect for as long as
there remains services to be performed under the HCMC Contract, as such may be
extended or amended from time to time, provided that the Escrow Account shall
terminate not later than the date on which all principal and interest (if any)
under the Purchase Price Note is paid in full by Buyer and cancelled by Seller.
Upon termination of the Escrow Account in accordance with the terms hereof, any
positive principal balance remaining therein after completion of all obligations
under the HCMC Contract, as amended or extended, shall be paid to HCMC, except
the interest earned in the Escrow Account as provided in Section 7.6(c).
7.7 Future UCC Financing Statements. Buyer agrees that before moving
any equipment purchased under this Agreement, including without limitation any
assets included on Schedule 1.1 of this Agreement, Buyer will sign and deliver
to Seller such UCC financing statements as are necessary to enable Seller to
maintain its second lien priority security interests in such assets in any other
jurisdiction to which such assets are moved. Buyer agrees that it will not move
such assets until it has executed and delivered to Seller such UCC financing
statements, and any other related documentation reasonably necessary to
effectuate the intent of this paragraph, and such financing statements have been
properly filed in the county recorder's office and secretary of state's office
in the appropriate jurisdiction.
7.8 Payment of Assumed Liabilities. Buyer will pay, perform or
discharge, as and when due, each of the liabilities assumed pursuant to Section
1.3 hereof.
ARTICLE VIII
SURVIVAL, LIMITATION, INDEMNIFICATION AND RELATED MATTERS
8.1 Survival. The representations and warranties of the parties hereto
will survive the closing of the transactions contemplated hereby for a period of
six months.
8.2 Indemnification by Seller. Subject to the provisions of this
Article VIII, Seller agrees to indemnify and hold Buyer harmless from and
against:
(a) Any and all liabilities, obligations, damages and expenses
resulting from the failure of any of the representations and warranties of
Seller contained in this Agreement to have been true in all material respects;
(b) Any and all liabilities, obligations, damages and expenses
resulting from the failure of Seller to comply in all material respects with any
of the covenants and agreements contained in this Agreement which are required
to be performed by Seller;
(c) Any and all liabilities, obligations, damages and expenses relating
to the Seller or the Business for any period prior to the Closing Date other
than those assumed by Buyer pursuant to Section 1.3 herein; and
(d) All actions, suits, proceedings, costs and expenses, including
reasonable attorneys' fees, incident to the foregoing.
8.3 Limitation. Seller's liability for indemnification claims asserted
by Buyer shall not exceed the Purchase Price provided, however, that if there is
a valid indemnification claim asserted by Buyer, and Seller either acknowledges
the claim or is ordered by a court of competent jurisdiction to make payment
therefore, Buyer will first receive a credit in the amount of such claim to the
extent of any principal amount outstanding under the Purchase Price Note, and
the principal amount outstanding under the Purchase Price Note will be reduced
in a corresponding amount.
8.4 Indemnification by Buyer. Subject to the provisions of this Article
VIII, Buyer agrees to indemnify and hold Seller harmless from and against:
(a) Any and all liabilities, obligations, damages and expenses
resulting from the failure of any of the representations and warranties of Buyer
contained in this Agreement to have been true in all material respects;
(b) Any and all liabilities, obligations, damages and expenses
resulting from the Business for periods after the Closing Date and all
liabilities and obligations assumed pursuant to Section 1.3 herein;
(c) Any and all liabilities, obligations, damages and expenses
resulting from the failure of Buyer to comply in all material respects with any
of the covenants and agreements contained in this Agreement which are required
to be performed by Buyer; and
(d) All actions, suits, proceedings, costs and expenses, including
reasonable attorney's fees, incident to the foregoing.
8.5 Notice of Indemnification Claim. In the event any legal proceeding
is threatened or instituted or any claim or demand is asserted by any person in
respect of which payment may be sought under the provisions of this Article
VIII, the party seeking such payment will promptly cause written notice of the
assertion of any such claim of which it has knowledge and which is covered by
this indemnity to be forwarded to the other party. Any notice of a claim by
reason of any of the representations, warranties or covenants contained in this
Agreement will state specifically the representation, warranty or covenant with
respect to which the claim is made, the facts giving rise to an alleged basis
for the claim, and the amount of the liability asserted against the party by
reason of the claim.
8.6 Reduction of Indemnification Claims. All claims for indemnification
by any party hereto shall be determined net of (i) any tax benefit actually
recognized and utilized to offset or reduce the tax liability of the indemnified
party in the year of the claim, and (ii) any proceeds of insurance coverage
actually paid to the indemnified Party with respect to such claim.
8.7 Indemnification Procedure for Third-Party Claims. In the event of
the initiation of any legal proceeding against either party (the "Indemnified
Party") by a third party, the other party (the "Indemnifying Party") will have
the absolute right after the receipt of notice, at its option and at its own
expense, to be represented by counsel of its choice, and to defend against,
negotiate, settle or otherwise deal with any proceeding, claim, or demand which
relates to any loss, liability or damage indemnified against hereunder;
provided, however, that the Indemnified Party may participate in any such
proceeding with counsel of its choice and at its expense. The parties hereto
agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such legal proceeding, claim or demand. To the
extent the Indemnifying Party elects not to defend such proceeding, claim or
demand, and Indemnified Party defends against or otherwise deals with any such
proceeding, claim or demand, Indemnified Party may retain counsel, at the
expense of Indemnifying Party, and control the defense of such proceeding.
Neither Seller nor Buyer may settle any such proceeding without the consent of
the other party, such consent not to be unreasonably withheld. After any final
judgment or award has been rendered by a court, arbitration board or
administrative agency of competent jurisdiction and the time in which to appeal
therefrom has expired, or a settlement has been consummated, or Buyer and the
Seller have arrived at a mutually binding agreement with respect to each
separate matter alleged to be indemnified by Indemnifying Party hereunder,
Indemnified Party will forward to the Indemnifying Party notice of any sums due
and owing by it with respect to such matter and the Indemnifying Party will pay
all of the sums so owing to Indemnified Party by wire transfer, certified or
bank cashier's check within thirty (30) days after the date of such notice.
8.8 Exclusive Remedy. Except for equitable relief as provided under
Sections 7.1 and 7.2, the exclusive remedy available to a party hereto in
respect of the matters covered by Section 8.2 and 8.4 hereof is to proceed in
the manner and subject to the limitations contained in this Article VIII.
ARTICLE IX
TERMINATION
9.1 Methods of Termination. This Agreement may be terminated and the
transactions contemplated herein may be abandoned prior to Closing:
(a) By mutual written agreement of Buyer and Seller; or
(b) By Buyer or Seller if the Closing shall not have occurred on or
before January 15, 1996, or as further extended by mutual consent of the Buyer
and Seller; or
(c) By the non-breaching party upon a material breach of a
representation, warranty, covenant or other provision of this under this
Agreement by the other party.
9.2 Procedure Upon Termination. In the event of termination pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other party
or parties, and the provisions of this Agreement shall terminate, and the
transactions contemplated herein shall be abandoned, without further action by
any party hereto. If this Agreement is terminated as provided herein:
(a) each party will redeliver all documents, work papers and other
material of any other party (and all new documents and copies thereof created
containing confidential information about the other party) relating to the
transactions contemplated herein, whether so obtained before or after the
execution hereof, to the party furnishing the same;
(b) the confidentiality obligations of Section 7.1 shall continue to be
applicable; and
(c) except as provided in Section 9.1 and this subsection, no party
shall have any liability for a breach of any representation, warranty,
agreement, covenant or other provision of this Agreement, unless such breach was
due to a willful or bad faith action or omission of such party or any
representative, agent, employee or independent contractor thereof.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including the Exhibits and the
Disclosure Schedule) constitutes the sole understanding of the parties with
respect to the matters provided for herein and supersedes any previous
agreements and understandings between the parties with respect to the subject
matter hereof. No amendment, modification or alteration of the terms or
provisions of this Agreement will be binding unless the same is in writing and
duly executed by the parties hereto.
10.2 Successors and Assigns. The terms and conditions of this Agreement
will inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties hereto. This Agreement may not be assigned by
any party without the prior written consent of the other party hereto, except
that Buyer may, at its election, assign its rights under this Agreement to any
direct or indirect wholly-owned subsidiary. Notwithstanding the foregoing, no
assignment of this Agreement or any of the rights or obligations hereof by Buyer
will relieve Buyer of its obligations under this Agreement to Seller and, upon
any such assignment, the representations, warranties, covenants and agreements
contained in this Agreement will be deemed to have been made by Buyer's assignee
as well as by Buyer.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will for all purposes be deemed to be an original
and all of which will constitute the same instrument.
10.4 Headings. The headings of the sections and paragraphs of this
Agreement are included for convenience only and will not be deemed to constitute
part of this Agreement or to affect the construction hereof.
10.5 Modifications and Waivers. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement will
be deemed to or will constitute a waiver of any other provisions hereof (whether
or not similar).
10.6 Expenses.
(a) Except as otherwise specifically provided for in this Agreement,
Seller and Buyer will each pay all costs and expenses incurred by it or on its
behalf in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, fees and expenses of its own financial
consultants, accountants and counsel.
(b) Seller and Buyer agree that if any dispute between them, either
occurring under, relating to or in connection with any of the provisions of this
Agreement, is submitted to a court, arbitrator, tribunal or other appropriate
entity, then all costs and expenses of the parties (including reasonable
attorneys' fees) will be paid by the party against whom a determination by such
court, arbitrator, tribunal or entity is made or, in the absence of a
determination wholly against one party, as such court, arbitrator, tribunal or
entity directs.
10.7 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party will be in writing and
delivered personally or by telephonic facsimile transmission or sent by
registered or certified mail, postage prepaid (and if by telephonic facsimile
transmission with a copy sent by mail),
if to Seller to:
Mack V. Traynor, III
Chief Executive Officer
Eltrax Systems, Inc.
1775 Old Highway 8
St. Paul, MN 55112
with a copy to:
Thomas R. Marek
Oppenheimer Wolff & Donnelly
3400 Plaza VII Building
45 South Seventh Street
Minneapolis, MN 55402
Fax: (612) 344-9376
if to Buyer to:
H. Joseph Friedman, Jr.
President
Emerald Archiving, Inc.
125 Bermuda Circle
Niceville, FL 32578
Fax: (904) 897-4956
with a copy to:
Bruce A. Haught
Attorney At Law
P.O. Box 5017
Destin, FL 32540
Fax: (904) 837-8121
or at such other address for a party as may be specified by like notice. Any
notice which is delivered personally or by telephonic facsimile transmission in
the manner provided herein will be deemed to have been duly given to the party
to whom it is directed upon actual receipt by such party (or its agent for
notices hereunder). Any notice which is addressed and mailed in the manner
herein provided will be conclusively presumed to have been duly given to the
party to which it is addressed at the close of business, local time of the
recipient, on the third day after the day it is so placed in the mail.
10.8 Governing Law. This Agreement will be construed in accordance with
and governed by the laws of the State of Minnesota applicable to agreements made
and to be performed in such jurisdiction without reference to conflicts of law
principles.
10.9 Public Announcements. Neither Seller nor Buyer will make any
public statements, including without limitation any press releases, with respect
to this Agreement and the transactions contemplated hereby without the prior
written consent of the other party (which consent may not be unreasonably
withheld), except as may be required by law and except that the party required
to make such announcement will, whenever practicable, consult with the other
party concerning the timing and content of such announcement before such
announcement is made.
10.10 Further Assurances. At any time or from time to time after the
date hereof, either party will, at the request of the other party and at such
other party's expense, execute and deliver any further instruments or documents
and take all such further action as such party reasonably may request in order
to consummate and make effective the transactions contemplated by this
Agreement.
10.11 Severability. If any provision hereof is held by any court of
competent jurisdiction to be illegal, void or unenforceable, such provision will
be of no force and effect, but the illegality or unenforceability will have no
effect upon and will not impair the enforceability of any other provision of
this Agreement.
10.12 No Third Party Beneficiaries. Except as expressly permitted by
this Agreement, nothing in this Agreement will confer any rights upon any person
or entity which is not a party or permitted assignee of a party to this
Agreement.
10.13 Arbitration. With the sole exception of the injunctive relief
contemplated by Sections 7.1 and 7.2, any controversy or claim arising out of or
relating to this Agreement, or the making, performance or interpretation
thereof, including without limitation alleged fraudulent inducement thereof,
will be settled by binding arbitration in Atlanta, Georgia by a panel of three
arbitrators in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon any arbitration award may be entered in
any court having jurisdiction thereof and the parties consent to the
jurisdiction of the courts of the State of Minnesota for this purpose.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
ELTRAX SYSTEMS, INC.
By /s/ Mack V. Traynor, III
Mack V. Traynor, III
Its President
EMERALD ARCHIVING, INC.
By /s/ H. Joseph Friedman, Jr.
H. Joseph Friedman, Jr.
Its President
June 7, 1996
Mr. Robert Taylor ("Employee")
519 1/2 Narcissus Avenue
Corona del Mar, CA 92625
I am pleased to confirm our discussion with you concerning your
potential employment by Datatech and Eltrax Systems, Inc. (the "Company").
1. Employment. Subject to the terms and conditions described in this
agreement, the Company agrees to employ you as the Vice President of Finance and
Administration of Datatech, and you accept this employment.
2. Duties. You agree to spend substantially all of your business hours
on the Company's business. You will diligently perform the duties of your
position, within guidelines to be determined by the Company's executive
officers. You will report to Mack V. Traynor and Howard B. Norton, unless
otherwise advised, who will be responsible for evaluating your job performance
in accordance with the Company's annual performance review process. While you
are employed by the Company, you will not engage in any business activity or
outside employment that might conflict with the Company's interests or adversely
affect the performance of your duties for the Company.
3. Term. This agreement is effective on June 7, 1996 and will terminate
on June 30, 1997, unless earlier terminated pursuant to Section 5 of this
agreement (the "Base Term"). The Company's obligations to make any payments to
you under Section 5(c) and your obligations under Sections 7 and 8 will continue
beyond the termination of this agreement.
4. Compensation.
a. Base Salary. The Company agrees to pay you an annual base
salary of Fifty-Thousand Dollars($50,000) in accordance with the
Company's standard payroll practices ("Base Salary").
b. Performance Bonus. The Company and you agree that you will
be eligible for a year end performance bonus (the "Performance Bonus"),
which will be equal to one-half of each dollar less than $50,000 that
the Company incurs as the actual final cost incurred by the Company to
have Datatech's portion of the consolidated 1997 audited financial
statements of Eltrax prepared and finalized in accordance with
generally accepted accounting procedures consistently applied, and as
required by the rules promulgated by the Securities and Exchange
Commission. This bonus will be paid by July 15, 1997.
c. Benefits. In addition to other compensation to be paid
under this Section 4, you will be entitled to participate in all
benefit plans available to all full-time, eligible employees currently
maintained or hereafter established by the Company generally for a
Company employee at your same level, in accordance with the terms and
conditions of such plans. A list of all benefit plans currently
maintained by the Company is attached as Exhibit A to this agreement.
Additionally, you will be eligible for four (4) weeks of paid vacation
to be taken during the term of this agreement. Any unused portion will
be paid to you in July, 1997.
Mr. Robert Taylor
June 7, 1996
Page 2
d. Reimbursement of Business Expenses. In addition to payment
of compensation under this Section 4, the Company agrees to reimburse
you for all reasonable out-of-pocket business expenses incurred by you
on behalf of the Company, provided that you properly account to the
Company for all such expenses in accordance with the rules and
regulations of the Internal Revenue Service promulgated under the
Internal Revenue Code of 1986, as amended, and in accordance with the
standard policies of the Company relating to reimbursement of business
expenses.
e. Year-End Discretionary Bonus. The Company's Board of
Directors will consider, in its sole discretion, paying you a bonus
based on the overall performance of your duties and the results of
operations of the Company. Such bonus determination will be made during
the first fiscal quarter following completion of the Company's fiscal
year, and will be paid by June 30, 1997 if you are still employed by
the Company on such date or if terminated without cause by the Company
pursuant to paragraph 5(c).
f. Option Plan. On the effective date of this agreement, you
will be granted qualified incentive stock options to purchase 30,000
shares of Eltrax Common Stock under the Company's 1995 Stock Incentive
Plan with vesting to occur on June 30, 1997, unless this agreement is
terminated for cause, pursuant to section 5(b).
5. Termination.
a. Early Termination. Subject to the respective continuing
obligations of the parties pursuant to Sections 6 and 7, this Section
sets forth the terms for early termination of this agreement.
b. Termination for Cause. The Company may terminate this
agreement and your employment immediately for cause. For this purpose,
"cause" means (1) fraud, (2) theft or embezzlement of the Company's
assets, (3) willful violation of law constituting a felony, (4) your
continued failure to satisfactorily perform your duties as reasonably
assigned to you pursuant to Section 2 for a period of 60 days after a
written demand for such satisfactory performance, which written demand
specifically identifies the manner in which it is alleged you have not
satisfactorily performed such duties, (5) violation of the standards of
conduct generally applicable to the Company's employees as described in
the employee manual, as it may be amended from time to time, for which
the sanction of dismissal is, in accordance with the Company's
personnel practices, appropriate. At any time during the 60 day "cure"
period described in clause (4) above, at your request the responsible
Company executive
Mr. Robert Taylor
June 7, 1996
Page 3
officer will meet in person to discuss the alleged performance
deficiencies. In the event of termination for cause pursuant to this Section
5(b), you will be paid at the usual rate your annual Base Salary through the
date of termination specified in any notice of termination and any amounts to
which you are entitled under any Company benefit plan in accordance with the
terms of such plan.
c. Termination Without Cause. Either you or the Company may
terminate this agreement and your employment without cause on thirty
(30) days' written notice. In the event of termination of this
agreement and of employment pursuant to this Section 5(c), compensation
will be paid as follows:
(1) if the termination is by you without good reason
pursuant to Section 5(d), you will be paid at the usual rate
of your annual Base Salary through the date of termination
specified in such notice (but not to exceed thirty (30) days
from the date of such notice);
(2) if the termination is by the Company, you will be
paid at the usual rate of your annual Base Salary through the
end of the term of this agreement and options will vest
prorata based upon the time spent as an Employee.
d. Termination In The Event of Death or Disability. This
agreement and your employment will terminate in the event of your death
or disability.
(1) In the event of your death, Base Salary will be
terminated as of the end of the month in which death occurs.
(2) In the event of Disability, Base Salary will be
terminated as of the end of the month in which the last day of
the six-month period of your inability to perform your duties
occurs.
e. Entire Termination Payment. The compensation provided for
in Sections 5(b), 5(c) and 5(d) for early termination of this agreement
will constitute your sole remedy for such termination. You will not be
entitled to any other termination or severance payment which might
otherwise be payable to you under any other agreement between you and
the Company or under any policy of the Company. This Section will not
have any effect on distributions to which you may be entitled at
termination from any tax-qualified plan or any other plan (other than a
severance payment or similar plan).
f. Required Resignations Upon of Early Termination or
Expiration. You agree that upon any termination of your employment with
the Company or expiration of this employment agreement, such
termination or expiration under this Agreement will automatically and
without further action be deemed to constitute your simultaneous
resignation from all director, officer, trustee, agent and any other
positions within the Company, all of its affiliates (including but not
limited to any entity that is a shareholder of the Company and any
subsidiaries and any parent of the Company), the Company's employee
benefit plans, trusts and foundations (charitable or otherwise) or any
other similar position associated with the Company. Simultaneously upon
such termination of employment or expiration of this employment
agreement, you agree to execute and deliver to the Company any and all
documents, agreements, certificates, letters or other written
instruments confirming all such resignations.
Mr. Robert Taylor
June 7, 1996
Page 4
6. Inventions.
a. You agree that all Inventions (as defined below) you make,
conceive, reduce to practice or author (either alone or with others)
during or within one year after the term of this agreement will be the
Company's sole and exclusive property. You will, with respect to any
such Invention: (1) keep current, accurate, and complete records, which
will belong to the Company and be kept and stored on the Company's
premises while you are employed by the Company; (2) promptly and fully
disclose the existence and describe the nature of the Invention to the
Company in writing (and without request); (3) assign (and you do hereby
assign) to the Company all of your rights to the Invention, any
applications you make for patents or copyrights in any country, and any
patents or copyrights granted to you in any country; and (4)
acknowledge and deliver promptly to the Company any written
instruments, and perform any other acts necessary in the Company's
opinion to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain letters
patent and/or copyrights on the Invention and to vest the entire right
and title to the Invention in the Company.
b. "Inventions," as used in this Section, means any
discoveries, improvements, creations, ideas and inventions, including
without limitation software and artistic and literary works (whether or
not they are described in writing or reduced to practice) or other
works of authorship (whether or not they can be patented or
copyrighted) that: (1) relate directly to the Company's business or the
Company's present or possible future research or development; (2)
result from any work you perform for the Company; (3) use the Company's
equipment, supplies, facilities or trade secret information; or (4) you
develop during any time that Section 2 above obligates you to perform
your employment duties.
The requirements of this Section do not apply to an Invention
for which no equipment, supplies, facility or trade secret information
of the Company was used and which was developed entirely on your own
time, and which neither (1) relates directly to the Company's business
or to the Company's actual or demonstrably anticipated research or
development, nor (2) results from any work you performed for the
Company. Except as previously disclosed to the Company in writing, you
do not have, and will not assert, any claims to or rights under any
Inventions as having been made, conceived, authored or acquired by you
prior to your employment by the Company.
Mr. Robert Taylor
June 7, 1996
Page 5
7. Proprietary Information.
a. Except as required in your duties to the Company, you will
never, either during or after your employment by the Company, use or
disclose Proprietary Information to any person not authorized by the
Company to receive it. When your employment with the Company ends, you
will promptly turn over to the Company all records and any
compositions, articles, devices, apparatus and other items that
disclose, describe or embody Proprietary Information, including all
copies, reproductions and specimens of the Proprietary Information in
your possession, regardless of who prepared them.
b. "Proprietary Information," as used in this Section 7, means
any nonpublic information concerning the Company, including information
relating to the Company's research, product development, engineering,
purchasing, product costs, accounting, leasing, servicing,
manufacturing, sales, marketing, administration and finances. This
information includes, without limitation: (1) trade secret information
about the Company and its products; (2) "Inventions," as defined in
Section 6(b); (3) information concerning any of the Company's past,
current or possible future products. Proprietary Information or
confidential information also includes any information which is not
generally disclosed and which is useful or helpful to the Company
and/or which would be useful or helpful to competitors. More specific
examples include financial data, sales figures for individual projects
or groups of projects, planned new projects or planned advertising
programs, areas where the Company intends to expand, lists of
suppliers, lists of customers, wage and salary data, capital investment
plans, projected earnings, changes in management or policies of the
Company, testing data, manufacturing methods, suppliers' prices to us,
or any plans we may have for improving any of our products. This
information is confidential or Proprietary Information regardless of
its form, e.g. oral, written, electronic or other, and whether or not
it is labeled as "proprietary" or "confidential." The Company's
Proprietary Information or confidential information includes our
information and that of our affiliates and third parties concerning or
relating to us.
Any information that you reasonably consider Proprietary
Information, or that the Company treats as confidential information,
will be presumed to be Proprietary Information (whether you or others
originated it and regardless of how you obtained it).
8. Miscellaneous.
a. No Adequate Remedy. You understand that if you fail to
fulfill your obligations under this agreement, the damages to the
Company would be very difficult to determine. Therefore, in addition to
any other rights or remedies available to the Company at law, in
equity, or by statute, you hereby consent to the specific enforcement
of this agreement by the Company through an injunction or restraining
order issued by an appropriate court.
Mr. Robert Taylor
June 7, 1996
Page 6
b. Governing Law. The laws of Minnesota will govern the
validity, construction, and performance of this agreement. Any legal
proceeding related to this agreement will be brought in an appropriate
Minnesota court, and both the Company and you hereby consent to the
exclusive jurisdiction of that court for this purpose.
c. Construction. Wherever possible, each provision of this
agreement will be interpreted so that it is valid under the applicable
law. If any provision of this agreement is to any extent invalid under
the applicable law, that provision will still be effective to the
extent it remains valid under the applicable law. The remainder of this
agreement also will continue to be valid, and the entire agreement will
continue to be valid in other jurisdictions.
d. Waivers. No failure or delay by either the Company or you
in exercising any right or remedy under this agreement will waive any
provision of the agreement. Nor will any single or partial exercise by
either the Company or you of any right or remedy under this agreement
preclude either the Company or you from otherwise or further exercising
these rights or remedies, or any other rights or remedies granted by
any law or any related document.
e. Entire Agreement. This agreement is the entire agreement
between the parties and replaces all other oral negotiations,
commitments, writings and understandings between the parties concerning
the matters in this agreement. You acknowledge that you have been
advised to seek legal counsel to review this agreement with you before
you sign it.
f. Successors and Assigns. Except as otherwise provided in
Section 9, this agreement will be binding upon and inure to the benefit
of the successors and assigns of the Company whether by way of merger,
consolidation, operation of law, assignment, purchase or other
acquisition of substantially all of the assets or business of the
Company, and any such successor or assign will absolutely and
unconditionally assume all of the Company's obligations under this
Agreement. Company may assign this agreement to any of its subsidiaries
or affiliates without your prior written consent.
g. Notices. All notices, requests and demands given to or made
pursuant hereto will, except as otherwise specified herein, be in
writing and be delivered or mailed to any such party at its address
which:
(1) In the case of the Company will be:
Eltrax Systems, Inc.
Rush Lake Business Park
1775 Old Highway 8
Attention: Mack V. Traynor
Mr. Robert Taylor
June 7, 1996
Page 7
(2) In the case of employee will be:
Mr. Robert Taylor
Any party may, by notice to the other party, designate a
changed address. Any notice, if mailed properly addressed, postage
prepaid, registered or certified mail, will be deemed dispatched on the
registered date or that date stamped on the certified mail receipt, and
will be deemed received within the second business day thereafter or
when it is actually received, whichever is sooner.
h. Captions. The various headings or captions in this
agreement are for convenience only and will not affect the meaning or
interpretation of this agreement.
Would you please confirm that this agreement is in accordance with your
understanding and that you have received a copy of this letter by signing and
returning to us the enclosed duplicate of this letter.
Very truly yours, Agreed to and confirmed
as of June 7, 1996
ELTRAX SYSTEMS, INC.
By /s/ Mack V. Traynor, III
Its: President
/s/ Robert Taylor
Robert Taylor
Exhibit A
Mr. Robert Taylor
June 7, 1996
Page 8
ELTRAX SYSTEMS, INC.
BENEFIT PLANS
See attached for description of:
1. Eltrax Systems, Inc. Savings & Retirement Plan
2. Group Insurance Summary and enrollment instructions
EXHIBIT 21
LIST OF SUBSIDIARIES
As of March 31, 1996
Eltrax Acquisition Corporation (subsequently merged into Nordata, Inc.)
As of May 17, 1996
Nordata, Inc.
Rudata, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 480,523
<SECURITIES> 1,384,886
<RECEIVABLES> 315,999
<ALLOWANCES> (10,176)
<INVENTORY> 57,091
<CURRENT-ASSETS> 2,254,833
<PP&E> 197,611
<DEPRECIATION> (155,097)
<TOTAL-ASSETS> 2,496,005
<CURRENT-LIABILITIES> 210,543
<BONDS> 0
0
29,163
<COMMON> 44,971
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,496,005
<SALES> 880,304
<TOTAL-REVENUES> 880,304
<CGS> 293,954
<TOTAL-COSTS> 293,954
<OTHER-EXPENSES> 1,070,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 104,935
<INCOME-TAX> 0
<INCOME-CONTINUING> (270,292)
<DISCONTINUED> 375,227
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,935
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
