<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DATE OF REPORT: OCTOBER 3, 1997
(Date of earliest event reported)
ELTRAX SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA COMMISSION FILE NO. 0-22190 41-1484525
(State of incorporation) (IRS Employer I.D. No.)
2000 TOWN CENTER, SUITE 690
SOUTHFIELD, MI 48075
(Address of principal executive offices)
(248) 358-1699
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS.
PRIVATE PLACEMENT AND INCREASE IN LINE OF CREDIT
On October 3, 1997, the registrant completed a private placement of
100,000 "Units" at a price of $4.00 per Unit. Each Unit consists of one
share of the registrant's common stock, $0.01 par value (the "Common Stock"),
and one warrant to purchase a share of the Common Stock at $6.50 per share on
or before September 30, 2002. The warrant provides that if the closing price
of the Common Stock shall for ten (10) consecutive trading days equal or
exceed an average price per share (non-weighted) of $8.50, then within thirty
(30) days following the end of any such period, the registrant shall have the
option to repurchase the warrant at a price of $0.25 per warrant. However,
the warrant holder retains the right to exercise the warrant within twenty
(20) days of the date of the registrant elects to purchase the warrant. The
description of the warrant does not purport to be complete and is qualified
in its entirety by reference to the Form of Warrant which is filed as Exhibit
4.1 hereto.
In addition to completing the private placement of Units described above,
the registrant has increased the availability under its line of credit with
State Street Bank and Trust Company from $5.5 million to $8.0 million.
BOARD OF DIRECTORS
On October 21, 1997, Mark Johnson resigned as a member of the
registrant's board of directors. Stephen E. Raville was elected by the
remaining members of the registrant's board of directors to fill the vacated
director position.
MERGER WITH DATACOMM ASSOCIATES, INC. AND MIDWEST TELECOM ASSOCIATES, INC.
On October 31, 1997, pursuant to an Agreement and Plan of Merger dated as
of October 31, 1997 (the "Merger Agreement") by and among Eltrax Systems,
Inc., a Minnesota corporation (the "Company"), DataComm Acquiring Corp., an
Ohio corporation ("DataComm Acquiring Sub"), Midwest Acquiring Corp., an Ohio
corporation ("Midwest Acquiring Sub"), DataComm Associates, Inc., an Ohio
corporation ("DataComm"), Midwest Telecom Associates, Inc., an Ohio
corporation ("Midwest"), John M. Good, and Harold A. Madison, DataComm
Acquiring Sub merged with and into DataComm and Midwest Acquiring Sub merged
with and into Midwest. As a result of such mergers, the separate existence of
each of DataComm Acquiring Sub and Midwest Acquiring Sub ceased and each of
DataComm and Midwest continues as the surviving corporation and a wholly
owned subsidiary of the Company. The description of the mergers included
herein does not purport to be complete and is qualified in its entirety by
reference to the Agreement and Plan of Merger which is filed as Exhibit 2.1
hereto.
Pursuant to the terms of the Merger Agreement, upon the closing of the
mergers on October 31, 1997, 500,000 shares of common stock, $.01 par value
per share, of the Company (the "Common Stock") were issued to the
shareholders of DataComm and Midwest (the "Shareholders") in connection with
the mergers. The 500,000 shares of Common Stock issued in connection with
the mergers represents approximately 5% of the issued and outstanding shares
of Common Stock after the closing. All of the shares of the Common Stock
that have been issued to the Shareholders in connection with the mergers are
"restricted stock", as defined in Rule 144 promulgated under the Securities
Act of 1933, and have certain demand and "piggyback" registration rights.
In addition to the foregoing, the Company entered into an Employment and
Non-Competition Agreement with John M. Good that provides for the employment by
the Company of Good for a period of three (3) years from October 30, 1997. The
agreement also provides for a
-2-
<PAGE>
non-compete period through at least the base term of the agreement. The
description of the Employment and Non-Competition Agreement included herein
does not purport to be complete and is qualified in its entirety by reference
to the Employment and Non-Competition Agreement which is filed as Exhibit
10.1 hereto.
For accounting purposes, it is intended that the mergers will be treated
as a purchase transaction under APB Opinion No. 16.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit Filed
Number Description Herewith
- ------- ----------- --------
2.1 Agreement and Plan of Merger, dated as of October 31, X
1997, among Eltrax Systems, Inc., a Minnesota corporation,
DataComm Acquiring Corp., an Ohio corporation, Midwest
Acquiring Corp., an Ohio corporation, DataComm Associates,
Inc., an Ohio corporation, Midwest Telecom Associates, Inc.,
an Ohio corporation, John M. Good, and Harold A. Madison
4.1 Form of Warrant X
10.1 Employment and Non-Competition Agreement X
between Eltrax Systems, Inc. and John M. Good
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELTRAX SYSTEMS, INC.,
a Minnesota corporation
Date: November 6, 1997 By: /s/ Nicholas J. Pyett
-----------------------------
Nicholas J. Pyett,
Chief Financial Officer
-4-
<PAGE>
EXHIBIT INDEX
Exhibit Filed
Number Description Herewith
- ------- ----------- --------
2.1 Agreement and Plan of Merger, dated as of October 31, X
1997, among Eltrax Systems, Inc., a Minnesota corporation,
DataComm Acquiring Corp., an Ohio corporation, Midwest
Acquiring Corp., an Ohio corporation, DataComm Associates,
Inc., an Ohio corporation, Midwest Telecom Associates, Inc.,
an Ohio corporation, John M. Good, and Harold A. Madison
4.1 Form of Warrant X
10.1 Employment and Non-Competition Agreement between Eltrax X
Systems, Inc. and John M. Good
-5-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ELTRAX SYSTEMS, INC.,
DATACOMM ACQUIRING CORP.,
MIDWEST ACQUIRING CORP.,
DATACOMM ASSOCIATES, INC.,
MIDWEST TELECOM ASSOCIATES, INC.,
JOHN M. GOOD
AND
HAROLD A. MADISON
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. The Mergers.. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Surviving Corporations. . . . . . . . . . . . . . . . . . . . . . 1
1.3. Merger Consideration. . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . 2
1.5. Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6. Articles of Incorporation.. . . . . . . . . . . . . . . . . . . . 3
1.7. Code of Regulations.. . . . . . . . . . . . . . . . . . . . . . . 3
1.8. Directors and Officers. . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF DATACOMM, MIDWEST AND THE
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Corporate Organization. . . . . . . . . . . . . . . . . . . . . . 4
2.2. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3. Authorization.. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4. Non-Contravention.. . . . . . . . . . . . . . . . . . . . . . . . 5
2.5. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 5
2.6. Accounts Receivable.. . . . . . . . . . . . . . . . . . . . . . . 5
2.7. Liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8. Investigations; Litigation. . . . . . . . . . . . . . . . . . . . 6
2.9. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . 6
2.10. Title to Property; Condition.. . . . . . . . . . . . . . . . . . 6
2.11. Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.12. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13. Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14. Contracts and Commitments; No Default. . . . . . . . . . . . . . 7
2.15. Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16. Intellectual Property Rights.. . . . . . . . . . . . . . . . . . 8
2.17. Hazardous Substances and Hazardous Wastes. . . . . . . . . . . . 8
2.18. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19. Shareholders' Representations. . . . . . . . . . . . . . . . . . 9
2.20. Accuracy of Information. . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . . . . . . 10
3.1. Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2. Authority and Validity of Agreement.. . . . . . . . . . . . . . . 11
3.3. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . 11
3.4. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5. Non-Contravention.. . . . . . . . . . . . . . . . . . . . . . . . 11
3.6. Broker's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7. Accuracy of Information.. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1. Agreements as to Specified Matters. . . . . . . . . . . . . . . . 12
4.2. Confidentiality.. . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3. Further Assurances; Cooperation; Notification.. . . . . . . . . . 13
4.4. Registration Rights.. . . . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
4.5. Fee to Laux & Co. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5. CONDITIONS TO OBLIGATION OF PARENT AND ACQUIRING SUB . . . . . 13
ARTICLE 6. CONDITIONS TO THE OBLIGATION OF DATACOMM, MIDWEST AND
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 7. TERMINATION AND ABANDONMENT. . . . . . . . . . . . . . . . . . 14
7.1. Methods of Termination. . . . . . . . . . . . . . . . . . . . . . 14
7.2. Procedure Upon Termination. . . . . . . . . . . . . . . . . . . . 14
ARTICLE 8. SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . 15
8.1. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2. Indemnification by Parent.. . . . . . . . . . . . . . . . . . . . 15
8.3. Indemnification by Shareholders.. . . . . . . . . . . . . . . . . 15
8.4. Limitation on Indemnification.. . . . . . . . . . . . . . . . . . 15
8.5. Indemnification De Minimis Threshold. . . . . . . . . . . . . . . 15
8.6. Claims for Indemnification. . . . . . . . . . . . . . . . . . . . 16
8.7. Shareholder Payment of Indemnification Claims of Parent.. . . . . 17
ARTICLE 9. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 17
9.1. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.2. Amendment and Modification. . . . . . . . . . . . . . . . . . . . 17
9.3. Waiver of Compliance; Consents. . . . . . . . . . . . . . . . . . 17
9.4. No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . 17
9.5. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.6. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.7. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.8. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.9. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.10. Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . 19
9.11. Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . . . 19
9.12. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.13. Attorneys Fees.. . . . . . . . . . . . . . . . . . . . . . . . . 20
9.14. Knowledge of the Companies and Shareholders. . . . . . . . . . . 20
9.15 Venue Jurisdiction.. . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of October 31, 1997 (the
"Agreement"), is by and among ELTRAX SYSTEMS, INC., a Minnesota corporation (the
"Parent"), DATACOMM ACQUIRING CORP., an Ohio corporation and a wholly owned
subsidiary of Parent ("DataComm Acquiring Sub"), MIDWEST ACQUIRING CORP., an
Ohio corporation and a wholly owned subsidiary of Parent ("Midwest Acquiring
Sub") (DataComm Acquiring Sub and Midwest Acquiring Sub together being the
"Acquiring Subs"), DATACOMM ASSOCIATES, INC., an Ohio corporation ("DataComm"),
MIDWEST TELECOM ASSOCIATES, INC., an Ohio corporation ("Midwest") (DataComm and
Midwest together being the "Companies"), John M. Good, the shareholder of
DataComm and a shareholder of Midwest ("Good") and Harold A. Madison, a
shareholder of Midwest ("Madison") (Good and Madison together being the
"Shareholders").
RECITALS
A. The Boards of Directors of Parent, DataComm Acquiring Sub and DataComm
each have approved the merger of DataComm Acquiring Sub with and into DataComm,
upon the terms and subject to the conditions set forth herein (the "DataComm
Merger") and deem it advisable and in the best interests of their respective
shareholders that the foregoing merger be consummated;
B. The Boards of Directors of Parent, Midwest Acquiring Sub and Midwest
each have approved the merger of Midwest Acquiring Sub with and into Midwest,
upon the terms and subject to the conditions set forth herein (the "Midwest
Merger") and deem it advisable and in the best interests of their respective
shareholders that the foregoing merger be consummated; and
C. For federal income tax purposes, it is intended that the DataComm
Merger and the Midwest Merger (together the "Mergers") will qualify as a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants contained herein, the parties hereto agree as follows:
ARTICLE 1.
THE MERGER
1.1. THE MERGERS.
Simultaneously with the Closing (defined below), the parties hereto will
effect the Mergers by filing the required number of originals of the respective
Certificates of Merger in the form of Exhibits 1.1A and 1.1B, respectively. The
Mergers will become effective at the time specified in the respective
Certificates of Merger (the "Effective Time").
1.2. SURVIVING CORPORATIONS.
At the Effective Time, DataComm Acquiring Sub will be merged with and into
DataComm and the Midwest Acquiring Sub will be merged with and into Midwest, in
accordance with the applicable provisions of the Ohio Business Corporation Act
(the "OBCA"), whereupon the separate existence of each of the Acquiring Subs
will cease and DataComm and Midwest, respectively, will continue as the
surviving corporations (the "Surviving Corporations"). The identity, existence,
rights, privileges, powers, franchises, properties and assets of DataComm and
Midwest, respectively, shall continue
<PAGE>
unaffected and unimpaired by the Merger, and all of the rights, privileges,
powers, franchises, properties, and assets of the respective Acquiring Subs
shall be vested in the respective Surviving Corporations.
1.3. MERGER CONSIDERATION.
The aggregate consideration payable to the Shareholders will be Five
Hundred Thousand (500,000) shares of Parent common stock, par value $.01 per
share (the "Parent Common Stock").
1.4. CONVERSION OF SHARES.
At the Effective Time:
(a) Each share of DataComm Common Stock outstanding immediately prior
thereto will, by virtue of the DataComm Merger and without any action on
the part of the holder thereof, be converted into the right to receive Nine
Hundred and Seventy-Six (976) shares of Parent Common Stock, adjusted to
the nearest whole number, as set forth below:
Shareholder DataComm Merger Consideration
----------- Common --------------------
Stock
--------
John M. Good 500 488,000 shares of
Parent Common Stock
(b) Each share of common stock of DataComm Acquiring Sub, no par
value, issued and outstanding immediately prior thereto will, by virtue of
the DataComm Merger and without any action on the part of the holder
thereof, be converted into one share of the common stock of DataComm, no
par value.
(c) Each share of Midwest Common Stock outstanding immediately prior
thereto will, by virtue of the Midwest Merger and without any action on the
part of the holder thereof, be converted into the right to receive, one
hundred twenty (120) shares of Parent Common Stock, adjusted to the nearest
whole number, as set forth below:
Shareholder Midwest Merger Consideration
----------- Common --------------------
Stock
--------
John M. Good 75 9,000 shares of Parent Common Stock
Harold A. Madison 25 3,000 shares of Parent Common Stock
(d) Each share of common stock of Midwest Acquiring Sub, no par
value, issued and outstanding immediately prior thereto will, by virtue of
the Midwest Merger and without any action on the part of the holder
thereof, be converted into one share of the common stock of Midwest, no par
value.
(e) The Shareholders will cease to have any rights as Shareholders of
the Companies except such rights, if any, as they may have pursuant to the
OBCA.
2
<PAGE>
1.5. CLOSING.
The closing of the Merger (the "Closing") will be held on or prior to
October 31, 1997, as determined by Parent or on such later date as Parent may
decide (the "Closing Date"), but no later than November 30, 1997 (the
"Termination Date"). The Closing will be held at the offices of the
Companies, 30701 Lorian Rd., North Olmsted, Ohio 44070, or such other location
as determined by the Parent.
1.6. ARTICLES OF INCORPORATION.
The Articles of incorporation of DataComm and Midwest, respectively, as in
effect immediately prior to the Effective Time will be the articles of
incorporation of the respective Surviving Corporations until further amended in
accordance with applicable law.
1.7. CODE OF REGULATIONS.
The code of regulations of DataComm and Midwest, respectively, as in effect
immediately prior to the Effective Time will be the code of regulations of the
respective Surviving Corporations until amended or repealed in accordance with
the articles of incorporation of the respective Surviving Corporation and
applicable law.
1.8. DIRECTORS AND OFFICERS.
Immediately after the Effective Time of the Mergers, the directors and
officers of the respective Surviving Corporations will be as set forth below,
and will serve in such capacities until their respective successors are duly
elected and qualified:
DATACOMM
DIRECTORS OFFICERS
--------- --------
Clunet R. Lewis John M. Good - President
Clunet R. Lewis - Secretary
Nicholas J. Pyett - Treasurer
MIDWEST
DIRECTORS OFFICERS
--------- --------
Clunet R. Lewis John M. Good - President
Clunet R. Lewis - Secretary
Nicholas J. Pyett - Treasurer
3
<PAGE>
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
OF DATACOMM, MIDWEST AND THE SHAREHOLDERS
Except as expressly set forth herein, DataComm, Midwest and each of the
Shareholders, jointly and severally, represent and warrant to Parent and to
Acquiring Subs that the following statements are true, complete and correct as
of the date hereof and shall be true, complete and correct as of the Closing
Date; provided, however, that the representations and warranties of Madison
shall be limited to those matters concerning Midwest only:
2.1. CORPORATE ORGANIZATION.
Each of the Companies is a corporation duly organized, validly existing and
in good standing under the laws of Ohio, has full corporate power and authority
to carry on its business as it is now being conducted and to own, lease and
operate its properties and assets. Each of the Companies has heretofore
delivered to Parent complete and correct copies of its articles of incorporation
and code of regulations, as presently in effect. In addition, each of the
Companies has delivered to Parent a good standing certificate from the state of
Ohio bearing a date within thirty (30) days of the date of this Agreement.
Except as set forth on Schedule 2.1, each of the Companies is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
every jurisdiction in which the character or location of the properties and
assets owned, leased or operated by it or the nature of the business conducted
by it requires such qualification or licensing, except where the failure to be
so qualified, licensed or in good standing in such other jurisdiction could not,
individually or in the aggregate, have a material adverse effect on the business
of each of the Companies taken as a whole. Neither of the Companies own or
control any interest in any corporation, partnership, joint venture or other
business association or entity.
2.2. CAPITALIZATION.
The authorized capital stock of DataComm consists of one thousand (1,000)
shares of common stock, no par value, of which 500 will be issued and
outstanding on or prior to the Closing. The authorized capital stock of Midwest
consists of seven hundred fifty (750) shares of common stock, no par value, of
which 100 will be issued and outstanding on or prior to the Closing. All issued
and outstanding shares of capital stock of each of the Companies are (or will
be) duly authorized, validly issued, fully paid and nonassessable and have not
been issued in violation of, any preemptive rights. There are no outstanding
options, warrants, conversion privileges or other rights to purchase or acquire
any shares of capital stock or other equity securities of either of the
Companies or any outstanding securities that are convertible into or
exchangeable for such shares, securities or rights. There are no contracts,
commitments, understandings, arrangements or restrictions by which either of the
Companies or any of the Shareholders are bound to issue or acquire any
additional shares of its capital stock or other equity securities or any
options, warrants, conversion privileges or other rights to purchase or acquire
any capital stock or other equity securities of either of the Companies or any
securities convertible into or exchangeable for such shares, securities or
rights.
2.3. AUTHORIZATION.
The Shareholders and the Board of Directors of each of the Companies have
taken all action required by law, the articles of incorporation and code of
regulations of each of the Companies and otherwise to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions described herein (the "Transactions"). No other consent or
approval from any party is necessary to validly complete the Transactions, other
than as may be required under the OBCA. This Agreement has been duly and
validly executed and delivered by the Shareholders, DataComm and
4
<PAGE>
Midwest, and is the valid and binding legal obligation of the Shareholders,
DataComm and Midwest, enforceable against each of them in accordance with its
terms, subject to the affect of applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance and other laws affecting the
rights of creditors generally (the "Enforceability Exceptions"), or the
availability of specific performance, injunctive relief and other equitable
remedies and to general principles of equity (regardless of whether such
principles are considered in a proceeding in equity or at law).
2.4. NON-CONTRAVENTION.
Except as set forth on Schedule 2.4, neither the execution, delivery and
performance of this Agreement, nor the consummation of the Transactions will:
(i) violate or be in conflict with any provision of the articles of
incorporation or code of regulations of either of the Companies; (ii) require
that written consent first be obtained from any third party (other than as
required by the OBCA); (iii) or to the knowledge of the Companies and the
Shareholders, constitute a default under, any instrument, agreement or
obligation to which either of the Companies is a party.
2.5. FINANCIAL STATEMENTS.
DataComm has furnished to Parent the unaudited balance sheet and statement
of earnings for DataComm as of and for the fiscal years ended October 31, 1995
and October 31, 1996 and the unaudited balance sheet and statement of earnings
for the eleven (11) month period ended September 30, 1997 (the "DataComm Latest
Balance Sheet" and collectively, the "DataComm Financial Statements"). Midwest
has furnished to Parent the unaudited balance sheet and statement of earnings
for Midwest as of and for the fiscal years ended July 31, 1996 and July 31, 1997
and the unaudited balance sheet and statement of earnings for the two (2) month
period ended September 30, 1997 (the "Midwest Latest Balance Sheet" and
collectively, the "Midwest Financial Statements"). Except as set forth on
Schedule 2.5, the DataComm Financial Statements and the Midwest Financial
Statements each: (i) are in accordance with generally accepted accounting
principles, subject to year end adjustments consistent with past practices; (ii)
fairly present the financial position and the results of operations of DataComm
and Midwest, respectively; and (iii) accurately state the various account
balances.
2.6. ACCOUNTS RECEIVABLE.
Except as set forth on Schedule 2.6: (i) the accounts receivable which are
reflected in the DataComm and Midwest Latest Balance Sheets or which arose
subsequent thereto were validly obtained in the ordinary course of business of
DataComm and Midwest, respectively; and (ii) except to the extent of applicable
reserves shown in such balance sheets, to the knowledge of the Companies and the
Shareholders, all of the receivables owing to each of the Companies constitute
valid and enforceable claims arising from bona fide arms-length transactions,
and neither of the Companies has received any written or oral claims, defenses
or refusals to pay, or granted any rights of set-off with respect to any
receivables.
2.7. LIABILITIES.
Except as set forth on Schedule 2.7, neither of the Companies has any
material liability or obligation of any nature, whether asserted or unasserted,
accrued, absolute or contingent or otherwise, and whether due or to become due,
that is not reflected or reserved against on either the DataComm Latest Balance
Sheet, or the Midwest Latest Balance Sheet, except those that may have been
incurred after September 30, 1997 in the ordinary course of business and
consistent with past practices, exclusive of the bonus in the amount of $277,000
paid to John M. Good.
5
<PAGE>
2.8. INVESTIGATIONS; LITIGATION.
Except as described on Schedule 2.8, there are no claims or actions by
anyone against or affecting the Companies that are pending or, to the
knowledge of the Companies or any of the Shareholders, have been threatened.
To the knowledge of the Companies or any of the Shareholders, there is no
basis for any such claim or action.
2.9. ABSENCE OF CERTAIN CHANGES.
Except as set forth on Schedule 2.9, since September 30, 1997, neither of
the Companies has suffered any adverse change in its condition (financial or
otherwise), working capital, assets, properties, liabilities, obligations,
reserves or businesses, or experienced any event or failed to take any action
which could reasonably be expected to have a material adverse effect on the
business of such company.
2.10. TITLE TO PROPERTY; CONDITION.
Except as set forth on Schedule 2.10:
(a) DataComm has good and marketable title in and to all of the
assets reflected in the DataComm Latest Balance Sheet and all assets
purchased or otherwise acquired since September 30, 1997 (except for such
assets as may have been sold or otherwise disposed of in the ordinary
course of business), subject to no lien of any kind or nature;
(b) Midwest has good and marketable title in and to all of the assets
reflected in the Midwest Latest Balance Sheet and all assets purchased or
otherwise acquired since September 30, 1997 (except for such assets as may
have been sold or otherwise disposed of in the ordinary course of
business), subject to no lien of any kind or nature;
(c) The Companies own no real property;
(d) All inventory of the Companies consists of a quality and
quantity usable and salable in the ordinary course of business.
2.11. TAX RETURNS.
To the knowledge of the Companies and the Shareholders, proper and
accurate amounts have been and will be withheld by the Companies from their
respective employees and properly deposited in appropriate accounts, for all
periods up to and through the Closing Date in full and complete compliance
with the tax withholding, deposit and payment provisions of applicable
federal, state and local laws. Each of the Companies has filed all federal,
state and local, as well as other returns and reports that were required to
be filed for all periods for which returns were due up to and through the
Closing Date, and each of the Companies has made payments of all governmental
taxes, levies, duties, license and registration fees, charges or withholdings
of any nature whatsoever ("Taxes") shown to be due and payable in respect of
such returns and reports. To the knowledge of the Companies and the
Shareholders, all such returns are true, correct and complete in all material
respects and no penalties or interest will be asserted by any taxing
authority arising out of a late payment of Taxes. Except as disclosed on
Schedule 2.11, neither of the Companies owes any deficiency for any Taxes,
and no tax returns are presently under audit or examination by any federal,
state or local tax authority, and neither the Companies nor the Shareholders
have received notice of any adjustments proposed or asserted by the Internal
Revenue Service or any other agency in respect of any liability for Taxes
arising out of or relating to such returns.
6
<PAGE>
2.12. INSURANCE.
Schedule 2.12 contains an accurate and complete list of all policies of
fire and other casualty, general liability, theft, life, workers'
compensation, health, directors and officers liability, business interruption
and other forms of insurance owned or held by the Companies, specifying the
insurer, the policy number, the term of the coverage and, in the case of any
"claims made" coverage, the same information as to predecessor policies for
the previous five years. All premiums that are due as of the date hereof and
as of the Closing Date with respect thereto have been paid and no notice has
been received by either the Companies or the Shareholders that the present
policies are not in full force and effect. Neither of the Companies nor John
M. Good has been denied any form of insurance and no policy of insurance has
been revoked or rescinded during the past three years, except as described
under Schedule 2.12.
2.13. BENEFIT PLANS.
Except as disclosed on Schedule 2.13, neither of the Companies maintains,
nor is party to, bound by or a contributor to, or required to contribute to,
(a) any employee pension benefit plans whether or not qualified under Section
401(a) of the Code, (b) any employee welfare benefit plans, or (c) any other
compensation, fringe or welfare plan or program, policy, understanding or
arrangement providing plan benefits or welfare, with respect to its employees
or employees of others (collectively, the "Employee Plans"). As used in this
Section, the terms "employee pension benefit plan" and "employee welfare
benefit plan" will have the respective meanings assigned to such terms in
Section 3 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Each Employee Plan described on Schedule 2.13, to the knowledge
of the Companies and the Shareholders, meets all applicable requirements of
ERISA, and has been operated and administered in accordance with the Code,
ERISA and the plan document. To the knowledge of the Companies and the
Shareholders, all required government filings and disclosures have been
timely and fully made, are true, correct and complete in all material
respects, and no prohibited transaction or other act or omission which could
result in the imposition of an excise tax has occurred.
2.14. CONTRACTS AND COMMITMENTS; NO DEFAULT.
Schedule 2.14 sets forth a complete and accurate list of all written
agreements or other binding commitments or proposals involving the provision
of goods or services to or by DataComm or Midwest involving an aggregate
sale price or consideration of more than $25,000, or which are not terminable
without penalty at the option of DataComm or Midwest upon no more than 30
days' notice (the "Contracts"). The aggregate amount of the liabilities or
obligations of DataComm, Midwest or the other parties under written
agreements or other binding commitments or proposals not listed on Schedule
2.14 does not exceed $100,000. The Companies have made available to Parent
true and accurate copies of the Contracts. To the knowledge of the Companies
and the Shareholders, the Contracts are valid, binding and in full force and
effect, and are enforceable in accordance with their respective terms
(subject to the Enforceability Exceptions). Neither of the Companies is in
default under any of the Contracts, nor has any notice of default been
received by either of the Companies. To the knowledge of the Companies and
the Shareholders, all other parties to the Contracts have performed or are
performing all material obligations required to be performed by them and are
not in default thereunder.
2.15. LABOR MATTERS.
Schedule 2.15 sets forth a list of all employees of the Companies and
includes their position, current salary, and 1997 wage information for each
person. Except as set forth on Schedule 2.15 and except as are not material to
the business of either of the Companies: (i) to the knowledge of the Companies
and the Shareholders, each of the Companies is and has at all times been in
compliance with
7
<PAGE>
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation
any such laws respecting employment discrimination and occupational safety
and health requirements, and has not and is not engaged in any unfair labor
practice; (ii) there is no unfair labor practice complaint against either of
the Companies or any of the Shareholders pending or, to the knowledge of each
of the Companies and the Shareholders, threatened before the National Labor
Relations Board or any other comparable government authority; (iii) there is
no labor strike, dispute, slowdown or stoppage actually pending or, to the
knowledge of each of the Companies and the Shareholders, threatened against
or directly affecting either of the Companies; (iv) no collective bargaining
agreement is binding and in force against either of the Companies or is
currently being negotiated by either of the Companies or the Shareholders;
(v) neither of the Companies is delinquent in payments to any person for any
wages, salaries, commissions, bonuses or other direct or indirect
compensation for any services performed by them or amounts required to be
reimbursed to such persons, including without limitation any amounts due
under any pension plan, welfare plan or compensation plan; and (vi) there has
not been, within one year of the date hereof, any written or verbal
communication to John M. Good, by any current officer or key employee of
either of the Companies, expressing a desire to terminate such person's
employment, other than DataComm's Cleveland branch manager who several months
ago advised John M. Good that he had been offered a position with a customer,
which position such employee subsequently turned down to remain with DataComm.
2.16. INTELLECTUAL PROPERTY RIGHTS.
Except as disclosed on Schedule 2.16, neither of the Companies owns or
uses any patents, trade names, service names, trademarks, service marks,
copyrights, or any other intellectual or intangible property or applications
therefor nor has conducted business under any corporate, trade or fictitious
name other than its current corporate name. There are no pending or, to the
knowledge of the Companies and the Shareholders, threatened claims of
infringement upon the rights to any intellectual or intangible property of
others or, except as set forth on Schedule 2.16, any agreements or
undertakings with respect to any such rights.
2.17. HAZARDOUS SUBSTANCES AND HAZARDOUS WASTES.
Except as set forth on Schedule 2.17:
(a) To the knowledge of the Companies and the Shareholders, there is
not now, nor has there ever been, any disposal, release or threatened
release of Hazardous Materials (as defined below) on, from or under
properties now or ever owned or leased by or to either of the Companies
(the "Properties"). There has not been generated by or on behalf of either
of the Companies any Hazardous Material, other than in compliance with
applicable law. No Hazardous Material has been disposed of or allowed to
be disposed of on or off any of the Properties during the period that
either of the Companies owned or leased the property which may, to the
knowledge of the Companies and the Shareholders, give rise to a clean-up
responsibility, personal injury liability or property damage claim against
either of the Companies or either being named a potentially responsible
party for any such clean-up costs, personal injuries or property damage or
create any cause of action by any third party against either of the
Companies. For purposes of this subsection, the terms "disposal,"
"release," and "threatened release" shall have the definitions assigned
thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and the term "Hazardous Material" means
any hazardous or toxic substance, material or waste or pollutants,
contaminants or asbestos containing material which is or becomes regulated
by any Authority in any jurisdiction in which any of the Properties is
located. The term "Hazardous Material" includes without limitation any
material or substance which is (i) defined as a "hazardous waste" or a
8
<PAGE>
"hazardous substance" under applicable Law, (ii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control
Act, (iii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, or (iv) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended.
(b) To the knowledge of the Companies and the Shareholders, none of
the Properties is (or with respect to previously owned Properties was at
the time of disposition) in violation of any law (or with respect to
previously owned Properties laws in effect at the time of disposition)
relating to the environmental conditions on, under or about such
Properties, including without limitation soil and ground water condition
and there are (or at the time of disposition were) no underground tanks or
related piping, conduits or related structures. During the period that the
Companies owned or leased the Properties, to the knowledge of the Companies
and the Shareholders, neither of the Companies nor any third party used,
generated, manufactured or stored on, under or about such Properties or
transported to or from such Properties any Hazardous Materials except in
compliance with applicable law, and there has been no litigation brought or
to the knowledge of the Companies and the Shareholders threatened against
either of the Companies or any settlements reached by either of the
Companies with any third party or third parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials on, from
or under any of such Properties.
2.18. BROKERS.
Except for the engagement of and fee owing to Laux & Co., neither the
Shareholders nor either of the Companies or any of their respective
directors, officers or employees has employed any other broker, finder, or
financial advisor or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby, nor is there any basis known to either of
the Companies or any of the Shareholders for any such fee or commission to be
claimed by any person or entity.
2.19. SHAREHOLDERS' REPRESENTATIONS.
In addition to the foregoing representations of each of the Shareholders,
each of the Shareholders individually represents and warrants to Parent as
follows:
(a) The Shareholders are acquiring the shares of Parent's Common
Stock pursuant to the Mergers for such Shareholders' sole account (and such
Shareholders will be the sole beneficial owners thereof) for the purpose of
investment and not with a view to distribution thereof within the meaning
of the Securities Act of 1933, as amended and the rules and regulations
thereunder (the "Securities Act"), nor with any present intention of
distribution or selling such shares of Parent Common Stock in connection
with any such distribution, and such Shareholders understand that such
shares have not been registered under the Securities Act or any applicable
state securities law and therefore cannot be resold unless they are
registered under the Securities Act and any applicable state securities
laws or unless an exemption from registration is available.
(b) There are available over the Internet various public filings
made by the Parent with the Securities and Exchange Commission pursuant to
its EDGAR filing requirements (the "Eltrax Reports"). The Shareholders
have had access to, and have had sufficient time to review and consider,
such Eltrax Reports. The Shareholders have been afforded an opportunity to
ask questions of and receive answers from representatives of Parent
concerning the terms and
9
<PAGE>
conditions of the Transactions and to obtain any additional information
as such Shareholders have requested in writing to verify the accuracy of
the Eltrax Reports and copies of any exhibits identified in such
documents that such Shareholders have requested.
(c) The Shareholders have accurately, truthfully and completely
executed the Investor Questionnaire, in the form of Exhibit 2.19.
(d) The Shareholders have consented to the following legend on the
certificate or certificates for shares of Parent Common Stock to be issued
to each such Shareholder in connection with the Mergers:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS AND MAY BE SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED ONLY IF A REGISTRATION
STATEMENT WITH RESPECT TO SUCH TRANSACTION IS IN EFFECT
PURSUANT TO THE PROVISIONS OF SUCH LAWS OR IF, IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER, AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS IS
AVAILABLE.
2.20. ACCURACY OF INFORMATION.
Neither this Agreement, the Exhibits and Schedules hereto, the Financial
Statements, nor any other document delivered in connection herewith and
expressly referred to herein, to the knowledge of the Companies and the
Shareholders, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein or herein not misleading. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND
WARRANTIES SET FORTH IN THIS ARTICLE 2, THE PARENT AND THE ACQUIRING SUBS
ACKNOWLEDGE THAT THE SHAREHOLDERS AND THE COMPANIES HAVE MADE NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND REGARDING THE COMPANIES OR THEIR
BUSINESS OR OPERATIONS. THE PARENT AND THE ACQUIRING SUBS ACKNOWLEDGE THAT
THEY HAVE BEEN AFFORDED A SUFFICIENT OPPORTUNITY TO PERFORM DUE DILIGENCE
REGARDING THE COMPANIES AND THEIR FINANCIAL CONDITION AND BUSINESS OPERATIONS
AND HAVE BEEN PROVIDED WITH SUCH INFORMATION AND DOCUMENTATION, INCLUDING BUT
NOT LIMITED TO, THAT CERTAIN OFFERING MEMORANDUM PREPARED BY LAUX & CO, AS
THEY HAVE DEEMED NECESSARY FOR THE PURPOSE OF EVALUATING THE COMPANIES AND
THEIR FINANCIAL CONDITION AND OPERATIONS.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
OF PARENT
The Parent represents and warrants to the Shareholders that the following
statements are true, complete and correct as of the date hereof and shall be
true, complete and correct as of the Closing Date:
10
<PAGE>
3.1. ORGANIZATION.
Each of Parent and the Acquiring Subs is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and each has all requisite corporate power and authority to
own, lease and operate its respective properties and to carry on its business
as it is now being conducted. Acquiring Subs are recently-formed Ohio
corporations that have not conducted, and will not conduct prior to the
Closing, any activities other than those incident to its formation and in
connection with the consummation of the Mergers. Each of Parent and
Acquiring Subs is duly qualified and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary and
where the failure to qualify could have a material adverse effect on the
business, results of operations or financial condition of the Parent and its
subsidiaries taken as a whole.
3.2. AUTHORITY AND VALIDITY OF AGREEMENT.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Boards of Directors of Parent and Acquiring Subs and by
Parent as the sole shareholder of Acquiring Subs, and no other corporate
proceedings on the part of Parent or either of the Acquiring Subs are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed by
each of Parent and Acquiring Subs and constitutes valid and binding
obligations of Parent and each of the Acquiring Subs, enforceable against
each of them in accordance with their terms, subject to the Enforceability
Exceptions.
3.3. CONSENTS AND APPROVALS.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not, except for any applicable
requirements of the Securities Act and state securities laws, and the filing
and recordation of appropriate merger documents as required by the OBCA,
require any filing with or permit, consent or approval of any authority.
3.4. CAPITALIZATION.
The authorized capital stock of the Parent consists of 50,000,000 shares
of Parent common stock and 970,000 shares of undesignated preferred stock, of
which there were 9,474,875 shares of Parent common stock issued and
outstanding as of September 30, 1997. All shares of Parent Common Stock to
be issued and delivered in the Mergers will be, at the time of issuance and
delivery, validly issued, fully paid, nonassessable and free of preemptive
rights.
3.5. NON-CONTRAVENTION.
Neither the execution, delivery and performance of this Agreement nor the
consummation of the transactions contemplated herein will: (i) violate or be
in conflict with any provision of the articles of incorporation or code of
regulations of the Parent or either of the Acquiring Subs; or (ii) to the
knowledge of Parent constitute a default under, any instrument or other
agreement or obligation to which the Parent or either of the Acquiring Subs
is a party.
11
<PAGE>
3.6. BROKER'S
The Parent has employed no broker, finder, or financial advisor or
incurred any liability for any brokerage fee or commission, finder's fee or
financial advisory fee, in connection with the Transactions, nor is there any
basis known to the Parent for any such fee or commission to be claimed by any
person or entity, except that the Companies have engaged Laux & Co. as their
financial advisors, for which they will be paid a fee pursuant to Section 4.5.
3.7. ACCURACY OF INFORMATION.
Neither this Agreement, the Exhibits and Schedules hereto, nor any other
document delivered in connection herewith and expressly referred to herein,
to the knowledge of Parent, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein or herein not misleading. Except as disclosed on Schedule
3.7, Parent has no knowledge of any information which if made public, would
materially impact the trading price of the Parent's common stock. EXCEPT AS
SET FORTH HEREIN, THERE ARE NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED.
ARTICLE 4.
COVENANTS
4.1. AGREEMENTS AS TO SPECIFIED MATTERS.
Except as agreed to in writing by Parent, from the date hereof until the
Closing Date, the Companies will operate their respective businesses only in
the ordinary course consistent with past practice. The Companies will use
and the Shareholders will cause them to use their best efforts to preserve
intact their business organizations, existing business relationships,
goodwill and going concern value. The Shareholders and Parent shall
cooperate jointly with respect to the delivery of notices regarding the
Transactions to vendors, suppliers, customers and other third parties who
have relationships with the Companies.
4.2. CONFIDENTIALITY.
The parties hereto will not use, or permit the use of, any of the
information relating to any other party hereto furnished to it in connection
with the transactions contemplated herein ("Information") in a manner or for
a purpose detrimental to such other party or otherwise than in connection
with the transaction, and they will not disclose, divulge, provide or make
accessible (collectively, "Disclose"), or permit the Disclosure of, any of
the Information to any person or entity, other than their responsible
directors, officers, employees, investment advisors, accountants, counsel and
other authorized representatives and agents, except as may be required by
judicial or administrative process or, in the opinion of such party's regular
counsel, by other requirements of law, unless the disclosing party first
obtains the prior written consent of the other parties hereto. The parties
hereto also will promptly return to the party from whom originally received
all original and duplicate copies of written materials containing Information
should the transactions contemplated herein not occur. This Section 4.2
survives Closing and any termination of this Agreement.
12
<PAGE>
4.3. FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after Closing, execute and
deliver such instruments and take such other actions as the other party or
parties, as the case may be, may reasonably require in order to carry out
the intent of this Agreement, including, but not limited to, any securities
filings.
(b) At all times from the date hereof until the Closing, each party
will promptly notify the other in writing of the occurrence of any event
which it reasonably believes will or may result in a failure by such party
to satisfy the conditions specified in Article 5 and Article 6 hereof.
4.4. REGISTRATION RIGHTS.
Parent agrees to provide the Shareholders with the registration rights
with respect to Parent Common Stock they receive as a result of the Mergers,
as set forth on Exhibit 4.4 hereto.
4.5 FEE TO LAUX & CO.
At the Closing of the Transactions, Parent will pay a fee to Laux & Co.,
in the amount of One Hundred Sixty Thousand Dollars ($160,000), in full
satisfaction of the claim of Laux & Co. for compensation for its financial
advisory services to the Companies.
ARTICLE 5.
CONDITIONS TO OBLIGATION OF PARENT AND ACQUIRING SUB
The following are conditions to the obligations of the Parent and
Acquiring Subs to close the Transactions:
(a) The continued accuracy of the representations and warranties of
the Companies and the Shareholders contained in this Agreement;
(b) The full performance in all material respects of all obligations
of each of the Companies and the Shareholders contained in this Agreement;
(c) Parent's receipt of the opinion of Berick, Pearlman & Mills,
counsel for the Companies, dated on the Closing Date, in the form
reasonably agreed to by counsel for Parent;
(d) Parent's receipt of the employment and non-competition agreement
of Good, in a form reasonably agreed to by and between the Parent and Good;
and
(e) The absence of any injunction, court decree or similar ruling
which prohibits the consummation of the Transactions.
ARTICLE 6.
CONDITIONS TO THE OBLIGATION OF DATACOMM, MIDWEST AND SHAREHOLDERS
The following are conditions to the obligations of the Companies and the
Shareholders to close the Transactions:
13
<PAGE>
(a) The continued accuracy of the representations and warranties of
Parent contained in this Agreement;
(b) The full performance in all material respects of all obligations
of the Parent contained in this Agreement;
(c) Parent's receipt of the opinion of Jaffe, Raitt, Heuer & Weiss,
P.C., counsel for Parent, dated on the Closing Date, in the form reasonably
agreed to by counsel for the Companies;
(d) The receipt by Good of an employment and non-competition
agreement with Parent, in a form reasonably agreed to by and between Good
and the Parent; and
(e) The absence of any injunction, court decree or similar
ruling which prohibits the consummation of the Transactions.
ARTICLE 7.
TERMINATION AND ABANDONMENT
7.1. METHODS OF TERMINATION.
This Agreement may be terminated and the transactions contemplated herein
may be abandoned in accordance with the following:
(a) By mutual written consent of Parent, each of the Acquiring Subs,
each of the Companies and the Shareholders;
(b) By the Parent and each of the Acquiring Subs, if any of the
conditions provided for in Article 5 have not been satisfied in all
material respects or waived in writing by Parent prior to Closing; or
(c) By the Companies and the Shareholders, if any of the conditions
provided for in Article 6 have not been satisfied in all material respects
or waived in writing by the Companies and Shareholders prior to Closing;
and
(d) By any party, if on November 30, 1997, the Transactions have not
already closed.
7.2. PROCEDURE UPON TERMINATION.
In the event of termination and abandonment pursuant to Section 7.1(a),
written notice thereof will forthwith be given to the other party or parties,
and the provisions of this Agreement (except to the extent provided in
Section 9.1) will terminate, and the transactions contemplated herein will be
abandoned, without further action by any party hereto. If this Agreement is
terminated as provided herein: (i) each party will, upon request, redeliver
all documents, work papers and other material of any other party (and all
copies thereof) relating to the transactions contemplated herein, whether so
obtained before or after the execution hereof, to the party furnishing the
same; (ii) the confidentiality obligations of Section 4.2 will continue to be
applicable; and (iii) except as provided in this Section, no party will have
any liability for a breach of any representation, warranty, agreement,
covenant or other provision of
14
<PAGE>
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 8.
SURVIVAL AND INDEMNIFICATION
8.1. SURVIVAL.
The representations, warranties and covenants of each of the parties
hereto will survive the Closing until one (1) year after the Closing Date.
8.2. INDEMNIFICATION BY PARENT.
Parent and Acquiring Subs jointly and severally agree to indemnify each
of the Shareholders from and against any and all loss, liability or damage
suffered or incurred by them (including any and all costs and expenses,
including without limitation reasonable legal fees and expenses incurred, in
connection with enforcing the indemnification rights of Shareholders pursuant
to this Section 8.2) by reason of: (i) any untrue representation of or breach
of warranty set forth in Article 3; (ii) any loss, liability or damage
suffered or incurred by the Shareholders by reason of any nonfulfillment of
any covenant, agreement or undertaking of Parent in this Agreement; and (iii)
any claim against the Shareholders arising from activities of the Surviving
Companies undertaken subsequent to the Effective Time; provided, however,
that in respect of either Shareholder no such claim arises as a result of the
fraud, gross negligence or willful misconduct of such Shareholder.
8.3. INDEMNIFICATION BY SHAREHOLDERS.
The Shareholders severally agree to indemnify Parent, each of the
Acquiring Subs and their respective directors, officers, employees and
agents, from and against any and all loss, liability or damage suffered or
incurred by it (including any and all costs and expenses, including without
limitation reasonable legal fees and expenses incurred, in connection with
enforcing the indemnification rights of Parent or either of the Acquiring
Subs pursuant to this Section 8.3) by reason of: (i) any untrue
representation of or breach of warranty set forth in Article 2; and (ii) any
and all loss, liability or damage suffered or incurred by Parent or either of
the Acquiring Subs by reason of any nonfulfillment of any covenant, agreement
or undertaking of either of the Companies or any Shareholder in this
Agreement; provided, however, that Madison shall have no indemnification
obligations or liability under this Section to the extent such loss,
liability, claim or damage relates to DataComm.
8.4. LIMITATION ON INDEMNIFICATION.
Except as provided in Section 8.5(b), the Shareholders' aggregate
indemnification obligations under this Article 8 will be limited to the value
of the Parent Common Stock multiplied by its trading price on the Closing
Date.
8.5. INDEMNIFICATION DE MINIMIS THRESHOLD.
(a) Except as expressively provided otherwise herein, and subject to
the provisions of Section 8.5(b), neither the Shareholders nor the Parent,
as the case may be, will be entitled to indemnification under this
Agreement unless the aggregate of all claims with respect to matters
arising hereunder is more than One Hundred Thousand Dollars ($100,000) (the
"Threshold Amount"). When the aggregate amount of all such indemnification
claims hereunder equals or exceeds the Threshold Amount, the Parent or the
Shareholders, as the case may be, will be entitled to full indemnification
of all claims, including the One Hundred Thousand Dollars ($100,000) that
amounted to the Threshold Amount. Once the aggregate amount of all
indemnification claims hereunder equal or exceed the Threshold Amount, the
Shareholders or the Parent, as the case may be, will be
15
<PAGE>
entitled to full indemnification for all claims. The parties hereto agree
that the Threshold Amount is not a deductible amount, nor will the
Threshold Amount will be deemed to be a definition of "material" for any
purpose in this Agreement.
(b) Notwithstanding the foregoing, in the case of any untrue
representation with respect to which any party hereunder had actual
knowledge or had actual knowledge of the potential or probable loss,
liability or damage without disclosing such to the other party on or prior
to the Closing Date, such non-disclosing party will promptly pay the other
party the full indemnification claim without regard to the Threshold Amount
set forth in this Section, or the overall limitation on amount as set forth
in Section 8.4, and the time limitation set forth in Section 8.1 shall be
extended to three (3) years.
8.6. CLAIMS FOR INDEMNIFICATION.
The parties intend that all indemnification claims hereunder be made as
promptly as practicable by the party seeking indemnification (the
"Indemnified Party"). Whenever any claim arises for indemnification hereunder
the Indemnified Party will promptly notify the party from whom
indemnification is sought (the "Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the case of any
such claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings of a third party (a "Third Party Claim"), the
notice to the Indemnifying Party will specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The Indemnifying
Party shall have the right to dispute and defend all Third Party Claims and
thereafter so defend and pay any adverse final judgment or award or
settlement amount in regard thereto. Such defense shall be controlled by the
Indemnifying Party, and the cost of such defense shall be borne by the
Indemnifying Party, except that the Indemnified Party shall have the right to
participate in such defense at its own expense; and PROVIDED, HOWEVER, that
the Indemnifying Party must first acknowledge that the claim is a bona fide
indemnification claim under this Agreement. The Indemnified Party shall
cooperate in all reasonable respects in the defense of any such claim,
including making personnel, books, and records relevant to the claim
available to the Indemnifying Party, without charge, except for reasonable
out-of-pocket expenses. If the Indemnifying Party fails to take action
within thirty (30) days as set forth above, then the Indemnified Party shall
have the right to pay, compromise or defend any Third Party Claim and to
assert the amount of any payment on the Third Party Claim plus the reasonable
expenses of defense or settlement as the claim. The Indemnified Party shall
also have the right, exercisable in good faith, to take such action as may be
necessary to avoid a default prior to the assumption of the defense of the
Third Party Claim by the Indemnifying Party, and any reasonable expenses
incurred by Indemnified Party so acting shall be paid by the Indemnifying
Party. Except as otherwise provided herein, the Indemnified Party will not
settle or compromise any Third Party Claim for which it is entitled to
indemnification hereunder without the prior written consent of the
Indemnifying Party, which will not be unreasonably withheld. If the
Indemnifying Party is of the opinion that the Indemnified Party is not
entitled to indemnification, or is not entitled to indemnification in the
amount claimed in such notice, it will deliver, within ten (10) business days
after the receipt of such notice, a written objection to such claim and
written specifications in reasonable detail of the aspects or details
objected to, and the grounds for such objection. If the Indemnifying Party
filed timely written notice of objection to any claim for indemnification,
the validity and amount of such claim will be determined by arbitration
pursuant to Section 9.12 hereof. If timely notice of objection is not
delivered or if a claim by an Indemnified Party is admitted in writing by an
Indemnifying Party or if an arbitration award is made in favor of an
Indemnified Party, the Indemnified Party, as a non-exclusive remedy, will
have the right to set-off the amount of such claim or award against any
amount yet owed, whether due or to become due,
16
<PAGE>
by the Indemnified Party or any subsidiary thereof to any Indemnifying Party
(other than any such amount arising under the Employment Agreement by and
between John M. Good and the Parent) by reason of this Agreement or any
agreement or arrangement or contract to be entered into at the Closing.
8.7. SHAREHOLDER PAYMENT OF INDEMNIFICATION CLAIMS OF PARENT.
In the discretion of each of the Shareholders, any payment on a claim
made pursuant to Section 8.6, may be made in cash or shares of Parent Common
Stock, with the surrender value of such shares, for purposes of satisfying
any such claim, equal to the trading price of the Parent Common Stock on the
Closing Date.
ARTICLE 9.
MISCELLANEOUS PROVISIONS
9.1. EXPENSES.
Other than as expressly provided for in this Agreement, each of the
parties hereto will bear its own costs, fees and expenses in connection with
the negotiation, preparation, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
including without limitation fees, commissions and expenses payable to
brokers, finders, investment bankers, consultants, exchange or transfer
agents, attorneys, accountants and other professionals, whether or not the
Transactions is consummated; provided, however, that subject to review of
invoices and approval by Parent, Parent shall pay the reasonable legal and
accounting expenses of the Companies directly related to the Mergers, but
only if the Transactions are consummated.
9.2. AMENDMENT AND MODIFICATION.
Subject to applicable law, this Agreement may be amended or modified by
the parties hereto at any time prior to the Closing with respect to any of
the terms contained herein; provided, however, that all such amendments and
modifications must be in writing duly executed by all of the parties hereto.
9.3. WAIVER OF COMPLIANCE; CONSENTS.
Any failure of a party to comply with any obligation, covenant, agreement
or condition herein may be expressly waived in writing by the party entitled
hereby to such compliance, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition will not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. No single or partial exercise of a right or remedy will preclude
any other or further exercise thereof or of any other right or remedy
hereunder. Whenever this Agreement requires or permits the consent by or on
behalf of a party, such consent will be given in writing in the same manner
as for waivers of compliance.
9.4. NO THIRD PARTY BENEFICIARIES.
Nothing in this Agreement will entitle any person or entity (other than a
party hereto and his, her or its respective successors and assigns permitted
hereby) to any claim, cause of action, remedy or right of any kind.
9.5. NOTICES.
All notices, requests, demands and other communications required or
permitted hereunder will be made in writing and will be deemed to have been
duly given and effective: (i) on the date of delivery, if
17
<PAGE>
delivered personally; (ii) on the earlier of the fourth (4th) day after
mailing or the date of the return receipt acknowledgment, if mailed, postage
prepaid, by certified or registered mail, return receipt requested; or (iii)
on the date of transmission, if sent by facsimile, telecopy, telegraph, telex
or other similar telegraphic communications equipment:
If to either of the Companies or the Shareholders:
To: DataComm Associates, Inc. and Midwest Telecom
Associates, Inc.
30701 Lorain Road
North Olmsted, Ohio 44070
Attention: John M. Good
Fax: (440) 716-3410
With a copy to:
Berick, Pearlman & Mills Co., L.P.A.
1350 Eaton Center, 1111 Superior Avenue
Cleveland, Ohio 44114
Attention: Laura D. Nemeth, Esq.
Fax: (216) 861-4929
or to such other person or address as either the Companies or the
Shareholders will furnish to the other parties hereto in writing in
accordance with this Section.
If to Parent or the Acquiring Subs:
To: Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Fax: (810) 358-2743
With a copy to:
Jaffe, Raitt, Heuer & Weiss
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Attn: William E. Sider, Esq.
Fax: (313) 961-8358
or to such other person or address as either Parent or Acquiring Subs will
furnish to the other parties hereto in writing in accordance with this
Section.
9.6. ASSIGNMENT.
This Agreement and all of the provisions hereof will be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned (whether voluntarily,
involuntarily, by operation of law or otherwise) by any of the parties hereto
without the prior written consent of the
18
<PAGE>
other parties, provided, however, that Parent may assign this Agreement upon
notice to the Companies and each of the Shareholders, in whole or in any
part, and from time to time, to a wholly-owned, direct or indirect,
subsidiary of Parent, if Parent remains bound hereby.
9.7. GOVERNING LAW.
This Agreement and all legal relations among the parties hereto will be
governed by and construed in accordance with the internal substantive laws of
the State of Michigan (without regard to principles of conflict of laws that
might otherwise apply) as to all matters, including without limitation
matters of validity, construction, effect, performance and remedies.
9.8. COUNTERPARTS.
This Agreement may be executed simultaneously in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.9. HEADINGS.
The table of contents and the headings of the sections and Sections of
this Agreement are inserted for convenience only and will not constitute a
part hereof.
9.10. ENTIRE AGREEMENT.
The Schedules and the Exhibits and other writings referred to in this
Agreement, together with this Agreement embody the entire agreement and
understanding of the parties hereto in respect of the transactions
contemplated by this Agreement and together they are referred to as "this
Agreement" or the "Agreement". All matters disclosed by the Shareholders and
the Companies in the Offering Memorandum, or any Schedule or Exhibit to this
Agreement or any matters specifically disclosed in the written report issed
by the Parent's auditor, Tim Amidon, shall be deemed to be disclosed in all
of the Schedules and Exhibits to this Agreement. This Agreement supersedes
all prior and contemporaneous oral and written agreements and understandings
between the parties with respect to the transaction or transactions
contemplated by this Agreement (including without limitation the letter of
intent dated October 20, 1997 between Parent, the Companies, and Shareholders
and all amendments and extensions thereof).
9.11. INJUNCTIVE RELIEF.
It is expressly agreed among the parties hereto that monetary damages
would be inadequate to compensate a party hereto for any breach by any other
party of its covenants in Section 4.2. Accordingly, the parties agree and
acknowledge that any such violation or threatened violation will cause
irreparable injury to the other and that, in addition to any other remedies
which may be available, such party will be entitled to injunctive relief
against the threatened breach of Section 4.2 hereof or the continuation of
any such breach without the necessity of proving actual damages and may seek
specific enforcement of the terms thereof.
9.12. ARBITRATION.
With the sole exception of the injunctive relief contemplated by Section
9.11 hereof, any controversy or claim arising out of or relating to this
Agreement, or the making, performance or interpretation hereof, including
without limitation allege fraudulent inducement hereof, will be settled
19
<PAGE>
by binding arbitration in Southfield, Michigan 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 Michigan for this purpose.
9.13. ATTORNEYS FEES.
If any arbitration, litigation or similar proceedings are brought by any
party to enforce any obligation or to pursue any remedy under this Agreement,
the party prevailing in any such arbitration, litigation or similar
proceedings will be entitled to costs of collection, if any, and reasonable
attorneys fees incurred in connection with such proceedings and in collecting
or enforcing any award granted therein.
9.14. KNOWLEDGE OF THE COMPANIES AND SHAREHOLDERS.
Where any representation or warranty contained in this Agreement is
expressly qualified by reference to the knowledge of the Companies and the
Shareholders, such phrase will include the actual present knowledge of (i)
John M. Good in respect of DataComm and (ii) either one or both of the
Shareholders in respect of Midwest, assuming that in each case such
Shareholders have made reasonable diligent inquiry as to the matters that are
the subject of the representations and warranties.
9.15 VENUE JURISDICTION.
The parties agree that all actions or proceedings arising in connection
with this Agreement and the instruments, agreements and documents executed
pursuant to the terms of this Agreement shall be tried, litigated and
arbitrated only in the courts of the United States located in the Eastern
District of Michigan, the Michigan state courts, or the office of the
American Arbitration Association located nearest Southfield, Michigan. Each
of the Companies, the Shareholders and Parent irrevocably accept for itself
or himself and in respect of its or his property, generally and
unconditionally, the jurisdiction of such courts. Each of the Companies,
Shareholders and Parent irrevocably consent to the service of process out of
any such courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such party, at
its address as set forth in this Agreement, or in the records of the
Surviving Corporation, such service to become effective ten (10) days after
such mailing. Nothing in this Section 9.15 shall affect the right of any
party to serve process in any other manner permitted by law. Each of the
Companies, the Shareholders and Parent irrevocably waive any right it or he
may have to assert the doctrine of FORUM NON CONVENIENS or to object to venue
to the extent any proceeding is brought in accordance with this Section 9.15.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PARENT: DATACOMM:
ELTRAX SYSTEMS, INC., a Minnesota DATACOMM ASSOCIATES, INC., an Ohio
corporation corporation
By: By:
------------------------------- -------------------------------
Clunet R. Lewis, its Secretary John M. Good, its President
and General Counsel
ACQUIRING SUBS: MIDWEST:
DATACOMM ACQUIRING CORP., an Ohio MIDWEST TELECOM ASSOCIATES, INC.,
corporation an Ohio corporation
By: By:
------------------------------- -------------------------------
Clunet R. Lewis, its President John M. Good, its CEO
MIDWEST ACQUIRING CORP., an Ohio SHAREHOLDERS:
corporation
By:
------------------------------- -------------------------------
Clunet R. Lewis, its President John M. Good
-------------------------------
Harold A. Madison
WITH RESPECT TO SECTION 4.5 ONLY:
LAUX & COMPANY, an Ohio corporation
By:
-------------------------------
William Laux, its President
21
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit 1.1A Certificates of Merger - DataComm Acquiring Sub into DataComm
Exhibit 1.1B Certificates of Merger - Midwest Acquiring Sub into Midwest
Schedule 2.1 Companies Disclosure Regarding Corporate Organization
Schedule 2.4 Companies' Disclosure Regarding Non-Contravention
Schedule 2.5 Companies' Disclosure Regarding Financials
Schedule 2.6 Companies Disclosure Regarding Accounts Receivable
Schedule 2.7 Companies Disclosure Regarding Liabilities
Schedule 2.8 Companies' Disclosure Regarding Litigation
Schedule 2.9 Companies' Disclosure Regarding Adverse Changes
Schedule 2.10 Companies' Disclosure Regarding Title to Assets
Schedule 2.11 Companies' Disclosure Regarding Taxes
Schedule 2.12 Companies' Disclosure Regarding Insurance
Schedule 2.13 Companies' Disclosure Regarding Benefit Plans
Schedule 2.14 Companies' Disclosure Regarding Contracts
Schedule 2.15 Companies' Disclosure Regarding Labor Matters
Schedule 2.16 Companies' Disclosure Regarding Intellectual Property
Schedule 2.17 Companies' Disclosure Regarding Hazardous Substances
Schedule 3.7 Miscellaneous Parent Disclosures
Exhibit 2.19 Investor Questionnaire
Exhibit 4.4 Registration Rights of Shareholders
In accordance with Item 601(b)(2) of Regulation S-K, the exhibits and
schedules described in the List of Exhibits and Schedules of this Agreement
have not been filed with the Current Report on Form 8-K to which this
Agreement is an exhibit. The Registrant hereby agrees to furnish
supplementally copies of such exhibits and schedules to the Commission upon
request.
<PAGE>
Date of Issuance: _______________, 1997
Warrant No. ___
THIS WARRANT AND THE WARRANT SHARES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED
UNDER ANY STATE SECURITIES LAWS, AND MAY NOT
BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED
OR AN EXEMPTION THEREFROM IS AVAILABLE
WARRANT TO PURCHASE COMMON STOCK
OF
ELTRAX SYSTEMS, INC.
THIS CERTIFIES THAT, for One and 00/100 Dollars ($1.00) and other good and
valuable consideration received, ____________[NAME]_____________________, the
holder of this Warrant or his assigns (the "Holder"), is entitled to purchase
from Eltrax Systems, Inc., a Minnesota corporation (the "Company"), at the per
share exercise price (subject to adjustment as provided in Section 6 hereof) of
Six and 25/100 Dollars ($6.25) (the "Exercise Price"), ____ shares (subject to
adjustment as provided in Section 6 hereof) of the Company's common stock, $0.01
par value (the "Common Stock").
SECTION 1. TERM OF WARRANT, RESTRICTIONS ON TRANSFER, EXERCISE OF
WARRANT.
SECTION 1.1. TERM OF WARRANT. Subject to the terms of this Warrant,
the Holder shall have the right, at the Holder's option, which may be exercised
in whole or in part, at any time commencing at the time of the issuance of this
Warrant and until 5:00 p.m. Eastern Daylight Savings Time on September 30, 2002
(the "Warrant Expiration Date"), to purchase from the Company the number of
fully paid and nonassessable shares of the Common Stock that the Holder may at
the time be entitled to purchase on exercise of this Warrant ("Warrant Shares").
After such time, this Warrant will be void.
SECTION 1.2. CALL FEATURE. If at any time prior to the Warrant
Expiration Date, the closing price of the Common Stock shall for ten (10)
consecutive trading days equal or exceed an average price per share
(non-weighted) of Eight and 25/100 Dollars ($8.25), then within thirty (30)
days following the end of any such period (the "Call Period"), the Company
shall have the option to repurchase this Warrant at the per Warrant price of
$0.25 (the "Call Option"). To exercise the Call Option under this Section
1.2, the Company must provide written notice of such intent to the Holder on
or prior to expiration of the Call Period (the "Call Notice").
Notwithstanding such Call Notice, the Holder shall still have the right to
exercise this Warrant in accordance with the provisions of Section 1.4;
provided, however, that such exercise occurs within twenty (20) days of the
date of the Call Notice.
1
<PAGE>
SECTION 1.3. RESTRICTIONS ON TRANSFER. The Warrants and the Warrant
Shares will be restricted securities as defined under the Securities Act of
1933, as amended (the "Act") and therefore will not be transferable except in
compliance with applicable federal and state securities laws, including Rule
144 adopted under the Act. Unless Warrant Shares shall have been duly
registered under the Act and any applicable state securities laws,
certificates representing such shares shall bear a legend comparable to the
legend on the first page of this Warrant regarding restrictions on transfer.
Unless the transfer restrictions have been terminated pursuant to Section 8
hereof, the Holder agrees to give written notice to the Company before
offering for sale, selling or otherwise disposing of any of the Warrants or
Warrant Shares, except when such offer, sale or other disposition is made
pursuant to a registration statement then in effect under the Act and any
applicable state securities laws. The notice shall describe briefly the
manner of any proposed offer, sale or other disposition and shall be
accompanied by a written opinion of counsel for such Holder, which counsel
and opinion shall be reasonably satisfactory to the Company to the effect
that the proposed offer, sale or other disposition of such Warrants or
Warrant Shares may be effected without registration under the Act or any
applicable state securities laws.
SECTION 1.4. EXERCISE OF WARRANT. This Warrant may be exercised upon
surrender hereof to the Company at its principal office, together with the
Purchase Form attached hereto duly filled in and signed, and upon payment to
the Company of an amount equal to the product of the Exercise Price and the
number of Warrant Shares being purchased and surrendered for payment at such
time (the "Aggregate Exercise Price").
Subject to Section 1.3 and to Section 3 hereof, upon such surrender of
this Warrant and payment of the Aggregate Exercise Price, the Company shall
issue and cause to be delivered with all reasonable dispatch to or upon the
written order of the Holder and in such name or names as the Holder may
designate, a certificate or certificates for the number of full Warrant
Shares so purchased upon the exercise of this Warrant. Such certificate or
certificates shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become a holder of record of such
Warrant Shares as of the date of the surrender of this Warrant and payment of
the Aggregate Exercise Price. If this Warrant shall have been exercised only
in part, the Company shall, at the time of delivery of such certificate or
certificates, deliver to the Holder or the Holder's designated nominee a new
Warrant evidencing the rights to purchase the remaining shares of Warrant
Shares called for by this Warrant, which new Warrant shall in all other
respects be identical to this Warrant.
SECTION 2. EXCHANGE OF WARRANT. Subject to Section 1.3 and Section 3
hereof, this Warrant may be exchanged for another Warrant or Warrants
entitling the Holder, or any designated transferee or transferees of the
Holder, to purchase a like aggregate number of Warrant Shares as this Warrant
then entitles such Holder to purchase. Any Holder desiring to exchange this
Warrant shall make such request in writing delivered to the Company, and
shall surrender this Warrant, properly endorsed. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant or
Warrants, as the case may be, as so requested.
SECTION 3. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of any Warrant Shares
upon the exercise of this Warrant;
2
<PAGE>
PROVIDED, HOWEVER, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue
or delivery of any Warrant or certificate for Warrant Shares in a name other
than that of the Holder of this Warrant as such name is then shown on the
books of the Company.
SECTION 4. MUTILATED OR MISSING WARRANT. Upon receipt of evidence
satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of reasonably satisfactory indemnification
or, in the case of any such mutilation, upon surrender and cancellation of
such Warrant, the Company will make and deliver, in lieu of such lost,
stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of Warrant
Shares. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
the Warrant so lost, stolen, destroyed or mutilated shall be at any time
enforceable by anyone.
SECTION 5. CERTAIN COVENANTS.
SECTION 5.1. RESERVATION OF WARRANT SHARES. There have been reserved,
and the Company shall at all times keep reserved, out of its authorized
Common Stock, a number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by this Warrant. Any
transfer agent for the Common Stock and any successor transfer agent for the
Common Stock is hereby irrevocably authorized to cause to be issued from time
to time the share certificates required to honor this Warrant upon its
exercise in accordance with the terms hereof. The Company will supply any
such transfer agent with duly executed share certificates for such purpose.
SECTION 5.2. NO IMPAIRMENT. The Company shall not by any action,
including, without limitation, amending its Articles of Incorporation, any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will
at all time in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate to protect
the rights of the Holder against impairment. Without limiting the generality
of the foregoing, the Company will (a) take all such action as may be
necessary or appropriate in order that the Company may validly issue fully
paid and nonassessable Common Stock upon the exercise of this Warrant and (b)
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
SECTION 5.3. LISTING. If the Company shall list any of its Common Stock
on any securities exchange or automated quotation system, it will, at its
expense, list thereon, maintain and, when necessary, increase such listing
of, all of its Common Stock issued or, to the extent permissible under the
applicable securities exchange or quotation system rules, issuable upon the
exercise of this Warrant so long as any of its Common Stock shall be so
listed.
3
<PAGE>
SECTION 6. ANTI-DILUTION AND OTHER ADJUSTMENT PROVISIONS.
SECTION 6.1. COMMON STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS. If the
Company shall: (a) pay or make a dividend or other distribution to all
holders of its Common Stock in shares of Common Stock, (b) subdivide, split
or reclassify the outstanding shares of its Common Stock into a larger number
of shares, or (c) combine or reclassify the outstanding shares of its Common
Stock into a smaller number of shares, then in each case the Warrant Shares
shall be adjusted to equal the number of such shares to which the Holder of
this Warrant would have been entitled upon the occurrence of such event had
this Warrant been exercised immediately prior to the happening of such event
or, in the case of a stock dividend or other distribution, prior to the
record date for determination of such shareholder entitled thereto, and the
Exercise Price shall be proportionately adjusted. An adjustment made
pursuant to this Section 6.1 shall become effective immediately after such
record date, in the case of a dividend or distribution, and immediately after
the effective date, in the case of a subdivision, split, combination or
reclassification.
SECTION 6.2. REORGANIZATION OR RECLASSIFICATION. In case of any capital
reorganization or any reclassification of the Common Stock of the Company
(whether pursuant to a merger of consolidation or otherwise), this Warrant
shall thereafter be exercisable for the number of shares of stock or other
securities or property receivable upon such capital reorganization or
reclassification of Common Stock, as the case may be, by a Holder of the
number of shares of Common Stock into which this Warrant was exercisable
immediately prior to such capital reorganization or reclassification of
Common Stock; and, in any case, appropriate adjustment shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the Holder of this Warrant such that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
SECTION 6.3. DISTRIBUTIONS OF ASSETS OR SECURITIES OTHER THAN COMMON
STOCK. In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock shares of any of its capital stock (other
than Common Stock), rights or warrants to purchase any of its securities,
cash (other than dividends paid out of net surplus or current or retained
earnings), other assets or evidences of its indebtedness, then in each case
the Exercise Price shall be reduced by the fair market value (as determined
in good faith by the Board of Directors of the Company) of the portion of the
securities, cash, assets or evidences of indebtedness so distributed
applicable to one share of Common Stock. An adjustment made pursuant to this
Section 6.3 shall become effective immediately after such distribution date.
SECTION 6.4. NOTICE OF CERTAIN CORPORATION TRANSACTIONS. The Company
shall promptly mail to the Holder a notice of any proposed dividend, merger,
dissolution, liquidation or winding up of the Company, stating the proposed
record date (if any) or effective date for any such transaction and briefly
describing the transaction.
SECTION 6.5. NO ADJUSTMENT OR READJUSTMENT IN CERTAIN CIRCUMSTANCES. The
Company shall not make any adjustment or readjustment of any of the Exercise
Price or the number of Warrant Shares in the case of: (a) the exercise of
this Warrant, or (b) the issuance or sale by the
4
<PAGE>
Company of Common Stock or rights or options pursuant to, or the adjustment
of the exercise price, or the exercise or termination, of rights or options
issued pursuant to, any employee stock option or similar plan of the Company,
or (c) except as specifically provided in this Section 6, by reason of the
issuance of shares of Common Stock or any other securities of the Company in
exchange for cash, property or services or other consideration.
SECTION 6.6. CERTIFICATE OF ADJUSTMENT. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 6, the Company, at its
expense, shall as promptly as practicable compute such adjustment or
readjustment in accordance with the provisions of this Section 6, and prepare
and furnish to the Holder a certificate setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment in based.
SECTION 7. REGISTRATION RIGHTS.
SECTION 7.1. INCIDENTAL REGISTRATION. Until such time as any of the
Warrant Shares may be sold pursuant to the provisions of Rule 144 adopted
under the Act, whenever the Company proposes to file a registration statement
with the Securities and Exchange Commission (the "Commission") for an
offering of the sale of Common Stock for cash consideration only, if such
registration statement would permit the inclusion of Warrant Shares to be
sold on behalf of the Holder pursuant to the rules of the Commission, it
will, prior to such filing, give prompt written notice to the Holder of its
intention to do so and, upon the written request of the Holder given within
twenty (20) days after the Company provides such notice, which request will
state the intended method of disposition of the Warrant Shares (the
"Disposition Method"), the Company will, subject to the other provisions of
this Section 7, cause all Warrant Shares which the Company has been requested
by the Holder to register to be included in such registration statement to
the extent necessary to permit their sale or other disposition in accordance
with the Disposition Method; PROVIDED THAT the Company will have the right to
postpone or withdraw any registration effected pursuant to this Section 7
without obligation to the Holder.
In connection with any offering under this Section 7.1 involving an
underwriting, the Company will not be required to include any Warrant Shares
in such underwriting unless the Holder accepts the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it and
applicable to all other sellers of shares in such offering, and then only in
such quantity as will not, in the reasonable opinion of the underwriters,
jeopardize the success of the offering by the Company. If in the reasonable
opinion of the managing underwriter the registration of all, or part of, the
Common Stock which the Holder and other shareholders have requested to be
included would materially and adversely affect such public offering, then the
Company will be required to include in the underwriting only that number of
shares, if any, which the managing underwriter reasonably believes may be
sold without causing such adverse effect. If the shares of Common Stock to
be included in the underwriting in accordance with the foregoing is fewer
than the total number of shares which the Holder and other shareholders have
requested to be included, then the Holder and other holders of shares of
Common Stock entitled to include shares of Common Stock in such registration
will participate in the underwriting PRO RATA based upon the
5
<PAGE>
number of shares the Holder and each such holder of Common Stock has
requested to be included in such registration.
SECTION 7.2. SHELF REGISTRATION. If a Holder exercises Warrants within
the twenty (20) day period following the Company's issuance of a Call Notice,
and PROVIDED FURTHER, that the sum of all Warrant Shares to be exercised in
response to such Call Notice by one or more Holders exceeds one hundred
thousand (100,000) shares, than upon the written demand of such Holder
delivered to the Company within fifteen (15) days of such exercise (the
"Demand Notice"), the Company will prepare and file a registration statement
under the Act covering such Holder's Warrant Shares. The Company shall
provide copies of any registration statement filed under this Section 7.2,
including all amendments thereto, to the Holder, and will use its good faith
reasonable efforts to cause such registration statement to become effective
under the rules of the Commission. Such registration statement will be on
Form S-3; PROVIDED, HOWEVER, that if the Company is not eligible to use such
Form, than the Company shall select such other registration statement as it
deems appropriate. The Company will maintain the continuous effectiveness
of such registration statement pursuant to Commission Rule 415 until any of
the Warrant Shares may be sold pursuant to Rule 144 promulgated under the
Act.
SECTION 7.3. OTHER PROVISIONS RELATING TO REGISTRATION RIGHTS. In
connection with any registration pursuant to this Section 7, the Company will:
(a) use all reasonable efforts to cause such registration statement
to become and remain effective for not less than thirty (30) days (the
Holder hereby agreeing to furnish the Company, within fifteen (15) days
following a request by the Company, with such information concerning the
Holder to be included in such registration statement as may be reasonably
requested by the Company), it being understood and acknowledged that the
Company may be required to suspend effectiveness of such registration
statement or notify the Holder to suspend any effort to effect sales of the
Common Stock if the Company is attempting to consummate an acquisition or
sale that would materially affect the Company's business;
(b) furnish to the Holder and the underwriters, if any, participating
in such registration such reasonable number of copies of the registration
statement, each amendment thereto, preliminary prospectus, final
prospectus, each amendment thereto, and other such documents as the Holder
and underwriters, if any, may reasonably request in order to facilitate the
public offering of such securities;
(c) use its good faith reasonable efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the Holder may
reasonably request in writing within twenty (20) days following the
original filing of such registration, except that the Company will not for
any purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified;
6
<PAGE>
(d) notify the Holder, promptly after it will receive notice thereof,
of the time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration statement
has been filed;
(e) notify the Holder promptly of any request by the Commission for
the amending or supplementing of such registration statement or prospectus
or for additional information;
(f) prepare and file with the Commission, promptly upon the
reasonable request of the Holder, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for
the Holder (and concurred in by counsel for the Company), is required under
the Act or the rules and regulations thereunder in connection with the
distribution of the Warrant Shares by the Holder;
(g) prepare and promptly file with the Commission and promptly notify
the Holder of the filing of such amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Act, any event has
occurred as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein,
in the light of circumstances in which they were made, not misleading;
(h) advise the Holder, promptly after the Company receives notice or
obtains knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and
promptly use its good faith, reasonable efforts to prevent the issuance of
any stop order or to obtain its prompt withdrawal if such stop order should
be issued.
(i) if an underwriter is used by the Holder and approved by the
Company, enter into an underwriting agreement that is satisfactory to the
Company and the Holders.
(j) upon the request of one or more holders of Warrant Shares then
being registered, the Company will cooperate with any underwriters (as
defined in the Act) for the requesting party approved by the Company (which
approval will not be unreasonably withheld), including, without limitation,
providing such information, certificates, comfort letters of accountants
and opinions of counsel as may be customarily and reasonably requested by
such underwriters.
(k) pay all fees, disbursements and expenses in connection with the
registration, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company
and expenses of complying with applicable securities or blue sky laws, but
excluding Holder's attorney's fees and any underwriter's fees or
commissions.
7
<PAGE>
(l) With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted
securities (as that term is used in Rule 144 under the Act) to the public
without registration, the Company agrees to:
(1) use its reasonable efforts to make and keep public
information available, as those terms are understood and
defined in Rule 144;
(2) use its reasonable efforts to file with the Commission in a
timely manner all reports and other documents required by
the Company under the Act and the Exchange Act so as to
permit the Holders to sell the Warrant Shares pursuant to
Rule 144; and
(3) so long as a Holder owns any Warrant Shares, furnish to
Holders upon request a written statement by the Company as
to its compliance with the reporting requirements under the
Exchange Act and the Act as required by Rule 144, a copy of
the most recent annual or quarterly report of Company and
such other reports and documents so filed as such Holder may
reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to sell
any Warrant Shares without registration.
SECTION 7.4. INDEMNIFICATION RELATING TO REGISTRATION OF WARRANT SHARES.
In the event of any registration of any Warrant Shares under the Act
pursuant to this Warrant, Company will indemnify and hold harmless the seller
of such Warrant Shares, each underwriter of such Warrant Shares, and each
other person, if any, who controls such seller or underwriter within the
meaning of the Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Act, the Exchange Act, state
securities or blue sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of material fact
contained in any registration statement, any preliminary prospectus or final
prospectus contained in the registration statement, or any amendment or
supplement to such registration statement, or arise out of or are based upon
the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
and the Company will reimburse such seller, underwriter and each such
controlling person for any legal or any other expenses reasonably incurred by
such seller, underwriter or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or omission made in such registration
statement, preliminary prospectus or prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to
the Company, in writing, by or on behalf of any seller, underwriter or
controlling person specifically for use in the preparation thereof.
In the event of any registration of any Warrant Shares under the
Act, each seller of Warrant
8
<PAGE>
Shares ("Seller"), severally and not jointly, will indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Act or the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which the
Company, such directors and officers, underwriter or controlling person may
become subject under the Act, Exchange Act, state securities or blue sky
laws or otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of material fact contained in any
registration statement under which such shares were registered under the Act,
any preliminary prospectus or final prospectus contained in the registration
statement, or any amendment or supplement to the registration statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of such Seller, specifically for use in connection
with the preparation of such registration statement, prospectus, amendment or
supplement.
Each party entitled to indemnification under this Section 7.4
(the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and will permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; PROVIDED, that counsel for the
Indemnifying Party, who will conduct the defense of such claim or litigation,
will be approved by the Indemnified Party (whose approval will not be
unreasonably withheld); and PROVIDED, FURTHER, that the failure of any
Indemnified Party to give notice as provided herein will not relieve the
Indemnifying Party of its obligations under this Section 7.4 to the extent
such Indemnifying Party was not harmed by such failure. The Indemnified
Party may participate in such defense at such party's expense; PROVIDED,
HOWEVER, that the Indemnifying Party will pay such expense if representation
of such Indemnified Party by the counsel retained by the Indemnifying Party
would be inappropriate due to actual or potential differing interests between
the Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation will, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party will consent to entry of any
judgment or settle such claim or litigation without the prior written consent
of the Indemnifying Party.
In order to provide for just and equitable contribution to joint
liability under the Act in circumstances in which the indemnity provisions
provided for in this section are for any reason held to be unavailable to the
indemnified parties although applicable in accordance with its terms; then,
in each such case, the Company and such Seller will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportions as shall be appropriate
to reflect the relative fault of the Company, on the one hand, and the
Seller, on the other hand, with such relative fault determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Seller,
9
<PAGE>
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; PROVIDED,
HOWEVER, that, in any such case no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 22(f) of the Act, shall be
entitled to contribution from any person or entity who is not guilty of such
fraudulent misrepresentation.
SECTION 8. TERMINATION OF RESTRICTIONS. The restrictions imposed by
Section 1.3 hereof upon the transferability of any Warrant Shares shall cease
and terminate as to any Warrant Shares (a) when such securities shall have
been effectively registered under the Act and any applicable state securities
laws and disposed of in accordance with the registration statement(s)
covering such securities, or (b) when, in the opinions of both counsel for
the Holder and counsel for the Company, such restrictions are no longer
required in order to insure compliance with the Act and applicable state
securities laws. Whenever such restrictions shall terminate as to any
Warrant Shares, the Holder shall be entitled to receive from the Company,
without expense (other than transfer taxes, if any), new securities of like
tenor not bearing a legend as to restrictions on transfer.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO THE HOLDER. Nothing
contained in this Warrant shall be construed as conferring upon the Holder or
its transferees the right to vote or to receive dividends or to consent or to
receive notice as a shareholder in respect of any meeting of shareholders for
the election of directors of the Company or any other matter, or any rights
whatsoever as a shareholder of the Company. If, however at any time prior to
the expiration of this Warrant and prior to its exercise, any of the
following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its Common Stock or make any distribution to the holders of its Common
Stock;
(b) the Company shall offer to the holders of its Common Stock any
additional Common Stock or securities convertible into Common Stock or any
right to subscribe thereto; or
(c) a reclassification, consolidation, merger or sale or all or
substantially all of the Company's property, assets and business as an
entirety or a dissolution, liquidation or winding up of the Company shall
be proposed;
then in any one or more of such events, the Company shall give notice in writing
of such event to the Holder as provided in Section 11 hereof at least twenty
(20) days prior to the date fixed as a record date for the determination of the
shareholders entitled to such dividend, distribution or subscription rights, or
for the determination of shareholders entitled to vote on such proposed
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up. Such notice shall specify such record date. Failure to mail such
notice or any defect in such notice or in the mailing of the notice shall not
affect the validity of any action taken in connection with such dividend,
distribution or subscription rights, or proposed dissolution, liquidation or
winding up.
SECTION 10. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Holder as follows:
10
<PAGE>
(a) The Company is a corporation duly organized with its principal
place of business in Michigan, validly existing and in good standing under
the laws of the State of Minnesota, and has full power and lawful authority
to carry on its business;
(b) The Company has the full corporate power to execute, deliver
and issue this Warrant and to carry out its obligations hereunder; the
execution, delivery and issuance of this Warrant, and delivery and issuance
of Warrant Shares upon exercise of this Warrant, have been duly and validly
authorized by the Board of Directors of the Company; no other corporate
acts or proceedings on the part of the Company are necessary to authorize
this Warrant or the Warrant Shares; and this Warrant constitutes a valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject only to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium,
or other laws and equitable principles of general appreciation relating to
or affecting the enforcement of creditor's rights and remedies.
(c) The Warrant Shares will, when issued pursuant to this Warrant,
be duly authorized and validly issued, fully paid and nonassessable, and not
subject to preemptive rights;
(d) No consent or approval by, or filing with, any governmental
authority is required in connection with the execution, delivery and
issuance by the Company of this Warrant or the delivery and issuance of the
Warrant Shares other than such as have been obtained or made (or as may be
required in the future under applicable securities laws in connection with
the transfer or exercise of this Warrant or the resale of the Warrant
Shares); and
(e) The execution, delivery, issuance of this Warrant and the
delivery and issuance of the Warrant Shares will not result in the
violation of any term or provision of the charter or by-laws of the Company
or any loan agreement, indenture, note or other instrument, or decree,
order, statute, rule or regulation applicable to the Company (subject,
however, to compliance with applicable securities laws in connection with
the transfer or exercise of this Warrant or the resale of the Warrant
Shares).
SECTION 11. NOTICES. Any notice pursuant to this Warrant by the Company
or by the Holder shall be in writing and shall be mailed first class, postage
prepaid, or delivered (a) to the Company, at its principal office at 2000
Town Center, Suite 690, Southfield, Michigan 48075, or (b) to the Holder, at
its or his address as indicated in the books and records of the Company.
Either party may from time to time change the address to which notices to it
are to be delivered or mailed under this Warrant by notice in writing to the
other party.
SECTION 12. SUCCESSORS. All the covenants and provisions of this
Warrant by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors and assigns.
11
<PAGE>
SECTION 13. APPLICABLE LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of Michigan without giving
effect to principles of conflict of laws.
SECTION 14. CAPTIONS. The captions of the Sections and subsections of
this Warrant have been inserted for convenience only and shall have no
substantive effect.
IN WITNESS WHEREOF, the undersigned has executed this Warrant this ____ day
of _________________________, 1997.
ELTRAX SYSTEMS, INC.
By:
--------------------------------
William P. O'Reilly
Chairman and CEO
<PAGE>
ELTRAX SYSTEMS, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant
to purchase _________ shares of Common Stock of Eltrax Systems, Inc., hereby
makes payment of $___________ in payment of the Aggregate Exercise Price
thereof, and requires that certificates for such shares be issued in the name
of:
- --------------------------------------------------------------------------------
(Please Print Name and Social Security No.)
- --------------------------------------------------------------------------------
(Street Address)
- --------------------------------------------------------------------------------
(City, State and Zip Code)
DATED:
----------------------, -------
Name of Warrantholder or Assignee:
----------------------------------------------
(Please Print)
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
Signature:
---------------------------------------------------------------------
13
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Name of Assignee Must be Printed or Typewritten)
- --------------------------------------------------------------------------------
(Street Address)
- --------------------------------------------------------------------------------
(City, State and Zip Code)
the within Warrant, irrevocably constituting and appointing ____________________
Attorney to transfer such Warrant on the books of the Company, with full power
of substitution in the premises.
DATED:
------------------, ------
- ---------------------------------------
Signature of Registered Holder
14
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS AGREEMENT (this "AGREEMENT") is dated as of October 31, 1997, and is
between ELTRAX SYSTEMS, INC., a Minnesota corporation having its principal
place of business in Southfield, Michigan ("Eltrax"), together with its
subsidiaries (Eltrax and its subsidiaries collectively being the "Company")
and JOHN M. GOOD, an individual residing in the State of Ohio ("Employee").
The parties agree as follows:
ARTICLE
1.
EMPLOYMENT, DUTIES AND TERM
1.1. EMPLOYMENT; POSITION. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Employee as President of DataComm
Associates, Inc. and Midwest Telecom Associates, Inc, and Employee
accepts such employment.
1.2. DUTIES.
(a) Employee shall devote his full-business time and give his best
efforts to the Company and to fulfilling the duties of his
position which shall include such duties with respect to the
Company as may from time to time be assigned to him by the CEO of
the Company, commensurate with Employee's position, experience
and/or skills or expertise.
(b) Employee shall perform his duties in the best interests of the
Company and its shareholders.
(c) Employee shall comply with the Company's policies and procedures
to the extent they are not inconsistent with this Agreement in
which case the provisions of this Agreement prevail. In
addition, Employee shall comply with the Company's lawful
policies on employee conduct and business ethics.
1.3. TERM. The term of this Agreement shall commence October 30, 1997 and
shall terminate on October 31, 2000 (the "Base Term"), unless earlier
terminated pursuant to Article 3 of this Agreement. Commencing November
1, 2000 and on each November 1st thereafter, the term of Employee's
employment hereunder shall be automatically extended for one (1)
additional year unless at least thirty (30) days before the end of the
Base Term or any extension, either party gives written notice to the
other of the cessation of further extensions.
<PAGE>
ARTICLE
2.
BASE COMPENSATION, EXPENSES, AND BENEFITS
2.1. BASE SALARY. For all services rendered under this Agreement during the
term of Employee's employment, the Company shall pay Employee, in
accordance with Eltrax's usual pay practices (which is currently every
two weeks), a base salary, exclusive of benefits and bonuses, at an
annual rate of One Hundred Thirty Thousand Dollars ($130,000) (the "Base
Salary"). The Base Salary may be increased annually in an amount
determined by the Compensation Committee of the Eltrax Board of
Directors, in its sole discretion.
2.2. BONUS. At any time during the term of this Agreement, the Company may
pay Employee a discretionary bonus as additional compensation, which
shall be determined by the Compensation Committee of the Eltrax Board of
Directors, in its sole discretion (the "Bonus").
2.3. BENEFITS. In addition to other compensation, Employee shall be entitled
to participate in all benefit plans currently maintained or hereafter
established by the Company for the benefit of its executive officers
generally, in accordance with the terms and conditions of such plans
(each a "Benefit Plan"). Employee shall be entitled to four (4) weeks
vacation. The current Benefit Plans of the Company are set forth in
Exhibit A attached to this Agreement.
2.4. INCENTIVE STOCK OPTIONS. Employee shall receive incentive stock options
to acquire 50,000 shares of Eltrax common stock at the market price of
such shares as of October 31, 1997 (the "Options") pursuant to the terms
and conditions of the Eltrax 1997 Stock Incentive Plan, which shall vest
during Employee's employment subject to Article 3 according to the
following schedule: 14,000 on October 31, 1997, 14,000 on January 1,
1998, 14,000 on January 1, 1999 and 8,000 on January 1, 2000.
2.5. EXPENSES. The Company shall reimburse Employee for all expenses
reasonably and necessarily incurred by Employee during the course and in
furtherance of his employment, subject to and made in accordance with
such reasonable and nondiscriminatory policies and procedures as may be
established by the Company as applicable to its executive officers.
2.6 AUTOMOBILE. Employee shall retain and shall be entitled to the
exclusive use during the course of Employee's employment of the
automobile currently being used by the Employee and leased by the Company
as of the execution of this Agreement (the "Automobile"). The Company
shall retain the rights to use the Automobile pursuant to the current
lease. Upon the expiration of the current lease term for the Automobile,
the Company shall lease a new comparable automobile for Employee's
exclusive use during the course of Employee's employment.
2
<PAGE>
2.7 LOCATION. During Employee's employment, Employee's principal place of
employment shall be at 30701 Lorian Road North, Olmsted, Ohio (the
"Office"), or at such other address located within a reasonable distance
of the Office, as the Company may determine.
ARTICLE
3.
EARLY TERMINATION
3.1. TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Employee's employment immediately for cause. For the purpose hereof,
"cause" means: (a) fraud; (b) theft or embezzlement of the Company's
assets; (c) willful violation of law constituting a felony; (d) a
material breach of the terms and conditions of this Agreement not cured
within thirty (30) days after written notice; or (e) the continued
failure by Employee to perform his duties as reasonably assigned to
Employee under this Agreement for a period of thirty (30) days after
written notice describing such failure. In the event of termination for
cause pursuant to this section, Employee shall be paid at the usual rate
of Employee's annual Base Salary through the date of termination
specified in any notice of termination (the "Termination Date") and any
amounts to which the Employee is entitled under any Benefit Plan. No
Options shall vest following the Termination Date.
3.2. TERMINATION WITHOUT CAUSE. Either Employee or the Company may terminate
this Agreement and Employee's employment without cause upon thirty (30)
days' advance written notice (the "Termination Notice"). In the event of
termination of this Agreement and of Employee's employment pursuant to
this section, compensation shall be paid as follows:
(a) If the termination is by Employee, Employee shall be paid his
Base Salary through the date specified in the Termination Notice
as well as the Bonus, if any, declared prior to the Termination
Notice. Employee's Options shall vest through the date of
termination specified in the Termination Notice.
(b) If the termination is by the Company, Employee shall be paid his
Base Salary through the Base Term or any applicable renewal term,
as well as the Bonus, if any, declared prior to the Termination
Notice. All of Employee's unvested Options shall vest on the
date of termination specified in the Termination Notice and all
benefits described in Section 2.3 shall continue through the end
of the Base Term or the applicable renewal term.
3.3. TERMINATION IN THE EVENT OF DEATH OR DISABILITY. This Agreement and
Employee's employment shall terminate in the event of death or Disability
of Employee. "Disability" shall mean Employee's inability, as reasonably
determined by the Company, to perform the essential functions of his
duties under this Agreement because of illness or incapacity for a
continuous period of six (6) months. In the event of Employee's death,
Base Salary shall be terminated as of the end of the month in which
Employee's death occurs. All of
3
<PAGE>
Employee's unvested Options shall vest at the end of the month in which
Employee's death occurs. Employee's estate shall receive any Bonus
declared prior to the end of such month and unpaid as of the date of
Employee's death. In the event of Disability, Base Salary shall be
terminated as of the end of the month in which the last day of the
six-month period of Employee's Disability occurs and all of Employee's
unvested Options shall vest on such date. Notwithstanding anything to the
contrary in this paragraph, the Company shall make reasonable accommodation
as required by the Americans with Disabilities Act or similar state law.
3.4. ENTIRE TERMINATION PAYMENT. The compensation provided in this Agreement
for early termination shall constitute Employee's sole compensation for
such termination, provided that such termination was not in violation of
applicable law.
ARTICLE
4.
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
4.1. CONFIDENTIALITY. Employee will not, during the term or after the
termination or expiration of this Agreement, publish, disclose, or
utilize in any manner any Confidential Information (as hereinafter
defined) obtained while employed by the Company. If Employee leaves the
employ of the Company, Employee will not, without its prior written
consent, retain or take away any drawing, writing or other record in any
form containing any Confidential Information. "Confidential Information"
means information or material which is not generally available to or used
by others, or the utility or value of which is not generally known or
recognized as standard practice, whether or not the underlying details
are in the public domain, including: (a) information or material relating
to the Company, and its businesses as conducted or anticipated to be
conducted, business plans, operations, past, current or anticipated
software, products or services, customers or prospective customers, or
research, engineering, development, manufacturing, purchasing,
accounting, or marketing activities; (b) information or material relating
to the Company's inventions, improvements, discoveries, "know-how,"
technological developments, or unpublished works, or to the materials,
apparatus, processes, formulae, plans or methods used in the development,
manufacture or marketing of the Company's software, products or services;
(c) any information marked "proprietary," "private," or "confidential";
(d) trade secrets; (e) software in any stage of development, including
source code and binary code, software designs, specifications,
programming aids (including subroutines and productivity tools),
programming languages, interfaces, visual displays, technical
documentation, user manuals, data files and databases; and (f) any
similar information of the type described above which the Company
obtained from another party and which the Company treats as or designates
as being proprietary, private or confidential, whether or not owned or
developed by the Company.
4.2. BUSINESS CONDUCT AND ETHICS. During the term of employment with the
Company, Employee will engage in no activity or employment which may
conflict with the interest
4
<PAGE>
of the Company, will dutifully comply with all reasonable,
nondiscriminatory Company policies and guidelines and will observe the
highest standard of ethical business conduct.
4.3. DISCLOSURE. Employee will disclose promptly in writing to an officer of
the Company all inventions, discoveries, software, writings and other
works of authorship which are conceived, made, discovered, or written
jointly or singly on business time during the term of the Agreement,
provided the invention, improvement, discovery, software, writing or
other work of authorship is capable of being used by the Company in the
normal course of business, and all such inventions, improvements,
discoveries, software, writings and other works of authorship shall
belong solely to the Company.
4.4. INSTRUMENTS OF ASSIGNMENT. Employee will sign and execute all
instruments of assignment and other papers to evidence the granting of
all entire right, title and interest in such inventions, improvements,
discoveries, software, writings or other works of authorship to the
Company, at the request and the expense of Company, and Employee will do
all acts, give any needed testimony and sign all instruments of
assignment and other papers Eltrax may reasonably request relating to
applications for patents, copyrights, and the enforcement and protection
thereof.
4.5. SURVIVAL. The obligations of this Article 4 shall survive the expiration
or termination of this Agreement.
ARTICLE
5.
NON-COMPETITION
5.1. NON-COMPETITION. Employee agrees that during the Base Term and any
extension thereof:
(a) Employee will not, directly or indirectly, alone or as a partner,
member, officer, director, shareholder or employee of any other
firm or entity, engage in any commercial activity in competition
with any part of the Company's business which was under
Employee's management or supervision at any time during the term
of this Agreement or any part of the Company's business with
respect to which Employee has Confidential Information. For
purposes of this section, "shareholder" shall not include
beneficial ownership of less than five percent (5%) of the
combined voting power of all issued and outstanding voting
securities of a publicly held corporation whose voting stock is
traded in a public market. Also for purposes of this section,
"the Company's business" shall include businesses conducted by
the Company, any subsidiary of the Company and any affiliate of
the Company and any partnership or joint venture;
(b) divert, or by aid to others, do anything which would tend to
divert, or may divert from the Company, any trade or business
with any customer, supplier or vendor with whom the Company has
had any contact or association; or
5
<PAGE>
(c) take any affirmative action to induce or attempt to induce any
person employed by the Company to leave the employment of the
Company.
5.2. EFFECT OF TERMINATION. Upon the termination of Employee's employment, no
additional compensation shall be paid for the non-competition obligation.
5.3. SURVIVAL. In the event termination occurs prior to completion of the
Base Term, the obligations of this Article 5 shall continue through
completion of the Base Term. In the event termination occurs following
the end of the Base Term: (a) if such termination is by the Company
under Sections 3.1 or 3.2(b) then the obligations of this Article 5 shall
continue through the end of any renewal term agreed to under Section 1.3,
and (b) if such termination is by the Employee under Section 3.2(a), then
the obligations of this Article 5 shall continue only through the date of
such termination.
ARTICLE
6.
GENERAL PROVISIONS
6.1. NO ADEQUATE REMEDY. The parties acknowledge it is impossible to measure
in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement.
Therefore, in the event of a claim for equitable relief, each party
hereby waives the claim or defense that the other has an adequate remedy
at law.
6.2. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company. This Agreement shall not be
assignable by the Employee, but its economic terms shall inure to the
benefit of the Employee's heirs and beneficiaries.
6.3. NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, Michigan 48075
Attn: Clunet R. Lewis
6
<PAGE>
With a copy to:
William E. Sider, Esq.
Jaffe, Raitt, Heuer & Weiss, P.C.
One Woodward Avenue, Suite 2400
Detroit, Michigan 48226
(b) In the case of Employee shall be:
John M. Good
30701 Lorain Road
North Olmsted, OH 44070
With a copy to:
Laura Nemeth, Esq.
Berick, Pearlman & Mills Co., L.P.A.
1350 Eaton Center, 1111 Superior Avenue
Cleveland, Ohio 44114
Any notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed sent on the registered date or that
stamped on the certified mail receipt, and shall be deemed received on
the second business day thereafter.
6.4. CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
6.5. GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Michigan without
giving effect to the conflict of laws principles thereof.
6.6. CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement shall be prohibited
or invalid, all remaining clauses shall remain fully enforceable.
6.7. WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof; nor shall any partial exercise of any right or remedy
hereunder preclude any exercise of that or any other right or remedy
granted hereby by law.
6.8. MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by all parties.
7
<PAGE>
6.9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
6.10. ARBITRATION. With the sole exception of injunctive relief as
contemplated by Section 7.1 of this Agreement, any controversy or claim
arising out of any aspect of the relationship of the parties hereto,
will be settled by binding arbitration in Southfield, Michigan 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 Michigan for this purpose.
6.11. ATTORNEYS' FEES. In the event there is litigation or other proceedings
between the parties hereto with respect to their rights and obligations
under this Agreement, the prevailing party in any such litigation shall
be entitled to recover from the opposing party all reasonable
attorneys' fees and expenses (including fees of accountants) incurred
by the prevailing party in connection with such proceeding.
6.12. VENUE; JURISDICTION. The parties agree that all actions or proceedings
arising in connection with this Agreement and the instruments,
agreements and documents executed pursuant to the terms of this
Agreement shall be tried, litigated and arbitrated only in the courts
of the United States located in the Eastern District of Michigan, the
Michigan state courts or the offices of the American Arbitration
Association located nearest Southfield, Michigan. The Employee
irrevocably accepts for himself and in respect of his property,
generally and unconditionally, the jurisdiction of such courts.
The Employee irrevocably consents to the service of process out of any
such courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to him, at
his address as set forth in the records of the Company, such service to
become effective ten (10) days after such mailing. Nothing in this
Section 7.12 shall affect the right of any party to serve process in
any other manner permitted by law. Employee irrevocably waives any
right he may have to assert the doctrine of FORUM NON CONVENIENS or to
object to venue to the extent any proceeding is brought in accordance
with this Section 7.12.
6.13. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
EMPLOYEE ELTRAX SYSTEMS, INC., together with
its subsidiaries
By:
- --------------------- ----------------------------------
John M. Good Clunet R. Lewis, Secretary
8
