<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ELTRAX SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
MINNESOTA 7373 41-1484525
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
Incorporation or Organization) Classification Code Number) Identification
Number)
</TABLE>
2000 TOWN CENTER
SUITE 690
SOUTHFIELD, MICHIGAN 48075
(248) 358-1699
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
WILLIAM P. O'REILLY
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
2000 TOWN CENTER
SUITE 690
SOUTHFIELD, MICHIGAN 48075
(248) 358-1699
(Name and Address, Including Zip Code, and Telephone Number, Including Area
Code, of
Agent for Service)
--------------------------
COPIES TO:
JEFFREY L. FORMAN, ESQ. MICHAEL WAGER, ESQ.
JAFFE, RAITT, HEUER & WEISS BENESCH, FRIEDLANDER,
PROFESSIONAL CORPORATION COPLAN & ARONOFF LLP
ONE WOODWARD AVENUE 2300 BP TOWER
SUITE NO. 2400 200 PUBLIC SQUARE
DETROIT, MICHIGAN 48226 CLEVELAND, OHIO 44114-2378
(313) 961-8380 (216) 363-4500
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AT THE EFFECTIVE TIME AS DESCRIBED IN THE ATTACHED JOINT PROXY
STATEMENT/PROSPECTUS.
------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED (1) SHARE OFFERING PRICE (2) FEE (2)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share...... 10,205,259 shares N/A $39,429,409 $10,962
</TABLE>
(1) Based upon the maximum number of shares of common stock, no par value per
share, of Sulcus Hospitality Technologies Corp. ("Sulcus Common Stock") that
may be outstanding immediately prior to the merger described herein,
assuming the exercise of all options to acquire Sulcus Common Stock which
are exercisable prior to the effective time (18,555,016 shares). Since
each share of Sulcus Common Stock will be converted into 0.55 shares of
common stock, $.01 par value per share, of Eltrax Systems, Inc. ("Eltrax
Common Stock"), the maximum number of shares of Eltrax Common Stock to be
issued pursuant to the merger is 10,205,259.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f) promulgated under
the Securities Act by multiplying (i) $2.125, the average of the high and
low sales price of a share of Sulcus Common Stock quoted on the American
Stock Exchange, Inc. on December 7, 1998 and (ii) the maximum number of
outstanding shares of Sulcus Common Stock, assuming the exercise of all
options to acquire Sulcus Common Stock which are exercisable prior to the
effective time.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ELTRAX LETTERHEAD]
, 1999
Dear Shareholder of Eltrax Systems, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders of
Eltrax Systems, Inc. ("Eltrax") to be held at 10:00 a.m., local time, on
, 1999, at (the "Eltrax Special Meeting").
The purpose of the Eltrax Special Meeting is to consider and vote upon
proposals to approve (i) the issuance of up to 10,205,259 shares (the "Share
Issuance") of Eltrax common stock, $.01 par value per share ("Eltrax Common
Stock"), pursuant to the Agreement and Plan of Merger, dated as of November 11,
1998 (the "Merger Agreement"), by and among Eltrax, Sulcus Hospitality
Technologies Corp., a Pennsylvania corporation ("Sulcus"), and Sulcus Acquiring
Corporation, a Pennsylvania corporation and a wholly-owned subsidiary of Eltrax
("SAC"), which provides for the merger of SAC with and into Sulcus (the
"Merger"), resulting in Sulcus being a wholly-owned subsidiary of Eltrax and
(ii) an amendment to Eltrax's 1998 Stock Incentive Plan (the "Plan Amendment")
to increase by 1,500,000 the number of shares of Eltrax Common Stock that may be
issued pursuant to such plan in order to provide for the conversion of Sulcus
stock options into Eltrax stock options in accordance with the Merger Agreement.
In the Merger, each share of common stock, no par value per share, of Sulcus
("Sulcus Common Stock") (other than shares held in the treasury of Sulcus or
held by any Sulcus subsidiary, Eltrax or SAC or other subsidiary of Eltrax),
will, by virtue of the Merger and without any action on the part of the holder
thereof, be canceled and converted into the right to receive 0.55 fully paid and
nonassessable shares of Eltrax Common Stock, with cash being paid in lieu of
fractional shares, on and subject to the terms and conditions set forth in the
Merger Agreement, all as more fully described in the attached Proxy Statement/
Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF ELTRAX AND HAS APPROVED THE
MERGER AGREEMENT, THE SHARE ISSUANCE AND THE PLAN AMENDMENT AND ACCORDINGLY
RECOMMENDS THAT ELTRAX SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE
SHARE ISSUANCE AND THE PLAN AMENDMENT.
Your vote is important, regardless of the number of shares you own. Under
the Minnesota Business Corporation Act, the affirmative vote of the holders of a
majority of the outstanding shares of Eltrax Common Stock present, in person or
by proxy, at the Eltrax Special Meeting and entitled to vote is required for
approval of the Share Issuance and the Plan Amendment. The Notice of Special
Meeting and Proxy Statement/Prospectus accompanying this letter describe the
proposed transactions more fully and include other information about Eltrax,
Sulcus and SAC. In addition, Eltrax's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997, as amended, Eltrax's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1998, Sulcus' Form 10-K for
the fiscal year ended December 31, 1997, as amended, and Sulcus' Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1998 accompany
this letter. Please give this information your careful attention.
On behalf of your Board of Directors, I urge you to complete, date and sign
the accompanying proxy and return it promptly in the enclosed postage-paid
envelope. This will not prevent you from attending the Eltrax Special Meeting or
voting in person, but will assure that your vote is counted if you are unable to
attend the Eltrax Special Meeting. You may revoke your proxy at any time by
filing a written notice of revocation with, or delivering a duly executed proxy
bearing a later date to the Secretary of Eltrax at
<PAGE>
Eltrax's main office prior to the Eltrax Special Meeting or by attending the
Eltrax Special Meeting and voting in person.
On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Share Issuance and the Plan Amendment.
Sincerely,
William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
ELTRAX SYSTEMS, INC.
2000 TOWN CENTER
SUITE 690
SOUTHFIELD, MICHIGAN 48075
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
---------------------
To the Shareholders of Eltrax Systems, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Eltrax
Systems, Inc., a Minnesota corporation ("Eltrax"), will be held at 10:00 a.m.,
local time, on , 1999, at (the "Eltrax Special Meeting"), for
the following purposes:
1. To consider and vote upon a proposal to approve the issuance of up to
10,205,259 shares of Eltrax common stock, $.01 par value per share
("Eltrax Common Stock") , pursuant to the Agreement and Plan of Merger,
dated as of November 11, 1998, by and among Eltrax, Sulcus Hospitality
Technologies Corp., a Pennsylvania corporation ("Sulcus"), and Sulcus
Acquiring Corporation, a Pennsylvania corporation and wholly-owned
subsidiary of Eltrax ("SAC"), which provides for the merger of SAC with
and into Sulcus resulting in Sulcus becoming a wholly-owned subsidiary of
Eltrax.
2. To consider and vote upon a proposal to approve an amendment to Eltrax's
1998 Stock Incentive Plan to increase by 1,500,000 the number of shares
of Eltrax Common Stock that may be issued pursuant to such plan in order
to provide for the conversion of Sulcus stock options into Eltrax stock
options in accordance with the merger agreement.
3. To transact such other business as may properly come before the Eltrax
Special Meeting or any adjournments or postponements thereof.
Only holders of record of shares of Eltrax Common Stock at the close of
business on , 1999 are entitled to notice of the Eltrax Special
Meeting and to vote thereat and at any and all adjournments or postponements
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ELTRAX SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THE PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT
THE ELTRAX SPECIAL MEETING.
<PAGE>
[SULCUS LETTERHEAD]
, 1999
Dear Shareholder of Sulcus Hospitality Technologies Corp.:
You are cordially invited to attend the Special Meeting of Shareholders of
Sulcus Hospitality Technologies Corp. ("Sulcus") to be held at 10:00 a.m., local
time, on , 1999 at (the "Sulcus Special
Meeting").
The purpose of the Sulcus Special Meeting is to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
November 11, 1998 (the "Merger Agreement"), by and among Eltrax Systems, Inc., a
Minnesota corporation ("Eltrax"), Sulcus Acquiring Corporation, a Pennsylvania
corporation and a wholly-owned subsidiary of Eltrax ("SAC"), and Sulcus which
provides for the merger of SAC with and into Sulcus (the "Merger"), resulting in
Sulcus being a wholly-owned subsidiary of Eltrax.
In the Merger, each share of common stock, no par value per share, of Sulcus
("Sulcus Common Stock") (other than shares held in the treasury of Sulcus or
held by any Sulcus subsidiary, Eltrax or SAC or other subsidiary of Eltrax),
will, by virtue of the Merger and without any action on the part of the holder
thereof, be canceled and converted into the right to receive 0.55 fully paid and
nonassessable shares (the "Sulcus Exchange Ratio") of common stock, $.01 par
value per share, of Eltrax ("Eltrax Common Stock"), with cash being paid in lieu
of fractional shares, on and subject to the terms and conditions set forth in
the Merger Agreement, all as more fully described in the attached Proxy
Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF SULCUS AND HAS APPROVED THE
MERGER AGREEMENT AND ACCORDINGLY RECOMMENDS THAT SULCUS SHAREHOLDERS VOTE IN
FAVOR OF THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT. BROADVIEW
INTERNATIONAL LLC, THE FINANCIAL ADVISOR FOR SULCUS, HAS DELIVERED ITS OPINION,
DATED NOVEMBER 11, 1998, TO THE SULCUS BOARD OF DIRECTORS THAT THE SULCUS
EXCHANGE RATIO, WHICH PROVIDES FOR THE CONVERSION OF SHARES OF SULCUS COMMON
STOCK INTO SHARES OF ELTRAX COMMON STOCK, IS FAIR TO THE HOLDERS OF SULCUS
COMMON STOCK FROM A FINANCIAL POINT OF VIEW.
Your vote is important, regardless of the number of shares you own. Under
the Pennsylvania Business Corporation Law of 1988, the affirmative vote of the
holders of a majority of the votes cast by Sulcus shareholders is required for
adoption of the Merger Agreement. The Notice of Special Meeting and Proxy
Statement/Prospectus accompanying this letter describe the proposed transactions
more fully and include other information about Sulcus, Eltrax and SAC. In
addition, Eltrax's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, as amended, Eltrax's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998, Sulcus' Form 10-K for the fiscal year
ended December 31, 1997, as amended, and Sulcus' Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1998 accompany this letter. Please
give this information your careful attention.
On behalf of your Board of Directors, I urge you to complete, date and sign
the accompanying proxy card and return it promptly in the enclosed postage-paid
envelope. This will not prevent you from attending the Sulcus Special Meeting or
voting in person, but will assure that your vote is counted if you are unable to
attend the Sulcus Special Meeting. You may revoke your proxy at any time by
filing a written notice of revocation with, or delivering a duly executed proxy
bearing a later date to the Secretary of Sulcus at Sulcus' corporate
headquarters in Greensburg, Pennsylvania, prior to the Sulcus Special Meeting or
by attending the Sulcus Special Meeting and voting in person.
<PAGE>
On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval and adoption of the Merger Agreement.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH THE PROXY CARD.
Sincerely,
Leon D. Harris
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
SULCUS HOSPITALITY TECHNOLOGIES CORP.
41 NORTH MAIN STREET
GREENSBURG, PENNSYLVANIA 15601
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
---------------------
To the Shareholders of Sulcus Hospitality Technologies Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Sulcus
Hospitality Technologies Corp., a Pennsylvania corporation ("Sulcus"), will be
held on , 1999, at 10:00 a.m., local time, at
(the "Sulcus Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of November 11, 1998 (the "Merger
Agreement"), by and among Eltrax Systems, Inc., a Minnesota corporation
("Eltrax"), Sulcus Acquiring Corporation, a Pennsylvania corporation and
a wholly-owned subsidiary of Eltrax ("SAC"), and Sulcus pursuant to
which:
(a) SAC will be merged with and into Sulcus, resulting in Sulcus becoming
a wholly-owned subsidiary of Eltrax (the "Merger"); and
(b) At the Effective Time (as defined in the Merger Agreement), all
issued and outstanding shares of common stock, no par value per
share, of Sulcus ("Sulcus Common Stock") (other than shares of Sulcus
Common Stock held in the treasury of Sulcus or held by any Sulcus
subsidiary, Eltrax or SAC or other subsidiary of Eltrax), will be
canceled and converted automatically into the right to receive, upon
the surrender of the certificate formerly representing such shares,
0.55 fully paid and nonassessable shares of common stock, $.01 par
value per share, of Eltrax as more fully described in the attached
Proxy Statement/ Prospectus.
2. To transact such other business as may properly come before the Sulcus
Special Meeting or any adjournments or postponements thereof.
Only holders of record of shares of Sulcus Common Stock at the close of
business on , 1999 are entitled to notice of the Sulcus Special
Meeting and to vote thereat and at any and all adjournments or postponements
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
John W. Ryba
SECRETARY
, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SULCUS SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THE PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT
THE SULCUS SPECIAL MEETING.
DO NOT SEND ANY SHARE CERTIFICATES WITH THE ENCLOSED PROXY CARD. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR SHARE CERTIFICATES.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT/PROSPECTUS DATED DECEMBER 10, 1998
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. ELTRAX MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
<TABLE>
<S> <C>
PROXY STATEMENT FOR PROSPECTUS AND PROXY STATEMENT
SPECIAL MEETING OF FOR SPECIAL MEETING OF
SHAREHOLDERS OF SHAREHOLDERS OF
SULCUS HOSPITALITY ELTRAX SYSTEMS, INC.
TECHNOLOGIES CORP.
UP TO 10,205,259 SHARES OF
ELTRAX COMMON STOCK
</TABLE>
The Boards of Directors of Eltrax Systems, Inc. and Sulcus Hospitality
Technologies Corp. have approved a merger agreement that would result in Sulcus
becoming a wholly-owned subsidiary of Eltrax. Eltrax would continue to be a
publicly-traded company. If the merger is completed, Sulcus shareholders will
receive 0.55 shares of Eltrax common stock in exchange for each share of Sulcus
common stock that they own. However, Sulcus shareholders will receive cash
instead of any fractional shares of Eltrax common stock. Eltrax shareholders
will continue to own their existing shares.
At their special meeting, shareholders of Sulcus are being asked to approve
the merger agreement and the merger. At their special meeting, shareholders of
Eltrax are being asked to approve the issuance of Eltrax shares of common stock
in the merger and an amendment to Eltrax's 1998 Stock Incentive Plan to increase
the number of shares of Eltrax common stock that may be issued under that plan
in order to convert Sulcus stock options into Eltrax stock options in the
merger. The merger cannot be completed unless the shareholders of each company
approve these actions. YOUR VOTE IS VERY IMPORTANT.
The dates, times and places of the special meetings are as follows:
<TABLE>
<S> <C>
FOR SULCUS SHAREHOLDERS: FOR ELTRAX SHAREHOLDERS:
, 1999 at 10:00 a.m. , 1999 at 10:00 a.m.
</TABLE>
This Proxy Statement of Sulcus and Prospectus and Proxy Statement of Eltrax
(together, the "Proxy Statement/Prospectus") provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain information about our companies
from documents that we have filed with the Securities and Exchange Commission.
Eltrax common stock is listed on the Nasdaq SmallCap Market under the symbol
"ELTX."
FOR A DISCUSSION OF THE RISKS THAT SHAREHOLDERS OF SULCUS AND ELTRAX SHOULD
CONSIDER, SEE "RISK FACTORS" BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated , 1999 and
was first mailed to shareholders on , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
FORWARD-LOOKING STATEMENTS................................................................................. 1
SUMMARY.................................................................................................... 2
COMPARATIVE PER SHARE DATA................................................................................. 7
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA................................................................ 8
RISK FACTORS............................................................................................... 10
INTRODUCTION............................................................................................... 15
ELTRAX SPECIAL MEETING..................................................................................... 15
Purpose.................................................................................................. 15
Record Date; Voting Rights............................................................................... 16
Share Ownership of Management............................................................................ 16
Quorum................................................................................................... 16
Voting and Revocation of Proxies......................................................................... 16
Solicitation of Proxies.................................................................................. 17
Required Vote............................................................................................ 17
SULCUS SPECIAL MEETING..................................................................................... 17
Purpose.................................................................................................. 17
Record Date; Voting Rights............................................................................... 17
Share Ownership of Management............................................................................ 17
Quorum................................................................................................... 18
Voting and Revocation of Proxies......................................................................... 18
Solicitation of Proxies.................................................................................. 18
Required Vote............................................................................................ 18
THE MERGER................................................................................................. 19
General.................................................................................................. 19
Background of the Merger................................................................................. 20
Eltrax's Reasons for the Merger; Recommendation of the Eltrax Board...................................... 21
Sulcus' Reasons for the Merger; Recommendation of the Sulcus Board....................................... 22
Opinion of Financial Advisor to Sulcus................................................................... 23
Plans for Sulcus......................................................................................... 28
Interests of Certain Persons............................................................................. 28
Indemnification of Sulcus Officers and Directors......................................................... 29
Estimated Synergies...................................................................................... 29
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ----------------------------------------------------------------------------------------------------------- -----
<S> <C>
Certain Federal Income Tax Consequences.................................................................. 30
Accounting Treatment..................................................................................... 31
Other Legal Matters; Regulatory Approvals................................................................ 31
Appraisal Rights......................................................................................... 32
Delisting and Deregistration of Sulcus common stock...................................................... 32
Resales of Eltrax common stock........................................................................... 32
Nasdaq Listing........................................................................................... 33
Board of Directors and Management of Eltrax Following the Merger......................................... 33
COMPARATIVE MARKET PRICES AND DIVIDENDS.................................................................... 34
Comparative Market Prices and Dividends.................................................................. 34
MERGER AGREEMENT........................................................................................... 36
The Merger............................................................................................... 36
Conversion of Sulcus common stock........................................................................ 36
Exchange Procedures...................................................................................... 36
Treatment of Stock Options............................................................................... 37
Interim Operations....................................................................................... 38
No Solicitation.......................................................................................... 39
Directors' and Officers' Insurance and Indemnification...................................................
Representations and Warranties........................................................................... 40
Effective Time........................................................................................... 40
Conditions to the Merger................................................................................. 40
Termination; Fees........................................................................................ 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............................................ 42
DESCRIPTION OF ELTRAX CAPITAL STOCK........................................................................ 49
COMPARISON OF THE RIGHTS OF HOLDERS OF ELTRAX COMMON STOCK AND SULCUS COMMON STOCK......................... 50
Payment of Dividends to Shareholders..................................................................... 53
BUSINESS OF SULCUS......................................................................................... 64
EXPERTS.................................................................................................... 66
LEGAL OPINIONS............................................................................................. 67
SHAREHOLDERS' PROPOSALS.................................................................................... 67
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
ANNEXES
<S> <C> <C>
Annex A Agreement and Plan of Merger.................................................................... A-1
Annex B Opinion, dated November 11, 1998, of Broadview International LLC................................ B-1
</TABLE>
iii
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement/Prospectus under
"Summary," "Risk Factors," "The Merger--Sulcus' Reasons for the Merger;
Recommendation of the Sulcus Board," "The Merger-- Eltrax's Reasons for the
Merger; Recommendation of the Eltrax Board," "The Merger--Estimated Synergies,"
"The Merger--Plans for Sulcus," in addition to certain statements contained
elsewhere in this Proxy Statement/Prospectus or incorporated herein by
reference, that are not statements of historical facts are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," and similar expressions
are examples of words that identify forward-looking statements. Forward-looking
statements include, without limitation, statements regarding Sulcus' or Eltrax's
future financial position, business strategy and expected cost savings or
synergies.
Each forward-looking statement is subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Important factors that
could cause actual results to differ materially from the results expressed or
implied by any forward-looking statements include general economic conditions,
the ability to efficiently integrate acquired businesses, competition and other
factors disclosed under "Risk Factors" ("Cautionary Statements"). All subsequent
written and oral forward-looking statements relating to the matters described in
this Proxy Statement/Prospectus and attributable to Sulcus, Eltrax or SAC or to
persons acting on behalf of any of them are expressly qualified in their
entirety by the Cautionary Statements. Neither Eltrax nor Sulcus has any
obligation to publicly update or revise these forward-looking statements to
reflect new information, future events, or otherwise.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/PROSPECTUS. IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL THE INFORMATION
THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY, AND FOR MORE COMPLETE
DESCRIPTIONS OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS
ENTIRE DOCUMENT, INCLUDING THE MERGER AGREEMENT ATTACHED AS ANNEX A, AND THE
DOCUMENTS WE HAVE REFERRED YOU TO.
THE COMPANIES
ELTRAX SYSTEMS, INC.
2000 Town Center, Suite 690
Southfield, Michigan 48075
(248) 358-1699
Eltrax is a nationwide managed network services company, providing
communications products and services for enterprise wide networks. Eltrax
designs and installs networking systems for corporate and government customers.
Eltrax also provides monitoring, management and maintenance services to support
enterprise networks. Eltrax is also a leading provider of proprietary software
products and technology services to the hospitality industry.
SULCUS HOSPITALITY TECHNOLOGIES CORP.
41 North Main Street
Greensburg, Pennsylvania 15601 (724) 836-2000
Sulcus develops, manufactures, markets and installs computerized systems
designed to automate the creation, handling, storage and retrieval of
information and documents. Sulcus designs its systems primarily for the
hospitality industry.
OUR REASONS FOR THE MERGER
We believe that the combined company will offer our customers advanced
technology in the managed network services business and in the hospitality
business. The combined company will be a worldwide information technology
services leader in the hospitality industry, offering a complete information
technology solution to that important vertical market. We believe that the
combination of Sulcus' technology with the next generation software and network
services technology of Eltrax will provide our customers with comprehensive
information and performance management across their networks. We expect that the
combined company will create opportunities for increased sales, profitability
and shareholder value as the marketing, financial, and technological strengths
of the companies are integrated.
THE SPECIAL MEETINGS
PURPOSE FOR THE SPECIAL MEETING
FOR THE SULCUS SHAREHOLDERS:
The shareholders of Sulcus are being asked to approve and adopt the merger
agreement among Eltrax, Sulcus and a wholly-owned subsidiary of Eltrax whereby
Sulcus will become a wholly-owned subsidiary of Eltrax.
FOR THE ELTRAX SHAREHOLDERS:
The shareholders of Eltrax are being asked to approve (1) the issuance of up
to 10,205,259 shares of Eltrax common stock to be issued to the Sulcus
shareholders in the merger and (2) an amendment to Eltrax's 1998 Stock Incentive
Plan to increase by 1,500,000 the number of shares of Eltrax common stock that
may be issued pursuant to the plan in order to convert Sulcus stock options into
Eltrax stock options in the merger.
APPROVAL OF THE MERGER
BY THE SULCUS SHAREHOLDERS:
The affirmative vote of a majority of the votes cast by Sulcus shareholders
at the special meeting is required to approve the merger. On January , 1999,
the directors and executive officers of Sulcus and their affiliates, who are
expected to vote in favor of the merger, beneficially owned approximately %
of the outstanding shares of Sulcus common stock.
BY THE ELTRAX SHAREHOLDERS:
The affirmative vote of a majority of the outstanding shares of Eltrax
common stock present, in person or by proxy, at the special meeting is required
to approve the issuance of Eltrax common stock in the merger and the amendment
to Eltrax's 1998 Stock Incentive Plan. On
2
<PAGE>
January , 1999, the directors and executive officers of Eltrax and their
affiliates, who are expected to vote in favor of the issuance of Eltrax common
stock and the amendment to Eltrax's 1998 Stock Incentive Plan, beneficially
owned approximately % of the outstanding shares of Eltrax common stock.
OUR RECOMMENDATIONS TO SHAREHOLDERS:
TO THE SULCUS SHAREHOLDERS:
The Sulcus Board has unanimously approved the merger agreement and
unanimously recommends that you vote FOR the approval and adoption of the merger
agreement.
TO THE ELTRAX SHAREHOLDERS:
The Eltrax Board has unanimously approved the merger agreement, the issuance
of Eltrax common stock in the merger and the amendment to Eltrax's 1998 Stock
Incentive Plan and unanimously recommends that you vote FOR the issuance of
Eltrax common stock in the merger and the amendment to Eltrax's 1998 Stock
Incentive Plan.
THE MERGER
WHAT SULCUS SHAREHOLDERS WILL RECEIVE (SEE PAGE 36)
As a result of the merger, Sulcus shareholders will receive 0.55 shares of
Eltrax common stock for each share of Sulcus common stock that they own.
However, Sulcus shareholders will receive a cash payment for any fractional
shares, based upon the market value of Eltrax common stock on the day before the
consummation of the merger, instead of any fractional shares of Eltrax common
stock that they would receive.
Options to purchase Sulcus common stock will be converted into options to
purchase an adjusted number of shares of Eltrax common stock at an adjusted
exercise price, each adjusted to give economic effect to the conversion of
Sulcus common stock into Eltrax common stock, with the same exercise period and
vesting schedules as the existing Sulcus options.
Sulcus shareholders should not send in their share certificates until
requested to do so after the merger is completed.
OWNERSHIP OF ELTRAX FOLLOWING THE MERGER
We anticipate that Eltrax will issue approximately 10,156,000 shares of
Eltrax common stock (including shares reserved for issuance under newly-issued
Eltrax options) to Sulcus shareholders and holders of Sulcus options in the
merger. Based on that number, Sulcus shareholders will own, on a fully diluted
basis, approximately 42.5% of the Eltrax common stock issued and outstanding
after the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF ELTRAX FOLLOWING THE MERGER (SEE PAGE 33)
After the merger, Clunet R. Lewis and Mack V. Traynor, III will resign from
the Eltrax Board and Leon D. Harris and Christine Hughes, each presently a
Sulcus Board member, will join the Eltrax Board. Leon D. Harris will also become
the President and Chief Operating Officer of Eltrax. William P. O'Reilly will
remain the Chairman and Chief Executive Officer of Eltrax.
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 28)
In considering the Sulcus Board's recommendation that you vote in favor of
adoption of the merger agreement, you should be aware that the employment
agreement between Leon Harris, the Chief Executive Officer and a director of
Sulcus, and Sulcus provides Mr. Harris with compensation if he is terminated or
leaves the company in certain circumstances after a change of control, such as
the merger, and as part of the merger, certain directors of Sulcus will receive
the benefit of the acceleration of the vesting schedule or the extension of the
expiration of certain of their stock options, and as such provide them with
interests in the merger that are different from, or in addition to, yours.
Additionally, certain non-employee directors of Sulcus have entered into
consulting agreements with Eltrax.
3
<PAGE>
CONDITIONS TO THE MERGER (SEE PAGE 40)
The completion of the merger depends upon satisfaction of a number of
conditions, including:
(1) approval of the transaction by the shareholders of Sulcus;
(2) approval of the issuance of shares of Eltrax common stock pursuant to
the merger agreement and the amendment to Eltrax's 1998 Stock Incentive Plan by
the shareholders of Eltrax;
(3) authorization of the Eltrax common stock for listing on the Nasdaq
SmallCap Market;
(4) effectiveness of Eltrax's Registration Statement registering the shares
of Eltrax common stock to be issued in the merger under the Securities Act;
(5) the absence of any preliminary or permanent injunction or other order or
decree or any statute, rule or regulation enacted in the United States
preventing the consummation of the merger or making the merger illegal; and
(6) except where failure to do so would not cause a material adverse effect
on that company,
(a) securing all required waivers, consents, orders or approvals;
(b) performance by the other party of their agreements pursuant to the
merger agreement; and
(c) continued accuracy of each party's representations and warranties.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 40)
We can agree to terminate the merger agreement without completing the
merger, and either of us can terminate the merger agreement under various
circumstances, including:
(1) a material breach of a representation, warranty or material agreement in
the merger agreement that has not been corrected;
(2) the failure to complete the merger by June 30, 1999;
(3) the failure of the Sulcus shareholders to approve the transaction; and
(4) the failure of the Eltrax shareholders to approve the issuance of shares
of Eltrax common stock pursuant to the merger agreement and the amendment to
Eltrax's 1998 Stock Incentive Plan.
Sulcus can also terminate the merger agreement if (1) it receives an
unsolicited acquisition offer, or a person begins a tender offer for all the
shares of Sulcus common stock, which, in either case, the Sulcus Board
determines would result in a transaction more favorable to the Sulcus
shareholders than the merger with Eltrax or (2) the average closing price of
Eltrax common stock for the seven consecutive trading days ending three days
before the merger will be effective is less than $4.50 per share, but only if
the average closing price of Sulcus common stock during the same time period is
equal to or greater than $1.00 per share.
TERMINATION FEES (SEE PAGE 40)
The merger agreement requires Sulcus to pay Eltrax a termination fee of
$2,000,000 if the merger agreement is terminated because of Sulcus' acceptance
of an unsolicited offer for an acquisition transaction or approval of a tender
offer or Sulcus' material breach of a material covenant in the merger agreement
that is not cured. Eltrax would have to pay Sulcus the same termination fee if
the merger agreement is terminated because of Eltrax's material breach of a
material covenant in the merger agreement that is not cured.
The merger agreement requires Sulcus to pay Eltrax a termination fee of
$250,000 if the merger agreement is terminated because Sulcus' shareholders
failed to approve the transaction, but such fee shall not be payable if the
average closing price of Eltrax common stock for the seven consecutive trading
days ending three days before the special meetings is less than $4.50 per share
and the average closing price of Sulcus common stock during the same time period
is equal to or greater than $1.00 per share. The merger agreement also requires
Eltrax to pay Sulcus a termination fee of $250,000 if the merger agreement is
terminated because Eltrax's
4
<PAGE>
shareholders failed to approve the issuance of shares of Eltrax common stock
pursuant to the merger agreement or the amendment to Eltrax's 1998 Stock
Incentive Plan.
REGULATORY APPROVALS (SEE PAGE 31)
GENERAL. Eltrax is not aware of (i) any material license or regulatory
permit of Eltrax or Sulcus that might be adversely affected by the merger or
(ii) any approval or other action by any governmental authority that would be
required for the consummation of the merger. Should any such approval or other
action be required, Eltrax intends to seek such approval or action.
ANTITRUST. No characteristics of either Eltrax or Sulcus trigger any filing
requirements prior to consummation of the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the
regulations promulgated thereunder.
At any time before or after the merger is effective, notwithstanding that
the merger is not subject to the filing requirements under the HSR Act, the
federal government could take action under the antitrust laws, including seeking
to stop the merger or seeking a sale or other transfer of substantial assets of
Sulcus or Eltrax. Additionally, any state could take similar action under the
antitrust laws and, under certain circumstances, private persons could take
legal action under the antitrust laws.
ACCOUNTING TREATMENT (SEE PAGE 31)
We expect the merger to qualify as a "pooling of interests", which means
that we will treat our companies as if they had always been combined for
accounting and financial reporting purposes.
OPINION OF SULCUS FINANCIAL ADVISOR (SEE PAGE 23)
Broadview International LLC delivered its written opinion on November 11,
1998 to the Sulcus Board, to the effect that, based upon and subject to the
various factors and assumptions stated in such opinion, as of such date, the
exchange of one share of Sulcus common stock for 0.55 shares of Eltrax common
stock is fair from a financial point of view to the Sulcus shareholders. The
full text of the Broadview written opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken, is attached as
Annex B. SULCUS SHAREHOLDERS ARE ADVISED TO READ THE BROADVIEW OPINION CAREFULLY
AND IN ITS ENTIRETY.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 30)
We expect that the merger will qualify as a tax-free reorganization for
federal income tax purposes so that neither Eltrax, Sulcus nor Sulcus'
shareholders will recognize any gain or loss for federal income tax purposes in
the merger (except for income taxes payable by Sulcus' shareholders because of
cash payments received instead of fractional shares of Eltrax common stock). You
should consult your own tax advisor concerning the specific tax consequences of
the merger to you in light of your personal circumstances.
NO APPRAISAL RIGHTS (SEE PAGE 32)
Under Pennsylvania law, shareholders of Sulcus do not have the right to vote
against the merger and receive the appraised value of their shares in cash in
connection with the merger. Likewise, under Minnesota law, shareholders of
Eltrax do not have the right to vote against the issuance of Eltrax common stock
in the merger and receive the appraised value of their shares in cash in
connection with the merger.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 34)
Shares of Sulcus common stock are listed on the AMEX, while shares of Eltrax
common stock are listed on the Nasdaq SmallCap Market. On November 11, 1998, the
last full trading day before the public announcement that the companies had
entered into the merger agreement, shares of Sulcus common stock closed at $1.56
per share and shares of Eltrax common stock closed at $6.50 per share. On
, 1999, shares of Sulcus common stock closed at $
per share and shares of Eltrax common stock closed at $ per share.
5
<PAGE>
LISTING OF ELTRAX COMMON STOCK (SEE PAGE 33)
The shares of Eltrax common stock issued in connection with the merger will
be listed on the Nasdaq SmallCap Market.
DIVIDENDS AFTER THE MERGER (SEE PAGE 34)
Eltrax has not paid dividends on its common stock and does not anticipate
paying dividends on its common stock after the merger or at any time in the near
future.
6
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share and book value per
share data of Eltrax and Sulcus and the earnings per share and book value per
share data of Eltrax on a pro forma basis to give effect to the Merger and to
the several completed transactions described more fully in "Unaudited Pro
Forma Condensed Consolidated Financial Statements". No dividends were paid by
Eltrax or Sulcus during the periods presented below. The data set forth below
should be read in conjunction with the Eltrax and Sulcus audited consolidated
financial statements and unaudited interim consolidated financial statements,
including the notes thereto, which are included in the quarterly and annual
reports for Eltrax and Sulcus that are being delivered with this Proxy
Statement/Prospectus. The data should also be read in conjunction with the
unaudited pro forma combined condensed financial information included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, NINE MONTHS
-------------------- ENDED
1996 1997 SEPTEMBER 30, 1998
--------- --------- -------------------
<S> <C> <C> <C>
Eltrax--Historical
Net loss per share--basic(a)............................................. $ (0.11) $ (1.34) $ (0.08)
Book value per share(b).................................................. 0.69 1.17
Eltrax--Pro Forma Combined
Net income (loss) per share(c)
Basic.................................................................. $ 0.04 $ (0.70) $ (0.09)
Diluted................................................................ 0.04 -- --
Book value per share(d).................................................. 1.60 1.77
Sulcus--Historical
Net income (loss) per share(e)
Basic.................................................................. $ 0.08 $ (0.12) $ (0.02)
Diluted................................................................ 0.08 -- --
Book value per share(b).................................................. 1.49 1.50
Sulcus--Pro Forma Combined per Equivalent Share(f)
Net income (loss) per share..............................................
Basic.................................................................. $ 0.02 $ (0.39) $ (0.05)
Diluted................................................................ 0.02 -- --
Book value per share..................................................... 0.88 0.97
</TABLE>
- ------------------------
(a) The calculation of basic net loss per share uses the weighted average number
of common shares outstanding. Common stock equivalents have been excluded
from loss per share calculations as their inclusion would be antidilutive.
The 1996 net loss per share is for the nine-month transition period ended
December 31, 1996.
(b) Calculated by dividing historical shareholders' equity by the number of
outstanding common shares.
(c) Pro forma net income (loss) per share is computed as pro forma net income
(loss) divided by the weighted average number of shares outstanding,
assuming shares issued in each of the transactions were outstanding since
the beginning of each period presented.
(d) Calculated by dividing pro forma shareholders' equity by the number of
outstanding shares of Eltrax common stock expected to be outstanding as of
the consummation of the Merger, which number does not include shares
issuable upon the exercise of stock options.
(e) The calculation of basic net income (loss) per share uses the weighted
average number of common shares outstanding. The calculation of diluted net
income per share for 1996 includes the effect of common share equivalents
that are dilutive. Common stock equivalents have been excluded from the loss
per share calculations for 1997 and 1998 as their inclusion would be
antidilutive.
(f) Calculated by multiplying the Eltrax-Pro Forma Combined data above by the
exchange ratio of 0.55.
7
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The selected unaudited pro forma condensed combined balance sheet data as
of September 30, 1998 set forth below, gives effect to the Merger as if
consummated on September 30, 1998. The selected unaudited pro forma condensed
combined statements of operations data for the years ended December 31, 1996
and 1997 and the nine months ended September 30, 1998 set forth below, give
effect to the Merger and certain transactions described in "Unaudited Pro
Forma Condensed Consolidated Financial Statements" that Eltrax has completed
as if consummated at the beginning of the respective period. The selected pro
forma information set forth below, is qualified in its entirety by, and
should be read in conjunction with, the Unaudited Pro Forma Condensed
Combined Financial Statements included herein and the historical financial
information of Eltrax and Sulcus attached hereto or incorporated herein by
reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1998
(IN THOUSANDS)
--------------------
<S> <C>
Current assets:
Cash and cash equivalents................................................................. $ 7,823
Accounts receivable, net.................................................................. 16,581
Inventories............................................................................... 6,941
Other current assets...................................................................... 2,917
--------
Total current assets.................................................................... 34,262
Purchased and capitalized software, net..................................................... 5,624
Property and equipment, net................................................................. 3,526
Intangibles, net............................................................................ 22,958
Other noncurrent assets..................................................................... 1,006
--------
$ 67,376
--------
--------
Current liabilities:
Short-term borrowings..................................................................... $ 3,309
Accounts payable.......................................................................... 7,031
Accrued expenses.......................................................................... 4,870
Unearned revenue.......................................................................... 7,828
Current portion of long-term obligations.................................................. 2,439
--------
Total current liabilities............................................................... 25,477
Long-term obligations....................................................................... 4,258
--------
Total liabilities....................................................................... 29,735
Shareholders' equity:
Common stock.............................................................................. 224
Additional paid-in capital................................................................ 74,657
Accumulated deficit....................................................................... (36,507)
Treasury stock............................................................................ (156)
Other..................................................................................... (577)
--------
Total shareholders' equity.............................................................. 37,641
--------
$ 67,376
--------
--------
</TABLE>
8
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
--------------------- -------------
1996 1997 1998
--------- ---------- -------------
<S> <C> <C> <C>
Revenue..................................................................... $ 85,454 $ 125,525 $ 90,195
Cost of revenue............................................................. 51,990 78,374 52,972
--------- ---------- -------------
Gross profit................................................................ 33,464 47,151 37,223
Operating expenses:
Selling, general and administrative....................................... 30,361 46,942 33,257
Research and development.................................................. 1,398 2,478 2,314
Depreciation and amortization............................................. 1,862 4,022 3,049
Adjustment of Datatech goodwill........................................... -- 5,714 --
--------- ---------- -------------
Total operating expenses................................................ 33,621 59,156 38,620
--------- ---------- -------------
Operating loss............................................................ (157) (12,005) (1,397)
Dividend and interest income................................................ 1,368 1,281 457
Interest expense............................................................ (576) (1,579) (902)
--------- ---------- -------------
Income (loss) from continuing operations.................................. 635 (12,303) (1,842)
Income tax expense.......................................................... -- 1,316 --
--------- ---------- -------------
Net income (loss) from continuing operations.............................. $ 635 $ (13,619) $ (1,842)
--------- ---------- -------------
--------- ---------- -------------
Net income (loss) from continuing operations per common share and common
share equivalents:
Basic..................................................................... $ 0.04 $ (0.70) $ (0.09)
--------- ---------- -------------
--------- ---------- -------------
Diluted................................................................... 0.04 -- --
--------- ---------- -------------
--------- ---------- -------------
Weighted average shares outstanding:
Basic..................................................................... 15,919 19,360 21,405
--------- ---------- -------------
--------- ---------- -------------
Diluted................................................................... 16,907 -- --
--------- ---------- -------------
--------- ---------- -------------
</TABLE>
9
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER
INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS BEFORE YOU VOTE AT YOUR
SPECIAL MEETING.
EFFECT OF ELTRAX'S STOCK PRICE ON THE MERGER CONSIDERATION
In considering the merger, Sulcus shareholders should take into account that
(1) fluctuations in the stock price of Eltrax will affect the total value of the
consideration they receive in the merger, and (2) the price of Eltrax common
stock may fluctuate between the time that they receive this Proxy Statement/
Prospectus, the time that they vote on the merger and the time that the merger
is completed. Fluctuations may be due to changes in the business, operations or
prospects of Eltrax, market assessments of the likelihood that the merger will
be completed and when, general market and economic conditions, and other
factors.
ABILITY TO EFFICIENTLY INTEGRATE AND OPERATE RECENT ACQUISITIONS
During the last two years, Eltrax has merged with or acquired eight
companies, including Encore Systems, Inc., Global Systems, Inc. and Five Star
Systems, Inc. in September 1998. This rapid growth has placed, and will continue
to place, a significant strain on Eltrax's systems and controls. The management
of Eltrax has expended, and expects to continue to expend, significant time and
effort in integrating the operations of its acquisitions.
In particular, the future success of Eltrax will depend in part on its
ability to integrate and operate Sulcus successfully with its existing business
and its ability to retain and assimilate qualified employees of Sulcus. Because
Sulcus will be the largest acquisition that Eltrax has made to date, Eltrax's
management will face new and challenging issues associated with integrating
Sulcus into Eltrax's current business operations and Eltrax will incur
significant expenses in effecting such integration. Eltrax may not be able to
efficiently integrate and operate Sulcus with its existing business or retain or
assimilate qualified employees of Sulcus. A failure to do so could have a
material adverse effect on Eltrax's results of operations and financial
condition.
FUTURE ACQUISITIONS
Eltrax continues to pursue acquisitions of complementary businesses. Future
acquisitions by the combined company could result in additional debt and
amortization expenses that may adversely affect the combined company's results
of operations and financial condition. Acquisitions also involve numerous other
financial and operational risks, including difficulties in integrating the
operations of new businesses into the combined company, the potential loss of
key employees of the acquired businesses and the risk that acquired companies
will not perform at their historical or expected levels. Eltrax's current
systems, procedures and controls may not be adequate to support the combined
company's operations as they expand. Any future growth will impose significant
added responsibilities on members of senior management, including the need to
identify, recruit and integrate new senior level managers and executives. Such
additional management may not be identified and retained by the combined
company. If the combined company is unable to manage growth effectively,
customer confidence could erode and demand for the combined company's products
and services could deteriorate, which could materially and adversely affect the
combined company's business and operating results.
HISTORY OF LOSSES; UNCERTAIN PROFITABILITY PROSPECTS
Eltrax has a history of net losses, including a net loss of $11,332,343 for
the 1997 fiscal year, a loss of $937,109 for the first nine months of 1998 and a
loss of $6,441,860 for the first nine months of 1997. Sulcus also has a history
of net losses, including a net loss of approximately $2,010,000 for the 1997
fiscal year.
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<PAGE>
Sulcus generated net income of approximately $241,000 for the first nine months
of 1998, but had a net loss of $1,645,000 for the same period in 1997.
The combined company may continue to generate net losses in the future.
COMPETITION
Competition in Eltrax's network solutions and services business and computer
software business is intense and is expected to increase. Some of Eltrax's
current competitors have longer operating histories and greater financial,
technical, research, marketing, sales, distribution and other resources, as well
as greater name recognition and a larger customer base, than Eltrax. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or may be able to devote greater resources
to the development, promotion, sale and support of their products than Eltrax.
Many competitors also have long-standing relationships with large enterprises
that are part of Eltrax's target market and these relationships make it more
difficult to complete sales of Eltrax's products to these enterprises. Eltrax
may not effectively compete in any of its business lines.
Competition in Sulcus' computer software and hardware business is also
intense and Sulcus expects that competition will intensify in each of its lines
of business. Sulcus may not effectively compete in any of its business lines.
Increased competition in Eltrax's current industry or Sulcus' industry, or
both, could result in significant price competition, reduced profit margins or
loss of market share, any of which could have a material adverse effect on the
combined company's business, operating results and financial condition.
UNCERTAINTIES REGARDING INTELLECTUAL PROPERTY RIGHTS
The success of Sulcus and Eltrax depends in part upon their proprietary
application software and hardware and their licensing rights to the principal
application software products marketed by them. Sulcus and Eltrax rely on a
combination of copyright and trade secret protection, non-disclosure agreements
and license agreements to establish, protect and enforce their intellectual
property rights. Despite the combined company's effort to safeguard and maintain
its proprietary rights, it may not be successful or its competitors may
independently develop or patent technologies that are substantially similar or
superior to the combined company's technologies.
Additionally, the laws of certain foreign countries do not protect
intellectual property rights to the same extent or in the same manner as do the
laws of the United States. Although the combined company will implement
protective measures and intends to defend its proprietary rights vigorously,
these efforts may not be successful.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Each of Encore Systems, Inc. (a wholly owned subsidiary of Eltrax) and
Sulcus have substantial business relationships with Bass Hotels & Resorts,
Inc. (f/k/a Holiday Hospitality Corp.--an assignee of Holiday Inns, Inc.)
("Holiday Inn"). Holiday Inn accounted for approximately 8% and 6%,
respectively, of the combined pro forma revenues of Eltrax and Sulcus for the
nine months ended September 30, 1998 and the year ended December 31, 1997.
The loss of, or a material reduction in, revenues from Holiday Inn may have a
material adverse effect on the combined company.
DEPENDENCE ON SENIOR MANAGEMENT AND KEY EMPLOYEES.
The success of the combined company will be dependent upon the performance
of its executive officers and other key personnel. The loss of the services of
any of its executive officers or other key employees could have a material
adverse effect on the combined company. The combined company's future success
will also depend in part upon its ability to attract and retain highly skilled
and qualified
11
<PAGE>
technical, managerial and marketing personnel. Competition for such personnel in
the information technology services industry is intense, and the combined
company may not be successful in attracting and retaining such personnel. The
loss of any of the combined company's key management or the inability to hire or
retain qualified personnel could have a material adverse effect on the combined
company.
RISKS ASSOCIATED WITH NEW PRODUCTS AND SERVICES.
Many of Eltrax's and Sulcus' products and services are based on new or
improved technology that has not previously been available. The combined
company's marketing strategy will have to overcome the difficulties inherent in
the introduction of new or improved technology. Market acceptance of the
combined company's products and services will depend in large part on the
ability of the combined company and its sales personnel to demonstrate to
customers the technical capabilities of the combined company's products and
services. The combined company's products and services may not be accepted in
the market in preference to competing products and services presently available
or products and services that may be developed in the future. Lack of market
acceptance of the combined company's products and services would adversely
affect the combined company's performance.
As examples of new products and services, Eltrax recently began offering
network management services on a nationwide basis and introduced its Medallion
property management software products and Sulcus recently introduced its
Squirrel Windows NT version, Legacy data warehousing and data mining products
and Sennercom energy management system. All of these efforts are part of
Eltrax's and Sulcus' long-term strategic plan, and represent an extension of
Eltrax's and Sulcus' current service offerings. However, these efforts have
required capital expenditures and expenditures of time and effort for
management, sales and marketing personnel and technical resources. The success
of these new lines of business depends upon the combined company's ability to
successfully market and deliver these services into the market and the market
acceptance of these services.
GENERAL ECONOMIC CONDITIONS; DEPENDENCE ON HOSPITALITY AND TOURISM INDUSTRY.
Demand for Eltrax's products and services depends, in large part, on the
overall demand for communications and networking products, which may be affected
by industry capital spending levels and general economic conditions, including
interest rate fluctuations, economic recessions and customer business cycles.
The combined company may experience a decline in demand for its products and
services due to general economic conditions. Any decline could have an adverse
effect on the combined company's business, operating results and financial
condition. In addition, demand for Eltrax's and Sulcus' products and services
depends largely on the demand for information technology products and services
in the hospitality and tourism industry. Consequently, any decline in the
hospitality and tourism industry may have a material adverse effect on the
combined company's business, operating results and financial condition.
INTERNATIONAL SALES; REGULATORY STANDARDS; CURRENCY EXCHANGE.
Sales from Sulcus' international operations represented approximately 37% of
Sulcus' total sales for the nine months ended September 30, 1998 and
approximately 42% of total sales for the year ended December 31, 1997.
International sales are subject to inherent risks, including unexpected changes
in regulatory requirements, tariffs or other barriers, difficulties in staffing
and managing foreign operations, longer payment cycles, unstable political
environments, greater difficulty in accounts receivable collection and
potentially adverse tax consequences. In addition, Sulcus may experience a
decline in demand for its products and services due to general economic
conditions in any of its international markets, including the Pacific Rim (which
accounted for approximately 20% of Sulcus' total sales for the nine months ended
September 30, 1998 and approximately 22% of Sulcus' total sales for the year
ended December 31, 1997). Furthermore, gains and losses on the conversion to
U.S. dollars of receivables and payables arising from
12
<PAGE>
international operations may contribute to fluctuations in the combined
company's results of operations and fluctuations in exchange rates could affect
demand for the combined company's products and services.
YEAR 2000 ISSUES ASSOCIATED WITH ELTRAX.
As a result of certain computer programs being written using two digits
rather than four to determine the applicable year, any computer systems that
have date sensitive software may recognize a date using a "00" as the year 1900
rather than the year 2000 (the "Year 2000 Issue"). This causes programs that
perform arithmetic operations, comparisons or date sorts to possibly generate
erroneous results when the program is required to process dates from both
centuries. This could result in a system failure, incorrect data or other
business disruptions.
The first area of concern is the impact of the Year 2000 Issue on internal
business processing systems. Due to the growth of Eltrax through a number of
acquisitions, Eltrax currently uses a number of different business processing
systems. Certain of these systems are not Year 2000 compliant. To address the
inefficiencies caused by multiple different systems and the Year 2000 Issue,
Eltrax determined in early 1998 to replace all existing systems with new uniform
Year 2000 compliant systems that are expected to improve operating efficiency.
Eltrax is currently evaluating responses from several software companies to a
request for proposal sent out by Eltrax, and anticipates making a final
selection prior to the end of the year. Once a software vendor is selected,
implementation is expected to occur in the first and second quarters of 1999.
The cost of this system including software, hardware, and implementation costs,
is expected to be in the range of $400,000 to $750,000, depending on the vendor
selected. To date no material costs have been incurred.
The second area of concern is with network systems sold and/or installed by
Eltrax. Eltrax has instituted a program to review the systems of all customers
who currently purchase ongoing maintenance services from Eltrax. This program
will provide assistance to customers in reviewing their networks for Year 2000
Issues. Customers not utilizing support services will be notified of their need
to review their networks for Year 2000 risks. This process is approximately
[50]% complete and expected to be completed by the end of 1998. The cost of
this project has not resulted in any material incremental cost to Eltrax.
The third area of potential impact is with Eltrax's software products.
Eltrax has already developed Year 2000 versions of current software and is in
the process of upgrading customers' systems to be Year 2000 compliant. This
process should be completed in early 1999. The cost of developing Year 2000
compliant systems was included in the cost of software acquired with the
purchase of Encore Systems, Inc. and any future costs are expected to be minor.
Eltrax also intends to request assurance from its major suppliers that they
are addressing the Year 2000 Issue and that the products and services procured
or used by Eltrax will function properly or be available without interruption in
the year 2000. Nevertheless, it will be impossible to fully assess the potential
consequences if service interruptions occur from suppliers or in infrastructure
areas such as utilities, communications, transportation, banking and government.
As a result, Eltrax also intends to develop a contingency plan by mid-1999 to
minimize the impact of such external events.
While Eltrax's efforts to address the Year 2000 Issue will involve
additional costs and the time and effort of a number of employees, Eltrax
believes, based on currently available information, that it will be able to
properly manage its total Year 2000 exposure. However, Eltrax may not be
successful in its effort and the computer systems of other companies on which
Eltrax will rely may not be timely modified, and a failure to modify such
systems by another company, or modifications that are incompatible with Eltrax's
systems, may have a material adverse effect on Eltrax's business, financial
condition or results of operations.
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YEAR 2000 ISSUES ASSOCIATED WITH SULCUS
Sulcus is in the process of evaluating and testing its internal business and
information systems and its non-technology systems, such as equipment containing
microprocessors, with respect to the Year 2000 Issue. After inquiries of its key
vendors and suppliers and its own internal evaluation, Sulcus believes that its
major internal business and information systems are, or by April 1, 1999 will
be, capable of handling the calculations and computations necessary to be Year
2000 compliant. The costs to date associated with Year 2000 compliance issues
have not been significant and Sulcus does not believe that future costs
associated with implementing its Year 2000 compliance efforts will be material
to its business, results of operations, or financial condition.
Sulcus is testing the current versions, and is designing the newest
versions, of its products to process Year 2000 data. While some minor potential
issues were identified, those versions that have been tested are substantially
Year 2000 compliant and the expense of revising current versions to be Year 2000
compliant has not been material. Although Sulcus is testing its products for
Year 2000 compliance, undetected errors or defects may exist that could cause a
product to fail to process Year 2000 data correctly. Sulcus expects that it will
complete its Year 2000 testing of its current products by April 1, 1999, at
which time all of its current product offerings are expected to be Year 2000
compliant. Sulcus has taken steps to assist its customers in upgrading to
current compliant product versions. However, no assurances can be given that all
customers will do so. Costs incurred by Sulcus in testing and evaluating its
products for Year 2000 compliance have been mostly salaries and other
administrative costs, none of which have been significant.
Sulcus licenses software from third parties that is integrated with its own
proprietary software. Sulcus has received assurances or warranties from such
third parties that the licensed software is Year 2000 compliant. However, all
such third-party software may not be free of errors and defects and may not be
Year 2000 compliant.
Presently, Sulcus does not have a written Year 2000 contingency plan
addressing a worse-case Year 2000 scenario. The Company intends to implement a
contingency plan by April 1, 1999.
Sulcus will continue to request and compile information regarding Year 2000
compliance, including that of its key suppliers and vendors. If any of Sulcus'
internal systems or key suppliers are not Year 2000 compliant, Sulcus' business
or operations might be adversely impacted.
ACCOUNTING TREATMENT OF MERGER.
Management of Eltrax and Sulcus currently expect that the merger will be
accounted for as a "pooling of interests". However, if the merger cannot be
accounted for as a "pooling of interests", the combined company's reported
results may be materially affected due to an increase in non-cash amortization
charges.
NEED FOR ADDITIONAL CAPITAL.
Eltrax has developed a strategy of growth through additional acquisitions
and it is anticipated that the combined company will continue to pursue
acquisitions. While Eltrax believes it will continue to pay the purchase price
for a majority of its acquisitions with capital stock, Eltrax anticipates that
additional capital may be required to make certain acquisitions. However, the
additional capital may not be available to the combined company to make those
acquisitions.
ADVERSE EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE.
Sales of a substantial number of shares of Eltrax's common stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the shares. Upon consummation of the merger, Eltrax's officers and
directors, former officers and directors of Sulcus, and Eltrax's employees who
are former shareholders of other companies acquired by Eltrax will hold, or have
options or warrants to
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purchase, approximately shares of Eltrax common stock. These shares may be
sold pursuant to an effective registration statement or pursuant to an exemption
from registration (such as Rule 144 promulgated by the Commission pursuant to
the Securities Act). No prediction can be made regarding the effect that future
sales will have on the market price of Eltrax's common stock.
LACK OF DIVIDENDS.
Eltrax has not paid dividends on its common stock and does not anticipate
paying cash dividends in the foreseeable future. The combined company intends to
retain any earnings to finance the development of its business and,
consequently, may never pay cash dividends.
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to the holders of Eltrax
common stock in connection with the solicitation of proxies by the Eltrax Board
of Directors (the "Eltrax Board") for use at the Eltrax Special Meeting for
purposes described herein.
This Proxy Statement/Prospectus is also being furnished to the holders of
Sulcus common stock in connection with the solicitation of proxies by the Sulcus
Board of Directors (the "Sulcus Board") for use at the Sulcus Special Meeting
for purposes described herein.
This Proxy Statement/Prospectus relates to the Agreement and Plan of Merger,
dated as of November 11, 1998 (the "Merger Agreement"), by and among Eltrax,
Sulcus, and Sulcus Acquiring Corporation, a wholly-owned subsidiary of Eltrax
("SAC"), which provides for the merger of SAC with and into Sulcus (the
"Merger"), resulting in Sulcus being a wholly-owned subsidiary of Eltrax.
Subject to the terms and conditions of the Merger Agreement, if the Merger is
consummated, each share of Sulcus common stock issued and outstanding
immediately prior to the effective time of the Merger (other than shares of
Sulcus common stock held in the treasury of Sulcus or held by any Sulcus
subsidiary, Eltrax or SAC or other subsidiary of Eltrax) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive 0.55 fully paid and nonassessable shares (the "Sulcus
Exchange Ratio") of Eltrax common stock.
No fractional shares of Eltrax common stock will be issued in the Merger. In
lieu of any such fractional shares, each holder of Sulcus common stock who
otherwise would be entitled to receive a fractional share of Eltrax common stock
pursuant to the Merger will be paid an amount in cash equal to such fraction
multiplied by the closing price per share of Eltrax common stock, as reported by
THE WALL STREET JOURNAL as of the close of business on the business day
immediately preceding the date (the "Closing Date") on which the closing of the
transactions contemplated by the Merger Agreement occurs (the "Closing"). See
"Merger Agreement--Conversion of Sulcus Common Stock".
This Proxy Statement/Prospectus also constitutes the prospectus of Eltrax
filed as part of a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Eltrax common stock to be issued to the holders of Sulcus common stock
pursuant to the Merger Agreement.
This Proxy Statement/Prospectus and the accompanying proxy card are first
being mailed to shareholders of Sulcus and Eltrax on or about , 1999.
ELTRAX SPECIAL MEETING
PURPOSE
At the Eltrax Special Meeting, the shareholders of Eltrax will consider and
vote upon a proposal to approve (i) the issuance of up to 10,205,259 shares of
Eltrax common stock pursuant to the Merger
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Agreement (the "Share Issuance") and (ii) an amendment to Eltrax's 1998 Stock
Incentive Plan (the "Plan Amendment") to increase by 1,500,000 the number of
shares of Eltrax common stock that may be issued pursuant to such plan in order
to provide for the conversion of Sulcus stock options into Eltrax stock options.
The shareholders of Eltrax will also consider and take action upon any other
business that may properly be brought before the Eltrax Special Meeting.
THE ELTRAX BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF ELTRAX AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE SHARE ISSUANCE AND THE PLAN
AMENDMENT. ACCORDINGLY, THE ELTRAX BOARD RECOMMENDS THAT THE SHAREHOLDERS OF
ELTRAX VOTE IN FAVOR OF THE APPROVAL OF THE SHARE ISSUANCE AND THE PLAN
AMENDMENT AT THE ELTRAX SPECIAL MEETING. See "The Merger--Eltrax's Reasons for
the Merger; Recommendation of the Eltrax Board".
RECORD DATE; VOTING RIGHTS
Only holders of record of Eltrax common stock at the close of business on
December , 1999 (the "Eltrax Record Date") are entitled to receive notice of
and to vote at the Eltrax Special Meeting. At the close of business on the
Eltrax Record Date, there were shares of Eltrax common stock
outstanding, each of which entitles the registered holder thereof to one vote.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the Eltrax Record Date, directors and executive
officers of Eltrax and their affiliates were the beneficial owners of an
aggregate of (approximately %) shares of Eltrax common stock then
outstanding.
QUORUM
The holders of a majority of the shares of Eltrax common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the Eltrax Special Meeting in order for a quorum to be present.
Shares of Eltrax common stock represented by proxies which are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum on all matters, as will shares that are represented by
proxies that are executed by any broker, fiduciary or other nominee on behalf of
the beneficial owner(s) thereof regardless of whether authority to vote is
withheld by such broker, fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the Eltrax Special Meeting, it
is expected that such meeting will be adjourned or postponed to solicit
additional proxies.
VOTING AND REVOCATION OF PROXIES
All shares of Eltrax common stock represented by properly executed proxies
in the enclosed form that are received in time for the Eltrax Special Meeting
and have not been revoked will be voted in accordance with the instructions
indicated in such proxies. IF A PROXY IS SUBMITTED BUT NO DIRECTIONS ARE GIVEN
THEREIN, SHARES OF ELTRAX COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED
FOR THE APPROVAL OF THE SHARE ISSUANCE AND THE PLAN AMENDMENT. Abstentions and
broker non-votes will have the effect of a vote cast against the approval of the
Share Issuance and the Plan Amendment. In addition, the persons designated in
the proxy will have discretion to vote upon any procedural matter relating to
the Eltrax Special Meeting, including the right to vote for any adjournment or
postponement thereof proposed by the Eltrax Board, including a postponement and
adjournment to solicit additional proxies. Any proxy may be revoked by the
shareholder
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executing it at any time prior to its exercise by giving written notice thereof
to the Secretary of Eltrax, by signing and returning a later dated proxy or by
voting in person at the Eltrax Special Meeting. Attendance at the Eltrax Special
Meeting will not in and of itself constitute the revocation of a proxy.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Eltrax Board. In
addition to the use of the mail, solicitation may be made in person or by
telephone or otherwise by directors, officers and regular employees of Eltrax.
Eltrax's directors, officers and regular employees will not be additionally
compensated for such solicitation, but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. If undertaken, the expense of such
solicitation would be nominal.
REQUIRED VOTE
Approval of the Share Issuance and the Plan Amendment will require the
affirmative vote of a majority of the outstanding shares of Eltrax common stock
present, in person or by proxy, at the Eltrax Special Meeting and entitled to
vote thereon, provided that a quorum is present at the Eltrax Special Meeting.
SULCUS SPECIAL MEETING
PURPOSE
At the Sulcus Special Meeting, the shareholders of Sulcus will consider and
vote upon a proposal to approve and adopt the Merger Agreement. The shareholders
of Sulcus will also consider and take action upon any other business that may be
brought before the Sulcus Special Meeting.
THE SULCUS BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF SULCUS AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT. ACCORDINGLY, THE SULCUS BOARD
RECOMMENDS THAT THE SHAREHOLDERS OF SULCUS VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE SULCUS SPECIAL MEETING. See "The
Merger--Sulcus' Reasons for the Merger; Recommendation of the Sulcus Board."
For a discussion of the interests that certain directors and executive
officers of Sulcus have with respect to the Merger in addition to their
interests as shareholders of Sulcus generally and information regarding the
treatment of options to purchase Sulcus common stock, see "The Merger--Interests
of Certain Persons." Such interests, together with other relevant factors, were
considered by the Sulcus Board in making its recommendation and approving the
Merger Agreement.
RECORD DATE; VOTING RIGHTS
Only holders of record of Sulcus common stock at the close of business on
December , 1999 (the "Sulcus Record Date") are entitled to receive notice of
and to vote at the Sulcus Special Meeting. At the close of business on the
Sulcus Record Date, there were shares of Sulcus common stock outstanding,
each of which entitles the registered holder thereof to one vote.
SHARE OWNERSHIP OF MANAGEMENT
At the close of business on the Sulcus Record Date, directors and executive
officers of Sulcus and their affiliates were the beneficial owners of an
aggregate of (approximately %) shares of Sulcus common stock then
outstanding.
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QUORUM
The holders of a majority of the shares of Sulcus common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the Sulcus Special Meeting in order for a quorum to be present.
Shares of Sulcus common stock represented by proxies which are marked
"Abstain" will be counted as shares present for purposes of determining the
presence of a quorum on all matters, as will shares that are represented by
proxies that are executed by any broker, fiduciary or other nominee on behalf of
the beneficial owner(s) thereof regardless of whether authority to vote is
withheld by such broker, fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the Sulcus Special Meeting, it
is expected that such meeting will be adjourned or postponed to solicit
additional proxies.
VOTING AND REVOCATION OF PROXIES
All shares of Sulcus common stock represented by properly executed proxies
in the enclosed form that are received in time for the Sulcus Special Meeting
and have not been revoked will be voted in accordance with the instructions
indicated in such proxies. IF A PROXY IS SIGNED AND SUBMITTED BUT NO DIRECTIONS
ARE GIVEN THEREIN, SHARES OF SULCUS COMMON STOCK REPRESENTED BY THE PROXY WILL
BE VOTED IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Abstentions
will have the effect of a vote cast against approval and adoption of the Merger
Agreement. Broker non-votes will be disregarded and will have no effect on the
vote. In addition, the persons designated in such proxy will have discretion to
vote upon any procedural matter relating to the Sulcus Special Meeting,
including the right to vote for any adjournment or postponement thereof proposed
by the Sulcus Board, including a postponement and adjournment to solicit
additional proxies. Any proxy in the enclosed form may be revoked by the
shareholder executing it at any time prior to its exercise by giving written
notice thereof to the Secretary of Sulcus, by signing and returning a later
dated proxy or by voting in person at the Sulcus Special Meeting. Attendance at
the Sulcus Special Meeting will not in and of itself constitute the revocation
of a proxy.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Sulcus Board. In
addition to the use of the mail, solicitation may be made in person or by
telephone or otherwise by directors, officers and employees of Sulcus. Sulcus'
directors, officers and employees will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. If undertaken, the expense of such solicitation would be
nominal. Sulcus has retained to aid in the solicitation of proxies
from its shareholders. The fees paid to are not expected to exceed
approximately $ , plus reasonable out-of-pocket costs and expenses.
Sulcus will bear its expenses in connection with the solicitation of proxies for
the Sulcus Special Meeting.
REQUIRED VOTE
Approval and adoption of the Merger Agreement will require the affirmative
vote of a majority of the votes cast on the Merger Agreement by the holders of
Sulcus common stock, provided that a quorum is present at the Sulcus Special
Meeting.
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THE MERGER
The description of the Merger and the Merger Agreement contained in this
Proxy Statement/ Prospectus is not complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached as Annex A and
incorporated by reference.
GENERAL
The Merger will become effective when articles of merger have been duly
filed with the Department of State of the Commonwealth of Pennsylvania (the
"Effective Time"), or at such time as is agreed upon by the parties and
specified in the articles of merger. At the Effective Time, each share of Sulcus
common stock issued and outstanding immediately prior to the Effective Time
(other than shares of Sulcus common stock held in the treasury of Sulcus or held
by a subsidiary of Sulcus, Eltrax or SAC or other subsidiary of Eltrax), shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be canceled and converted automatically into the right to receive 0.55
fully paid and non-assessable shares of Eltrax common stock.
No fractional shares of Eltrax common stock will be issued in the Merger. In
lieu of any fractional shares, each holder of Sulcus common stock who otherwise
would be entitled to receive a fractional share of Eltrax common stock pursuant
to the Merger will be paid an amount in cash equal to such fraction multiplied
by the closing price per share of Eltrax common stock, as reported by THE WALL
STREET JOURNAL, at the close of business on the business day immediately
preceding the Closing Date. See "Merger Agreement--Conversion of Sulcus Common
Stock."
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BACKGROUND OF THE MERGER
In early 1998, Mr. Leon Harris, Chairman of the Board and Chief
Executive Officer of Sulcus, contacted Mr. Bradley Gevurtz, a principal at
Broadview International LLC ("Broadview"), to assist the company in
discussions with strategic partners.
On February 23, 1998, Sulcus engaged Broadview as its financial advisor to
assist the company in negotiations with any potential merger partners and
evaluate alternative strategic options.
Between March, 1998 and July, 1998, representatives of Sulcus and Broadview
engaged in exploratory discussions with four potential merger partners other
than Eltrax. On June 13, 1998, Sulcus entered into a letter of intent regarding
a potential business combination with Tridex Corporation. However, on or about
July 29, 1998, Sulcus and Tridex terminated this letter of intent to pursue
other strategic alternatives.
In early August, 1998, Mr. William O'Reilly, Chairman of the Board and Chief
Executive Officer of Eltrax, spoke with Mr. David Berkus, a director of Sulcus,
to discuss a potential business combination.
On August 12, 1998, Broadview called Mr. O'Reilly. At that time, Mr.
O'Reilly discussed Eltrax's business operations and indicated an interest in
opening discussions with Sulcus regarding a potential merger.
On September 18, 1998, Sulcus and Eltrax executed a Non-Disclosure
Agreement, after which Sulcus and Eltrax began to exchange confidential
information.
On September 23, 1998, Mr. Morgan Payne, an outside consultant to Eltrax,
met with Broadview to discuss Eltrax's interest in a merger with Sulcus. At the
conclusion of the meeting, Mr. Payne indicated that Eltrax was interested in
proceeding forward with the discussions and he recommended a meeting between
Messrs. O'Reilly and Harris.
On October 13, 1998, Messrs. O'Reilly and Harris met at Broadview's offices
to discuss a potential merger and possible synergies resulting from a business
combination. At the conclusion of the meeting, Messrs. O'Reilly and Harris
expressed an interest to proceed with merger discussions.
On October 23, 1998, Mr. O'Reilly called Mr. Harris and verbally proposed a
merger of Eltrax and Sulcus, in which shareholders of Sulcus would receive
shares of Eltrax common stock equal to approximately 40% of the outstanding
common stock of Eltrax after the Merger.
On October 27, 1998, a special meeting of the Eltrax Board was held via
teleconference at which Mr. O'Reilly presented a proposal to acquire Sulcus. Mr.
O'Reilly discussed the potential business advantages of the transaction, and Ms.
Penelope Sellers, an Eltrax Board member and President of Encore Systems, Inc.,
a subsidiary of Eltrax in the hospitality technology industry, advised the
Eltrax Board of her knowledge of Sulcus and the potential benefits to Eltrax
from the proposed transaction. Mr. Nicholas J. Pyett, Eltrax's Chief Financial
Officer, then presented Sulcus' financial results and combined projections of
Eltrax and Sulcus. Mr. Clunet R. Lewis, Eltrax's general counsel and a member of
the Eltrax Board, then discussed the status of negotiations with Sulcus.
Following an extensive discussion, the Eltrax Board then authorized Messrs.
O'Reilly and Lewis to continue negotiations with Sulcus.
On October 29, 1998, a meeting was held at Broadview's offices including
representatives from Sulcus, Eltrax, Broadview, and Sulcus' legal counsel.
During the meeting, Eltrax and Sulcus agreed to a process and timetable for
proceeding with the discussions. Also on October 29, 1998, Mr. Harris proposed a
post-merger equity split which would leave Sulcus' shareholders with 45% of the
combined entity. At the conclusion of that meeting, Messrs. O'Reilly and Harris
agreed to recommend to their respective boards of directors that the combined
equity be split so that Sulcus' shareholders would receive approximately 42.5%
of the outstanding common stock of Eltrax after the Merger, on a fully diluted
basis.
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Between November 2, 1998 and November 11, 1998, the parties held subsequent
meetings to conduct business and legal due diligence in greater detail and to
negotiate the definitive merger agreement.
On November 9, 1998, Messrs. O'Reilly and Harris agreed, in principle, to a
share exchange of 0.55 shares of Eltrax common stock for each share of Sulcus
common stock.
On November 10, 1998, a special meeting of the Sulcus Board was held via
teleconference to discuss the proposal and alternatives. All members of the
Sulcus Board and representatives of Broadview and legal counsel to Sulcus
participated. Also during this meeting, Mr. Gevurtz was asked to present to the
Sulcus Board an account of the interactions between Sulcus and other potential
partners which were approached on behalf of Sulcus. Following these discussions,
the Sulcus Board unanimously recommended that management continue to explore the
possibility of a business combination with Eltrax. The Sulcus Board authorized
Mr. Harris and Broadview to continue negotiations with Eltrax with respect to
the completion of a definitive merger agreement for consideration by the Sulcus
Board.
On November 11, 1998, a special meeting of the Eltrax Board was held via
teleconference. All members of the Eltrax Board participated. During the
meeting, Messrs. O'Reilly and Lewis reviewed the terms of the definitive
agreement with the Eltrax Board and answered questions regarding the agreement
and information pertaining to Sulcus that had been previously sent to the Eltrax
Board. At the conclusion of the presentation, the Eltrax Board unanimously
approved the Merger and the Merger Agreement, and authorized management to
execute and deliver the Merger Agreement.
On November 11, 1998, a special meeting of the Sulcus Board was held via
teleconference. All members of the Sulcus Board and representatives of Broadview
and legal counsel to Sulcus participated. Copies of Broadview's written opinion
were distributed to the Sulcus Board prior to the meeting. During the meeting,
Messrs. Gevurtz, Harris and Michael Wager, a director of Sulcus and legal
counsel to Sulcus, reviewed the terms of the definitive agreement with the
Sulcus Board and answered questions. Representatives of Broadview then presented
an oral and written opinion to the Sulcus Board that the consideration to be
received by Sulcus shareholders in the acquisition was fair from a financial
point of view. Both during and following the presentation, Broadview
representatives responded to extensive questions and comments from the Sulcus
Board. At the conclusion of the presentation, the Sulcus Board unanimously
approved the Merger and the Merger Agreement, and authorized management to
execute and deliver the Merger Agreement. Subsequent to this meeting, each
company executed and delivered the Merger Agreement.
On November 11, 1998, Eltrax publicly announced the execution of the Merger
Agreement and, on November 12, 1998, Sulcus publicly announced the execution of
the Merger Agreement.
ELTRAX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE ELTRAX BOARD
The Eltrax Board has unanimously determined that the Merger is advisable and
fair to and in the best interests of the shareholders of Eltrax and has
unanimously approved the Merger Agreement, the Share Issuance and the Plan
Amendment. Accordingly, the Eltrax Board recommends that the shareholders of
Eltrax vote to in favor of approval of the Share Issuance and the Plan
Amendment.
For the foregoing reasons, the Eltrax Board believes that the terms and
conditions of the Merger Agreement are in the best interests of Eltrax and its
shareholders. In reaching its conclusion, the Eltrax Board considered, among
other things:
- The long-term interests of Eltrax and its shareholders;
- Information concerning the business, earnings, operations, financial
condition and prospects of Eltrax and Sulcus, both individually and on a
combined basis, including information with respect to the historic
earnings performance of each of Eltrax and Sulcus;
- The opportunities for expansion of existing Eltrax services and systems by
accessing Sulcus' sales force in more than 80 locations, in 20 countries
all over the world;
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- The experience of Sulcus' senior management in the hospitality technology
industry;
- The opportunity to leverage economies of scale and operating efficiencies
through combined purchasing and consolidation of infrastructures,
particularly from the integration of distribution channels and support
systems;
- The combined company's stronger balance sheet;
- The terms of the Merger Agreement, including that the Merger is expected
to be treated as a tax-free reorganization and is intended to be accounted
for under the pooling of interests method of accounting; and
- The recent and historical trading prices of Sulcus common stock and Eltrax
common stock relative to those of other industry participants, and the
potential for appreciation in the value of Eltrax common stock following
the Merger resulting from opportunities for enhanced revenue growth and
accelerated earnings growth of the combined company.
The foregoing discussion of the information and factors considered and given
weight by the Eltrax Board is not intended to be exhaustive. The Eltrax Board
did not assign relative weights to the above factors or determine that any
factor was of particular importance. Rather, the Eltrax Board viewed its
position and recommendations as being based on the totality of the information
presented to, and considered by, it. In addition, individual members of the
Eltrax Board may have given different weights to different factors.
THE ELTRAX BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ELTRAX COMMON
STOCK VOTE "FOR" APPROVAL OF THE SHARE ISSUANCE AND THE PLAN AMENDMENT.
SULCUS' REASONS FOR THE MERGER; RECOMMENDATION OF THE SULCUS BOARD
The Sulcus Board has unanimously determined that the Merger is advisable and
fair to and in the best interests of the shareholders of Sulcus and has
unanimously approved the Merger Agreement. Accordingly, the Sulcus Board
recommends that the shareholders of Sulcus vote in favor of approval and
adoption of the Merger Agreement.
In reaching its conclusion to approve the Merger Agreement, the Sulcus Board
considered, among other things:
- The judgment, advice and analyses of Sulcus management;
- The analyses prepared by Broadview and the written opinion of Broadview
presented to the Sulcus Board on November 11, 1998 to the effect that,
based upon and subject to the various factors and assumptions stated
therein, as of that date, the Sulcus Exchange Ratio is fair from a
financial point of view to the Sulcus shareholders. A copy of the written
opinion, dated November 11, 1998, of Broadview, setting forth the
assumptions made, matters considered and limitations on the review
undertaken by Broadview, is attached as Annex B and is incorporated by
reference. SULCUS SHAREHOLDERS ARE URGED TO READ THE OPINION OF BROADVIEW
CAREFULLY AND IN ITS ENTIRETY. See "The Merger--Opinion of Financial
Advisor to Sulcus" and "The Merger--Background of the Merger";
- The Sulcus Exchange Ratio, assuming that the average Eltrax share price is
$6.50 (the closing price of Eltrax common stock on November 11, 1998; the
last full trading day prior to the execution and delivery of the Merger
Agreement), represents a premium of approximately 150% over the closing
price of Sulcus common stock on that date;
- The fixed Sulcus Exchange Ratio allows the Sulcus shareholders to
participate in any increases in the value of Eltrax common stock;
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- Other strategic alternatives open to Sulcus, such as remaining independent
and continuing to grow by expansion, involve greater risk from the
standpoint of shareholder value than the Merger;
- The Merger Agreement permits Sulcus to furnish information and participate
in discussions with prospective competing bidders under specified
circumstances consistent with the legal obligations of the Sulcus Board;
- The strategic fit between Sulcus and Eltrax, including potential
synergies;
- The Merger is expected to be treated as a tax-free reorganization and is
intended to be accounted for under the pooling of interests method of
accounting; and
- The Merger Agreement has a very limited set of conditions to consummation
of the Merger.
The foregoing discussion of the information and factors considered and given
weight by the Sulcus Board is not intended to be exhaustive. The Sulcus Board
did not assign relative weights to the factors or determine that any factor was
of particular importance. Rather, the Sulcus Board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. In addition, individual members of the Sulcus Board may
have given different weights to different factors.
THE SULCUS BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SULCUS COMMON
STOCK VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR TO SULCUS
Sulcus engaged Broadview to act as its financial advisor and requested that
Broadview render an opinion regarding the fairness of the Sulcus Exchange Ratio,
from a financial point of view, to Sulcus shareholders in the Merger. On
November 11, 1998 Broadview rendered an opinion as to the fairness of the Sulcus
Exchange Ratio, from a financial point of view, to Sulcus shareholders in the
Merger. In connection with its deliberations regarding the Merger Agreement, at
the meeting of the Sulcus Board on Wednesday, November 11, 1998, Broadview
rendered its opinion (the "Broadview Opinion") that, as of November 11, 1998,
based upon and subject to the various factors and assumptions set forth in the
Broadview Opinion, the Sulcus Exchange Ratio was fair, from a financial point of
view, to the Sulcus shareholders. The Sulcus Exchange Ratio was determined
pursuant to negotiations between Sulcus and Eltrax and not pursuant to
recommendations of Broadview.
THE TEXT OF THE BROADVIEW OPINION, WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS. SULCUS SHAREHOLDERS ARE URGED TO
READ THE BROADVIEW OPINION CAREFULLY IN ITS ENTIRETY. THE BROADVIEW OPINION
ADDRESSES ONLY THE FAIRNESS OF THE SULCUS EXCHANGE RATIO FROM A FINANCIAL POINT
OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF SULCUS AS
TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SULCUS SPECIAL MEETING. BROADVIEW
WILL RECEIVE A FEE FROM SULCUS CONTINGENT UPON SUCCESSFUL CONCLUSION OF THE
MERGER. THE SUMMARY OF THE BROADVIEW OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
In rendering its opinion, Broadview, among other things: (i) reviewed the
terms of the Merger Agreement and the associated exhibits thereto in the form of
the draft dated November 10, 1998 furnished to Broadview by Jaffe, Raitt, Heuer
& Weiss, P.C., Eltrax's legal counsel, on November 10, 1998 which contained no
material differences from the definitive Merger Agreement; (ii) reviewed Sulcus'
Form 10-K for the fiscal year ended December 31, 1997 which included results for
the fiscal years ended December 31, 1997 and 1996, including the audited
financial statements included therein, Sulcus' Form 10-Q for the six months
ended June 30, 1998, including the unaudited financial statements included
therein, and the unaudited financial information of Sulcus for its nine months
ended September 30, 1998 included in a proposed draft press release provided to
Broadview by Sulcus management; (iii) reviewed certain internal
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financial and operating information, including projections through December 31,
1999, for Sulcus prepared by Sulcus management; (iv) participated in discussions
with Sulcus management concerning the operations, business strategy, financial
performance and prospects for Sulcus; (v) discussed with Sulcus management its
view of the strategic rationale for the Merger; (vi) reviewed the recent
reported closing prices and trading activity for Sulcus common stock; (vii)
compared certain aspects of the financial performance of Sulcus with public
companies Broadview deemed comparable; (viii) analyzed available information,
both public and private, concerning other mergers and acquisitions Broadview
believed to be comparable in whole or in part to the Merger; (ix) reviewed
Eltrax's annual report and Form 10-K for the fiscal year ended December 31, 1997
which included results for the fiscal years ended December 31, 1997 and 1996,
including the audited financial statements included therein, Eltrax's Form 10-Q
for the six months ended June 30, 1998, including the unaudited financial
statements included therein, and the unaudited financial information of Eltrax
for its nine months ended September 30, 1998 included in a proposed draft press
release provided to Broadview by Eltrax management; (x) reviewed certain
internal financial and operating information, including projections through
December 31, 1999, for Eltrax prepared by Eltrax management; (xi) participated
in discussions with Eltrax management concerning the operations, business
strategy, financial performance and prospects for Eltrax; (xii) reviewed the
recent reported closing prices and trading activity for Eltrax common stock;
(xiii) discussed with Eltrax management its view of the strategic rationale for
the Merger; (xiv) compared certain aspects of the financial performance of
Eltrax with public companies Broadview deemed comparable; (xv) considered the
total number of shares of Eltrax common stock outstanding and the average weekly
trading volume of Eltrax common stock; (xvi) prepared PRO FORMA consolidated
annual income statements through December 31, 1999 for the combined entity based
on forecasts through December 31, 1999 for Eltrax and Sulcus provided to
Broadview by Eltrax and Sulcus managements, respectively; (xvii) assisted in
negotiations and discussions related to the Merger among Sulcus, Eltrax and
their respective legal advisors; and (xviii) conducted other financial studies,
analyses and investigations as Broadview deemed appropriate for purposes of the
Broadview Opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information (including, without limitation, the representations and warranties
contained in the Merger Agreement) that was publicly available or furnished to
Broadview by Sulcus, Eltrax or Eltrax's legal counsel. Broadview assumed that
those financial projections and forecasts prepared and provided by the
management of each of Sulcus and Eltrax were reasonably prepared and reflected
the best available estimates and good faith judgments of the future performance
of Eltrax and Sulcus, respectively. Broadview did not make nor obtain an
independent appraisal or valuation of any of Eltrax's or Sulcus' assets.
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Broadview in conjunction with rendering
the Broadview Opinion. These analyses were presented to the Sulcus Board at its
meeting on November 11, 1998. The summary set forth below includes the financial
analyses used by Broadview and deemed to be material, but does not purport to be
a complete description of analyses performed by Broadview in arriving at its
opinion.
PUBLIC COMPANY COMPARABLES ANALYSIS. Total Market Capitalization/Revenue
("TMC/R") and Price/ Earnings ("P/E") multiples indicate the value public
markets place on companies in a particular market segment. Several companies in
the hospitality technology market are comparable to Sulcus based on market
focus, business model and management structure. Broadview reviewed five selected
public company comparables in the hospitality technology segment of the
Information Technology ("IT") market from a financial point of view including
each company's: Trailing Twelve Month ("TTM") Revenue; TTM Revenue Growth; TTM
Gross Margin; TTM Earnings Before Interest and Taxes ("EBIT") Margin; TTM Net
Margin; TTM Earnings per Share ("EPS"); Forward Calendar Year ("CY") 1998
Revenue; Forward CY 1998 EBIT; Forward CY 1998 EPS; Forward CY 1999 Revenue;
Forward CY 1999 EBIT; Forward CY 1999 EPS; TTM TMC/R ratio; TTM TMC/EBIT ratio;
TTM P/E ratio; Forward CY 1998 TMC/R ratio;
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Forward CY 1998 TMC/EBIT ratio; Forward CY 1998 P/E ratio; Forward CY 1999 TMC/R
ratio; Forward CY 1999 EBIT ratio, and Forward CY 1999 P/E ratio. The public
company comparables were selected from the Broadview Barometer, a proprietary
database of publicly-traded IT companies maintained by Broadview and broken down
by industry segment.
In order of descending TTM TMC/R, the public company comparables consist of:
(i) MICROS Systems, Inc.; (ii) Radiant Systems, Inc.; (iii) Javelin Systems,
Inc.; (iv) Par Technology Corp.; and (v) CAM Data Systems, Inc. These
comparables have a TTM TMC/R ratio range of 0.26 to 1.48 with a median of 1.08;
TTM TMC/EBIT ratio range of 11.15 to 16.08 with a median of 13.62; TTM P/E ratio
range 19.1 to 25.0 with a median of 22.0; Forward CY 1998 TMC/R ratio range of
1.03 to 1.40 with a median of 1.21; Forward CY 1998 TMC/EBIT ratio range of
10.38 to 12.62 with a median of 11.50; Forward CY 1998 P/E ratio range of 20.0
to 52.2 with a median of 21.1; Forward CY 1999 TMC/R ratio range of 0.67 to 1.16
with a median of 0.83; Forward CY 1999 TMC/EBIT ratio range of 6.29 to 11.70
with a median of 7.42; and a Forward CY 1999 P/E ratio range of 10.8 to 28.1
with a median of 12.6.
The equity value per share range implied by the TTM TMC/R multiples is $1.08
to $4.95 with a median implied value of $3.68. The equity value per share range
implied by the TTM TMC/EBIT multiples is not meaningful, because Sulcus' TTM
EBIT margin is less than 4.0%. The equity value per share range implied by the
TTM P/E multiples is not meaningful, because Sulcus' TTM net margin is less than
3.0%. The equity value per share implied by the Forward CY 1998 TMC/R multiples
is $3.67 to $4.88 with a median implied value of $4.27. The equity value per
share implied by the Forward CY 1998 TMC/EBIT multiples is not meaningful,
because Sulcus' EBIT margin is less than 4.0%. The equity value per share
implied by the Forward CY 1998 P/E multiples is not meaningful, because Sulcus'
net margin is less than 3.0%. The equity value per share implied by the Forward
CY 1999 TMC/R multiples is $2.95 to $4.89 with a median implied value of $3.58.
The equity value per share implied by the Forward CY 1999 TMC/EBIT multiples is
$1.88 to $3.26 with a median implied value of $2.17. The equity value per share
implied by the Forward CY 1999 P/E multiples is $3.08 to $8.00 with a median
implied value of $3.57.
EVALUATION OF ELTRAX EQUITY. Broadview compared the ranges and medians of
several companies that were comparable to Eltrax, based on market focus, revenue
size, business model and management structure, with the multiples implied by
Eltrax's November 10, 1998 share price of $7.375, and its current and projected
performance.
In order of descending TTM TMC/R, the public company comparables in the
network value-added resellers market consist of: (i) Datatec Systems, Inc.; (ii)
TechForce Corp.; (iii) Daou Systems, Inc.; and (iv) Condor Technology Solutions,
Inc.
TRANSACTION COMPARABLES ANALYSIS. Valuation statistics from transaction
comparables indicate the Adjusted Price/Revenue ("P/R") multiple acquirers have
paid for comparable companies in a particular market segment. Broadview reviewed
six comparable public and private company merger and acquisition ("M&A")
transactions from 1996 through the present involving sellers sharing many
characteristics with Sulcus including size, markets served and business model.
Transactions were selected from Broadview's proprietary database of published
and confidential M&A transactions in the IT industry. These transactions
represent six selected sellers in the hospitality technology segment of the IT
market.
In order of descending P/R multiple, the six public and private company
transactions used are the acquisition of: (i) Progressive Software, Inc. by
Tridex Corporation; (ii) HTEC Group Ltd. by Card Clear; (iii) RapidFire
Software, Inc. by Radiant Systems. Inc.; (iv) Triad Systems Corp. by Hicks,
Muse, Tate & Furst, Inc.; (v) Smart Terminals Ltd. by Torex Hire PLC; and (vi)
Info Systems of North Carolina, Inc. by Sykes Enterprises, Inc. The P/R
multiples of the six public and private seller transactions range from 0.72 to
1.43 with a median of 1.24.
The equity value per share range implied by the P/R multiples of the six
public and private seller transaction comparables is $2.54 to $4.77 with a
median implied value of $4.17.
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TRANSACTION PREMIUMS PAID ANALYSIS. Premiums paid in comparable public
seller transactions typically indicate the amount of consideration acquirers are
willing to pay above the seller's equity market capitalization. In this
analysis, the value of consideration paid in transactions involving stock is
computed using the buyer's stock price immediately prior to announcement, while
the seller's equity market capitalization is measured one day prior and twenty
trading days prior to the announcement. Broadview reviewed 33 comparable M&A
transactions involving selected software companies from January 1, 1997 to the
present with total consideration between $50 million and $250 million.
Transactions were selected from Broadview's proprietary database of published
and confidential M&A transactions in the IT industry. In order of descending
premium paid based on the seller's stock price 20 trading days prior to
announcement, the selected software transactions used were the acquisition of:
(i) FullTime Software, Inc. by Legato Systems, Inc.; (ii) Cybermedia, Inc. by
Network Associates; (iii) Consilium, Inc. by Applied Materials ; (iv) TeleBackup
Systems, Inc. by VERITAS Software Corp.; (v) National Health Enhancement
Systems, Inc. by HBO & Company; (vi) Visigenic, Inc. by Borland International,
Inc.; (vii) Technology Modeling Associates, Inc. by Avant! Corp.; (viii)
Interactive Group by Dataworks Corp.; (ix) Logic Works, Inc. by PLATINUM
technology, inc.; (x) Award Software International, Inc. by Phoenix Technologies
Ltd.; (xi) Kurzweil Applied Intelligence, Inc. by Lernout & Hauspie Speech
Products NV; (xii) Software Artistry, Inc. by IBM Corp.; (xiii) Walsh
International, Inc. by Cognizant Corp.; (xiv) The ForeFront Group by CBT Group
plc.; (xv) Amisys Managed Care Systems, Inc. by HBO & Company; (xvi) Maxis, Inc.
by Electronic Arts, Inc.; (xvii) Globalink, Inc. by Lernout and Hauspies Speech
Products NV; (xviii) Learmonth & Burchett Management Systems, Inc. by PLATINUM
technology, inc.; (xix) PHAMIS, Inc. by IDX Systems Corp.; (xx) IQ Software
Corp. by Information Advantage Software, Inc.; (xxi) State Of The Art, Inc. by
Sage Group plc; (xxii) Andyne Computing Ltd. by Hummingbird Communications Ltd.;
(xxiii) Quarterdeck Corp. by Symantec Corp.; (xxiv) Innovative Technologies
Systems, Inc. by Peregrine Systems, Inc.; (xxv) Enterprise Systems, Inc. by HBO
& Company; (xxvi) Unison Software, Inc. by IBM Corp.; (xxvii) Premenos Corp. by
Harbinger Corp; (xxviii) Dataworks Corp. by Platinum Software Corp.; (xxix)
Simulations Sciences, Inc. by Siebe plc; (xxx) Xcellenet, Inc. by Sterling
Commerce, Inc.; (xxxi) Fractal Design Corp. by MetaTools, Inc.; (xxxii) Orcad,
Inc. by Summit Design; and (xxxiii) FTP Software, Inc. by NetManage, Inc. Based
upon Broadview's analysis of premiums paid in selected software comparable
transactions, Broadview found that premiums (discounts) paid to sellers' equity
market capitalizations (using the buyer's share price on the day prior to the
announcement date of the transaction to calculate consideration in stock
transactions) 20 trading days prior to the announcement date ranged from (26.3%)
to 378.1% with a median of 40.0%. The premiums (discounts) paid to the sellers'
equity market capitalization one day prior to the announcement date ranged from
(8.8%) to 221.2% with a median of 20.0%.
The equity value per share range implied by the premiums paid to the share
price 20 trading days prior to announcement is $0.83 to $5.38 with a median
implied value of $1.57. The equity value per share range implied by the premiums
paid to the share price one day prior to announcement is $1.42 to $5.02 with a
median implied value of $1.88.
PRESENT VALUE OF PROJECTED SHARE PRICE ANALYSIS. Broadview calculated the
present value of the potential future share price of shares of Sulcus common
stock on a standalone basis using internal projections (as projected by Sulcus
management) for the twelve months ending December 31, 1999 discounted to today
at discount rates ranging from 5.0% to 25.0%. The potential future share price
is calculated based on earnings estimates (as projected by Sulcus management)
for the twelve months ending December 31, 1999 and assumes TTM P/E multiples of
between 15.0x and 30.0x in line with comparable public company multiples for
Sulcus.
Based on this analysis, the per share valuation range implied by the present
value of the future share prices is $3.09 to $8.03.
STOCK PERFORMANCE ANALYSIS. For comparative purposes, Broadview examined
the weekly historical volume and trading prices and the daily relative share
prices for both Eltrax and Sulcus common stock.
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Broadview examined the following: (i) Eltrax and Sulcus actual share prices and
trading volumes from November 7, 1997 to November 10, 1998; (ii) Eltrax, Sulcus
and their respective public company comparables indexed share prices from
November 7, 1997 to November 10, 1998; and (iii) relative ratio of Sulcus to
Eltrax actual share prices from November 7, 1997 to November 10, 1998.
RELATIVE CONTRIBUTION ANALYSIS. A relative contribution analysis measures
each of the merging companies' contributions to items such as Revenue and EBIT
on a percentage basis. Broadview examined the relative contributions during the
TTM period ending June 30, 1998, Projected CY ending December 31, 1998 and the
Projected CY ending December 31, 1999, based upon internal projections for
Eltrax and Sulcus on Revenue, EBIT and Pretax Income.
Sulcus' relative contribution for Revenue for the TTM period ending June 30,
1998, Projected CY ending December 31, 1998 and Projected CY ending December 31,
1999 is 52.8%, 53.4% and 52.8%, respectively. Sulcus' relative contribution for
EBIT for the Projected CY ending December 31, 1999 is 59.2%. Sulcus' relative
contribution for Pretax Income for the Projected CY ending December 31, 1999 is
66.2%.
RELATIVE OWNERSHIP ANALYSIS. A relative ownership analysis measures each of
the merging companies' relative equity ownership and relative entity values (net
of cash) at various exchange ratios. The implied equity ownership, using
relative equity values, is 42.5% for Sulcus and 57.5% for Eltrax while the
implied entity ownership, using relative entity values, is 40.3% for Sulcus and
59.7% for Eltrax.
PRO FORMA POOLING MODEL ANALYSIS. A pro forma merger analysis calculates
the EPS accretion (dilution) of the pro forma combined entity taking into
consideration various financial affects which will result from a consummation of
the Merger. This analysis relies upon certain financial and operating
assumptions provided by Eltrax and Sulcus management and on publicly available
data about Eltrax and Sulcus. Based on management forecasts for Eltrax and
Sulcus, the pro forma pooling analysis indicates EPS accretion (dilution),
without acquisition expenses, to Eltrax shareholders, for the fiscal year ending
December 31, 1999 of $0.20 or 106.3%.
CONSIDERATION OF THE DISCOUNTED CASH FLOWS VALUATION METHODOLOGY. While
discounted cash flows analysis is a commonly used valuation methodology,
Broadview did not employ such an analysis for the purposes of this opinion.
Discounted cash flows analysis is most appropriate for companies which exhibit
relatively steady or somewhat predictable streams of future cash flows. Given
the uncertainty in estimating both Sulcus future cash flows and sustainable
long-term growth rate, Broadview considered a discounted cash flows analysis
inappropriate for valuing Sulcus.
The Sulcus Board selected Broadview as its financial advisor on the basis of
Broadview's reputation and experience in the Information Technology sector and
the software industry in particular. Upon consummation of the Merger, Sulcus
will be obligated to pay Broadview a transaction fee of approximately $ .
Sulcus has already paid Broadview a one-time commitment fee of $50,000 and a
fairness opinion fee of $200,000, both of which will be credited against the
transaction fee payable by Sulcus upon completion of the Merger. In addition,
Sulcus has agreed to reimburse Broadview for its reasonable expenses, including
fees and expenses of its counsel, and to indemnify Broadview and its affiliates
against certain liabilities and expenses related to their engagement, including
liabilities under the federal securities laws. The terms of the fee arrangement
with Broadview, which Sulcus and Broadview believe are customary in transactions
of this nature, were negotiated at arms' length between Sulcus and Broadview,
and the Sulcus Board was aware of the nature of the fee arrangement, including
the fact that a significant portion of the fees payable to Broadview is
contingent upon completion of the Merger.
The above summary of the presentation by Broadview to the Sulcus Board does
not purport to be a complete description of the presentation or of all the
advice rendered by Broadview. Broadview believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying
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the analyses set forth in Broadview's presentation to the Sulcus Board and in
the Broadview Opinion. The Broadview Opinion is necessarily based upon market,
economic, financial and other conditions as they existed and could be evaluated
as of the date of the Broadview Opinion. The Broadview Opinion expresses no
opinion as to the price at which Eltrax common stock will trade at any time. In
performing its analyses, Broadview made numerous assumptions with respect to
software industry performance and general economic conditions, many of which are
beyond the control of Sulcus or Eltrax. The analyses performed by Broadview are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
PLANS FOR SULCUS
Sulcus will operate in substantially the same manner as before the Merger,
except that the combined company will emphasize the comprehensive information
and performance management services now available to its customers. The combined
company will also take advantage of Sulcus' worldwide distribution channels and
sales force to expand the customer base of the combined company. There will
likely be consolidation in administrative and product development positions.
INTERESTS OF CERTAIN PERSONS
Certain members of Sulcus management and the Sulcus Board may be deemed to
have certain interests in the Merger that are in addition to their interests as
shareholders of Sulcus generally. The Sulcus Board was aware of these interests
and considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby. See "Merger Agreement--Treatment of Stock
Options."
EMPLOYMENT AGREEMENT. Leon Harris' employment agreement, dated March 3,
1997 and as amended on October 13, 1997, contains several provisions related to
a change of control of Sulcus. In the event of Mr. Harris' termination other
than for "Cause", or upon his resignation for "Good Reason" (both terms as
defined in the employment agreement), at any time during the remaining term of
his employment agreement (which expires on February 29, 2000) after the
Effective Time, he will receive (i) 300% of the sum of (A) his current base
salary and (B) the highest annual bonus paid to him in the prior two (2) fiscal
years; (ii) the pro rata portion of the amount equal to the target bonus
percentage he would receive for the year in which the Effective Time occurs
multiplied by his annual base salary then in effect and any earned, but unpaid,
bonus from prior years; (iii) cash payments in lieu of options under the Amended
1991 Incentive Stock Option Plan for Officers and other Key Employees; (iv) one
(1) year of life, disability, accident and health insurance benefits
substantially similar to those he was receiving prior to termination; and (v)
outplacement services for a period of one (1) year. The estimated cash cost of
providing these payments would be $ .
STOCK OPTION PLANS. The Merger will cause all options granted under Sulcus'
1997 Non-Employee Directors' Stock Option Plan (the "1997 Director Plan") to
become automatically exercisable, without regard to any vesting limitations. If
not exercised, such options will be converted into options to purchase Eltrax
common stock in accordance with the Merger Agreement. There are currently
options to purchase 45,000 shares of Sulcus common stock outstanding under the
1997 Director Plan. See "Merger Agreement--Treatment of Stock Options".
Options issued under Sulcus' 1983 Incentive Stock Option Plan for Officers
and other Key Employees (the "1983 Employee Plan"), the Amended 1991 Director's
Stock Option Plan (the "1991 Director Plan") and the Amended 1991 Incentive
Stock Option Plan for Officers and other Key Employees (the "1991 Employee
Plan") will be converted into options to purchase Eltrax common stock in
accordance with the Merger Agreement. See "Merger Agreement--Treatment of Stock
Options".
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The Merger will cause all options granted to Leon Harris under the 1991
Employee Plan or the 1991 Director Plan to become automatically exercisable,
without regard to any vesting limitations. Such options will be converted into
options to purchase Eltrax common stock in accordance with the Merger Agreement.
Additionally, Eltrax intends to engage certain non-employee directors of
Sulcus as consultants for a specified period of time and for nominal
consideration. As a result, options issued to such non-employee directors under
the 1991 Director Plan or the 1997 Director Plan, which otherwise would have
terminated in connection with the Merger, will continue for so long as such
non-employee directors are consultants to Eltrax and will be converted into
options to purchase Eltrax common stock in accordance with the Merger Agreement.
See "Merger Agreement--Treatment of Stock Options".
SEVERANCE AGREEMENTS. Sulcus has not renewed certain change of control
severance agreements with its officers. Therefore, those officers will not be
entitled to any payments in the event any of them are terminated following the
Merger.
INDEMNIFICATION OF SULCUS OFFICERS AND DIRECTORS
Pursuant to the terms of the Merger Agreement, Eltrax has agreed to not
amend, repeal or otherwise modify the indemnification provisions of the
Certificate of Incorporation and Bylaws of Sulcus for a period of six years
after the Effective Time in any manner that would adversely affect the rights of
directors, officers, employees or agents of Sulcus. Eltrax has also agreed that,
for six years after the Effective Time, it will maintain in effect for each
director and officer of Sulcus and its subsidiaries, liability insurance
coverage with respect to matters arising at or prior to the Effective Time, in
such amounts and containing such terms and conditions that are not materially
less advantageous to such parties than the coverage applicable to such
individuals immediately prior to the Effective Time.
ESTIMATED SYNERGIES
Significant synergies are anticipated as a result of the Merger. Sulcus
offers a sales force in more than 80 locations in 20 different countries, which
will significantly expand the marketing opportunities for the existing Eltrax
services and systems. In particular, it is anticipated that the Eltrax systems
will be of interest to existing Sulcus customers who seek network systems
expertise to complement their existing Sulcus products such as reservations
systems, property management systems and customer service programs. Customers
will now have a single source to provide application expertise and for network
design, implementation and management expertise. Sulcus' geographic penetration
will also enhance the introduction of Eltrax's Medallion property management
system.
Eltrax and Sulcus believe that cost savings will also be achieved as a
result of the Merger. The anticipated economies of scale, reassignment of
personnel and consolidation of certain operations are expected to reduce the
costs associated with administrative functions, research and development and
service fulfillment tasks. The total estimated cost savings as a result of the
Merger, net of transaction expenses and costs expected to be incurred in
connection with integrating Sulcus into Eltrax's business operation, is
anticipated to be approximately $ in 1999.
THE FOREGOING ESTIMATES OF COST SAVINGS AND SYNERGIES ARE INHERENTLY SUBJECT
TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF SULCUS OR ELTRAX. THERE CAN BE NO ASSURANCE THAT THEY WILL BE
ACHIEVED AND ACTUAL SAVINGS AND SYNERGIES MAY VARY MATERIALLY FROM THOSE
ESTIMATED. THE INCLUSION OF SUCH ESTIMATES HEREIN SHOULD NOT BE REGARDED AS AN
INDICATION THAT SULCUS OR ELTRAX OR ANY OTHER PARTY CONSIDERS SUCH ESTIMATES AN
ACCURATE PREDICTION OF FUTURE EVENTS.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the Merger. The Merger is intended to qualify as a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended (the "Code"). In this regard, the
Merger Agreement contains a covenant by Eltrax that it will conduct its
business, and shall cause Sulcus to conduct its business, after the Effective
Time, in a manner which would not jeopardize the characterization of the Merger
as a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code. In addition, certain factual representations deemed necessary by
counsel to Sulcus in order to confirm that the requirements of Code Sections
368(a)(1)(A) and 368(a)(2)(E) are expected to be satisfied have been obtained
from the parties to the Merger. However, none of the parties to the Merger
intends to obtain a ruling from the Internal Revenue Service as to the federal
income tax consequences of the Merger.
Sulcus has, however, received an opinion of Benesch, Friedlander, Coplan &
Aronoff LLP substantially to the effect that for federal income tax purposes:
(a) the Merger will qualify as a tax-free reorganization within the
meaning of Code Sections 368(a)(1)(A) and 368(a)(2)(E) and Sulcus and Eltrax
will each be a party to the reorganization;
(b) no gain or loss will be recognized by Sulcus as a result of the
Merger;
(c) no gain or loss will be recognized by a shareholder of Sulcus upon
the exchange of shares of Sulcus common stock for Eltrax common stock,
except that gain or loss will be recognized by a shareholder of Sulcus on
the receipt of cash in lieu of fractional shares;
(d) the adjusted tax basis of the Eltrax common stock received by a
shareholder of Sulcus pursuant to the Merger (including any fractional share
interests deemed received) will be the same as the adjusted tax basis of the
shares of Sulcus common stock surrendered in exchange therefor;
(e) the holding period of the Eltrax common stock received by a
shareholder of Sulcus as a result of the Merger (including any fractional
share interests deemed received) will include the holding period of the
shares of Sulcus common stock surrendered in exchange therefor, provided
that such Sulcus common stock is held as a capital asset by the Sulcus
shareholder at the consummation of the Merger; and
(f) any cash payment received by a holder of Sulcus common stock in lieu
of a fractional share of Eltrax common stock will be treated as if such
fractional share of Eltrax common stock had been issued in the Merger and
then redeemed by Eltrax.
The above tax opinion is based upon certain representations and assumptions
referred to in such tax opinion and assumes that the Merger will be completed in
the manner described in this Proxy Statement/ Prospectus and that the
representations made by the parties to the Merger are accurate and complete and
will continue to be accurate and complete as of the Effective Time. Any change
in the facts, representations or assumptions could affect the status of the
Merger as a tax-free reorganization (within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code). No assurance can be given that the Internal
Revenue Service will not change its position on the tax treatment of a merger.
THE FOREGOING DISCUSSION OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS BASED ON THE LAW IN EFFECT AS OF THE DATE HEREOF,
INCLUDING THE CODE, THE TREASURY REGULATIONS PROMULGATED THEREUNDER, AND
ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF, ALL OF WHICH ARE SUBJECT TO
CHANGE (POSSIBLY ON A RETROACTIVE BASIS). THIS DISCUSSION DOES NOT ADDRESS ANY
ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. IN ADDITION, THIS DISCUSSION DOES
NOT ATTEMPT TO ADDRESS ALL ISSUES THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF
SULCUS COMMON STOCK IN LIGHT OF SUCH HOLDER'S PERSONAL CIRCUMSTANCES, AND DOES
NOT APPLY TO HOLDERS SUBJECT TO SPECIAL TREATMENT
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UNDER THE FEDERAL INCOME TAX LAWS. FURTHER, THIS DISCUSSION MAY NOT APPLY TO A
HOLDER OF SULCUS COMMON STOCK WHO ACQUIRED HIS OR HER STOCK PURSUANT TO THE
EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. ACCORDINGLY,
EACH HOLDER OF SULCUS COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER, INCLUDING THE
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
In addition, the Merger will cause Sulcus to experience an ownership change
within the meaning of Section 382 of the Code. As a result, the ability of
Sulcus to utilize its "pre-change" tax losses and deductions (losses and
deductions occurring prior to the Effective Time), which as of the end of 1997
totaled $27,775,000 (the "Sulcus NOLs"), to offset its "post-change" income and
gains (income and gains occurring after the Effective Time) will generally be
limited to an annual limitation (the unused portion of which may be carried
forward in subsequent years) equal to the value of its stock immediately prior
to the Effective Time multiplied by the then applicable long-term tax exempt
rate applicable to ownership changes (currently % for ownership changes
occurring in December, 1998). Certain other limitations may affect the utility
of the Sulcus NOLs to Eltrax, including the separate return limitations imposed
by the consolidated return regulations of the Code.
As of December 31, 1997, Eltrax had cumulative net operating losses for tax
purposes of approximately $5.1 million (the "Eltrax NOLs"). Although no
assurances can be given, Eltrax does not believe that the Merger will trigger an
ownership change with respect to Eltrax within the meaning of Section 382 of the
Code. Nevertheless, the ability of Eltrax to fully utilize the Eltrax NOLs has
been limited as a result of prior ownership changes. It is also possible that
transactions occurring subsequent to the date of this Proxy Statement/Prospectus
may, when combined with the Merger and other previous or subsequent
transactions, result in an ownership change of Eltrax. In this regard, the
consummation of the Merger will increase the risk of a future ownership change
of Eltrax within the meaning of Section 382 of the Code.
In connection with the foregoing, see "The Merger" and "Merger Agreement."
ACCOUNTING TREATMENT
Eltrax and Sulcus believe that the Merger will qualify as a "pooling of
interests" for financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Sulcus will be carried forward to Eltrax
at their recorded amounts, operating results of Eltrax will include operating
results of Sulcus for the entire fiscal year in which the Merger occurs and the
operating results of Sulcus for prior periods will be combined with and included
in the operating results of Eltrax.
OTHER LEGAL MATTERS; REGULATORY APPROVALS
GENERAL. Except as otherwise disclosed herein, based upon its review of
publicly available information with respect to Sulcus and the review of certain
additional information furnished by Sulcus to Eltrax, neither Eltrax nor SAC is
aware of (i) any license or regulatory permit that appears to be material to the
business of Sulcus and its subsidiaries, taken as a whole, that might be
adversely affected pursuant to the Merger or (ii) any approval or other action
by any governmental, administrative or regulatory agency or authority, domestic
or foreign, that would be required for the consummation of the Merger. Should
any such approval or other action be required, Eltrax and SAC currently
contemplate that such approval or action would be sought. While Eltrax does not
currently intend to delay the Merger pending the outcome of any such matter,
there can be no assurance that any such approval or action, if needed, would be
obtained or would be obtained without substantial conditions or that adverse
consequences will not result to the business of Sulcus, Eltrax or SAC or that
certain parts of the businesses of Sulcus, Eltrax or SAC will not have to be
disposed of in the event that such approvals were not obtained or any other
actions were not taken.
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ANTITRUST. Neither the "annual net sales" nor the "total assets" (as those
terms are defined in the HSR Act) of Eltrax and Sulcus for the relevant period
trigger any filing requirements prior to consummation of the Merger under the
HSR Act and the regulations promulgated thereunder by the Federal Trade
Commission (the "FTC").
At any time before or after the Effective Time, notwithstanding that the
Merger is not subject to the filing requirements under the HSR Act, the FTC or
the Antitrust Division of the United States Department of Justice could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Sulcus or Eltrax. At any time
before or after the Effective Time, any state could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of Sulcus or Eltrax. Private persons may also
seek to take legal action pursuant to the antitrust laws under certain
circumstances.
APPRAISAL RIGHTS
Under the Pennsylvania Business Corporation Act of 1988 (the "PBCA"),
shareholders of Sulcus do not have appraisal rights in connection with the
Merger because Sulcus is listed on the American Stock Exchange ("AMEX"), a
national securities exchange.
Under the Minnesota Business Corporation Act (the "MBCA"), shareholders of
Eltrax do not have appraisal rights in connection with the transactions
contemplated in the Merger Agreement.
DELISTING AND DEREGISTRATION OF SULCUS COMMON STOCK
If the Merger is consummated, the shares of Sulcus common stock will be
delisted from the AMEX and will be deregistered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
RESALES OF ELTRAX COMMON STOCK
This Proxy Statement/Prospectus does not cover any resales of the Eltrax
common stock to be received by the shareholders of Sulcus upon consummation of
the Merger, and no person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale.
All shares of Eltrax common stock constituting the Share Issuance will be
freely transferable, except that shares received by any person who may be deemed
to be an "affiliate" (as used in paragraphs (c) and (d) of Rule 145 under the
Securities Act) of Sulcus at the time of the Sulcus Special Meeting for purposes
of such Rule 145 may not be resold except in transactions permitted by such Rule
145 or as otherwise permitted under the Securities Act. In addition, such shares
may not be transferred by an "affiliate" of Sulcus in violation of the
Commission's rules governing the treatment of the Merger as a pooling of
interests.
Sulcus has agreed to use its reasonable efforts to cause any person whom
counsel for Eltrax reasonably determines is an "Affiliate" (as used in the
preceding paragraph) of Sulcus to deliver to Eltrax, at or prior to the Closing
Date, an agreement, substantially in the form previously approved by Sulcus and
Eltrax, providing that the affiliate will not offer to sell, sell, or otherwise
dispose of any Eltrax common stock received by the affiliate in exchange for
shares of Sulcus common stock pursuant to the Merger, except pursuant to an
effective registration statement, in compliance with such Rule 145 or in another
transaction which, in the opinion of legal counsel satisfactory to Eltrax, is
exempt from the registration requirements of the Securities Act. The agreement
will further provide that the affiliate will not offer to sell, sell, or
otherwise dispose of any Eltrax common stock received in the Merger, until such
time as financial results of Eltrax covering at least 30 days of post-merger
operations have been filed with the Commission, sent to the shareholders of
Eltrax or otherwise publicly issued, except as otherwise permitted
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by Staff Accounting Bulletin No. 76 issued by the Commission. In the Merger
Agreement, Eltrax has agreed that as soon as it is reasonably practicable, but
in no event later than 45 business days after the end of the first fiscal
quarter of Eltrax ending at least 30 days after the Effective Time, Eltrax will
publish financial results covering at least 30 days of post-Merger combined
operations.
NASDAQ LISTING
Eltrax has agreed to use its reasonable best efforts to obtain, at or before
the Effective Time, authorization for listing of the shares of Eltrax common
stock to be issued in the Merger or to be reserved for issuance upon the
exercise of stock options on the Nasdaq SmallCap Market, subject to official
notice of issuance. The listing of the shares of Eltrax common stock which
constitute the Merger Consideration on the Nasdaq SmallCap Market is also a
condition to consummation of the Merger.
BOARD OF DIRECTORS AND MANAGEMENT OF ELTRAX FOLLOWING THE MERGER
At the Effective Time, Clunet R. Lewis and Mack V. Traynor, III will resign
from the Eltrax Board, and Leon D. Harris and Christine Hughes, each presently a
Sulcus Board member, will join the Eltrax Board, which currently consists of
eight members. Leon D. Harris will also become the President and Chief Operating
Officer of Eltrax. William P. O'Reilly will remain the Chairman and Chief
Executive Officer of Eltrax.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
COMPARATIVE MARKET PRICES AND DIVIDENDS
SULCUS
Shares of Sulcus common stock are listed and principally traded on the AMEX
and quoted under the symbol "SUL". The following table sets forth, for the
quarters indicated, the high and low sales prices per share of Sulcus common
stock on the AMEX.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996:
First Quarter................................................................................ $ 2.81 $ 1.88
Second Quarter............................................................................... 3.81 2.56
Third Quarter................................................................................ 3.31 2.38
Fourth Quarter............................................................................... 2.50 1.75
FISCAL YEAR ENDED DECEMBER 31, 1997:
First Quarter................................................................................ 2.13 1.44
Second Quarter............................................................................... 2.19 1.44
Third Quarter................................................................................ 2.81 1.56
Fourth Quarter............................................................................... 4.19 2.25
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter................................................................................ 3.00 2.13
Second Quarter............................................................................... 3.13 1.75
Third Quarter................................................................................ 2.13 1.06
Fourth Quarter...............................................................................
</TABLE>
Sulcus has never paid cash dividends on the Sulcus common stock.
On November 11, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the reported closing
sales price of Sulcus common stock on the AMEX was $1.56 per share (or an
equivalent price per share of $3.58 determined by multiplying the Exchange Ratio
by the closing sales price of Eltrax common stock on November 11, 1998). On
January , 1999, the last full trading day for which information was available
prior to the printing and mailing of this Proxy Statement/ Prospectus, the
reported closing sales price of Sulcus common stock on the AMEX was $ per
share (or an equivalent price per share of $ determined by multiplying the
Exchange Ratio by the closing sales price of Eltrax common stock on January ,
1999).
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ELTRAX
Shares of Eltrax common stock are listed and principally traded on the
Nasdaq SmallCap Market and quoted under the symbol "ELTX". The following table
sets forth, for the quarters indicated, the high and low bid prices per share on
the Nasdaq SmallCap Market. These bid prices reflect inter-dealer prices,
without mark-up, mark-down or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
NINE MONTH TRANSITION PERIOD
ENDED DECEMBER 31, 1996:
First Quarter................................................................................. $ 8.13 $ 3.00
Second Quarter................................................................................ 7.25 4.35
Third Quarter................................................................................. 6.25 5.00
FISCAL YEAR ENDED DECEMBER 31, 1997:
First Quarter................................................................................. 7.38 4.75
Second Quarter................................................................................ 7.50 5.50
Third Quarter................................................................................. 8.50 5.00
Fourth Quarter................................................................................ 7.13 3.88
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter................................................................................. 7.25 4.88
Second Quarter................................................................................ 10.38 5.75
Third Quarter................................................................................. 8.38 3.75
Fourth Quarter................................................................................
</TABLE>
Eltrax has never declared or paid cash dividends on the Eltrax common stock
and does not anticipate paying dividends in the foreseeable future. After
consummation of the Merger, Eltrax intends to retain any earnings for use in its
business.
On November 11, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the reported closing
sales price of Eltrax common stock on the Nasdaq SmallCap Market was $6.50 per
share. On January , 1999, the last full trading day for which information was
available prior to the printing and mailing of this Proxy Statement/Prospectus,
the last sales prices reported for Eltrax common stock on the Nasdaq SmallCap
Market was $ per share.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES OF
SULCUS COMMON STOCK AND ELTRAX COMMON STOCK.
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MERGER AGREEMENT
THE FOLLOWING SUMMARY OF THE MERGER AGREEMENT AND THE MERGER CONTAINED IN
THIS PROXY STATEMENT/ PROSPECTUS IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF
THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERGER AGREEMENT, WHICH IS
INCORPORATED BY REFERENCE AND A COPY OF WHICH IS ATTACHED AS ANNEX A.
CAPITALIZED TERMS NOT OTHERWISE DEFINED SHALL HAVE THE MEANINGS SET FORTH IN THE
MERGER AGREEMENT.
THE MERGER
The Merger Agreement provides that, subject to the terms and conditions
thereof, and in accordance with the PBCA, at the Effective Time, Sulcus and SAC
will consummate the Merger pursuant to which (i) SAC shall be merged with and
into Sulcus and the separate corporate existence of SAC shall thereupon cease,
and (ii) Sulcus shall be the surviving corporation and shall continue as a
wholly-owned subsidiary of Eltrax. Pursuant to the Merger, at the Effective
Time, (x) the Articles of Incorporation ("Articles") of Sulcus, as in effect
immediately prior to the Effective Time, shall continue to be the Articles of
Sulcus until thereafter amended as provided by law and those Articles, and (y)
the Bylaws of Sulcus, as in effect immediately prior to the Effective Time,
shall continue to be the Bylaws of Sulcus until thereafter amended as provided
by law, the Articles of Sulcus and such Bylaws. The Merger shall have the
effects set forth in the PBCA.
CONVERSION OF SULCUS COMMON STOCK
Each share of Sulcus common stock issued and outstanding immediately prior
to the Effective Time (other than Sulcus common stock held in the treasury of
Sulcus or held by a Sulcus subsidiary, Eltrax or SAC or other subsidiary of
Eltrax) shall, at the Effective Time, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to receive
0.55 of a fully paid and nonassessable share of Eltrax common stock (the "Sulcus
Share Consideration").
No fractional shares of Eltrax common stock will be issued in the Merger. In
lieu of any fractional shares, each holder of Sulcus common stock who otherwise
would be entitled to receive a fractional share of Eltrax common stock pursuant
to the Merger will be paid an amount in cash equal to such fraction multiplied
by the closing price per share of Eltrax common stock, as reported by The Wall
Street Journal, at the close of business on the business day immediately
preceding the Closing Date.
All shares of Sulcus common stock that are held in the treasury of Sulcus or
held by a Sulcus subsidiary, Eltrax or SAC or other subsidiary of Eltrax shall,
at the Effective Time, be canceled and retired and shall cease to exist and no
Eltrax common stock shall be delivered in exchange therefor.
The Merger Agreement provides that, on and after the Effective Time, holders
of certificates which immediately prior to the Effective Time represented
outstanding shares of Sulcus common stock shall cease to have any rights as
shareholders of Sulcus, except the right to receive the Sulcus Share
Consideration for each share of Sulcus common stock held by them, including the
right to receive cash for payment of fractional shares of Eltrax common stock.
Eltrax and Sulcus have covenanted and agreed to consummate the Merger
pursuant to the terms of the Merger Agreement not later than June 30, 1999.
EXCHANGE PROCEDURES
Eltrax has designated Boston EquiServe (the "Exchange Agent") to act as
agent for the holders of shares of Sulcus common stock in connection with the
Merger and to otherwise facilitate the exchange of shares of Sulcus common stock
into shares of Eltrax common stock pursuant to the Merger Agreement.
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No certificates or scrip representing fractional shares of Eltrax common
stock will be issued upon the surrender of certificates representing shares of
Sulcus common stock ("Certificates"), no dividend or distribution with respect
to shares of Eltrax common stock will be payable on or with respect to any
fractional shares and such fractional share interests will not entitle the owner
thereof to vote or to exercise any other rights of a shareholder of Eltrax. In
lieu of any fractional shares, each holder of Sulcus common stock who otherwise
would be entitled to receive a fractional share of Eltrax common stock pursuant
to the Merger will be paid an amount in cash equal to such fraction multiplied
by the closing price per share of Eltrax common stock, as reported by THE WALL
STREET JOURNAL, at the close of business on the business day immediately
preceding the Closing Date.
Promptly after the Effective Time, the Exchange Agent will mail to each
holder of record of a Certificate (i) a letter of transmittal (which will
specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon actual delivery of the Certificates to the
Exchange Agent) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for Eltrax common stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such duly
executed letter of transmittal and such other documents as the Exchange Agent
shall reasonably require, the holder of such Certificate will be entitled to
receive in exchange therefor a certificate for that number of whole shares of
Eltrax common stock representing the Sulcus Share Consideration for each share
of Sulcus common stock surrendered and the Certificate so surrendered will
forthwith be canceled. If payment of the Sulcus Share Consideration for each
share of Sulcus common stock surrendered is to be made to a person other than
the person in whose name the surrendered Certificate is registered, it will be a
condition of payment that the Certificate so surrendered will be properly
endorsed or will be otherwise in proper form for transfer and that the person
requesting such payment will have paid any transfer and other taxes required by
reason of the payment of the Sulcus Share Consideration for each share of Sulcus
common stock surrendered to a person other than the registered holder of the
Certificate surrendered or will have established to the satisfaction of Eltrax
that such tax either has been paid or is not applicable.
On the Closing Date, Eltrax will make available to the Exchange Agent, for
the benefit of the holders of shares of Sulcus common stock, certificates
representing a sufficient number of shares of Eltrax common stock required to
pay the Sulcus Exchange Ratio for all shares of Sulcus common stock outstanding
and cash for payment of any fractional shares. No dividends or other
distributions that have been declared will be paid to persons entitled to
receive certificates for shares of Eltrax common stock until such persons
surrender their Certificates, at which time all such dividends or other
distributions will be paid. In no event will the persons entitled to receive
such dividends be entitled to receive interest on such dividends or other
distributions.
Nine months after the Effective Time, the Exchange Agent will deliver to
Eltrax all cash, certificates representing shares of Eltrax common stock and
other documents in its possession relating to the Merger and, upon doing so, the
Exchange Agent's duties will terminate. After such time, any holders of
Certificates must contact Eltrax directly to exchange such Certificates for
shares of Eltrax common stock or for cash in lieu of fractional shares.
TREATMENT OF STOCK OPTIONS
At the Effective Time, each outstanding option to purchase shares of Sulcus
common stock (a "Sulcus Stock Option") granted under any plan or arrangement
providing for the grant of options to purchase shares of Sulcus common stock to
current or former officers, directors, employees or consultants of Sulcus (the
"Sulcus Stock Plans"), whether vested or unvested, will be converted
automatically into an option to purchase, on substantially the same terms and
conditions as were applicable under the Sulcus Stock Option, a number of shares
of Eltrax common stock equal to the number of shares of Sulcus common stock that
could be purchased under such Sulcus Stock Option multiplied by the Sulcus
Exchange Ratio, at a per share exercise price equal to the per share exercise
price of such Sulcus Stock Option divided by the
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Sulcus Exchange Ratio (an "Eltrax Stock Option"), provided that any fractional
shares of Eltrax common stock resulting from such determination will be rounded
down to the nearest share.
All options issued under the 1997 Director Plan, the 1991 Employee Plan, the
1991 Director Plan and the 1983 Employee Plan will be converted into Eltrax
Stock Options as described above.
At the Effective Time, all Sulcus Stock Plans will terminate and, within 90
days following the Closing Date, each holder of a Sulcus Stock Option will
receive an award agreement with respect to the Eltrax Stock Options they acquire
pursuant to the Merger Agreement, which shall preserve the remaining exercise
period and vesting schedule (if any) of such converted Sulcus Stock Options and,
if applicable, will preserve the status of any converted Sulcus Stock Options as
"incentive stock options" (as defined in Section 422 of the Code).
INTERIM OPERATIONS
In the Merger Agreement, Eltrax and Sulcus agreed, that between the
execution and delivery of the Merger Agreement and the Closing Date, both
companies, and their subsidiaries, will:
- conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
- not (i) amend their respective Articles of Incorporation or Bylaws, (ii)
split, combine or reclassify their outstanding capital stock, (iii)
declare, set aside or pay any dividend or distribution, except for the
payment of dividends or distributions to a company by its wholly-owned
subsidiary, or (iv) repurchase any shares of their outstanding capital
stock;
- not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or any options, warrants or rights
to acquire any shares of, their capital stock or any debt or equity
securities convertible into or exchangeable for such capital stock, except
that each company, may (i) grant options to non-executive employees and
(ii) issue shares upon the exercise of outstanding options and warrants or
pursuant to existing agreements;
- not (i) assume, incur or become contingently liable with respect to any
indebtedness for borrowed money, other than (A) borrowings in the ordinary
course of business or borrowings under the existing credit facilities of
each company up to the existing borrowing limit or (B) borrowings to
refinance existing indebtedness, (ii) redeem, purchase, acquire or offer
to purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock other than pursuant
to an employee stock incentive plan of a company, (iii) take any action
that would jeopardize the treatment of the Merger as a pooling of
interests, (iv) take or fail to take any action that would cause either
company or their shareholders (except to the extent that any shareholders
receive cash in lieu of fractional shares) to recognize gain or loss for
federal income tax purposes as a result of the consummation of the Merger
or would otherwise cause the Merger not to qualify as a reorganization
under Section 368(a) of the Code, (v) make any acquisition of any assets
or businesses other than expenditures for current assets in the ordinary
course of business and expenditures for fixed or capital assets in the
ordinary course of business or (vi) sell, pledge, dispose of or encumber
any material assets or businesses, or enter into any binding contract,
agreement, commitment or arrangement with respect to any of the foregoing;
- use all reasonable efforts to preserve intact their respective business
organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others having business
relationships with them;
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- subject to restrictions imposed by applicable law, confer with one or more
representatives of the other company to report operational matters of
materiality and the general status of ongoing operations;
- not enter into or amend any employment, severance or special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except in the ordinary course of business and consistent with past
practice;
- not adopt, enter into or amend any pension or retirement plan, trust or
fund, except as required to comply with changes in applicable law and not
adopt, enter into or amend in any material respect any bonus, profit
sharing, compensation, stock option, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employees or retirees
generally, other than in the ordinary course of business;
- use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
- not make, change or revoke any material tax election or make any material
agreement or settlement regarding taxes with any taxing authority.
NO SOLICITATION
Pursuant to the Merger Agreement, Eltrax and Sulcus agreed that neither
company nor any of their subsidiaries will initiate, solicit, negotiate,
encourage or provide confidential information to facilitate, and each company
shall use its reasonable efforts to prevent any officer, director, affiliate or
employee of a company, or any attorney, accountant, investment banker, financial
advisor or other agent retained by it or any of its subsidiaries, from, directly
or indirectly, initiating, soliciting, negotiating, encouraging or providing
non-public or confidential information to facilitate, any proposal or offer to
acquire all or any substantial part of the business or properties of either
company or any capital stock of either company, whether by merger, purchase of
assets, tender offer, share exchange, business combination or otherwise, whether
for cash, securities or any other consideration or combination thereof (any such
transactions being referred to herein as an "Acquisition Transaction").
Sulcus, may, in response to an unsolicited written offer or proposal with
respect to a potential or proposed Acquisition Transaction ("Acquisition
Proposal") which Sulcus' Board determines, in good faith and after consultation
with its independent financial advisor, would result (if consummated pursuant to
its terms) in an Acquisition Transaction more favorable to its shareholders than
the Merger (any such offer or proposal being referred to as a "Superior
Proposal"), furnish (subject to the execution of a confidentiality agreement
substantially similar to the confidentiality provisions set forth in the Merger
Agreement), confidential or non-public information to a financially capable
corporation, partnership, person or other entity or group (a "Potential
Acquirer") and negotiate with such Potential Acquirer if the Sulcus Board, after
consulting with its outside legal counsel, determines in good faith that the
failure to provide such confidential or non-public information to or negotiate
with such Potential Acquirer would be reasonably likely to constitute a breach
of its fiduciary duty to the Sulcus shareholders. Sulcus' Board may also comply
with Rule 14-e2 under the Exchange Act in connection with an Acquisition
Proposal.
Both companies agreed to notify the other after receipt of any Acquisition
Proposal or offer to acquire all or any substantial part of their business,
properties or capital stock, whether by merger, purchase of assets, tender
offer, share exchange, business combination or otherwise, whether for cash,
securities or any other consideration or combination thereof and shall indicate
in reasonable detail the identity of the offeror and the terms and conditions of
such proposal or offer.
39
<PAGE>
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Eltrax and SAC have made customary representations
and warranties to Sulcus with respect to, among other things, their organization
and qualification, capitalization, subsidiaries, authority, non-contravention,
approvals, reports and financial statements, absence of certain changes since
June 30, 1998, the information to be included in the registration statement and
proxy statement, the tax-free nature of the transaction and "pooling of
interests" accounting, brokers and finders, intellectual property and
qualification under the HSR Act.
In the Merger Agreement, Sulcus has made customary representations and
warranties to Eltrax and SAC with respect to, among other things, its
organization and qualification, capitalization, subsidiaries, authority,
non-contravention, approvals, reports and financial statements, absence of
certain changes since June 30, 1998, the information to be included in the
registration statement and proxy statement, the tax-free nature of the
transaction and "pooling of interests" accounting , brokers and finders, the
opinion of Broadview, the Rights Agreement between Sulcus and American Stock
Transfer & Trust Company, as Rights Agent, dated as of January 30, 1998 (the
"Sulcus Rights Agreement"), intellectual property, qualification under the HSR
Act and appraisal rights.
EFFECTIVE TIME
The Merger will become effective when articles of merger have been filed
with the Department of State of the Commonwealth of Pennsylvania.
CONDITIONS TO THE MERGER
The completion of the Merger depends upon satisfaction of a number of
conditions, including (1) approval of the Merger Agreement by the shareholders
of Sulcus, (2) approval of the Share Issuance and the Plan Amendment by the
shareholders of Eltrax, (3) authorization of the Eltrax common stock for listing
on the Nasdaq SmallCap Market, (4) effectiveness of Eltrax's Registration
Statement registering the shares of Eltrax common stock to be issued in the
Merger under the Securities Act, (5) the absence of any preliminary or permanent
injunction or other order or decree or any statute, rule or regulation enacted
in the United States preventing the consummation of the Merger or making the
Merger illegal, and (6) except where failure to do so would not cause a material
adverse effect on that company, (a) securing all required waivers, consents,
orders or approvals, (b) performance by the other party of their agreements
pursuant to the Merger Agreement and (c) continued accuracy of each party's
representations and warranties.
TERMINATION; FEES
Sulcus and Eltrax can agree to terminate the Merger Agreement without
completing the Merger, and either company can terminate the Merger Agreement
under various circumstances, including (1) a material breach of a
representation, warranty or material agreement in the Merger Agreement that has
not been corrected, (2) the failure to complete the Merger by June 30, 1999; (3)
the failure of the Sulcus shareholders to approve the Merger Agreement; and (4)
the failure of the Eltrax shareholders to approve the Share Issuance and the
Plan Amendment.
Sulcus can also terminate the Merger Agreement if (1) it receives an
unsolicited acquisition offer, or a person begins a tender offer for all the
shares of Sulcus common stock, which, in either case, the Sulcus Board
determines would result in a transaction more favorable to the Sulcus
shareholders than the Merger with Eltrax or (2) the average closing price of
Eltrax common stock for the seven consecutive trading days ending three days
before the Effective Time is less than $4.50 per share, but only if the average
closing price of Sulcus common stock during the same time period is not less
than $1.00 per share.
40
<PAGE>
The Merger Agreement requires Sulcus to pay Eltrax a termination fee of
$2,000,000 if the Merger Agreement is terminated because of Sulcus' acceptance
of another unsolicited offer for an Acquisition Transaction or approval of a
tender offer or Sulcus' material breach of a material covenant that is not
cured. Eltrax would have to pay Sulcus the same termination fee if the Merger
Agreement is terminated because of Eltrax's material breach of a material
covenant that is not cured.
The Merger Agreement requires Sulcus to pay Eltrax a termination fee of
$250,000 if the Merger Agreement is terminated because Sulcus' shareholders
failed to approve the Merger Agreement, but such fee shall not be payable if the
average closing price of Eltrax common stock for the seven consecutive trading
days ending three days before the special meetings is less than $4.50 per share
and the average closing price of Sulcus common stock during the same time period
is equal to or greater than $1.00 per share. The Merger Agreement also requires
Eltrax to pay Sulcus a termination fee of $250,000 if the Merger Agreement is
terminated because Eltrax's shareholders failed to approve the Share Issuance
and the Plan Amendment.
41
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
of Eltrax give effect to the consummation of the Merger and to several
additional transactions that Eltrax has completed in 1997 and 1998. The
financial statements of Eltrax and Sulcus have been combined for each of the
statement of operations as if the Merger had occurred as of the beginning of
the respective period. The unaudited pro forma combined balance sheet as of
September 30, 1998 includes the balance sheet of Sulcus as if the Merger
occurred on September 30, 1998. The Unaudited Pro Forma Condensed Combined
Statement of Operations for the nine months ended September 30, 1998 also
gives effect to Eltrax's acquisition of Encore Systems, Inc., Global Systems
and Support, Inc., and Five Star Systems, Inc. (combined as the "Encore
Group") as if it had occurred on January 1, 1998. The Unaudited Pro Forma
Condensed Combined Statement of Operations for the year ended December 31,
1997 gives effect to the Four Corners Technology, Inc. ("Four Corners"),
Hi-Tech Connections, Inc. ("Hi-Tech"), Midwest DataComm Associates, Inc. and
Midwest Telecom Associates, Inc. (combined as "DataComm") and the Encore
Group acquisitions as if they had occurred on January 1, 1997.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that the management of Eltrax believes are
reasonable. The unaudited pro forma condensed combined financial information
reflects the Merger with Sulcus accounted for using the pooling-of-interest
method of accounting. Each of the other acquisition transactions has been
accounted for using the purchase method of accounting. The adjustments
recorded in the Unaudited Pro Forma Condensed Combined Financial Statements
represent the preliminary determination of these adjustments based upon
available information. There can be no assurance that the actual adjustments
will not differ from the pro forma adjustments reflected in the Unaudited Pro
Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements are not
necessarily indicative of the financial position or the future results of
operations or results that might have been achieved if the foregoing
transactions had been consummated as of the indicated dates. The Unaudited Pro
Forma Condensed Combined Financial Statements should be read in conjunction with
the historical consolidated financial statements of Eltrax and Sulcus and the
related notes thereto. See "Where You Can Find More Information".
42
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELTRAX
ELTRAX SULCUS SULCUS PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ------------- -------------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........ $ 536 $ 8,287 $ (1,000)(3) $ 7,823
Accounts receivable, net......... 7,366 9,215 -- 16,581
Inventories...................... 3,180 3,761 -- 6,941
Other current assets............. 1,288 2,132 (503)(4) 2,917
------------- ------------- -------- ---------
Total current assets........... 12,370 23,395 (1,503) 34,262
Purchased and capitalized software,
net.............................. -- 5,624 -- 5,624
Property and equipment, net........ 1,434 2,092 -- 3,526
Intangibles, net................... 17,125 5,833 -- 22,958
Other noncurrent assets............ -- 2,602 (1,596)(4) 1,006
------------- ------------- -------- ---------
$ 30,929 $ 39,546 $ (3,099) $ 67,376
------------- ------------- -------- ---------
------------- ------------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term borrowings............ $ 1,429 $ 1,880 $ -- $ 3,309
Accounts payable................. 4,281 2,750 -- 7,031
Accrued expenses................. 3,025 1,845 -- 4,870
Unearned revenue................. 2,263 5,565 -- 7,828
Current portion of long-term
obligations.................... 1,633 806 -- 2,439
------------- ------------- -------- ---------
Total current liabilities...... 12,631 12,846 -- 25,477
Long-term obligations.............. 3,098 1,160 -- 4,258
------------- ------------- -------- ---------
Total liabilities.............. 15,729 14,006 -- 29,735
Shareholders' equity:
Common stock..................... 130 41,395 94(5) 224
(41,395)(5)
Additional paid-in capital....... 33,356 -- 41,301(5) 74,657
Accumulated deficit.............. (18,286) (15,122) (3,099)(3)(4)(6) (36,507)
Treasury stock................... -- (156) -- (156)
Other............................ -- (577) -- (577)
------------- ------------- -------- ---------
Total shareholders' equity..... 15,200 25,540 (3,099) 37,641
------------- ------------- -------- ---------
$ 30,929 $ 39,546 $ (3,099) $ 67,376
------------- ------------- -------- ---------
------------- ------------- -------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
43
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ENCORE GROUP ELTRAX
ELTRAX ENCORE GROUP PRO FORMA ADJUSTED SULCUS PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS ELTRAX HISTORICAL(5) COMBINED
------------- ------------ -------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $37,908 $7,748 $-- $ 45,656 $44,539 $90,195
Cost of revenue.................... 28,555 4,070 -- 32,625 20,347 52,972
------------- ------ ------- --------- ------------- ---------
Gross profit....................... 9,353 3,678 -- 13,031 24,192 37,223
Operating expenses:
Selling, general and
administrative................. 9,354 2,451 -- 11,805 21,452 33,257
Research and development......... 87 799 -- 886 1,428 2,314
Depreciation and amortization.... 683 96 918(3) 1,697 1,352 3,049
------------- ------ ------- --------- ------------- ---------
Total operating expenses......... 10,124 3,346 918 14,388 24,232 38,620
------------- ------ ------- --------- ------------- ---------
Operating income (loss).......... (771) 332 (918) (1,357) (40) (1,397)
Dividend and interest income....... 33 33 -- 66 391 457
Interest expense................... (199) (35) (558)(4) (792) (110) (902)
------------- ------ ------- --------- ------------- ---------
Net income (loss)................ $ (937) $ 330 $(1,476) $ (2,083) $ 241 $(1,842)
------------- ------ ------- --------- ------------- ---------
------------- ------ ------- --------- ------------- ---------
Net loss per common share and
common share
equivalents--basic............... $ (0.09)
---------
---------
Weighted average shares
outstanding-- basic(6)........... 21,405
---------
---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
44
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELTRAX FOUR CORNERS HI-TECH DATACOMM ENCORE GROUP
HISTORICAL(1) HISTORICAL(2) HISTORICAL(3) HISTORICAL(4) HISTORICAL(5)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue....................... $ 49,934 $3,932 $3,742 $3,587 $10,508
Cost of revenue............... 41,329 3,092 2,653 2,260 4,200
------------- ------ ------ ------ -------------
Gross profit.................. 8,605 840 1,089 1,327 6,308
Operating expenses:
Selling, general and
administrative............ 12,075 843 1,110 1,273 3,139
Research and development.... -- -- -- -- 977
Depreciation and
amortization.............. 588 -- 62 12 125
Adjustment of Datatech
goodwill.................. 5,714 -- -- -- --
------------- ------ ------ ------ -------------
Total operating expenses.... 18,377 843 1,172 1,285 4,241
------------- ------ ------ ------ -------------
Operating income (loss)..... (9,772) (3) (83) 42 2,067
Dividend and interest income.. 93 -- -- 44 64
Interest expense.............. (337) (4) (18) -- (15)
------------- ------ ------ ------ -------------
Income (loss) before income
taxes..................... (10,016) (7) (101) 86 2,116
Income tax expense............ 1,316 -- -- -- --
------------- ------ ------ ------ -------------
Net income (loss)........... $(11,332) $ (7) $ (101) $ 86 $ 2,116
------------- ------ ------ ------ -------------
------------- ------ ------ ------ -------------
Net loss per common share and
common share
equivalents-basic...........
Weighted average shares
outstanding-basic(9)........
<CAPTION>
ELTRAX
PRO FORMA ADJUSTED SULCUS PRO FORMA
ADJUSTMENTS ELTRAX HISTORICAL(8) COMBINED
--------------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Revenue....................... $-- $ 71,703 $53,822 $125,525
Cost of revenue............... -- 53,534 24,840 78,374
------- -------- ------------- ---------
Gross profit.................. -- 18,169 28,982 47,151
Operating expenses:
Selling, general and
administrative............ -- 18,440 28,502 46,942
Research and development.... -- 977 1,501 2,478
Depreciation and
amortization.............. 1,534(6) 2,321 1,701 4,022
Adjustment of Datatech
goodwill.................. -- 5,714 -- 5,714
------- -------- ------------- ---------
Total operating expenses.... 1,534 27,452 31,704 59,156
------- -------- ------------- ---------
Operating income (loss)..... (1,534) (9,283) (2,722) (12,005)
Dividend and interest income.. -- 201 1,080 1,281
Interest expense.............. (837)(7) (1,211) (368) (1,579)
------- -------- ------------- ---------
Income (loss) before income
taxes..................... (2,371) (10,293) (2,010) (12,303)
Income tax expense............ -- 1,316 -- 1,316
------- -------- ------------- ---------
Net income (loss)........... $(2,371) $(11,609) $(2,010) $(13,619)
------- -------- ------------- ---------
------- -------- ------------- ---------
Net loss per common share and
common share
equivalents-basic........... $ (0.70)
---------
---------
Weighted average shares
outstanding-basic(9)........ 19,360
---------
---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
45
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELTRAX NINE ELTRAX THREE ELTRAX
MONTHS MONTHS ELTRAX SULCUS PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTED HISTORICAL(3) COMBINED
------------- ------------ -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue............................ $29,731 $4,918 $ 34,649 $50,805 $85,454
Cost of revenue.................... 24,710 3,926 28,636 23,354 51,990
------------- ------ -------- ------------- ---------
Gross Profit....................... 5,021 992 6,013 27,451 33,464
Operating expenses:
Selling, general and
administrative................. 5,634 880 6,514 23,847 30,361
Research and development......... -- -- -- 1,398 1,398
Depreciation and amortization.... 241 32 273 1,589 1,862
------------- ------ -------- ------------- ---------
Total operating expenses......... 5,875 912 6,787 26,834 33,621
------------- ------ -------- ------------- ---------
Operating income (loss).......... (854) 80 (774) 617 (157)
Dividend and interest income....... -- 19 19 1,349 1,368
Interest expense................... (5) -- (5) (571) (576)
------------- ------ -------- ------------- ---------
Net income (loss) from continuing
operations..................... $ (859) $ 99 $ (760) $ 1,395 $ 635
------------- ------ -------- ------------- ---------
------------- ------ -------- ------------- ---------
Net income from continuing
operations per common share and
common share equivalents:
Basic............................ $ 0.04
---------
---------
Diluted.......................... 0.04
---------
---------
Weighted average shares
outstanding(4):
Basic............................ 15,919
---------
---------
Diluted.......................... 16,907
---------
---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
46
<PAGE>
ELTRAX SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
A. CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1998
1. Represents the historical balance sheet of Eltrax as derived from the
unaudited financial statements filed on Form 10-Q for the period ended
September 30, 1998.
2. Represents the historical balance sheet of Sulcus as derived from the
unaudited financial statements filed on Form 10-Q for the period ended
September 30, 1998.
3. Represents the estimated fees and expenses to be incurred to complete
the Merger.
4. Represents an adjustment of the valuation reserve applied to Sulcus'
deferred tax assets to reflect limitations on the future recoverability
of these assets.
5. Represents the issuance of 9,387,813 shares of Eltrax common stock
issued in connection with the Merger of Sulcus. As of September 30, 1998
Sulcus had 17,068,751 shares outstanding multiplied by the exchange ratio
of 0.55 shares of Eltrax common stock for every share of Sulcus common
stock. This entry also eliminates the Sulcus common stock acquired by
Eltrax.
6. We estimate that costs of approximately $ will be incurred for
integration-related expenses, including the elimination of duplicate
facilities, organizational realignment and related workforce reductions.
We estimate that approximately $ of the integration-related costs
will be in the form of asset write-offs which will not require future
cash outlays. The balance, $ will require future cash outlays. The
Unaudited Pro Forma Condensed Combined Balance Sheet and the Unaudited
Pro Forma Condensed Combined Statements of Operations do not reflect the
impact of these charges as the estimates are preliminary and subject to
change. These costs will be charged to operations as a non-recurring
charge in the quarter in which the Merger occurs. The Unaudited Pro Forma
Condensed Combined Financial Statements do not reflect any synergies
expected to be realized after the Merger.
B. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
1. Represents the historical consolidated statement of operations of Eltrax
as derived from the unaudited financial statements filed on Form 10-Q for
the nine months ended September 30, 1998. These results include the
operations for the Encore Group only for the period subsequent to the
acquisition of the Encore Group on September 1, 1998.
2. Represents the historical combined statement of operations of the Encore
Group as derived from unaudited statements for the eight months ended
August 31, 1998.
3. Represents an adjustment associated with the amortization of intangible
assets reflecting the excess of the Eltrax purchase price over the Encore
Group book value on the acquisition date. Eltrax has not completed the
final allocation of the components of the intangible assets, which
consist principally of purchased software and goodwill. For purposes of
the pro forma statement of operations, the asset is being amortized on a
straight-line basis over the estimated average intangible life of eight
years.
4. Represents pro forma interest expense associated with $8,500,000 of debt
incurred to fund the cash component of the Encore Group purchase price.
5. Represents the historical consolidated statement of operations of Sulcus
as derived from unaudited statements filed on Form 10-Q for the nine
months ended September 30, 1998.
6. Represents the combination of the Eltrax weighted average shares
outstanding as filed on Form 10-Q for the period ended September 30, 1998
with the pro forma shares issued in connection
47
<PAGE>
with the Encore Group acquisition and the Sulcus weighted average shares
as filed on Form 10-Q for the period ended September 30, 1998 converted
to shares of Eltrax common stock using the 0.55 exchange ratio. Common
stock equivalents have been excluded from loss per share calculations as
their inclusion would be antidilutive.
C. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997
1. Represents the historical consolidated statement of operations of Eltrax
as derived from the audited financial statements filed on Form 10-KSB for
the year ended December 31, 1997.
2. Represents the unaudited historical statement of operations of Four
Corners for the 1997 period prior to the acquisition by Eltrax on July 1,
1997.
3. Represents the unaudited historical statement of operations of Hi-Tech
for the 1997 period prior to the acquisition by Eltrax on August 1, 1997.
4. Represents the unaudited historical statement of operations of DataComm
for the 1997 period prior to the acquisition by Eltrax on November 1,
1997.
5. Represents the historical combined statement of operations of the Encore
Group as derived from the audited financial statements for the year ended
December 31, 1997.
6. Represents an adjustment associated with the amortization of intangible
assets reflecting the excess of the Eltrax purchase price over the book
values of Four Corners, Hi-Tech, DataComm and the Encore Group on the
acquisition dates. Eltrax has not completed the final allocation of the
components of the Encore Group intangible assets, which consist
principally of purchased software and goodwill. For purposes of the pro
forma statement of operations, the intangible assets are being amortized
on a straight-line basis over the estimated average intangible life of
eight years for the Encore Group and fifteen years for the other
acquisitions.
7. Represents pro forma interest expense associated with $8,500,000 of debt
incurred to fund the cash component of the Encore Group purchase price.
8. Represents the historical consolidated statement of operations for
Sulcus as derived from the audited financial statements filed on Form
10-K/A for the year ended December 31, 1997.
9. Represents the combination of the Eltrax weighted average shares
outstanding as filed on Form 10-KSB for the period ended December 31,
1997 with the pro forma shares issued in connection with the acquisitions
and the Sulcus weighted average shares as filed on Form 10-K/A for the
period ended December 31, 1997 converted to shares of Eltrax common stock
using the 0.55 exchange ratio. Common stock equivalents have been
excluded from loss per share calculations as their inclusion would be
antidilutive.
D. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1996
1. Represents the historical consolidated statement of operations of Eltrax
as derived from the audited financial statements for the nine month
transition period ended December 31, 1996 as filed on Form 10-KSB for the
fiscal year ended December 31, 1997. In 1996, Eltrax changed the
Company's fiscal year end from March 31, to December 31, which resulted
in the nine month transition period.
2. Represents the unaudited historical consolidated statement of operations
of Eltrax for the quarter ended March 31, 1996.
3. Represents the historical consolidated statement of operations of Sulcus
as derived from the audited financial statements filed on Form 10-K for
the year ended December 31, 1996.
4. Represents the unaudited weighted share average of Eltrax at December
31, 1996 combined with the Sulcus weighted average shares as filed on
Form 10-K for the period ended December 31, 1996 converted to shares of
Eltrax common stock using the 0.55 exchange ratio.
48
<PAGE>
DESCRIPTION OF ELTRAX CAPITAL STOCK
THE STATEMENTS SET FORTH UNDER THIS HEADING WITH RESPECT TO THE MBCA,
ELTRAX'S AMENDED AND RESTATED ARTICLES OF INCORPORATION (THE "ELTRAX CHARTER")
AND ELTRAX'S RESTATED BYLAWS (THE "ELTRAX BYLAWS") ARE BRIEF SUMMARIES THEREOF
AND DO NOT PURPORT TO BE COMPLETE; SUCH STATEMENTS ARE SUBJECT TO THE DETAILED
PROVISIONS OF THE MBCA, THE ELTRAX CHARTER AND THE ELTRAX BYLAWS. SEE "WHERE YOU
CAN FIND MORE INFORMATION."
Under Eltrax's Charter, Eltrax's authorized capital stock consists of
50,000,000 shares of Eltrax common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share ("Eltrax Preferred
Stock"). The Eltrax Board has designated 30,000 shares of such preferred stock
as "Preferred Series A," but no shares of such series are presently outstanding.
ELTRAX COMMON STOCK
There were shares of Eltrax common stock issued and outstanding as
of , 1999. In addition, Eltrax has reserved a total of
shares of Eltrax common stock for issuance upon exercise of warrants and options
granted or to be granted under Eltrax's stock option plans.
The holders of Eltrax common stock: (a) have equal ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Eltrax Board; (b) are entitled to share ratably in all of the assets of Eltrax
available for distribution to holders of Eltrax common stock upon liquidation,
dissolution or winding up of the affairs of Eltrax; (c) do not have preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions applicable thereto; and (d) are entitled to one vote per share on all
matters which shareholders may vote on at all meetings of shareholders. All
shares of Eltrax common stock now outstanding are fully paid and nonassessable.
The holders of Eltrax common stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares voting
for the election of directors can elect all of the directors of Eltrax to be
elected, if they so choose. In such event, the holders of the remaining shares
will not be able to elect any of Eltrax's directors.
ELTRAX PREFERRED STOCK
The Eltrax Board is authorized, without further shareholder action, to issue
preferred stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, repurchase rights, conversion rights, redemption
rights and terms, including sinking fund provisions, and certain other rights
and preferences, of the preferred stock. Although there is no current intention
to do so, the Eltrax Board may, without shareholder approval, issue shares of a
class or series of preferred stock with voting and conversion rights which could
adversely affect the voting power of the holders of Eltrax common stock and may
have the effect of delaying, deferring or preventing a change in control of
Eltrax.
MINNESOTA BUSINESS CORPORATION ACT
Section 302A.671 of the MBCA applies, with certain exceptions, to any
acquisition of voting stock of Eltrax (from a person other than Eltrax, and
other than in connection with certain mergers and exchanges to which Eltrax is a
party) resulting in the beneficial ownership of 20% or more of the voting stock
then outstanding. Section 302A.671 requires approval of any such acquisitions by
a majority vote of the shareholders of Eltrax prior to its consummation. In
general, shares acquired in the absence of such approval are denied voting
rights and are redeemable at their then fair market value by Eltrax within 30
days after the acquiring person has failed to give a timely information
statement to Eltrax or the date the shareholders voted not to grant voting
rights to the acquiring person's shares.
Section 302A.673 of the MBCA generally prohibits any business combination by
Eltrax, or any subsidiary of Eltrax, with any shareholder which purchases 10% or
more of Eltrax's voting shares (an "interested shareholder") within four years
following such interested shareholder's share acquisition date,
49
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unless the business combination is approved by a committee of all of the
disinterested members of the Eltrax Board before the interested shareholder's
share acquisition date.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to Eltrax common stock is
Boston EquiServe.
COMPARISON OF THE RIGHTS OF HOLDERS OF
ELTRAX COMMON STOCK AND SULCUS COMMON STOCK
THE STATEMENTS SET FORTH UNDER THIS HEADING WITH RESPECT TO THE MBCA, THE
PBCA, THE ELTRAX CHARTER, THE ELTRAX BYLAWS, THE AMENDED AND RESTATED ARTICLES
OF INCORPORATION OF SULCUS, AS AMENDED (THE "SULCUS CHARTER"), THE AMENDED AND
RESTATED BYLAWS OF SULCUS (THE "SULCUS BYLAWS") AND THE SULCUS RIGHTS AGREEMENT
ARE BRIEF SUMMARIES THEREOF AND DO NOT PURPORT TO BE COMPLETE; SUCH STATEMENTS
ARE SUBJECT TO THE DETAILED PROVISIONS OF SUCH STATUTES, ORGANIZATIONAL
DOCUMENTS AND OTHER AGREEMENTS. SEE "WHERE YOU CAN FIND MORE INFORMATION."
The following summary compares certain rights of the holders of Sulcus
common stock to the rights of the holders of Eltrax common stock. The rights of
Sulcus shareholders are governed principally by the PBCA, the Sulcus Charter,
the Sulcus Bylaws and the Sulcus Rights Agreement. Upon consummation of the
Merger, Sulcus shareholders will become holders of Eltrax common stock, and
their rights will be governed principally by the MBCA, the Eltrax Charter and
the Eltrax Bylaws.
AUTHORIZED CAPITAL STOCK
ELTRAX. The Eltrax Charter provides for the authorization and issuance of
50,000,000 shares of Eltrax common stock, par value $.01 per share, and
1,000,000 shares of Eltrax preferred stock, par value $.01 per share. The Eltrax
Board is authorized by the Eltrax Charter to establish and fix the voting
rights, liquidation preferences, dividend rights, conversion rights, redemption
rights and other terms of the preferred stock. The Eltrax Board can, without
shareholder approval, issue shares of such preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Eltrax common stock and may have the effect of delaying, deferring or
preventing a change in control of Eltrax. The Eltrax Board has designated 30,000
shares of such preferred stock as "Preferred Stock Series A", but no shares of
such series are presently outstanding.
SULCUS. The Sulcus Charter provides for the authorization and issuance of
30,000,000 shares of Sulcus common stock, no par value per share, and 10,000,000
shares of Sulcus preferred stock, no par value per share, of which 8,000,000
shares are designated as Series A Redeemable Convertible Preferred Stock (the
"Series A Preferred Stock") and 300,000 shares are designated as Series B Junior
Participating Preferred Stock (the "Series B Preferred Stock"). No shares of
either Series A Preferred Stock or Series B Preferred Stock are presently
outstanding.
VOTING RIGHTS.
ELTRAX. The Eltrax Charter and Eltrax Bylaws provide that holders of Eltrax
common stock are entitled to one vote for each share held. The Eltrax Charter
provides that shares of Preferred Stock Series A will have no voting rights,
except as provided under the MBCA.
SULCUS. The Sulcus Charter provides that holders of Sulcus common stock are
entitled to one vote for each share held.
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BOARD OF DIRECTORS
ELECTION OF DIRECTORS; CUMULATIVE VOTING.
ELTRAX. The Eltrax Bylaws provide that directors shall be elected by a
plurality of the votes cast. The Eltrax Charter does not permit cumulative
voting.
SULCUS. The Sulcus Bylaws provide that directors shall be elected by a
plurality of the votes cast. The PBCA prohibits cumulative voting in the
election of directors.
NUMBER OF DIRECTORS
ELTRAX. The MBCA provides that the Board of Directors of a Minnesota
corporation shall consist of one or more directors as fixed by the Articles of
Incorporation or Bylaws. The Eltrax Bylaws provide that the Board of Directors
shall consist of not less than one and no more than eight natural persons. The
Eltrax Board currently consists of eight persons. Directors need not be
shareholders of Eltrax.
SULCUS. The PBCA provides that the Board of Directors of a Pennsylvania
corporation shall consist of one or more members as provided in the Bylaws. If
not so provided, the number of directors shall be the same as that stated in the
Articles of Incorporation or three, if no number is so stated. The Sulcus Bylaws
and the Sulcus Charter provide that the number of directors shall not be less
than one (1) nor more than seven (7) and will otherwise be fixed from time to
time exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (without regard to whether
there are any vacancies on the Board or not). The Sulcus Bylaws also provide
that the directors should be divided into three classes, as nearly equal in
number as possible, with one class of directors' term expiring at each annual
meeting of shareholders. The Sulcus Board currently consists of two directors in
each of the three classes.
REMOVAL OF DIRECTORS; FILLING VACANCIES.
ELTRAX. The Eltrax Bylaws provide that any and all of the directors may be
removed as provided in the MBCA. The MBCA provides that a director may be
removed at any time, with or without cause, if: (a) the director was named by
the Board of Directors to fill a vacancy; (b) the shareholders have not elected
directors in the interval between the time of appointment to fill a vacancy and
the time of the removal; and (c) a majority of the remaining directors present
affirmatively vote to remove the director. Any one or all of the directors may
be removed at any time, with or without cause, by the affirmative vote of the
holders of the proportion of voting power or number of shares that was
sufficient to elect such director.
The Eltrax Bylaws also provide that the directors can fill a vacancy on the
Eltrax Board by the affirmative vote of a majority of the remaining directors,
even though such vote may come from less than a quorum. Vacancies on the Board
of Directors resulting from newly created directorships may be filled by the
affirmative vote of a majority of directors serving at the time of the increase.
SULCUS. The Sulcus Bylaws provide that, subject to the rights of the
holders of any class or series of the voting stock then outstanding, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of all of the then outstanding shares of voting
stock, voting together as a single class.
The Sulcus Bylaws and the Sulcus Charter provide that vacancies on the
Sulcus Board (resulting from an increase in the authorized number of directors
or from death, resignation, retirement, disqualification, removal or other
cause) may only be filled by a majority vote of the directors then in office,
even though less than a quorum.
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INDEMNIFICATION.
The MBCA and the PBCA both contain provisions setting forth conditions under
which a corporation may indemnify its directors, officers, employees and other
persons. While indemnification is permitted only if certain statutory standards
of conduct are met, the MBCA and the PBCA are substantially similar in providing
for indemnification if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. The statutes differ,
however, with respect to whether indemnification is permissive or mandatory,
whether there is a distinction between third-party actions and actions by or in
the right of the corporation, and whether, and to what extent, reimbursement of
judgments, fines, settlements and expenses is allowed.
Indemnification of officers, directors and employees is mandatory under the
MBCA, provided however, the articles or bylaws can prohibit indemnification if
the prohibition applies equally to all persons or to all persons within a given
class. Indemnification of any representative of the corporation is permissive
under the PBCA. The one exception to the PBCA's permissive indemnification rule
is that a corporation must indemnify any person who is successful on the merits
or otherwise in the defense of certain specified actions, suits or proceedings
for expenses (including attorneys' fees) actually and reasonably incurred in
connection therewith.
The PBCA, unlike the MBCA, differentiates between third-party actions and
claims by or in the right of the corporation (i.e. shareholder derivative
suits). While the MBCA makes no distinction between third-party actions and
shareholder derivative suits and requires indemnification in either case if the
relevant statutory standard of conduct is met, indemnification under the PBCA
varies depending on whether the action is brought by a third-party or by
shareholders in a derivative suit. The PBCA allows indemnification of judgments,
settlements and expenses for a third-party action. However, the PBCA does not
permit indemnification in a shareholder derivative suit if the person is found
liable to the corporation unless, and only to the extent that, the appropriate
court determines that, despite the finding of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for those expenses that the court deems proper. The advancement of
expenses is permissive under the PBCA but mandatory under the MBCA.
The Eltrax Bylaws provide that Eltrax will indemnify and make advances of
reasonable expenses to each current and former director and officer of the
corporation, as provided under the MBCA. However, it also provides that the
corporation will not indemnify or make advances of expenses to any other persons
entitled to such benefits under the MBCA, by reason of being a present or former
agent of the company or otherwise. Nothing in the Eltrax Bylaws prohibits the
corporation from purchasing insurance on behalf of any person in that person's
official capacity, even though the corporation would not be required to
indemnify such person.
The Sulcus Bylaws provide that Sulcus will indemnify current and former
officers and directors to the fullest extent permitted by the PBCA. Therefore,
even though the PBCA will allow indemnification for any representative of the
company, Sulcus' Bylaws limit indemnification to current and former officers and
directors. Further, the Sulcus Bylaws require advancement of expenses to such
current and former officers and directors upon receipt of an undertaking to
repay such amount to the extent it shall ultimately be determined that such
person is not entitled to be indemnified by the company or, in the case of a
criminal action, a majority of the Sulcus Board so determines.
Finally, the MBCA requires that a corporation report any indemnification
payments to its shareholders no later than the next meeting of the shareholders.
The PBCA does not contain a similar provision.
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LIABILITY.
ELTRAX. The MBCA provides that a corporation may include, in its bylaws, a
provision which limits or eliminates the personal liability of a director to the
corporation and its shareholders for monetary damages for such person's conduct
as a director provided that such provision may not limit a director's liability
where (i) the director has breached or failed to perform the duties of his
office; and (ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness. The Eltrax Charter expressly limits the
personal liability of directors to the fullest extent permitted under the MBCA.
SULCUS. The PBCA allows for similar provisions limiting the liability for
directors as described in the immediately preceding paragraph, however, such
provisions shall not eliminate or limit the liability of directors for (i) any
breach of the director's duty of loyalty to the corporation or its shareholders;
(ii) any act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law; (iii) any transaction from which the
director derived an improper personal benefit; (iv) any act or omission
occurring prior to the date when the provision limiting liability becomes
effective; or (v) making an unlawful distribution to shareholders provided such
director is present at the meeting where such distribution is approved and fails
to vote against it, or consents in writing to such distribution. The Sulcus
Bylaws expressly limit the personal liability of directors to the fullest extent
permitted under the PBCA.
REPURCHASE AND THE REDEMPTION OF SHARES
The MBCA provides that a corporation may redeem or repurchase any of its
shares for cash, or other property including debt securities, except when the
corporation is unable to pay its debts in the ordinary course of business after
making the distribution.
The PBCA provides that a corporation may redeem or repurchase any of its
shares for cash, or other property, including debt securities, except when the
corporation is unable to pay its debts as they become due in the ordinary course
of business, or the total assets of the corporation would be less than the sum
of its total liabilities plus (unless otherwise stated in the Articles of
Incorporation) the amount that would be needed, if the corporation were to be
dissolved at the time the distribution is to be made, to satisfy any
shareholder's preferential rights upon dissolution.
PAYMENT OF DIVIDENDS TO SHAREHOLDERS
ELTRAX. The MBCA provides that a corporation may declare and pay dividends
upon its shares of capital stock only if the corporation will be able to pay its
debts in the ordinary course of business after the dividend has been
distributed. Moreover, a distribution may be made to the holders of a class or
series of shares only if: (i) all amounts payable to the holders of shares
having a preference for the payment of that kind of distribution, other than
those holders who give notice to the corporation of their agreement to waive
their rights to that payment, are paid; and (ii) the payment of the dividend
does not reduce the remaining net assets of the corporation below the aggregate
preferential amount payable in the event of liquidation to the holders in the
order and to the extent of their respective priorities or the holders of shares
who do not receive distributions in that order give notice to the corporation of
their agreement to waive their rights to that distribution.
The Eltrax Charter provides that the holders of shares of common stock and
preferred stock are entitled to receive cash dividends when, as, and if declared
by the Eltrax Board out of funds legally available therefor. However, the
corporation shall not at any time, so long as any shares of preferred stock are
issued and outstanding, declare a cash dividend payable with respect to any
class of capital stock of the corporation without concurrently declaring a cash
dividend payable with respect to the preferred stock. Further, in the event the
Board of Directors of the corporation declares a cash dividend payable with
respect to any class of capital stock of the corporation, the preferred stock,
as a class, shall be entitled to receive an aggregate cash dividend in an amount
to be determined by the Board of Directors of the
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corporation at the time of declaration of the cash dividend, but which shall at
least equal the aggregate cash dividend to be paid by the corporation with
respect to any other class of its capital stock.
SULCUS. The PBCA provides that a corporation, subject to any restrictions
in its bylaws or articles of incorporation, may declare and pay dividends upon
its shares of capital stock except when the corporation would be unable to pay
its debts when they become due in the ordinary course of business or the total
assets of the corporation would be less than the sum of its liabilities plus
(unless otherwise provided in the articles of incorporation) the amount that
would be needed, if the corporation were to be dissolved at the time the
distribution is to be made, to satisfy any shareholder's preferential rights
upon dissolution. Generally, the Series A Preferred Stock is entitled to receive
dividends, when, as and if and only to the same extent as declared on the common
stock. However, the Series B Preferred Stock is entitled to receive, when, as
and if declared by the Board of Directors out of the funds legally available for
the purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) one dollar or (b) subject to
adjustment, 100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions. Dividends on the Series B Preferred Stock will
accrue and be cumulative on each payment date, but are junior in rank, with
respect to payment, to all other series of Sulcus Preferred Stock, including the
Series A Preferred Stock.
PREEMPTIVE RIGHTS
ELTRAX. The MBCA provides that unless limited by the corporation's articles
or the board of directors, shareholders have preemptive rights if the
corporation proposes to issue new or additional shares or rights to purchase
shares of the same series or class as those held by the shareholder or new or
additional securities that are exchangeable for, convertible into, or carry a
right to acquire new or additional shares of the same series or class as those
held by the shareholder. The Eltrax Charter provides that shareholders shall not
have any preemptive rights.
SULCUS. The PBCA provides that no shareholder of a Pennsylvania corporation
shall have any preemptive right to subscribe to an additional issuance of stock
or to any security convertible into such stock unless such right is expressly
granted in the Articles of Incorporation. The Sulcus Charter does not expressly
grant shareholders any preemptive rights.
AMENDMENTS TO ARTICLES OF INCORPORATION
ELTRAX. The MBCA provides that an amendment to a corporation's articles of
incorporation must be proposed by a resolution approved by the affirmative vote
of a majority of the directors present or proposed by a shareholder or
shareholders holding 3% or more of the voting shares entitled to vote thereon.
Under the MBCA, any such amendment must be approved by the affirmative vote of a
majority of the shareholders entitled to vote thereon, except that the articles
of incorporation may provide for a specified proportion or number larger than a
majority vote.
SULCUS. The PBCA provides that an amendment to a corporation's articles of
incorporation must be proposed by adoption by the board of directors of a
resolution setting forth the proposed amendment or proposed by a shareholder or
shareholders holding 10% or more of the voting shares entitled to vote thereon.
Under the PBCA, any such amendment must be approved by the affirmative vote of a
majority of the shareholders entitled to vote thereon, except that the articles
of incorporation may provide for a specified proportion or number larger than a
majority vote. The Sulcus Charter provides that the Articles of Incorporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series B Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series B Preferred Stock, voting
together as a single class. The Sulcus Charter also provides that at least
two-thirds of the Series A
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Preferred Stock, voting as a class, must approve an adverse alteration or change
to any powers, preferences or rights of Series A Preferred Stock.
The Sulcus Charter also provides that the affirmative vote of at least 80%
of the voting power of all the then outstanding shares of voting stock, voting
together as a single class, is required to alter, amend or repeal certain
provisions of the Sulcus Charter related to removal of directors and actions by
shareholders.
AMENDMENTS TO BYLAWS
ELTRAX. Under the MBCA, shareholders holding 3% or more of the voting power
of the outstanding shares may propose a resolution to adopt, amend or repeal the
bylaws adopted, amended or repealed by a board of directors, which resolution
must be approved by the affirmative vote of the holders of a majority of the
shares entitled to vote thereon. The Eltrax Bylaws and Eltrax Charter provide
that the power to adopt, amend, or repeal the Eltrax Bylaws is vested in the
Eltrax Board, subject to the power of the shareholders described in the
preceding sentence. However, such power is also limited in that the Eltrax Board
cannot amend or repeal a Bylaw provision fixing a quorum for shareholder
meetings, prescribing procedures for removing directors or filling vacancies on
the board, or fixing the number of directors or their classifications,
qualifications or terms of office, but may increase the number of directors.
SULCUS. Under the PBCA, the shareholders shall have the power to adopt,
amend and repeal the bylaws. However, the authority to adopt, amend and repeal
the bylaws may be, and pursuant to the Sulcus Bylaws is, expressly vested in the
board of directors, subject to the power of shareholders to change such action.
CHANGE OF CONTROL PROVISIONS
ELTRAX. The MBCA prohibits certain business combinations (as defined in the
MBCA) between a Minnesota corporation that has shares registered under the
Exchange Act and an "Interested shareholder" unless certain conditions are
satisfied or an exemption is applicable. An "Interested shareholder" is
generally defined to include a person who beneficially owns at least 20% of the
votes that shareholders would be entitled to cast in an election of directors of
the corporation. Neither the Eltrax Charter nor the Eltrax Bylaws have any
specific change of control provisions. However, the ability of Eltrax's Board to
issue and set the terms of Eltrax preferred stock could have the effect of
making it more difficult for a third person to acquire, or of discouraging a
third person from attempting to acquire, control of Eltrax.
SULCUS. The PBCA contains similar provisions prohibiting certain business
combinations between a Pennsylvania public corporation and an interested
shareholder that occur within five years of the time that such stockholder
became an "Interested shareholder" unless certain conditions are satisfied. An
"Interested shareholder" is generally defined to include a person who
beneficially owns at least 20% of the voting stock of the corporation. Neither
the Sulcus Charter nor the Sulcus Bylaws have any specific change of control
provisions.
Pursuant to the Sulcus Rights Agreement, each share of Sulcus common stock
includes an associated right to purchase one one-hundredth of a share of Series
B Preferred Stock for $50.00 per share. In the event any person becomes an
Acquiring Person (as defined in the Sulcus Rights Agreement), each right (except
any rights held by the Acquiring Person) becomes exercisable and entitles the
holder to purchase that number of shares of Sulcus common stock which, at the
time the person becomes an Acquiring Person, had a market value of two times the
exercise price of the rights.
The Sulcus Rights Agreement, as well as the ability of the Sulcus' Board to
issue and set the terms of its preferred stock, could have the effect of making
it more difficult for a third person to acquire, or of discouraging a third
person from attempting to acquire, control of Sulcus.
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SPECIAL MEETING OF SHAREHOLDERS
ELTRAX. The MBCA provides that special meetings of the shareholders may be
called for any purpose or purposes by the chief executive officer, the chief
financial officer, two or more directors, a person authorized in the articles of
incorporation or bylaws to call special meetings and by a shareholder or
shareholders holding 10% or more of the voting power of all shares entitled to
vote, except that a special meeting for the purpose of considering any action to
directly or indirectly facilitate or effect a business combination, including
any action to change or otherwise affect the composition of the board of
directors for that purpose, must be called by 25% or more of the voting power of
all shares entitled to vote. The Eltrax Bylaws provide that special meetings of
the shareholders may be called and shall be held as permitted by the MBCA, as
amended from time to time. The business transacted at such special meeting shall
be limited to the purposes stated in the notice of the meeting.
SULCUS. The PBCA provides that special meetings of shareholders may be
called at any time by the board of directors, unless otherwise provided in the
articles of incorporation, by shareholders entitled to cast at least 20% of the
votes entitled to be cast at the particular meeting and by such officers or
persons as may be provided in the bylaws. However, since Sulcus is a "registered
corporation", shareholders are not entitled to call a special meeting of
shareholders. The Sulcus Charter and Sulcus Bylaws provide that special meetings
of shareholders may be called only by the Sulcus Board pursuant to a resolution
adopted by a majority of the total number of authorized directors, without
regard to any vacancies on the Sulcus Board.
SHAREHOLDER CONSENT TO ACTION WITHOUT A MEETING
ELTRAX. The MBCA and the Eltrax Bylaws provide that an action required or
permitted to be taken at a meeting may be taken without a meeting by written
action signed by all the shareholders entitled to vote on that action. The
written action is effective when it is signed by all of the shareholders, unless
a different effective time is provided in the written action.
SULCUS. The PBCA provides that unless otherwise restricted in the bylaws,
any action required or permitted to be taken at a meeting of the shareholders
may be taken without a meeting if, prior or subsequent to the action, a consent
or consents thereto signed by all the shareholders who would be entitled to vote
at a meeting for such purpose shall be filed with the Secretary of the
corporation. The Sulcus Charter and Sulcus Bylaws provide that any action to be
taken by the shareholders of Sulcus must be effected at an annual or special
meeting of shareholders and may not be effected by any consent in writing by
such shareholders.
LIQUIDATION RIGHTS
Generally, under both the MBCA and PBCA, a corporation may create one or
more series of stock with such preferences as shall be stated and expressed in
the articles of incorporation or in the resolution adopted by the board of
directors providing for the issuance of such stock pursuant to authority
expressly vested in the board of directors by the provisions of the company's
articles of incorporation. These preferences may include a priority on the
distribution of assets in liquidation.
ELTRAX. The Eltrax Charter provides that, in the event of any involuntary
or voluntary liquidation, the holders of shares of preferred stock will be
entitled to receive out of the assets of Eltrax an amount equal to $7.50 per
share. If, upon any liquidation or dissolution of Eltrax, assets available for
distribution shall be insufficient to pay the holders of all outstanding shares
of preferred stock the full amounts they are entitled, the holders of such
shares shall share pro rata in any such distribution.
SULCUS. The Sulcus Charter provides that, upon liquidation, dissolution or
winding up of Sulcus, no distribution shall be made (1) to the holders of shares
of stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series B Preferred Stock unless, prior thereto, the
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holders of Series B Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, provided that the holders of
shares of Series B Preferred Stock shall be entitled to receive an aggregate
amount per share, subject to an adjustment, equal to 100 times the aggregate
amount to be distributed per share to holders of common stock, or (2) to the
holders of shares of stock on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Stock,
except distributions made ratably on the Series B Preferred Stock and all such
parity stock in proportion to the amounts to which the holders of all such
shares are entitled upon liquidation, dissolution or winding up. Shares of
Series B Preferred Stock rank, with respect to the payment of dividends and
distribution of assets, junior to all other series of Sulcus Preferred Stock,
including the Series A Preferred Stock.
The Sulcus Charter also provides that, upon any voluntary or involuntary
liquidation, dissolution or winding up of Sulcus, holders of Series A Preferred
Stock are entitled to receive, before any distribution is made to the holders of
common stock or any other junior capital stock, an amount equal to $3.00 per
share. If such preferential amount cannot be paid in full, then the holders of
Series A Preferred Stock will share with the holders of any shares of capital
stock ranking upon a liquidation, dissolution or winding up on a parity with the
Series A Preferred Stock, ratably in any distribution in proportion to the full
preferential amounts to which they are entitled.
DISSENTERS RIGHTS
Under both the MBCA and the PBCA, shareholders may exercise a right to
dissent from certain corporate actions and obtain payment of the fair value of
their shares. This remedy is an exclusive remedy except where the corporate
action involves fraud or illegality. Appraisal rights are available under both
the MBCA and the PBCA. However, the PBCA provides that if the corporation's
stock is listed on a national securities exchange (such as AMEX) or held of
record by more than 2,000 shareholders, such shareholders shall not have the
right to obtain payment of the fair value of such shares.
PROPOSAL TO AMEND ELTRAX 1998 STOCK INCENTIVE PLAN
In November, 1998, the Eltrax Board adopted an amendment to increase by
1,500,000 the number of shares of Eltrax common stock that may be issued under
the 1998 Stock Incentive Plan (the "1998 Plan") in order to provide for the
conversion of Sulcus stock options into Eltrax stock options in accordance with
the terms of the Merger Agreement (the "Plan Amendment"). The sole purpose of
the Plan Amendment is to facilitate the conversion of Sulcus stock options into
Eltrax stock options as required by the Merger Agreement. Consequently, the Plan
Amendment (even if approved by Eltrax's shareholders) will not become effective
unless the Merger is consummated. Consummation of the Merger is conditioned upon
Eltrax's shareholders approval of the Plan Amendment. The shareholders of Sulcus
will not vote on the Plan Amendment.
The Eltrax Board is requesting that Eltrax shareholders approve the Plan
Amendment at the Eltrax Special Meeting.
THE PURPOSE OF THE PLAN AMENDMENT IS TO INCREASE THE NUMBER OF SHARES OF
ELTRAX COMMON STOCK THAT MAY BE ISSUED UNDER THE 1998 PLAN IN ORDER TO
FACILITATE THE CONVERSION OF SULCUS STOCK OPTIONS INTO ELTRAX STOCK OPTIONS IN
ACCORDANCE WITH THE MERGER AGREEMENT.
The key features of the 1998 Plan are summarized below, which summary is
qualified in its entirety by reference to the full text of the 1998 Plan, as
amended, a copy of which may be obtained from Eltrax.
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GENERAL
On February 9, 1998, the Eltrax Board approved the 1998 Plan and the
shareholders of Eltrax approved the 1998 Plan on May 19, 1998. The purpose of
the 1998 Plan is to advance the interests of Eltrax and its subsidiaries and
shareholders by enabling Eltrax and its subsidiaries (i) to attract and retain
persons of ability to perform services for Eltrax and its subsidiaries by
providing an incentive to such individuals through equity participation in
Eltrax and by rewarding such individuals who contribute to the achievement by
Eltrax of its economic objectives; and (ii) to pursue its growth strategy by
providing a means for Eltrax to provide an incentive through equity
participation in Eltrax in the form of stock options or other incentive awards
to key employees of newly acquired companies.
SUMMARY OF THE 1998 PLAN
GENERAL. The 1998 Plan provides for the grant to participating eligible
recipients of Eltrax and its subsidiaries ("Participants") of (i) options to
purchase shares of Eltrax common stock that qualify as "incentive stock options"
("Incentive Options"), within the meaning of Section 422 of the Code; (ii)
options to purchase shares of Eltrax common stock that do not qualify as
Incentive Options ("Non-Qualified Options"); (iii) awards of shares of Eltrax
common stock that are subject to certain forfeiture and transferability
restrictions that lapse after specified periods of time or upon certain events
("Restricted Stock Awards"); and (iv) awards of shares of Eltrax common stock
("Stock Bonuses"). Incentive Options and Non-Qualified Options are collectively
referred to herein as "Options," and Options, Restricted Stock Awards, and Stock
Bonuses are collectively referred to herein as "Incentive Awards."
The 1998 Plan will be administered by the Compensation Committee of the
Board of Directors of Eltrax (the "Committee"). In accordance with, and subject
to the provisions of, the 1998 Plan, the Committee will have the authority to
determine all provisions of Incentive Awards as the Committee may deem necessary
or desirable and as consistent with the terms of the 1998 Plan, including
without limitation, (i) the recipients to be granted Incentive Awards under the
1998 Plan; (ii) the nature and extent of the Incentive Awards to be made to each
Participant; (iii) the time or times when Incentive Awards will be granted; (iv)
the duration of each Incentive Award; and (v) the restrictions and other
conditions to which the payment or vesting of Incentive Awards may be subject.
In addition, the Committee will have the authority in its sole discretion to pay
the economic value of any Incentive Award in the form of cash, Eltrax common
stock or any combination of both.
The Committee will have the authority under the 1998 Plan to amend or modify
the terms of any outstanding Incentive Award in any manner, including, without
limitation, the authority to modify the number of shares or other terms and
conditions of an Incentive Award, extend the term of an Incentive Award,
accelerate the exercisability or vesting or otherwise terminate any restrictions
relating to an Incentive Award, accept the surrender of any outstanding
Incentive Award or, to the extent not previously exercised or vested, authorize
the grant of new Incentive Awards in substitution for surrendered Incentive
Awards; provided, however that the amended or modified terms are permitted by
the 1998 Plan as then in effect and that any Participant adversely affected by
such amended or modified terms has consented to such amendment or modification.
In the event of any reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split, combination of
shares, rights offering, divestiture or extraordinary dividend (including a
spin-off) or any other change in the corporate structure or shares of Eltrax,
the Committee (or, if Eltrax is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) will make
appropriate adjustments to the number and kind of securities or other property
(including cash) available for issuance or payment under the 1998 Plan and, in
order to prevent dilution or enlargement of the rights of Participants, (i) the
number and kind of securities or other property (including cash) subject to
outstanding Options, and (ii) the exercise price of outstanding Options.
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All employees (including, without limitation, officers and directors who are
also employees), non-employee directors, consultants and independent contractors
of Eltrax or any subsidiary of Eltrax, who, in the judgment of the Committee,
have contributed, are contributing or are expected to contribute to the
achievement of economic objectives of Eltrax and its subsidiaries will be
eligible to participate in the 1998 Plan. As of November 30, 1998, there were
approximately 300 eligible participants under the 1998 Plan. As a holder of
Incentive Awards (other than Restricted Stock Awards and Stock Bonuses), a
Participant will have no rights as a shareholder with respect to the shares of
Eltrax common stock underlying such Incentive Awards unless and until such
Incentive Awards are exercised for, or paid in the form of, shares of Eltrax
common stock and the Participant becomes the holder of record of such shares. No
right or interest of any Participant in an Incentive Award may be assigned or
transferred, except pursuant to testamentary will or the laws of descent and
distribution or as otherwise expressly permitted by the 1998 Plan, or subjected
to any lien or otherwise encumbered during the lifetime of the Participant,
either voluntarily or involuntarily, directly or indirectly, by operation of law
or otherwise, unless approved by the Committee in its sole discretion.
Currently, up to 1,000,000 shares of Eltrax common stock may be issued under
the 1998 Plan (which will be increased to 2,500,000 shares of Eltrax common
stock if the Plan Amendment is approved by the shareholders of Eltrax). No
Participant in the Plan may be granted any Options, or any other Incentive
Awards with a value based solely on an increase in the value of Eltrax common
stock after the date of grant, relating to more than 200,000 shares of Eltrax
common stock in the aggregate in any fiscal year of Eltrax (subject to
adjustment as provided in the 1998 Plan); provided, however, that a Participant
who is first appointed or elected as an officer, hired as an employee or
retained as a consultant by Eltrax or who receives a promotion that results in
an increase in responsibilities or duties may be granted, during the fiscal year
of such appointment, election, hiring, retention or promotion, Options or such
other Incentive Awards relating to up to 300,000 shares of Eltrax common stock
(subject to adjustment as provided in the 1998 Plan).
The 1998 Plan will terminate at midnight on May 19, 2007, unless terminated
earlier by action of the Eltrax Board. The Eltrax Board may suspend or terminate
the 1998 Plan or any portion thereof at any time, and may amend the 1998 Plan in
any respect without shareholder approval, unless shareholder approval is then
required by federal securities or tax laws or the rules of Nasdaq. No Incentive
Award will be granted after termination of the 1998 Plan. Incentive Awards
outstanding upon termination of the 1998 Plan may continue to be exercised, or
become free of restrictions, in accordance with their terms.
OPTIONS. The terms and conditions of any Option granted under the 1998
Plan, including whether the Option is to be considered an Incentive Option or a
Non-Qualified Option, will be determined by the Committee, subject to certain
requirements contained in the 1998 Plan. To the extent, however, that any
Incentive Option granted under the 1998 Plan ceases for any reason to qualify as
an Incentive Stock Option under the Code, such Incentive Option will continue to
be outstanding for purposes of the 1998 Plan but will thereafter be deemed to be
a Non-Qualified Option. The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its discretion at
the time of the Option grant; provided, however, that (a) the exercise price for
Incentive Options must be equal to the fair market value of one share of Eltrax
common stock on the date of grant and 110% of the fair market value if, at the
time the Incentive Option is granted, the Participant owns, directly or
indirectly, more than 10% of the total combined voting power of all classes of
stock of Eltrax or any parent or subsidiary corporation of Eltrax; and (b) the
exercise price for Non-Qualified Options must not be less than 85% of the fair
market value of one share of Eltrax common stock on the date of grant. The fair
market value of Eltrax's common stock is equal to the closing bid price, as
reported by the Nasdaq SmallCap Market as of the date of grant (or, if no shares
were traded or quoted on such date, as of the next preceding date on which there
was such a trade or quote).
An Option will become exercisable at such times and in such installments as
may be determined by the Committee in its sole discretion at the time of grant;
provided, however, that no Option may be exercisable
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after 10 years from its date of grant. For Incentive Options, the aggregate fair
market value (determined as of the time the Incentive Option is granted) of
shares of Eltrax common stock with respect to which Incentive Options become
exercisable for the first time by the Participant under the 1998 Plan during any
calendar year may not exceed $100,000.
Payment of an Option exercise price must be made entirely in cash unless the
Committee, in its sole discretion and upon terms and conditions established by
the Committee, allows such payments to be made, in whole or in part, (i) by
tender of a written notice pursuant to which a Participant irrevocably instructs
a broker or dealer to sell a sufficient number of shares of Eltrax common stock
or loan a sufficient amount of money to pay all or a portion of the exercise
price of the Option and/or any related withholding tax obligations and remit
such sums to Eltrax and directs Eltrax to deliver stock certificates to be
issued upon such exercise directly to such broker or dealer; (ii) by tender of
shares of Eltrax common stock that are already owned by the Participant or, with
respect to any Incentive Award, that are to be issued upon the grant, exercise
or vesting of such Incentive Award; (iii) by execution of a promissory note (on
terms acceptable to the Committee in its sole discretion); or (iv) by a
combination of such methods.
Notwithstanding anything to the contrary, after any reorganization, merger
or consolidation involving Eltrax or a subsidiary of Eltrax, the Committee may
grant Options in substitution of options issued under a plan of another party to
the reorganization, merger or consolidation and, subject to Section 424(a) of
the Code, the Committee shall have the sole discretion to determine all terms
and conditions of such Options.
RESTRICTED STOCK AWARDS. Restricted Stock Awards are awards of Eltrax
common stock granted to a recipient which are subject to restrictions on
transferability and the risk of forfeiture. The Committee may impose such
restrictions or conditions, not inconsistent with the provisions of the 1998
Plan, to the vesting of Restricted Stock Awards as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of Eltrax or any of its subsidiaries for a certain period of
time or that the Participant or Eltrax, or any subsidiary or division of Eltrax,
satisfy certain performance goals or criteria. Except as otherwise provided
under the 1998 Plan, a Participant will have all voting, dividend, liquidation
and other rights with respect to such shares of Eltrax common stock issued to
the Participant as a Restricted Stock Award upon the Participant becoming the
holder of record of such shares as if such Participant were a holder of record
of shares of unrestricted Eltrax common stock.
STOCK BONUSES. Stock Bonuses are awards of Eltrax common stock that are not
subject to any restrictions other than, if imposed by the Committee,
restrictions on transferability. A Participant may be granted one or more Stock
Bonuses under the 1998 Plan, and such Stock Bonuses will be subject to such
terms and conditions, consistent with other provisions of the 1998 Plan, as may
be determined by the Committee in its sole discretion. Other than transfer
restrictions, if any, imposed by the Committee, the Participant will have all
voting, dividend, liquidation and other rights with respect to the shares of
Eltrax common stock issued to a Participant as a Stock Bonus under the 1998 Plan
upon the Participant becoming the holder of record of such shares.
EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. If a Participant's
employment or other service with Eltrax and its subsidiaries is terminated by
reason of death, disability or retirement, (i) all outstanding Options then held
by the Participant will become immediately exercisable in full and will remain
exercisable for a period of one year after such termination (but in no event
after the expiration date of any such Option); (ii) all outstanding Restricted
Stock Awards then held by the Participant will become fully vested; and (iii)
all outstanding Stock Bonuses then held by the Participant will vest and/or
continue to vest in the manner determined by the Committee and set forth in the
agreement evidencing such Stock Bonuses. In the event a Participant's employment
or other service is terminated with Eltrax and its subsidiaries for any reason
other than death, disability or retirement, or a Participant is in the employ or
service of a subsidiary of Eltrax and such subsidiary ceases to be a subsidiary
of Eltrax (unless the Participant continues in the employ or service of Eltrax
or another subsidiary), (i) all outstanding Options then held by the Participant
will remain exercisable to the extent exercisable as of such termination for a
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period of three months after such termination (but in no event after the
expiration date of any such Option), unless termination is for cause, in which
case all Options will terminate immediately; (ii) all Restricted Stock Awards
then held by the Participant that have not vested will be terminated and
forfeited; and (iii) all Stock Bonuses then held by the Participant will vest
and/or continue to vest in the manner determined by the Committee and set forth
in the agreement evidencing such Stock Bonuses.
CHANGE IN CONTROL OF ELTRAX. In the event a "Change in Control" of Eltrax
occurs, then, unless otherwise provided by the Committee in its sole discretion
either in the agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, (i) all outstanding Options will
become immediately exercisable in full and will remain exercisable for the
remainder of their terms, regardless of whether the Participant to whom such
Options have been granted remains in the employ or service of Eltrax or any of
its subsidiaries, (ii) all outstanding Restricted Stock Awards will become
immediately fully vested and non-forfeitable, and (iii) all outstanding Stock
Bonuses then held by the Participant will vest and/or continue to vest in the
manner determined by the Committee and set forth in the agreement evidencing
such Stock Bonuses. In addition, the Committee, without the consent of any
affected Participant, may determine that some or all Participants holding
outstanding Options will receive, with respect to some or all of the shares of
Eltrax common stock subject to such Options, as of the effective date of any
such Change in Control, cash in an amount equal to the excess of the fair market
value of such shares immediately prior to the effective date of such Change in
Control over the exercise price per share of such Options.
To the extent that such acceleration of the vesting of Incentive Awards or
the payment of cash in exchange for all or part of an Incentive Award would be
deemed a "payment" (as defined in the Code), together with any other "payments"
which such Participant has the right to receive from Eltrax or any corporation
that is a member of an "affiliated group" (as defined in Section 1504(a) of the
Code) of which Eltrax is a member, would constitute a "parachute payment" (as
defined in the Code), then the "payments" to such Participant pursuant to the
Change in Control provisions in the 1998 Plan will be reduced to the largest
amount as will result in no portion of such "payments" being subject to the
excise tax imposed by Section 4999 of the Code. To the extent, however, that a
Participant has a separate agreement that specifically provides that such
"payments" will not be reduced, then the foregoing limitations will not apply.
For purposes of the 1998 Plan, a "Change in Control" of Eltrax will be
deemed to have occurred, among other things, upon (i) the sale, lease, exchange
or other transfer, directly or indirectly, of substantially all of the assets of
Eltrax (in one transaction or in a series of related transactions) to a person
or entity that is not controlled by Eltrax; (ii) the approval by Eltrax's
shareholders of a plan or proposal for the liquidation or dissolution of Eltrax;
(iii) any person becoming, after the effective date of the 1998 Plan, the
beneficial owner, directly or indirectly, of (A) 20% or more, but less than 50%,
of the combined voting power of Eltrax's outstanding securities ordinarily
having the right to vote at elections of directors, unless the transaction
resulting in such ownership has been approved in advance by any individuals who
are members of the Board on the effective date of the 1998 Plan and any
individual who subsequently becomes a member of the Board whose election, or
nomination for election by Eltrax's shareholders, was approved by a vote of at
least a majority of the incumbent directors (either by specific vote or by
approval of Eltrax's proxy statement in which such individual is named as a
nominee for director without objection to such nomination) (the "Incumbent
Directors"), or (B) 50% or more of the combined voting power of Eltrax's
outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent Directors); (iv) a merger
or consolidation to which Eltrax is a party if Eltrax's shareholders immediately
prior to the effective date of such merger or consolidation beneficially own,
immediately following the effective date of such merger or consolidation,
securities of the surviving corporation representing (A) more than 50%, but less
than 80%, of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections of
directors, unless such merger or consolidation was approved in advance by the
Incumbent Directors, or
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(B) 50% or less of the combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent Directors); (v) the
Incumbent Directors cease for any reason to constitute at least a majority of
the Board; or (vi) any other change in control of Eltrax of a nature that would
be required to be reported pursuant to Section 13 or 15(d) of the Exchange Act,
whether or not Eltrax is then subject to such reporting requirements.
NEW PLAN BENEFITS
The grant of Incentive Awards under the 1998 Plan is subject to the
discretion of the Committee. The Committee has not granted any Incentive Awards
under the 1998 Plan since the Eltrax Board approved the Plan Amendment on
November 11, 1998. Accordingly, Eltrax cannot currently determine the number of
shares of Eltrax common stock that may be subject to Incentive Awards under the
1998 Plan in the future.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. This description does not
include state or local income tax consequences. In addition, this description is
not intended to address specific tax consequences applicable to an individual
participant who receives an Incentive Award.
INCENTIVE OPTIONS. There will not be any federal income tax consequences to
either the Participant or Eltrax as a result of the grant to an employee of an
Incentive Option under the 1998 Plan. The exercise by a Participant of an
Incentive Option also will not result in any federal income tax consequences to
Eltrax or the Participant, except that (i) an amount equal to the excess of the
fair market value of the shares acquired upon exercise of the Incentive Option,
determined at the time of exercise, over the amount paid for the shares by the
participant will be includable in the Participant's alternative minimum taxable
income for purposes of the alternative minimum tax, and (ii) the Participant may
be subject to an additional excise tax if any amounts are treated as excess
parachute payments (see explanation below). Special rules will apply if
previously acquired shares of Eltrax common stock are permitted to be tendered
in payment of an Option exercise price.
If the Participant disposes of shares of Eltrax common stock acquired upon
exercise of the Incentive Option, the federal income tax consequences will
depend upon how long the Participant has held the shares. If the Participant
does not dispose of the shares within two years after the Incentive Option was
granted, nor within one year after the Participant exercised the Incentive
Option and the shares were transferred to the Participant, then the Participant
will recognize a long-term capital gain or loss. The amount of the long-term
capital gain or loss will be equal to the difference between (i) the amount the
Participant realized on disposition of the shares, and (ii) the option price at
which the Participant acquired the shares. Eltrax is not entitled to any
compensation expense deduction under these circumstances.
If the Participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the Participant will be
required to report as ordinary income, in the year the Participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the Incentive Option (or, for directors,
officers or greater than 10% shareholders of Eltrax, generally the fair market
value of the shares six months after the date of exercise, unless such persons
file an election under Section 83(b) of the Code within 30 days of exercise), or
(ii) the amount realized on the disposition of the shares, exceeds the option
price for the shares. Eltrax will be entitled to a compensation expense
deduction in an amount equal to the ordinary income includable in the taxable
income of the Participant. This compensation income may be subject to
withholding. The remainder of the gain recognized on the disposition, if any, or
any loss recognized on the disposition, will be treated as long-term or
short-term capital gain or loss, depending on the holding period.
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NON-QUALIFIED OPTIONS. Neither the Participant nor Eltrax incurs any
federal income tax consequences as a result of the grant of a Non-Qualified
Option. Upon exercise of a Non-Qualified Option, a Participant will recognize
ordinary income, subject to withholding, on the "Includability Date" in an
amount equal to the difference between (i) the fair market value of the shares
purchased, determined on the Includability Date, and (ii) the consideration paid
for the shares. The Includability Date generally will be the date of exercise of
the Non-Qualified Option. However, the Includability Date for Participants who
are officers, directors or greater-than-10% shareholders of Eltrax will
generally occur six months later, unless such persons file an election under
Section 83(b) of the Code within 30 days of the date of exercise to include as
ordinary income the amount realized upon exercise of the Non-Qualified Option.
The Participant may be subject to an additional excise tax if any amounts are
treated as excess parachute payments (see explanation below). Special rules will
apply if previously acquired shares of Eltrax common stock are permitted to be
tendered in payment of an Option exercise price.
At the time of a subsequent sale or disposition of any shares of Eltrax
common stock obtained upon exercise of a Non-Qualified Option, any gain or loss
will be a capital gain or loss. Such capital gain or loss will be long-term
capital gain or loss if the sale or disposition occurs more than one year after
the Includability Date and short-term capital gain or loss if the sale or
disposition occurs one year or less after the Includability Date.
In general, Eltrax will be entitled to a compensation expense deduction in
connection with the exercise of a Non-Qualified Option for any amounts
includable in the taxable income of the Participant as ordinary income, provided
Eltrax complies with any applicable withholding requirements.
RESTRICTED STOCK AWARDS AND STOCK BONUSES. With respect to shares issued
pursuant to a Restricted Stock Award that is not subject to a substantial risk
of forfeiture or with respect to Stock Bonuses, a Participant will include as
ordinary income in the year of receipt an amount equal to the fair market value
of the shares received on the date of receipt. With respect to shares that are
subject to a substantial risk of forfeiture, a Participant may file an election
under Section 83(b) of the Code within 30 days after receipt to include as
ordinary income in the year of receipt an amount equal to the fair market value
of the shares received on the date of receipt (determined as if the shares were
not subject to any risk of forfeiture). If a Section 83(b) election is made, the
Participant will not recognize any additional income when the restrictions on
the shares issued in connection with the Restricted Stock Award lapse. Eltrax
will receive a corresponding tax deduction for any amounts includable in the
taxable income of the Participant as ordinary income. At the time any such
shares are sold or disposed of, any gain or loss will be treated as long-term or
short-term capital gain or loss, depending on the holding period from the date
of receipt of the Restricted Stock Award.
A Participant who does not make a Section 83(b) election within 30 days of
the receipt of a Restricted Stock Award that is subject to a risk of forfeiture
will recognize ordinary income at the time of the lapse of the restrictions in
an amount equal to the then fair market value of the shares free of
restrictions. Eltrax will receive a corresponding tax deduction for any amounts
includable in the taxable income of a Participant as ordinary income. At the
time of a subsequent sale or disposition of any shares of Eltrax common stock
issued in connection with a Restricted Stock Award as to which the restrictions
have lapsed, any gain or loss will be treated as long-term or short-term capital
gain or loss, depending on the holding period from the date the restrictions
lapse.
EXCISE TAX ON PARACHUTE PAYMENTS. Section 4999 of the Code imposes an
excise tax on "excess parachute payments," as defined in Section 280G of the
Code. Generally, parachute payments are payments in the nature of compensation
to certain employees or independent contractors who are also officers,
stockholders or highly-compensated individuals, where such payments are
contingent on a change in ownership or control of the stock or assets of the
paying corporation. In addition, the payments must be substantially greater in
amount than the recipient's regular compensation. Under Proposed Treasury
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Regulations issued by the Internal Revenue Service, in certain circumstances the
grant, vesting, acceleration or exercise of Options pursuant to the 1998 Plan
could be treated as contingent on a change in ownership or control for purposes
of determining the amount of a Participant's parachute payments.
In general, the amount of a parachute payment (some portion of which may be
deemed to be an "excess parachute payment") would be the cash or the fair market
value of the property received (or to be received) less the amount paid for such
property. If a Participant were found to have received an excess parachute
payment, he or she would be subject to a special nondeductible twenty percent
(20%) excise tax on the amount of the excess parachute payments, and Eltrax
would not be allowed to claim any deduction with respect to such payments.
THE ELTRAX BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF ELTRAX VOTE FOR
THE PLAN AMENDMENT.
BUSINESS OF ELTRAX
Eltrax is a nationwide managed network services company, providing
communications products and services for enterprise wide networks. Eltrax
designs and installs networking systems for corporate and government customers.
Eltrax also provides monitoring, management, and maintenance services to support
enterprise networks. Eltrax has acquired several independent companies over the
last two years, and these acquisitions now comprise Eltrax's national network of
regional operations.
Eltrax recently acquired Encore Systems, Inc. and affiliated companies (GSSI
and Five Star Systems). The Encore group of companies, headquartered in Atlanta,
Georgia, is a leading provider of proprietary software products and technology
services to the hospitality industry. Encore's clients operate 20% of the brand
name hotel space in America. Over 60% of Encore revenue is recurring from
software licensing and remote systems support services. Encore provides help
desk services, seven days a week, twenty-four hours a day, from its support
center in Atlanta, which is the largest hospitality systems support facility in
North America. Encore expects approximately 20% of its 1998 revenue to result
from on-site system installation and support services.
BUSINESS OF SULCUS
Sulcus develops, manufactures, markets and installs computerized systems
designed to automate the creation, handling, storage and retrieval of
information and documents. Sulcus designs its systems primarily for the
hospitality industry. Sulcus' sales practices are currently systems orientated
(rather than individual sales of hardware or software) toward the vertical
marketing of its integrated products. Systems include a network of hardware,
software and cabling as well as stand alone systems for which the hardware and
software are not separately sold. Sulcus' systems are offered together with full
services, training, maintenance and support. Sulcus has installed systems
throughout North and South America, Europe, Africa, Asia and Australia.
Customers include property management companies, condominiums, hotels, motels,
restaurants, resorts, country clubs and cruise lines.
Sulcus' operating divisions include Lodgistix, Inc. and Senercomm, Inc.,
which are developers of technology solutions focused in the lodging industry,
and Squirrel Companies, Inc., which is a developer of technology solutions
focused in the restaurant industry. Additionally, Sulcus has international
operations through Sulcus (Australia) Pty. Ltd., a direct sales office in
Australia; Squirrel Systems of Canada, Ltd., a Canadian subsidiary of Squirrel
located in Vancouver, British Columbia which manufacturers and sells Squirrel
products; Sulcus Hospitality Limited located in Hong Kong and Sulcus Singapore,
Pte. Ltd. located in Singapore, each a direct sales office; Sulcus Hospitality
Technologies EMEA A.G. located in Switzerland; Sulcus Scandinavia A.S., located
in Norway; Sulcus (Malaysia) SDN BHD; Sulcus (U.K.) Ltd., located in the United
Kingdom, all direct sales and support offices.
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WHERE YOU CAN FIND MORE INFORMATION
Each of Eltrax and Sulcus is subject to the informational requirements of
the Exchange Act and files annual, quarterly and current reports, proxy
statements and other information with the Commission. These reports, proxy
statements and other information may be inspected and copied at the Public
Reference Room maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, Thirteenth Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials may also be obtained by mail, upon payment of the Commission's
customary fees, by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference facilities. These
materials may also be accessed electronically by means of the Commission's web
site on the Internet at http://www.sec.gov. Sulcus common stock is listed on the
AMEX and Eltrax common stock is listed on the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotation System
("Nasdaq"). Reports, proxy statements and other information filed by Sulcus may
be inspected at the offices of AMEX, located at 86 Trinity Place, New York, New
York 10006, and such information filed by Eltrax may be inspected at the offices
of Nasdaq, located at 1735 K Street, N.W., Washington, D.C. 20006.
Eltrax has filed with the Commission a registration statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act, relating to the shares of Eltrax common stock offered hereby of
which this Proxy Statement/Prospectus is a part. This Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto filed by Eltrax, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. The
Registration Statement and exhibits thereto may be inspected without charge at
the offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies thereof may be obtained from the Commission at prescribed rates.
The following documents previously filed with the Commission by Eltrax
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. Eltrax's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997 filed March 27, 1998, as amended by Form 10-KSB/A filed
April 17, 1998;
2. Eltrax's Quarterly Reports on Form 10-Q for the fiscal quarter ended
March 31, 1998 filed May 12, 1998; for the fiscal quarter ended June 30,
1998 filed on August 13, 1998; and for the fiscal quarter ended September
30, 1998 filed on November 16, 1998;
3. Eltrax's Current Report on Form 8-K dated September 25, 1998, as
amended by Form 8-K/A filed on November 24, 1998; and
4. The portions of Eltrax's Proxy Statement for the Annual Meeting of
Shareholders held on May 19, 1998 that have been incorporated by reference
in Eltrax's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997.
ADDITIONALLY, COPIES OF ELTRAX'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, AS AMENDED, AND ELTRAX'S QUARTERLY REPORT ON FORM
10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 ARE INCLUDED WITH THIS
PROXY STATEMENT/PROSPECTUS AND SHOULD BE CAREFULLY REVIEWED IN CONJUNCTION
THEREWITH.
The following documents previously filed with the Commission by Sulcus
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. Sulcus' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed March 31, 1998, as amended by Form 10-K/A filed May
1, 1998.
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2. Sulcus' Quarterly Reports on Form 10-Q for the fiscal quarter ended
March 31, 1998 filed on May 15, 1998; for the fiscal quarter ended June 30,
1998 filed on August 14, 1998; and for the fiscal quarter ended September
30, 1998 filed on November 16, 1998; and
3. Sulcus' Current Reports on Form 8-K dated January 14, 1998, June 17,
1998, November 13, 1998 and November 23, 1998.
ADDITIONALLY, COPIES OF SULCUS' ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, AS AMENDED, AND SULCUS' QUARTERLY REPORT ON FORM
10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 ARE INCLUDED WITH THIS
PROXY STATEMENT/PROSPECTUS AND SHOULD BE CAREFULLY REVIEWED IN CONJUNCTION
THEREWITH.
The information relating to Sulcus, Eltrax and SAC contained in this Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference herein.
All information herein with respect to Sulcus has been furnished by Sulcus
and all information herein with respect to Eltrax and SAC has been furnished by
Eltrax.
This Proxy Statement/Prospectus does not cover any resale of the securities
to be received by shareholders of Sulcus upon consummation of the Merger, and no
person is authorized to make any use of this Proxy Statement/Prospectus in
connection with any such resale.
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Copies of such documents (other
than exhibits thereto which are not specifically incorporated by reference
herein) are available, without charge, to any person, including any beneficial
owner of shares of Sulcus common stock or Eltrax common stock to whom this Proxy
Statement/ Prospectus is delivered, upon written or oral request, to, in the
case of documents relating to Sulcus, General Counsel, Sulcus Hospitality
Technologies Corp., 41 North Main Street, Greensburg, Pennsylvania 15601,
telephone number (724) 836-2000 and, in the case of documents relating to
Eltrax, 2000 Town Center, Suite 690, Southfield, Michigan 48075, telephone
number (248) 358-1699. In order to ensure delivery of documents prior to the
applicable special meeting, any request therefor should be made not later than
, 1998.
EXPERTS
The consolidated financial statements of Eltrax appearing in Eltrax's Annual
Report on Form 10-KSB for the year ended December 31, 1997, as amended,
incorporated by reference in this Proxy Statement/ Prospectus, have been audited
by PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report included therein and incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance upon the
report of such firm given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Sulcus appearing in Sulcus'
Annual Report on Form 10-K for the year ended December 31, 1997, as amended,
incorporated by reference in this Proxy Statement/Prospectus, have been
audited by Crowe, Chizek and Company LLP, independent auditors, as set forth
in their report included therein and incorporated herein by reference. Such
financial statements have been incorporated herein by reference in reliance
upon the report of such firm given upon the authority of such firm as experts
in accounting and auditing.
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LEGAL OPINIONS
The validity of the shares of Eltrax common stock to be issued in connection
with the Merger will be passed upon by Jaffe, Raitt, Heuer & Weiss, P.C. As of
the date hereof, certain shareholders of Jaffe, Raitt, Heuer & Weiss, P.C.
beneficially own approximately shares of Eltrax common stock.
Certain of the tax consequences of the Merger to Sulcus shareholders will be
passed upon by Benesch, Friedlander, Coplan & Aronoff LLP. However, no opinion
will be expressed with respect to either Sulcus' or Eltrax's ability to use net
operating loss carryovers. See "The Merger--Certain Federal Income Tax
Consequences." Mr. Michael Wager, a partner in Benesch, Friedlander, Coplan &
Aronoff LLP, is a director of Sulcus and beneficially owns 28,000 shares of
Sulcus common stock.
SHAREHOLDERS' PROPOSALS
If the Merger is not consummated, it is presently anticipated that Sulcus
will convene its postponed 1998 Annual Meeting as soon as reasonably practicable
after termination of the Merger Agreement. The time has expired for any
shareholder wishing to submit a proposal to Sulcus for consideration for
inclusion in its proxy statement relating to its 1998 Annual Meeting of
Shareholders. However, any shareholder wishing to submit a proposal to Sulcus
for consideration for inclusion in its proxy statement relating to its 1999
Annual Meeting of Shareholders must deliver such proposal to Sulcus by
, 1999.
If the Merger is not consummated, it is presently anticipated that Eltrax
will hold its 1999 Annual Meeting on or about , 1999. Any shareholder
wishing to submit a proposal to Eltrax for consideration for inclusion in its
proxy statement relating to its 1999 Annual Meeting of Shareholders must deliver
such proposal to Eltrax by , 1999.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ELTRAX SYSTEMS, INC.,
SULCUS HOSPITALITY TECHNOLOGIES CORP.
AND
SULCUS ACQUIRING CORPORATION
DATED AS OF NOVEMBER 11, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 11, 1998 (the
"Agreement"), is by and among ELTRAX SYSTEMS, INC., a Minnesota corporation
("Parent"), SULCUS ACQUIRING CORPORATION, a Pennsylvania corporation, and a
wholly owned subsidiary of Parent ("SAC Acquiring Sub"), and SULCUS
HOSPITALITY TECHNOLOGIES CORP., a Pennsylvania corporation ("Sulcus") (Parent
and Sulcus are sometimes together referred to as the "Companies" and,
individually, as a "Company").
RECITALS
A. The Boards of Directors of Parent, SAC Acquiring Sub and Sulcus
each have approved the merger of SAC Acquiring Sub with and into Sulcus, upon
the terms and subject to the conditions set forth herein (the "Merger"), and
deem it advisable and in the best interest of their respective shareholders
that the Merger be consummated; and
B. For federal income tax purposes, the parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger
in accordance with the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), SAC Acquiring Sub shall be merged with and into Sulcus and the
separate existence of SAC Acquiring Sub shall thereupon cease. Sulcus shall
be the surviving corporation in the Merger and is hereinafter sometimes
referred to as the "Surviving Corporation."
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in articles
of merger, in a form mutually acceptable to Parent and Sulcus, to be filed
with the Secretary of State of Pennsylvania in accordance with the PBCL (the
"Merger Filing"), concurrently with the closing of the transactions
contemplated by this Agreement in accordance with Section 2.5.
SECTION 1.3 ARTICLES OF INCORPORATION. The Articles of Incorporation
of Sulcus as in effect immediately prior to the Effective Time shall, after
the Effective Time, be the Articles of Incorporation of the Surviving
Corporation, and thereafter may be amended in accordance with their terms and
as provided in the PBCL.
SECTION 1.4 BY-LAWS. The By-laws of Sulcus as in effect immediately
prior to the Effective Time shall, after the Effective Time, be the By-laws
of the Surviving Corporation and (subject to Section 6.9) thereafter may be
amended in accordance with their terms and as provided by the Articles of
Incorporation of the Surviving Corporation and the PBCL.
SECTION 1.5 DIRECTORS AND OFFICERS IMMEDIATELY AFTER THE EFFECTIVE TIME
OF THE MERGER. The directors and officers of the Surviving Corporation
<PAGE>
shall be as set forth below and shall serve in such capacities until their
respective successors are duly elected and qualified.
<TABLE>
<CAPTION>
Directors Officers
--------- --------
<S> <C>
Clunet R. Lewis Leon D. Harris, President
Clunet R. Lewis, Secretary
Nicholas J. Pyett, Treasurer
</TABLE>
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF SULCUS SHARES AND OPTIONS. At the Effective
Time, by virtue of the Merger and without any action on the part of any
holder of any capital stock of Sulcus:
(a) Subject to paragraph (b) of this Section 2.1, each share of the
common stock, no par value per share, of Sulcus (the "Sulcus Common Stock"),
shall be converted into the right to receive, without interest, 0.55 fully
paid and nonassessable shares (the "Sulcus Exchange Ratio") of the common
stock, par value $.01 share of Parent ("Parent Common Stock");
(b) Each share of Sulcus Common Stock held by Sulcus or any of its
subsidiaries, and any shares of Sulcus Common Stock owned by Parent, SAC
Acquiring Sub or any other subsidiary of Parent, other than shares under any
existing Sulcus employee benefit plan which are held by Sulcus as trustee,
shall be cancelled;
(c) Each option granted by Sulcus to purchase shares of Sulcus Common
Stock that is outstanding and unexercised immediately prior thereto (a
"Sulcus Stock Option"), whether vested or unvested at the Effective Time,
shall cease to represent a right to acquire shares of Sulcus Common Stock and
shall be converted automatically into an option to purchase a number of
shares of Parent Common Stock (a "Parent Option") equal to the number of
shares of Sulcus Common Stock that could be purchased under such Sulcus Stock
Option multiplied by the Sulcus Exchange Ratio, at a price per share of
Parent Common Stock equal to the per share exercise price of such Sulcus
Stock Option divided by the Sulcus Exchange Ratio; provided, however, that
any fractional shares of Parent Common Stock resulting from such
determination shall be rounded down to the nearest share. The adjustments
provided herein with respect to any Sulcus Stock Option that is an "incentive
stock option" (as defined in section 422 of the Code) shall be and are
intended to be effected in a manner that is consistent with section 424(a) of
the Code; and
(d) Any Sulcus plans governing the issuance and administration of the
Sulcus Stock Options (the "Options Plans") shall terminate, and within 90
days following the Closing Date, each holder of a Sulcus Stock Option will
receive an award agreement with respect to the Parent Options they acquire
pursuant to Section 2.1(c) above, which shall preserve the remaining exercise
period and vesting schedule (if any) of such converted Sulcus Stock Options
and, if applicable, shall preserve the status of any converted Sulcus Stock
Options as "incentive stock options" (as defined in section 422 of the Code).
Sulcus shall take all actions necessary to ensure that following the
Effective Time, no holder of Sulcus Stock Options or any participant in the
Option Plans or any other plans, programs, agreements or arrangements shall
have any right
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thereunder to acquire any equity securities of Sulcus, the Surviving
Corporation or any subsidiary of either of the foregoing.
SECTION 2.2 CONVERSION OF SAC ACQUIRING SUB SHARES. At the Effective
Time, by virtue of the Merger and without any action on the part of Parent,
each issued and outstanding share of common stock, no par value, of SAC
Acquiring Sub shall be converted into one share of common stock, no par value
of the Surviving Corporation.
SECTION 2.3 EXCHANGE OF SULCUS CERTIFICATES.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented shares
of Sulcus Common Stock, shall receive in exchange therefor, upon surrender
thereof to an exchange agent reasonably satisfactory to Parent (the "Exchange
Agent"), a certificate or certificates representing the number of whole
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.1 based on the Sulcus Exchange Ratio. Notwithstanding any other
provision of this Agreement, (i) until holders or transferees of certificates
representing shares of Sulcus Common Stock have surrendered them for exchange
as provided herein, no dividends or other distributions shall be paid with
respect to any shares represented by such certificates and no payment for
fractional shares shall be made and (ii) without regard to when such
certificates representing shares of Sulcus Common Stock are surrendered for
exchange as provided herein, no interest shall be paid on any dividends or
other distributions or any payment for fractional shares. Upon surrender of a
certificate which immediately prior to the Effective Time represented shares
of Sulcus Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends or other distributions which became payable, but
which were not paid by reason of the foregoing, with respect to the number of
whole shares of Parent Common Stock represented by the certificate or
certificates issued upon such surrender.
(b) On the Closing Date (as hereinafter defined), Parent shall make
available to the Exchange Agent, for the benefit of each holder of Sulcus
Common Stock, a sufficient number of certificates representing shares of
Parent Common Stock required to effect the exchanges referred to in paragraph
(a) above and cash for payment of any fractional shares referred to in
Section 2.4.
(c) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a certificate or certificates (as shown on the books
of Sulcus's Exchange Agent as of the Effective Time) that immediately prior
to the Effective Time represented an outstanding share of Sulcus Common
Stock (individually, a "Certificate" and, collectively, the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon actual delivery of the Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of the Certificates for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal and such other documents
as the Exchange Agent shall reasonably require, the holder of such
Certificates shall receive in exchange therefor a certificate representing
that number of whole shares of Parent Common Stock into which the shares of
Sulcus Common Stock, heretofore represented by the Certificates so
surrendered, shall have been converted pursuant to the provisions of Section
2.1 based on the Sulcus Exchange Ratio, and the Certificates so surrendered
shall be canceled. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of Parent Common
Stock held by it from time to time hereunder, except that it shall receive
and hold all dividends or other distributions paid or distributed with
respect to such Parent Common Stock for the account of the persons entitled
thereto.
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<PAGE>
(d) Promptly following the date which is nine months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Common Stock) and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, any holders of
Certificates shall contact Parent directly in order to exchange such
Certificates for shares of Parent Common Stock.
SECTION 2.4 NO FRACTIONAL SECURITIES. Notwithstanding any other
provision of this Agreement, no certificates or scrip representing less than
one share of Parent Common Stock shall be issued in the Merger and no Parent
Common Stock dividend, stock split or interest shall relate to any fractional
security, and such fractional interests shall not entitle the owner thereof
to vote or to any other rights of a security holder. In lieu of any such
fractional shares, each holder of shares of Sulcus Common Stock who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock upon surrender of Certificates for exchange pursuant to this
Article II shall be entitled to receive from the Exchange Agent a cash
payment equal to such fraction multiplied by the closing price per share of
Parent Common Stock, as reported by the Wall Street Journal, as of the close
of business on the business day immediately preceding the Closing Date.
SECTION 2.5 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place simultaneously at a location
mutually agreeable to Sulcus and Parent as promptly as practicable (but in
any event within five business days) following the date on which the last of
the conditions set forth in Article VII is fulfilled or waived, or at such
other time and place as Parent and Sulcus shall agree. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date."
SECTION 2.6 CLOSING OF SULCUS TRANSFER BOOKS. At and after the
Effective Time, holders of Certificates shall cease to have any rights as
stockholders of Sulcus, except for the right to receive shares of Parent
Common Stock pursuant to Section 2.1 and the right to receive cash for
payment of fractional shares pursuant to Section 2.4. At the Effective Time,
the stock transfer books of Sulcus shall be closed and no transfer of shares
of Sulcus Common Stock which were outstanding immediately prior to the
Effective Time shall thereafter be made. If, after the Effective Time,
subject to the terms and conditions of this Agreement, Certificates are
presented to Parent or the Surviving Corporation, they shall be canceled
and exchanged for shares of Parent Common Stock in accordance with this
Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SULCUS
Sulcus represents and warrants to Parent that the following statements
are true and correct as of the date hereof and shall be true and correct as
of the Closing Date.
SECTION 3.1 ORGANIZATION AND QUALIFICATION. Sulcus is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Sulcus is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations
of Sulcus and its subsidiaries, taken as a whole (a "Sulcus Material Adverse
Effect"), and copies of good standing certificates evidencing such
qualification will be delivered to Parent at or prior to the Closing, in each
case
4
<PAGE>
bearing a date within thirty (30) days prior to the Closing Date. True,
accurate and complete copies of Sulcus's Articles of Incorporation and
By-laws, in each case as in effect the date hereof, including all amendments
thereto, have heretofore been delivered to Parent.
SECTION 3.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Sulcus
consisted of 30,000,000 shares of Sulcus Common Stock no par value and
10,000,000 shares of preferred stock, no par value per share ("SAC Preferred
Stock") of which 8,000,000 shares are designated as Series A Redeemable
Convertible Preferred Stock and 300,000 are designated as Series B Junior
Participating Preferred Stock, no par value, and (i) approximately 17,088,834
shares of Sulcus Common Stock were issued and outstanding, all of which were
validly issued and are fully paid, nonassessable and free of preemptive
rights and no shares of SAC Preferred Stock were issued and outstanding, (ii)
approximately 4,438,704 shares of Sulcus Common Stock were reserved for
issuance pursuant to Sulcus's Stock Option Plans, and (iii) no shares of
Sulcus Common Stock were reserved for issuance upon conversion of outstanding
convertible debentures, outstanding convertible notes, and outstanding
warrants.
(b) Except as set forth in subsection (a) above, as disclosed on
Schedule 3.2(b), or as otherwise contemplated by this Agreement, there are no
outstanding subscriptions, options, calls, contracts, commitments,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, and also including any rights plan or other anti-takeover
agreement, obligating Sulcus or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of Sulcus or obligating Sulcus or any of its subsidiaries to
grant, extend or enter into any such agreement or commitment. Except as
otherwise disclosed in the Sulcus SEC Reports, there are no voting trusts,
proxies or other agreements or understandings to which Sulcus or any of its
subsidiaries is a party or is bound with respect to the voting of any shares
of capital stock of Sulcus.
SECTION 3.3 SUBSIDIARIES. Each direct and indirect corporate
subsidiary (as hereinafter defined) of Sulcus is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
it is now being conducted. Each subsidiary of Sulcus is qualified to do
business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in all cases where
the failure to be so qualified and in good standing would not, when taken
together with all such other failures, result in a Sulcus Material Adverse
Effect. At or prior to Closing, copies of good standing certificates
evidencing such qualification will be delivered to Parent in each case
bearing a date within thirty (30) days prior to the Closing Date. All of the
outstanding shares of capital stock of each corporate subsidiary of Sulcus
are validly issued, fully paid, nonassessable and free of preemptive rights,
and except as set forth on Schedule 3.3, are owned directly or indirectly by
Sulcus, free and clear of any liens, claims or encumbrances, except that such
shares are pledged to secure Sulcus's credit facilities. There are no
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights
with respect to any shares of capital stock of any corporate subsidiary of
Sulcus, including any right of conversion or exchange under any outstanding
security, instrument or agreement. As used in this Agreement, the term
"subsidiary" shall mean, when used with reference to any person or entity,
any corporation, partnership, joint venture or other entity of which such
person or entity (either acting alone or together with its other
subsidiaries) owns, directly or indirectly, 50% or more of the capital stock
or other voting interests, the holders of which are entitled to vote for the
election
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<PAGE>
of a majority of the board of directors or any similar governing body of such
corporation, partnership, joint venture or other entity.
SECTION 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Sulcus has full corporate power and authority to enter into this
Agreement and, subject to the Sulcus Stockholders' Approval (as defined in
Section 6.3(a)) and the Sulcus Required Statutory Approvals (as defined in
Section 3.4(c)), to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors of Sulcus and no other
corporate proceeding on the part of Sulcus is necessary to authorize the
execution and delivery of this Agreement and, except for the Sulcus
Stockholders' Approval, the consummation by Sulcus of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Sulcus, and, assuming the due authorization, execution and delivery hereof by
the other parties hereto, constitutes a valid and legally binding agreement
of Sulcus, enforceable against it in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by Sulcus does not
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Sulcus or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective charters or by-laws of Sulcus or any of its
subsidiaries, (ii) other than as provided in Section 3.4(c), any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to Sulcus
or any of its subsidiaries or any of their respective properties or assets or
(iii) except as set forth in Schedule 3.4(b), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which
Sulcus or any of its subsidiaries is now a party or by which Sulcus or any of
its subsidiaries or any of their respective properties or assets may be bound
or affected. The consummation by Sulcus of the transactions contemplated
hereby will not, in reliance upon the representation of Parent set forth in
Section 4.11, result in any violation, conflict, breach, termination,
acceleration or creation of liens under any of the terms, conditions or
provisions described in clauses (i) through (iii) of the preceding sentence,
subject: (A) in the case of the terms, conditions or provisions described in
clause (ii) above, to obtaining (prior to the Effective Time) the Sulcus
Required Statutory Approvals and the Sulcus Stockholder's Approval and (B) in
the case of the terms, conditions or provisions described in clause (iii)
above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties. Excluded from the
foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the
first sentence of this paragraph (b)(and whether resulting from such
execution and delivery or consummation), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens,
security interests, charges or encumbrances that would not, in the aggregate,
result in a Sulcus Material Adverse Effect.
(c) In reliance upon the representation of Parent set forth in Section
4.11, except for (i) the filing of the Registration Statement and Joint Proxy
Statement/ Prospectus (as such terms are defined in Section 3.7) with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration of the
effectiveness thereof by the SEC and filings with or approvals from various
state blue sky authorities, (ii) the making of the Merger Filing with the
Secretary of State of the State of Pennsylvania in connection with the
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<PAGE>
Merger, and (iii) any required filings with or approvals from NASDAQ or AMEX
(the filings and approvals referred to in clauses (i) through (iii) are
collectively referred to as the "Sulcus Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Sulcus or the
consummation by Sulcus of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents
or approvals which, if not made or obtained, as the case may be, would not,
in the aggregate, result in a Sulcus Material Adverse Effect.
SECTION 3.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1995,
Sulcus has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto)
required to be filed by it under each of the Securities Act, the Exchange Act
and the respective rules and regulations thereunder, all of which, as amended
if applicable, complied when filed in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. No subsidiary of Sulcus is required to file any form, report or
other document with the SEC. Sulcus has previously made available to Parent,
via its EDGAR filings where available, copies (including all exhibits,
post-effective amendments and supplements thereto) of its (a) Annual Reports
on Form 10-K for the fiscal year ended December 1997 and for the two
immediately preceding fiscal years, as filed with the SEC, (b) proxy and
information statements relating to (i) all meetings of its stockholders
(whether annual or special) and (ii) actions by written consent in lieu of a
stockholders' meeting, from January 1, 1995 until the date hereof, and (c)
all other reports, including quarterly reports, and registration statements
filed by Sulcus with the SEC since January 1, 1995 (the documents referred to
in clauses (a), (b) and (c) are collectively referred to as the "Sulcus SEC
Reports"). As of their respective dates, the Sulcus SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The audited financial statements for the fiscal year ended
December 1997 and the two prior fiscal years, and the unaudited consolidated
financial statements of Sulcus included in Sulcus's Quarterly Report on Form
10-Q for the six month period ended June 30, 1998 (collectively, the "Sulcus
Financial Statements"), have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
present the financial position of Sulcus and its subsidiaries as of the dates
thereof and the results of their operations and changes in financial position
for the periods then ended.
SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998
except as disclosed on Schedule 3.6, there has not been (a) any change that
would result in a Sulcus Material Adverse Effect except for changes that
affect the industries in which Sulcus and its subsidiaries operate generally,
(b) any event or occurrence which, insofar as can be reasonably foreseen,
would in the future result in a Sulcus Material Adverse Effect, and (c) any
entry into a commitment or transaction material to Sulcus and its
subsidiaries taken as a whole (including, without limitation, any merger,
acquisition, borrowing of money or sales of assets), except in the ordinary
course of business consistent with past practice.
SECTION 3.7 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by Sulcus or its subsidiaries for inclusion in (a)
the Registration Statement on Form S-4 to be filed under the Securities Act
with the SEC in connection with the Merger for the purpose of registering the
shares of Parent Common Stock to be issued in the Merger (the "Registration
Statement") or (b) the proxy statement to be distributed in connection with
Sulcus's and Parent's meetings of their respective stockholders to vote upon
this Agreement and the transactions contemplated hereby (the "Proxy
Statement" and, together with the prospectus included in the Registration
Statement, the "Joint Proxy Statement/Prospectus") will, in the case of the
Proxy Statement or any amendments thereof or supplements thereto, at the time
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of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meetings of stockholders of Parent and Sulcus
to be held in connection with the transactions contemplated by this
Agreement, or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such
meetings of the stockholders of Parent and Sulcus, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Joint Proxy Statement/Prospectus will, as of its mailing date, comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made by
Sulcus with respect to information supplied by Parent or the stockholders of
Parent for inclusion therein.
SECTION 3.8 REORGANIZATION AND POOLING OF INTERESTS. None of Sulcus or
its subsidiaries has willfully taken or agreed to or intends to take any
action or has any knowledge of any fact or circumstance that would prevent
the Merger from (a) constituting a reorganization within the meaning of
Section 368(a) of the Code or (b) being treated for financial accounting
purposes as a "pooling of interests" in accordance with generally accepted
accounting principles and the rules, regulations and interpretations of the
SEC (a "Pooling Transaction"). As of the date hereof, other than directors
and officers of Sulcus, to the knowledge of Sulcus, there are no "affiliates"
of Sulcus, as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act.
SECTION 3.9 BROKERS AND FINDERS. Except for the fees and expenses
payable to Broadview Int'l LLC, which fees are reflected in its agreement
with Sulcus, Sulcus has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
Sulcus to pay any finder's fees, brokerage or agent commissions or other like
payments in connection with the transactions contemplated hereby. Except for
the fees and expenses paid or payable to Broadview Int'l LLC, there is no
claim for payment by Sulcus of any investment banking fees, finder's fees,
brokerage or agent commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 3.10 OPINION OF FINANCIAL ADVISOR. The financial advisor of
Sulcus, Broadview Int'l LLC, has rendered an opinion to the Board of
Directors of Sulcus to the effect that the Sulcus Exchange Ratio is fair to
the holders of Sulcus Common Stock from a financial point of view; it being
understood and acknowledged by Sulcus that such opinion has been rendered for
the benefit of the Board of Directors of Sulcus and is not intended to, and
may not, be relied upon by Parent, its affiliates or their respective
subsidiaries.
SECTION 3.11 RIGHTS AGREEMENT. The Rights Agreement of Sulcus, dated
as of January 30, 1998, will be inapplicable to the transactions contemplated
herein.
SECTION 3.12 INTELLECTUAL PROPERTY.
(a) Sulcus owns or is licensed or otherwise possesses legally
enforceable rights, directly or through its subsidiaries, under all patents
and patent applications known to be necessary to operate its business in the
ordinary course and has the right to use all trademarks, trade names, service
marks, copyrights and any applications for such trademarks, trade names,
service marks and copyrights, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material (collectively, the "Intellectual Property) that are
reasonably necessary to conduct its business as currently conducted or as
currently planned by Sulcus to be conducted and, except as qualified by or
disclosed in Schedule 3.12, is aware of no intellectual property right of any
third party that may
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prevent Sulcus or its subsidiaries from conducting its business as currently
conducted or as planned by Sulcus to be conducted.
(b) Neither Sulcus nor any of its subsidiaries is, nor will any of them
be as a result of the execution and delivery of this Agreement or the
performance of Sulcus's obligations under this Agreement, knowingly
infringing upon any Intellectual Property rights of others or in breach of
any license, sublicense or other agreement relating to the Intellectual
Property or third party Intellectual Property rights, except as qualified by
or disclosed in Schedule 3.12.
(c) Except as set forth in Schedule 3.12, neither Sulcus nor any of its
subsidiaries has been named in any suit, action or proceeding which involves
a claim of infringement of any Intellectual Property right of any third
party. The manufacturing, marketing, licensing or sale of the products or
performance of the service offerings of Sulcus and its subsidiaries relating
to the conduct of its business consistent with past practice does not
infringe upon any Intellectual Property right of any third party; and to the
knowledge of Sulcus and its subsidiaries, the Intellectual Property rights of
Sulcus and its subsidiaries are not knowingly being infringed by activities,
products or services of any third party.
SECTION 3.13 SIZE OF PERSON TEST. For purposes of the complying with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"), as of the date of Sulcus's last regularly prepared balance sheet and
annual statement of income, Sulcus had neither "annual net sales" nor "total
assets" (as such terms are defined in the HSR Act and the rules and
regulations promulgated thereunder), with a value of at least one hundred
million ($100,000,000) dollars.
SECTION 3.14 APPRAISAL RIGHTS. No holders of Sulcus Common Stock are
entitled to dissenters or appraisal rights under the PBCL as a result of the
transactions contemplated in this Agreement.
SECTION 3.15 DISCLOSURE. To Sulcus's knowledge, the representations
and warranties of Sulcus in this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements contained herein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND SAC ACQUIRING SUB
Parent and SAC Acquiring Sub jointly and severally represent and
warrant to Sulcus, that the following statements are true and correct as of
the date hereof and shall be true and correct as of the Closing Date.
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Each of Parent and SAC
Acquiring Sub is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted.
Each of Parent and SAC Acquiring Sub is qualified to do business and is in
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing will not, when taken together with all other such failures,
have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) or results of operations of Parent and
its subsidiaries, taken as a whole (a "Parent Material Adverse Effect"), and
copies of good standing certificates evidencing such qualification will be
delivered to Sulcus at or prior to the Closing, in each case bearing a date
within thirty (30) days
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prior to the Closing Date. True, accurate and complete copies of Parent's
Articles of Incorporation and By-laws, in each case as in effect the date
hereof, including all amendments thereto, have heretofore been delivered to
Sulcus.
SECTION 4.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Parent
consisted of 50,000,000 shares of Parent Common Stock and 970,000 shares of
preferred stock, par value $.01 per share ("Parent Preferred Stock"), and (i)
approximately 13,039,938 shares of Parent Common Stock were issued and
outstanding, all of which were validly issued and are fully paid,
nonassessable and free of preemptive rights, (ii) no shares of Parent
Preferred Stock were issued and outstanding, (iii) approximately 2,752,993
shares of Parent Common Stock were reserved for issuance pursuant to Parent's
Stock Option Plans, (iv) approximately 551,785 shares of Parent Common Stock
were reserved for issuance upon exercise of outstanding warrants and options
not issued under Parent's Stock Option Plans, and (v) no shares of Parent
Common Stock were reserved for issuance upon conversion of outstanding
convertible debentures and outstanding convertible notes.
(b) Except as set forth in subsection (a) above or as otherwise
contemplated by this Agreement, there are no outstanding subscriptions,
options, calls, contracts, commitments, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement and also including any rights plan or
other anti-takeover agreement, obligating Parent or any of its subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Parent or obligating Parent or any
of its subsidiaries to grant, extend or enter into any such agreement or
commitment. Except as otherwise disclosed in the Parent SEC Reports, there
are no voting trusts, proxies or other agreements or understandings to which
Parent or any of its subsidiaries is a party or is bound with respect to the
voting of any shares of capital stock of Parent.
SECTION 4.3 SUBSIDIARIES. Each direct and indirect corporate
subsidiary (as hereinafter defined) of Parent is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
it is now being conducted. Each subsidiary of Parent is qualified to do
business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in all cases where
the failure to be so qualified and in good standing would not, when taken
together with all such other failures, result in a Parent Material Adverse
Effect. At or prior to Closing, copies of good standing certificates
evidencing such qualification will be delivered to Sulcus in each case
bearing a date within thirty (30) days prior to the Closing Date. All of the
outstanding shares of capital stock of each corporate subsidiary of Parent
are validly issued, fully paid, nonassessable and free of preemptive rights,
and are owned directly or indirectly by Parent, free and clear of any liens,
claims or encumbrances, except that such shares are pledged to secure
Parent's credit facilities. There are no subscriptions, options, warrants,
rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any corporate subsidiary of Parent, including any right of
conversion or exchange under any outstanding security, instrument or
agreement.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Each of Parent and SAC Acquiring Sub has full corporate power and
authority to enter into this Agreement and, subject to the Parent
Stockholders' Approval (as defined in Section 6.3(b)) and the Parent Required
Statutory Approvals (as defined in Section 4.4(c)), to
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consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of each of Parent and SAC Acquiring Sub
and no other corporate proceeding on the part of Parent or SAC Acquiring Sub
is necessary to authorize the execution and delivery of this Agreement and,
except for the Parent Stockholders' Approval, the consummation by Parent and
SAC Acquiring Sub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Parent and SAC Acquiring Sub,
and, assuming the due authorization, execution and delivery hereof by the
other parties hereto, constitutes a valid and legally binding agreement of
each of Parent and SAC Acquiring Sub, enforceable against each in accordance
with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by each of Parent and
SAC Acquiring Sub does not violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or by-laws of Parent
or any of its subsidiaries, (ii) other than as provided in Section 4.4(c),
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to Parent or any of its subsidiaries or any of their respective
properties or assets or (iii) except as set forth in Schedule 4.4(b), any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind to which Parent or any of its subsidiaries is now a party or by
which Parent or any of its subsidiaries or any of their respective properties
or assets may be bound or affected. The consummation by each of Parent and
SAC Acquiring Sub of the transactions contemplated hereby will not, in
reliance upon the representation of Sulcus set forth in Section 3.13, result
in any violation, conflict, breach, termination, acceleration or creation of
liens under any of the terms, conditions or provisions described in clauses
(i) through (iii) of the preceding sentence, subject (A) in the case of the
terms, conditions or provisions described in clause (ii) above, to obtaining
(prior to the Effective Time) the Parent Required Statutory Approvals and the
Parent Stockholder's Approval and (B) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the
Effective Time) consents required from commercial lenders, lessors or other
third parties. Excluded from the foregoing sentences of this paragraph (b),
insofar as they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph (b) (and
whether resulting from such execution and delivery or consummation), are such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, result in a Parent Material Adverse Effect.
(c) In reliance upon the representation of Sulcus set forth in Section
3.13, except for (i) the filing of the Registration Statement and Joint Proxy
Statement/ Prospectus with the SEC pursuant to the Exchange Act and the
Securities Act, and the declaration of the effectiveness thereof by the SEC
and filings with various or approvals from state blue sky authorities, (ii)
the making of the Merger Filing with the Secretary of State of the State of
Pennsylvania in connection with the Merger, and (iii) any required filings
with or approvals from the NASDAQ or AMEX (the filings and approvals referred
to in clauses (i) through (iii) are collectively referred to as the "Parent
Required Statutory Approvals"), no declaration, filing or registration with,
or notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of
this Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
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obtained, as the case may be, would not, in the aggregate, result in a Parent
Material Adverse Effect.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1995,
Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto)
required to be filed by it under each of the Securities Act, the Exchange Act
and the respective rules and regulations thereunder, all of which, as amended
if applicable, complied when filed in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. No subsidiary of Parent is required to file any form, report or
other document with the SEC. Parent has previously made available to Sulcus,
via its EDGAR filings where available, copies (including all exhibits,
post-effective amendments and supplements thereto) of its (a) Annual Reports
on Form 10-K for the year ended December 31, 1997 and for the two immediately
preceding fiscal years, as filed with the SEC, (b) proxy and information
statements relating to (i) all meetings of its stockholders (whether annual
or special) and (ii) actions by written consent in lieu of a stockholders'
meeting, from January 1, 1995 until the date hereof, and (c) all other
reports, including quarterly reports, and registration statements filed by
Parent with the SEC since January 1, 1995 (the documents referred to in
clauses (a), (b) and (c) are collectively referred to as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The audited financial statements for the fiscal year ended
December 1997 and the two prior fiscal years, and the unaudited consolidated
financial statements of Parent included in Parent's Quarterly Report on Form
10-Q for the six month period ended June 30, 1998 (collectively, the "Parent
Financial Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may
be indicated therein or in the notes thereto) and fairly present the
financial position of Parent and its subsidiaries as of the dates thereof and
the results of their operations and changes in financial position for the
periods then ended.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998,
there has not been (a) any change that would result in a Parent Material
Adverse Effect, except for changes that affect the industries in which Parent
and its subsidiaries operate generally, (b) any event or occurrence which,
insofar as can be reasonably foreseen, would in the future result in a Parent
Material Adverse Effect, and (c) except as described in the Parent Form 8-K
(and its Exhibits) filed on September 25, 1998, any entry into a commitment
or transaction material to Parent and its subsidiaries taken as a whole
(including, without limitation, any merger, acquisition, borrowing of money
or sales of assets), except in the ordinary course of business consistent
with past practice.
SECTION 4.7 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by Parent or its subsidiaries for inclusion in (a)
the Registration Statement or (b) Joint Proxy Statement/Prospectus will, in
the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments
or supplements thereto, and at the time of the meetings of stockholders of
Parent and Sulcus to be held in connection with the transactions contemplated
by this Agreement, or, in the case of the Registration Statement, as amended
or supplemented, at the time it becomes effective and at the time of such
meetings of the stockholders of Sulcus and Parent, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Joint Proxy Statement/Prospectus will, as of its mailing date, comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made by
Parent
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with respect to information supplied by Sulcus or the stockholders of Sulcus
for inclusion therein.
SECTION 4.8 REORGANIZATION AND POOLING OF INTERESTS. None of Parent or
its subsidiaries has taken or agreed or intends to take any action or has any
knowledge of any fact or circumstance that would prevent the Merger from (a)
constituting a reorganization within the meaning of Section 368(a) of the
Code or (b) being treated for financial accounting purposes as a Pooling
Transaction.
SECTION 4.9 BROKERS AND FINDERS. Parent has not entered into any
contract, arrangement or understanding with any person or firm which may
result in the obligation of Parent to pay any finder's fees, brokerage or
agent commissions or other like payments in connection with the transactions
contemplated hereby.
SECTION 4.10 INTELLECTUAL PROPERTY.
(a) Parent owns or is licensed or otherwise possesses legally
enforceable rights, directly or through its subsidiaries, known to be
necessary to operate its business in the ordinary course and has the right to
use all Intellectual Property that is reasonably necessary to conduct its
business as currently conducted or as currently planned by Parent to be
conducted and, except as qualified by or disclosed in Schedule 4.10, is aware
of no Intellectual Property right of any third party that may prevent Parent
or its subsidiaries from conducting its business as currently conducted or as
planned by Parent to be conducted.
(b) Neither Parent nor any of its subsidiaries is, nor will any of
them be as a result of the execution and delivery of this Agreement or the
performance of Parent's obligations under this Agreement, knowingly
infringing upon any intellectual property rights of others or in breach of
any license, sublicense or other agreement relating to the Intellectual
Property or third party Intellectual Property rights, except as qualified by
or disclosed in Schedule 4.10.
(c) Except as set forth in Schedule 4.10, neither Parent nor any of
its subsidiaries has been named in any suit, action or proceeding which
involves a claim of infringement of any Intellectual Property right of any
third party. The manufacturing, marketing, licensing or sale of the products
or performance of the service offerings of Parent and its subsidiaries
relating to the conduct of its business consistent with past practice does
not infringe upon any Intellectual Property right of any third party; and to
the knowledge of Parent and its subsidiaries, the Intellectual Property
rights of Parent and its subsidiaries are not knowingly being infringed by
activities, products or services of any third party.
SECTION 4.11 SIZE OF PERSON TEST. For purposes of the complying with
the HSR Act, as of the date of Parent's last regularly prepared balance sheet
and annual statement of income, Parent had neither "annual net sales" nor
"total assets" (as such terms are defined in the HSR Act and the rules and
regulations promulgated thereunder), with a value of at least one hundred
million ($100,000,000) dollars.
SECTION 4.12 DISCLOSURE. To the knowledge of Parent and SAC Acquiring
Sub, the representations and warranties of Parent and SAC Acquiring Sub in
this Agreement do not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements contained herein
not misleading.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 CONDUCT OF BUSINESS BY PARENT AND SULCUS PENDING THE
MERGER. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this
Agreement, unless the Companies shall otherwise agree in writing, each of the
Companies shall, and shall cause each of their subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective Articles of
Incorporation or By-laws, (ii) split, combine or reclassify their outstanding
capital stock, (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, except for the payment of
dividends or distributions to a Company by a wholly-owned subsidiary of such
Company, or (iv) repurchase any shares of their outstanding capital stock;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any class
or any debt or equity securities convertible into or exchangeable for such
capital stock, except that each Company may (i) grant options to
non-executive employees and (ii) issue shares upon the exercise of
outstanding options and warrants or pursuant to existing agreements;
(d) not (i) assume, incur or become contingently liable with respect
to any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business (other than pursuant to credit facilities) or
borrowings under the existing credit facilities of each Company (the
"Existing Credit Facilities") up to the existing borrowing limit on the date
hereof or (B) borrowings to refinance existing indebtedness on terms which
are reasonably acceptable to the other Company, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or
any options, warrants or rights to acquire any of its capital stock or any
security convertible into or exchangeable for its capital stock other than
pursuant to an employee stock incentive plan of a Company, (iii) take any
action that would jeopardize the treatment of the Merger as a pooling of
interests under Opinion No. 16 of the Accounting Principles Board ("APB No.
16"), (iv) take or fail to take any action which action or failure to take
action would cause either Company or their stockholders (except to the extent
that any stockholders receive cash in lieu of fractional shares) to recognize
gain or loss for federal income tax purposes as a result of the consummation
of the Merger or would otherwise cause the Merger not to qualify as a
reorganization under Section 368(a) of the Code, (v) make any acquisition of
any assets or businesses other than expenditures for current assets in the
ordinary course of business and expenditures for fixed or capital assets in
the ordinary course of business and (vi) sell, pledge, dispose of or encumber
any material assets or businesses, or enter into any binding contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
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(f) subject to restrictions imposed by applicable law, confer with one
or more representatives of the other Company to report operational matters of
materiality and the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except in the ordinary course and consistent with past practice;
(h) not adopt, enter into or amend any pension or retirement plan,
trust or fund, except as required to comply with changes in applicable law
and not adopt, enter into or amend in any material respect any bonus, profit
sharing, compensation, stock option, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employees or retirees
generally, other than in the ordinary course of business;
(i) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(j) not make, change or revoke any material tax election or make any
material agreement or settlement regarding taxes with any taxing authority.
SECTION 5.2 ACQUISITION TRANSACTIONS.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, absent prior written consent from the other
party, each Company shall not, and shall not permit any of its subsidiaries
to, initiate, solicit, negotiate, encourage or provide confidential
information to facilitate, and each Company shall use its reasonable efforts
to cause any officer, director, affiliate or employee of a Company, or any
attorney, accountant, investment banker, financial advisor or other agent
retained by it or any of its subsidiaries, not to, directly or indirectly,
initiate, solicit, negotiate, encourage or provide non-public or
confidential information to facilitate, any proposal or offer to acquire all
or any substantial part of the business or properties of either Company or
any capital stock of either Company (other than in connection with this
Agreement or as required by law or a court order), whether by merger,
purchase of assets, tender offer, share exchange, business combination or
otherwise, whether for cash, securities or any other consideration or
combination thereof (any such transactions being referred to herein as an
"Acquisition Transaction").
(b) Notwithstanding paragraph (a) above or anything to the contrary in
this Agreement, (i) Sulcus may, in response to an unsolicited written offer
or proposal with respect to a potential or proposed Acquisition Transaction
("Acquisition Proposal") which Sulcus's Board of Directors determines, in
good faith and after consultation with its independent financial advisor,
would result (if consummated pursuant to its terms) in an Acquisition
Transaction more favorable to its stockholders than the Merger (any such
offer or proposal being referred to as a "Superior Proposal"), furnish
(subject to the execution of a confidentiality agreement substantially
similar to the confidentiality provisions of this agreement), confidential or
non-public information to a financially capable corporation, partnership,
person or other entity or group (a "Potential Acquirer") and negotiate with
such Potential Acquirer if the Board of Directors, after consulting with its
outside legal counsel, determines in good faith that the failure to provide
such confidential or non-public information to or negotiate with such
Potential Acquirer would be reasonably likely to constitute a breach of its
fiduciary duty to the Sulcus stockholders and (ii) Sulcus's Board of
Directors may comply with Rule 14e-2 under the Exchange Act in connection
with an Acquisition Proposal. It is understood and agreed that
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negotiations and other activities conducted in accordance with this paragraph
(b) shall not constitute a violation of paragraph (a) of this Section 5.2.
(c) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, Sulcus shall promptly notify Parent after
receipt of any Acquisition Proposal or offer to acquire all or any
substantial part of the business, properties or capital stock of Sulcus,
whether by merger, purchase of assets, tender offer, share exchange, business
combination or otherwise, whether for cash, securities or any other
consideration or combination thereof and shall indicate in reasonable detail
the identity of the offeror and the terms and conditions of such proposal or
offer.
(d) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, Parent shall promptly notify Sulcus after
receipt of any Acquisition Proposal or offer to acquire all or any
substantial part of the business, properties or capital stock of Parent,
whether by merger, purchase of assets, tender offer, share exchange, business
combination or otherwise, whether for cash, securities or any other
consideration or combination thereof and shall indicate in reasonable detail
the identity of the offeror and the terms and conditions of such proposal or
offer.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 ACCESS TO INFORMATION.
(a) Subject to applicable law, Sulcus and its subsidiaries shall afford
to Parent and its respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") and Parent and its
subsidiaries shall afford to Sulcus and its accountants, counsel, financial
advisors and other representatives (the "Sulcus Representatives") full access
during normal business hours with reasonable notice throughout the period
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, tax
returns) and, during such period, shall furnish promptly to one another (i) a
copy of each report, schedule and other document filed or received by any of
them pursuant to the requirements of federal or state securities laws or
filed by any of them with the SEC in connection with the transactions
contemplated by this Agreement and (ii) such other information concerning
their respective businesses, properties and personnel as either Company shall
reasonably request; provided, however, that no investigation pursuant to this
Section 6.1 shall amend or modify any representations or warranties made
herein or the conditions to the obligations of the respective parties to
consummate the Merger. Sulcus and its subsidiaries shall hold and shall use
their reasonable best efforts to cause the Sulcus Representatives to hold,
and Parent and its subsidiaries shall hold and shall use their reasonable
best efforts to cause Parent Representatives to hold, in strict confidence
all nonpublic documents and information furnished to each Company, in
connection with the transactions contemplated by this Agreement, except that
(i) Sulcus and Parent may disclose such information as may be necessary in
connection with seeking the Sulcus Required Statutory Approvals, Sulcus
Stockholders' Approval, Parent Required Statutory Approvals and Parent
Stockholders' Approval and (ii) each of Sulcus and Parent may disclose any
information that it is required by law or judicial or administrative order to
disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, each Company shall promptly redeliver to the other all nonpublic
written material provided pursuant to this Section 6.1 and shall not retain
any copies, extracts or other reproductions in whole or in part of such
written material. In such event, all documents, memoranda, notes and other
writings prepared by a Company based on the information in such material
shall be destroyed (and each
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Company shall use their respective reasonable best efforts to cause their
advisors and representatives to similarly destroy their documents, memoranda
and notes), and such destruction (and reasonable best efforts) shall be
certified in writing by an authorized officer supervising such destruction.
SECTION 6.2 REGISTRATION STATEMENT AND PROXY STATEMENT. Parent shall
file with the SEC as soon as is reasonably practicable after the date hereof
the Registration Statement and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as
practicable. Parent shall also take any action required to be taken under
applicable state blue sky or securities laws in connection with the issuance
of Parent Common Stock pursuant hereto and shall use all reasonable efforts
to obtain required approvals and clearance with respect thereto. Parent, SAC
Acquiring Sub and Sulcus shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with any action by any of them in connection with the preceding
sentence. The information provided and to be provided by Parent and Sulcus,
respectively, for use in the Joint Proxy Statement/Prospectus shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 6.3 STOCKHOLDERS' APPROVALS.
(a) Subject to the fiduciary duties of the Board of Directors of Sulcus
under applicable law, Sulcus shall, as promptly as practicable, submit this
Agreement and the transactions contemplated hereby for the approval of its
stockholders at a meeting of stockholders and shall use its best efforts to
obtain stockholder approval and adoption (the "Sulcus Stockholders'
Approval") of this Agreement and the transactions contemplated hereby.
Subject to the fiduciary duties of the Board of Directors of Sulcus under
applicable law, such meeting of stockholders shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the Board of Directors of
Sulcus under applicable law, Sulcus shall, through its Board of Directors,
recommend to its stockholders approval of the transactions contemplated by
this Agreement.
(b) Subject to the fiduciary duties of the Board of Directors of
Parent under applicable law, Parent shall, as promptly as practicable, submit
this Agreement and the transactions contemplated hereby for the approval of
its stockholders at a meeting of stockholders and shall use its best efforts
to obtain stockholder approval and adoption (the "Parent Stockholders'
Approval") of this Agreement and the transactions contemplated hereby.
Subject to the fiduciary duties of the Board of Directors of Parent under
applicable law, such meeting of stockholders shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the Board of Directors of
Parent under applicable law, Parent shall, through its Board of Directors,
recommend to its stockholders approval of the transactions contemplated by
this Agreement.
SECTION 6.4 COMPLIANCE WITH THE SECURITIES ACT. At or prior to the
Closing Date, Sulcus shall use its reasonable efforts to cause any person
whom counsel for Parent reasonably determines is an "affiliate" of Sulcus (as
that term is used in paragraphs (c) and (d) of Rule 145 under the Securities
Act ("Rule 145"), to deliver to Parent, a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to sell, sell or
otherwise dispose of any shares of Parent Common Stock issued in the Merger,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to Parent, is exempt from
the registration requirements of the Securities Act and, in any case, until
after the results covering 30 days of post-Merger combined operations of
Sulcus and Parent have been filed with the SEC, sent to stockholders of
Parent or otherwise publicly issued, except as
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otherwise permitted by Staff Accounting Bulletin No. 76 issued by the SEC.
As soon as is reasonably practicable but in no event later than 45 days after
the end of the first fiscal quarter of Parent ending at least 30 days after
the Effective Time, Parent will publish results including at least 30 days of
combined operations of Parent and Sulcus as referred to in the written
agreements provided for by this Section 6.4.
SECTION 6.5 EXPENSES AND FEES.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that those expenses incurred in connection with
printing and filing the Registration Statement and the Joint Proxy
Statement/Prospectus shall be shared equally by Parent and Sulcus.
(b) Sulcus agrees to pay Parent a fee equal to $2,000,000 if Sulcus
terminates this Agreement pursuant to clauses (iv) or (v) of Section 8.1(a),
or if Parent terminates this Agreement pursuant to clause (v) of Section
8.1(b), and a fee of $250,000 if Parent terminates this Agreement pursuant to
clause (vi) of Section 8.1(b) or Sulcus terminates this Agreement pursuant to
clause (vi) of Section 8.1(a); provided, however, no liability under this
Section 6.5(b) will exist if Sulcus terminates pursuant to Section
8.1(a)(vi), so long as on the date of the vote described in Section
8.1(a)(vi) (the "Approval Date"), the circumstance described in Section
8.1(a)(ix) would exist, assuming that the Approval Date were substituted for
the Effective Date.
(c) Parent agrees to pay Sulcus a fee equal to $2,000,000 if Sulcus
terminates this Agreement pursuant to clause (vii) of Section 8.1(a) and a
fee of $250,000 if Parent terminates this Agreement pursuant to clause (iv)
of Section 8.1(b) or Sulcus terminates this Agreement pursuant to clause
(viii) of Section 8.1(a).
(d) The fees set forth in Sections 6.5(b) and (c) shall constitute the
sole and exclusive remedy for any loss, liability, damage or claim arising
out of or in connection with any nonperformance of a covenant, breach,
failure of a condition precedent or termination of this Agreement.
SECTION 6.6 AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided and subject to
the fiduciary duties of the respective Boards of Directors of each Company,
each of the parties hereto shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including
using its reasonable efforts to obtain all necessary or appropriate waivers,
consents or approvals of third parties required in order to preserve material
contractual relationships of each Company and their respective subsidiaries,
all necessary or appropriate waivers, consents and approvals and SEC
"no-action" letters to effect all necessary registrations, filings and
submissions and to lift any injunction or other legal bar to the Merger (and,
in such case, to proceed with the Merger as expeditiously as possible).
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, either party
shall have the right, at its own expense, to participate therein, and each
Company will not settle any such litigation without the consent of the other,
which consent will not be unreasonably withheld.
(c) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent, Sulcus and the Surviving
Corporation shall take all such necessary action.
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(d) Following the Effective Time of the Merger, Parent shall conduct
its business, and shall cause the Surviving Corporation to conduct its
business, in a manner which would not jeopardize the characterization of the
Merger as a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code. In this regard, Parent shall cause the Surviving
Corporation to continue its historic business or use a significant portion of
its historic business assets in a business within the meaning of Section 368
of the Code. Moreover, Parent does not have any present plan or intent to
(a) sell or otherwise dispose of the stock of the Surviving Corporation
except for transfers of stock to corporations "controlled" (within the
meaning of Section 368(c) of the Code) by Parent, (b) reacquire any of its
stock issued in connection with the Merger, (c) cause the Surviving
Corporation to issue shares of stock of the Surviving Corporation that would
result in Parent losing "control" (within the meaning of Section 368(c) of
the Code) of the Surviving Corporation, or (d) take or refrain from taking,
or permit the Surviving Corporation to take or refrain from taking, any other
action that might otherwise cause the Merger not to be treated as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code. Parent and SAC Acquiring Sub will provide Sulcus with certain
factual representations of Parent and SAC Acquiring Sub reasonably requested
by Sulcus as necessary to confirm that Parent and SAC Acquiring Sub will not
take any action on or after the Effective Time that would jeopardize the tax
free nature of the transaction.
SECTION 6.7 PUBLIC STATEMENTS. Each Company shall consult with each
other prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby and shall
not issue any such press release or written public statement prior to such
consultation.
SECTION 6.8 NOTIFICATION OF CERTAIN MATTERS. Each of Parent and Sulcus
agrees to give prompt notice to each other of, and to use commercially
reasonable efforts to remedy, (i) the occurrence or failure to occur of any
event which occurrence or failure to occur would be likely to cause any of
its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect on the Closing Date and (ii) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it thereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.8 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.9 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) The indemnification provisions of the Certificate of Incorporation
and By-Laws of the Surviving Corporation as in effect at the Effective Time
shall not be amended, repealed or otherwise modified for a period of six
years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of Sulcus. Parent hereby guaranties
unconditionally the satisfaction of all such rights to indemnification (and
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
the PBCL).
(b) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations of the Surviving
Corporation or the Parent, as the case may be, set forth in this Section 6.9.
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(c) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect for each director and officer of Sulcus and
its Subsidiaries as of the Effective Time, liability insurance coverage with
respect to matters arising at or prior to the Effective Time, in such amounts
and containing such terms and conditions that are not materially less
advantageous to such parties than the coverage applicable to such individuals
immediately prior to the Effective Time.
(d) The rights of each indemnified party hereunder shall be in addition
to, and not in limitation of, any other rights such indemnified party may
have under the charter or bylaws of Sulcus, any indemnification agreement,
under the PBCL, or otherwise. The provisions of this Section 6.9 shall
survive the consummation of the Merger and expressly are intended to benefit
each of the indemnified parties.
SECTION 6.10 CORRECTIONS TO THE JOINT PROXY STATEMENT/PROSPECTUS AND
REGISTRATION STATEMENT. Prior to the date of approval of the Merger by their
respective stockholders, each of Sulcus and Parent shall correct promptly any
information provided by it to be used specifically in the Joint Proxy
Statement/Prospectus and Registration Statement that shall have become false
or misleading in any material respect and shall take all steps necessary to
file with the SEC and have declared effective or cleared by the SEC any
amendment or supplement to the Joint Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause the Joint Proxy
Statement/Prospectus as so corrected to be disseminated to the stockholders
of Sulcus and Parent, in each case to the extent required by applicable law.
SECTION 6.11 EXCHANGE LISTING. Parent shall use its reasonable best
efforts to effect, at or before the Effective Time, authorization for listing
on the NASDAQ, upon official notice of issuance, of the shares of Parent
Common Stock to be issued pursuant to the Merger or to be reserved for
issuance upon the exercise of stock options.
SECTION 6.12 PARENT BOARD OF DIRECTORS. At the Effective Time, the Board of
Directors of Parent shall include two individuals designated by Sulcus.
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) the Sulcus Stockholders' Approval and the Parent Stockholders'
Approval;
(b) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and
no proceeding for that purpose shall have been instituted by the SEC or any
state regulatory authorities;
(c) the shares of Parent Common Stock issuable in the Merger and those
to be reserved for issuance upon exercise of stock options shall have been
authorized for listing on the NASDAQ upon official notice of issuance;
(d) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in
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effect (each party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted);
(e) no statute, rule or regulation shall have been enacted by any state
or federal government or governmental agency in the United States which would
prevent the consummation of the Merger or make the Merger illegal; and
(f) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby, and all consents from lessors or other third parties (excluding any
lenders) required to consummate the Merger, shall have been obtained and be
in effect at the Effective Time, except where the failure to obtain the same
would not be reasonably likely, individually or in the aggregate, to have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or other) or results of operations of
Sulcus, Parent and their subsidiaries, taken as a whole, following the
Effective Time.
SECTION 7.2 CONDITION TO OBLIGATION OF SULCUS TO EFFECT THE MERGER.
Unless waived by Sulcus, the obligation of Sulcus to effect the Sulcus Merger
shall be subject to the fulfillment at the Closing Date of the following
additional conditions: Parent and SAC Acquiring Sub shall each have
performed their agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Parent and SAC Acquiring Sub contained in this Agreement shall
be true and correct on and as of the date made and (except to the extent that
such representations and warranties speak as of an earlier date) on and as of
the Closing Date as if made at and as of such date (provided, however, that
on such date the definition of "Parent Material Adverse Effect" shall include
only a circumstance that would trigger Sulcus's right to terminate as
described in Section 8.1(a)(ix)), except for such failures to perform or to
be true and correct that would not reasonably be expected to result in a
Parent Material Adverse Effect, and Sulcus shall have received a certificate
of the Chief Executive Officer of Parent to that effect.
SECTION 7.3 CONDITION TO OBLIGATION OF ELTRAX TO EFFECT THE MERGER.
Unless waived by Parent, the obligation of Parent to effect the Parent Merger
shall be subject to the fulfillment at the Closing Date of the following
additional conditions: Sulcus shall have performed its agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and the representations and warranties Sulcus contained in this Agreement
shall be true and correct on and as of the date made and (except to the
extent that such representations and warranties speak as of an earlier date)
on and as of the Closing Date as if made at and as of such date except for
such failures to perform or to be true and correct that would not reasonably
be expected to result in a Sulcus Material Adverse Effect, and Parent shall
have received a certificate of the Chief Executive Officer of Sulcus to that
effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after the Sulcus or Parent
Stockholders' Approval, by the mutual written consent of Sulcus and Parent or
as follows:
(a) Sulcus shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of
Parent contained in this Agreement which has not been cured in all
material respects within 30 days after written notice of such default
specifying such default in reasonable detail is given to
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Parent by Sulcus and which has caused any of the conditions set forth
in Section 7.2 to be incapable of being satisfied by the Termination
Date;
(ii) if the Merger is not completed by June 30, 1999 (the
"Termination Date") (unless due to a delay or default on the part of Sulcus);
(iii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Sulcus and if Sulcus shall
have used reasonable efforts to prevent the entry of such order;
(iv) if Sulcus receives a Superior Proposal, resolves to accept such
Superior Proposal, and Sulcus shall have given Parent two days' prior written
notice of its intention to terminate pursuant to this provision; provided,
however, that such termination shall not be effective until such time as the
payment required by Section 6.5(b) shall have been received by Parent;
(v) if (A) a tender or exchange offer is commenced by a Potential
Acquirer (excluding any affiliate of Sulcus or any group of which any
affiliate of Sulcus is a member) for all outstanding shares of Sulcus Common
Stock, (B) Sulcus's Board of Directors determines, in good faith and after
consultation with an independent financial advisor, that such offer
constitutes a Superior Proposal and resolves to accept such Superior Proposal
or recommend to the stockholders that they tender their shares in such tender
or exchange offer and (C) Sulcus shall have given Parent two days' prior
written notice of its intention to terminate pursuant to this provision;
provided, however, that such termination shall not be effective until such
time as the payment required by Section 6.5(b) shall have been received by
Parent;
(vi) if the stockholders of Sulcus fail to approve the Merger at a
duly held meeting of stockholders called for such purpose or any adjournment
or postponement thereof;
(vii) if Parent (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such default
in all material respects within 30 days after written notice of such default
specifying such default in reasonable detail is given to Parent by Sulcus;
(viii) if the Parent Stockholders' Approval has not been obtained by
May 31, 1999, provided that the Registration Statement has been declared
effective by April 15, 1999, and remained effective through May 31, 1999, and
Sulcus has materially complied with all of its covenants hereunder; or
(ix) if, for the seven consecutive trading days ending on the third
trading day immediately prior to the Effective Time, the average of the
closing sale prices as reported by the Wall Street Journal or if not reported
therein, by another authoritative source (the "Average Price"), of Parent
Common Stock, as reflected on the National Association of Securities Dealers
Automated Quotation System/Small Cap Market, is less than four and 50/100
dollars ($4.50) per share, BUT ONLY IF, the Average Price of Sulcus Common
Stock, as reflected on the American Stock Exchange, is not less than one and
00/100 dollars ($1.00) per share.
(b) Parent shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of Sulcus
contained in this Agreement which has not been cured in all material respects
within 30 days after
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written notice of such default specifying such default in reasonable
detail is given to Sulcus by Parent and which has caused any of the
conditions set forth in Section 7.3 to be incapable of being satisfied
by the Termination Date;
(ii) if the Merger is not completed by the Termination Date (unless
due to a delay or default on the part of Parent);
(iii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Parent and if Parent
shall have used reasonable efforts to prevent the entry of such order;
(iv) if the stockholders of Parent fail to approve the Merger at a
duly held meeting of stockholders called for such purpose or any
adjournment or postponement thereof;
(v) if Sulcus (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice
of such default specifying such default in reasonable detail is given
to Sulcus by Parent; or
(vi) if the Sulcus Stockholders' Approval has not been obtained by
May 31, 1999, provided that the Registration Statement has been
declared effective by April 15, 1999 and remained effective through
May 31, 1999, and Parent has materially complied with all of its
covenants hereunder.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or Sulcus pursuant to the provisions of Section
8.1, this Agreement shall forthwith become void and there shall be no
liability or further obligation on the part of Parent, Sulcus, or SAC
Acquiring Sub or their respective officers or directors (except this Section
8.2, the second sentence of Section 6.1(a), 6.1(b), 6.5, and 9.5 all of which
shall survive the termination). Nothing in this Section 8.2 shall relieve any
party from liability for any willful and intentional breach of any covenant
or agreement of such party contained in this Agreement.
SECTION 8.3 AMENDMENT. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly
authorized committees or officers thereof and then only by an instrument in
writing signed on behalf of each of the parties hereto and in compliance with
applicable law. Such amendment may take place at any time prior to the
Closing Date, and, subject to applicable law, whether before or after
approval by the stockholders of Sulcus or Parent.
SECTION 8.4 WAIVER. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No
representations, warranties or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, and
after the Effective Date of the Merger
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neither Parent nor Sulcus, or their respective officers or directors shall
have any further obligation with respect thereto, except for the
representations, warranties and agreements contained in Articles II and IX,
Sections 1.4, 1.5, 6.5, 6.6 (including any factual representations set forth
in a certificate delivered to Sulcus pursuant thereto) and 6.9, which shall
survive the Merger.
SECTION 9.2 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed
by registered or certified mail (return receipt requested) or sent via
confirmed facsimile to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to Sulcus, to:
Sulcus Hospitality Technologies Corp.
105 Morris Ave., Suite 301
Springfield, NJ 07081
Attn: Leon D. Harris
Facsimile No.: (973) 379-5217
with a copy to:
Benesch, Friedlander, Coplan
& Aronoff LLP
2300 BP Tower
200 Public Square
Cleveland, OH 44114-2378
Attn: Michael K. Wager, Esq.
Facsimile No.: (216) 363-4588
(b) If to Parent:
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Facsimile No.: (248) 358-2743
with a copy to:
Jaffe, Raitt, Heuer & Weiss
Professional Corporation
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Attn: William E. Sider, Esq.
Facsimile No.: (313) 961-8358
(c) If to SAC Acquiring Sub:
Sulcus Acquiring Corporation
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Facsimile No.: (248) 358-2743
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with a copy to:
Jaffe, Raitt, Heuer & Weiss
Professional Corporation
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Attn: William E. Sider, Esq.
Facsimile No.: (313) 961-8358
SECTION 9.3 INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
SECTION 9.4 GOVERNING LAW. This agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
Sate of Michigan applicable to contracts executed and to be performed wholly
within such state.
SECTION 9.5 ARBITRATION. Any controversy or claim arising out of or
relating to this agreement, or the making, performance or interpretation
hereof, including without limitation alleged fraudulent inducement hereof,
will be settled by binding arbitration in Southfield, Michigan, by a panel of
three arbitrators, of which Parent will choose one arbitrator, Sulcus will
choose one arbitrator, and those arbitrators will choose the third
arbitrator, who will act as chairman of the panel. The arbitrators will
select the rules and procedures under which the arbitration will be
conducted. 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.
SECTION 9.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
SECTION 9.7 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.8 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; and (b) shall not be assigned by operation of law or otherwise,
except that SAC Acquiring Sub may assign this Agreement to any other
wholly-owned subsidiary of Parent.
25
<PAGE>
IN WITNESS WHEREOF, Parent, SAC Acquiring Sub and Sulcus have caused
this Agreement to be signed by their respective officers and attested to as
of the date first written above.
ELTRAX SYSTEMS, INC.
By:___________________________
William P. O'Reilly
Its: Chief Executive Officer
SULCUS ACQUIRING CORPORATION
By:____________________________
Clunet R. Lewis
Its: President
SULCUS HOSPITALITY TECHNOLOGIES CORP.
By:____________________________
Leon D. Harris
Its: Chief Executive Officer
26
<PAGE>
SCHEDULES
---------
<TABLE>
<S> <C>
Schedule 3.2(b) Sulcus Disclosure Regarding Capitalization
Schedule 3.3 Sulcus Disclosure Regarding Subsidiaries
Schedule 3.4(b) Sulcus Disclosure Regarding Non-contravention
Schedule 3.6 Sulcus Absence of Certain Changes or Events
Schedule 3.12 Sulcus Intellectual Property Disclosures
Schedule 4.4(b) Parent Disclosure Regarding Non-contravention
Schedule 4.10 Parent Intellectual Property Disclosures
</TABLE>
27
<PAGE>
SCHEDULE 3.2(b) SULCUS DISCLOSURE REGARDING CAPITALIZATION
Pursuant to a consulting agreement between Sulcus and David Berkus,
effective February 1, 1995, Sulcus is obligated to issue shares of Sulcus
Common Stock to Mr. Berkus as part of his compensation for being a Strategic
Consultant to the Hospitality Group. Mr. Berkus receives monthly
compensation of $6,500, one-third of which is paid in shares of Sulcus Common
Stock, based upon the closing price on the first trading day of each
successive month.
SCHEDULE 3.3 SULCUS DISCLOSURE REGARDING SUBSIDIARIES
Four shares of the issued and outstanding common stock of Sulcus
Hospitality Technologies EMEA, AG, a corporation organized under the laws of
Switzerland (the "Swiss Subsidiary"), are owned by Bernard Mantel, an
employee of a subsidiary of Sulcus. There are 100 shares of the Swiss
Subsidiary's common stock issued and outstanding.
SCHEDULE 3.4(b) - SULCUS DISCLOSURE REGARDING NON-CONTRAVENTION
The consummation of the transactions contemplated by the Agreement
(the "Merger") will create an Event of Default under the Line of Credit Loan
Agreement, dated April 29, 1997, by and between United States National Bank
in Johnstown ("Lender") and Sulcus Computer Corporation, Sulcus Law
Management Services, Inc., Radix Systems, Inc., Lodgistix, Inc., Squirrel
Companies, Inc. and NRG Management Systems, Inc. (collectively, "Borrower").
Borrower must also notify Lender of any changes in its executive management
within five (5) days of such change.
Leon Harris' employment agreement, dated March 3, 1997, as amended on
October 13, 1997, contains several provisions related to a change of control
of Sulcus.
Under John Ryba's employment agreement, effective as of August 1,
1994, if he is terminated after the Merger, Mr. Ryba will be entitled to
receive his then existing salary for one (1) year after the Merger. Although
Mr. Ryba's employment agreement has not been formally terminated, Sulcus and
Mr. Ryba have not been following certain of the substantive terms of the
employment agreement.
The Merger will cause all options granted under the 1997 Non-Employee
Directors' Stock Option Plan to terminate ninety (90) days after the Merger
and, upon completion of the Merger, become automatically exercisable, without
regard to any vesting limitations.
Under the terms of the 1997 Long-Term Incentive Plan (the "LTIP"), the
Merger gives the Stock Option Committee the ability to terminate awards under
the LTIP ninety (90) days after the Merger. If the Stock Option Committee
terminates any award, then, as appropriate, immediately upon the completion
of the Merger, (i) such options (not in tandem with stock appreciation
rights) and restricted stock awards will immediately vest, (ii) all
restrictions on such restricted stock awards will immediately lapse, and
(iii) all vesting limitations with respect to such performance plan awards
will be deemed satisfied. There are no options or other awards currently
outstanding under the LTIP.
Sulcus has entered into change of control severance agreements with
the following executive officers:
a. Agreement dated October 13, 1997 with John Ryba;
28
<PAGE>
b. Agreement dated October 13, 1997 with Barry Logan;
c. Agreement dated October 13, 1997 with Alan Ellenbogen;
d. Agreement dated June 15, 1998 with Larry Gomez;
e. Agreement dated May 11, 1998 with Joanne Yates;
f. Agreement dated May 11, 1998 with John Picardi; and
g. Agreement dated November 2, 1998 with Mark Sadosky.
The Merger will be treated as an assignment under the Lease Agreement
between the Chalpin Family Enterprises Limited Partnership (the "Landlord")
and Sulcus, effective July, 1997. The Lease Agreement provides that it
cannot be assigned without the prior written consent of the Landlord. This
Lease Agreement relates to space located at Acoma Pointe, 7345 East Acoma
Drive, Suite 300, Scottsdale, Arizona.
SCHEDULE 3.6 - SULCUS ABSENCE OF CERTAIN CHANGES OR EVENTS
Sulcus commenced a repurchase program for issued and outstanding
shares of Sulcus Common Stock in September 1998, pursuant to which 262,315
shares of Sulcus Common Stock were repurchased.
SCHEDULE 3.12 - SULCUS INTELLECTUAL PROPERTY DISCLOSURES
Pursuant to an Agreement dated October 21, 1998 between Edge
Communications, Inc. ("Edge") and Sulcus, the parties agreed that Sulcus's
use of the mark "WINNFINITY" (trademark application pending) and Edge's used
of the mark "WINFINITY" (trademark application pending) do not infringe on
each other's rights and are not likely to confuse consumers. The parties
also agreed to not interfere with each other's use of their mark and not to
make any claim of infringement based on the other party's use of their mark.
SCHEDULE 4.4(b) PARENT DISCLOSURE REGARDING NON-CONTRAVENTION
Under that certain Credit Agreement dated September 11, 1998 by and
among State Street Bank and Trust Company (the "Bank"), Parent, and its
Subsidiaries (the "Credit Agreement"), there are certain covenants described
in Section 6(m) of the Credit Agreement with which Parent must comply prior
to consummation of the Merger.
SCHEDULE 4.10 PARENT DISCLOSURE REGARDING INTELLECTUAL PROPERTY
Parent has filed applications to register the trademarks "Netwatch
Online" and "Netwatch." These registrations have been denied because of an
existing registration of the trademark "Netwatch." Parent believes that the
company owning this trademark is no longer doing business and Parent has
commenced proceedings with the United States Patent and Trademark Office to
revoke the existing trademark and to pursue Parent's applications.
29
<PAGE>
ANNEX B
[LETTERHEAD]
BROADVIEW
November 11, 1998
CONFIDENTIAL
VIA FEDERAL EXPRESS
Board of Directors
Sulcus Hospitality Technologies Corporation
Sulcus Centre
41 North Main Street
Greensburg, PA 15601
Dear Members of the Board:
We understand that Sulcus Hospitality Technologies Corporation, a
Pennsylvania corporation ("Sulcus"), Eltrax Systems, Inc., a Minnesota
corporation ("Eltrax"), and Slalom Acquisition Corporation, a Pennsylvania
corporation, and a wholly owned subsidiary of Eltrax ("SAC Acquiring Sub")
propose to enter into an Agreement and Plan of Merger (the "Agreement")
pursuant to which SAC Acquiring Sub shall be merged with and into Sulcus (the
"Merger"). Pursuant to the Merger each share of Sulcus common stock ("Sulcus
Common Stock") shall be converted into the right to receive 0.55 shares (the
"Sulcus Exchange Ratio") of the common stock of Eltrax ("Eltrax Common
Stock"). The Merger is intended to be a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended. The terms
and conditions of the above described Merger are more fully detailed in the
Agreement.
You have requested our opinion as to whether the Sulcus Exchange Ratio is
fair, from a financial point of view, to Sulcus shareholders.
Broadview International LLC focuses on providing merger and acquisition
advisory services to information technology ("IT"), communications and media
companies. In this capacity, we are continually engaged in valuing such
businesses, and we maintain an extensive database of IT, communications and
media mergers and acquisitions for comparative purposes. We are currently
acting as financial advisor to Sulcus' Board of Directors and will receive a
fee from Sulcus upon the successful conclusion of the Merger.
<PAGE>
Board of Directors November 11, 1998
Page 2
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and the associated exhibits thereto
in the form of the draft dated November 10, 1998 furnished to us by
Jaffe, Raitt, Heuer & Weiss on November 10, 1998 (which, for the
purposes of this opinion, we have assumed, with your permission, to be
identical in all material respects to the agreement to be executed);
2.) reviewed Sulcus' Form 10-K for the fiscal year ended December 31,
1997 which included results for the fiscal years ended December 31,
1997 and 1996, including the audited financial statements included
therein, Sulcus' Form 10-Q for the six months ended June 30, 1998,
including the unaudited financial statements included therein, and the
unaudited financial information of Sulcus for its nine months ended
September 30, 1998 included in a proposed draft press release provided
to us by Sulcus management;
3.) reviewed certain internal financial and operating information,
including projections through December 31, 1999, for Sulcus prepared by
Sulcus management;
4.) participated in discussions with Sulcus management concerning the
operations, business strategy, financial performance and prospects for
Sulcus;
5.) discussed with Sulcus management its view of the strategic rationale
for the Merger;
6.) reviewed the recent reported closing prices and trading activity for
Sulcus Common Stock;
7.) compared certain aspects of the financial performance of Sulcus with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part to the Merger;
9.) reviewed Eltrax's annual report and Form 10-K for the fiscal year ended
December 31, 1997 which included results for the fiscal years ended
<PAGE>
Board of Directors November 11, 1998
Page 3
December 31, 1997 and 1996, including the audited financial statements
included therein, Eltrax's Form 10-Q for the six months ended June 30,
1998, including the unaudited financial statements included therein, and
the unaudited financial information of Eltrax for its nine months ended
September 30, 1998 included in a proposed draft press release provided
to us by Eltrax management;
10.) reviewed certain internal financial and operating information,
including projections through December 31, 1999, for Eltrax prepared by
Eltrax management;
11.) participated in discussions with Eltrax management concerning the
operations, business strategy, financial performance and prospects for
Eltrax;
12.) reviewed the recent reported closing prices and trading activity for
Eltrax Common Stock;
13.) discussed with Eltrax management its view of the strategic rationale
for the Merger;
14.) compared certain aspects of the financial performance of Eltrax with
public companies we deemed comparable;
15.) considered the total number of shares of Eltrax Common Stock
outstanding and the average weekly trading volume of Eltrax Common
Stock;
16.) prepared PRO FORMA consolidated annual income statements through
December 31, 1999 for the combined entity based on forecasts through
December 31, 1999 for Eltrax and Sulcus provided to us by Eltrax and
Sulcus managements, respectively;
17.) assisted in negotiations and discussions related to the Merger among
Sulcus, Eltrax and the respective legal advisors; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
<PAGE>
Board of Directors November 11, 1998
Page 4
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Sulcus,
Eltrax or Eltrax's legal advisor. With respect to the financial projections
and forecasts examined by us, we have assumed that they were reasonably
prepared and reflected the best available estimates and good faith judgments
of the management of Eltrax and Sulcus as to the future performance of Eltrax
and Sulcus, respectively. We have neither made nor obtained an independent
appraisal or valuation of any of Eltrax's or Sulcus' assets.
Based upon and subject to the foregoing, we are of the opinion that the Sulcus
Exchange Ratio is fair, from a financial point of view, to Sulcus
shareholders.
For purposes of this opinion, we have assumed that neither Sulcus nor Eltrax
is currently involved in any material transaction, including financings,
recapitalizations, mergers, acquisitions and dispositions, other than the
Merger and those activities undertaken in the ordinary course of conducting
their respective businesses. We note that Eltrax management has advised us
that it intends to pursue other acquisition opportunities from time to time.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this opinion,
and any change in such conditions would require a reevaluation of this
opinion. We express no opinion as to the price at which Eltrax Common Stock
will trade subsequent to the Effective Time (as defined in the Agreement).
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Sulcus in
connection with its consideration of the Merger and does not constitute a
recommendation to any Sulcus shareholder as to how such shareholder should
vote on the Merger. This opinion may not be published or referred to, in
whole or part, without our prior written permission, which shall not be
unreasonably withheld. Broadview International LLC hereby consents to
references to and the inclusion of this opinion in its entirety in the Proxy
Statement/Prospectus to be distributed to Sulcus shareholders in connection
with the Merger.
Sincerely,
/s/ Broadview International
Broadview International LLC
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of Eltrax's Amended and Restated Articles of Incorporation limits
the liability of its directors to the fullest extent permitted by the Minnesota
Business Corporation Act (the "MBCA"). Specifically, directors of Eltrax will
not be personally liable for monetary damages for breach of fiduciary duty as
directors, except liability for (i) any breach of the duty of loyalty to Eltrax
or its shareholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) dividends or other
distributions of corporate assets that are in contravention of certain statutory
or contractual restrictions, (iv) violations of certain Minnesota securities
laws, or (v) any transaction from which the director derives an improper
personal benefit.
Article IV of Eltrax's Amended and Restated Articles of Incorporation gives
Eltrax the power and authority to provide indemnification to officers,
directors, employees and agents of Eltrax to the fullest extent permissible
under the MBCA. Section 302A.521 of the MBCA requires that a company indemnify
any director, officer or employee made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of the person,
against judgments, penalties, fines, settlements and reasonable expenses
incurred in connection with the proceeding if certain statutory standards are
met. "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the company. Reference is made to the detailed terms of
Section 302A.531 of the MBCA for a complete statement of such indemnification
rights.
Article VII of Eltrax's Restated Bylaws provides that Eltrax shall indemnify
such persons, for such expenses and liabilities, in such manner, under such
circumstances, and to such extent, as permitted by the MBCA, as now enacted or
hereafter amended, provided that a determination is made in each case, in the
manner required by such statute, that the person seeking indemnification is
eligible therefor.
Eltrax maintains directors' and officers' liability insurance, including a
reimbursement policy in favor of Eltrax.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of November Included in the Proxy Statement/Prospectus as Annex
11, 1998, by and among Eltrax Systems, Inc., A.
Sulcus Hospitality Technologies Corp. and Sulcus
Acquiring Corporation.
3.1 Amended and Restated Articles of Incorporation of Incorporated by reference to Exhibit 3.1 to
Eltrax Systems, Inc. Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
3.2 Restated Bylaws of Eltrax Systems, Inc. Incorporated by reference to Exhibit 3.2 to
Eltrax's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1996.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
5.1 Opinion of Jaffe, Raitt, Heuer & Weiss, P.C. To be filed by amendment.
8.1 Opinion of Benesch, Friedlander, Coplan & Aronoff To be filed by amendment.
LLP
10.1 1992 Stock Incentive Plan. Incorporated by reference to Exhibit 10.4 to
Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
10.2 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.6 to
Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
10.3 Form of Non-Statutory Option Agreement. Incorporated by reference to Exhibit 10.7 to
Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
10.4 Form of Non-Employee Director Stock Option Incorporated by reference to Exhibit 10.10 to
Agreement. Eltrax's Annual Report on Form 10-KSB for the
year ended March 31, 1993.
10.5 1995 Stock Incentive Plan. Incorporated by reference to Exhibit 10.12 to
Eltrax's Annual Report on Form 10-KSB for the
year ended March 31, 1995.
10.6 Consulting Agreement dated as of June 1, 1996 by Incorporated by reference to Exhibit 10.9 to
and between the Company and Clunet R. Lewis. Eltrax's Annual Report on Form 10-KSB for the
nine month transition period ended December 31,
1996.
10.7 Consulting Agreement dated as of June 1, 1996 by Incorporated by reference to Exhibit 10.10 to
and between the Company and William P. O'Reilly. Eltrax's Annual Report on Form 10-KSB for the
nine month transition period ended December 31,
1996.
10.8 Agreement dated as of October 31, 1996 by and among Incorporated by reference to Exhibit 10.7 to
the Company William P. O'Reilly, Clunet R. Lewis, Eltrax's Current Report on Form 8-K filed
Mack V. Traynor, III and Walter C. Lovett, November 12, 1996.
Douglas L. Roberson and B. Taylor Koonce.
10.9 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.2 to
May 14, 1997 by and between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated May 15,
and Edward J. Gorlitz. 1997.
10.10 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
May 14, 1997 by and between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated May 15,
and Colin E. Quinn. 1997.
10.11 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.2 to
July 1, 1997 by and between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated July 1,
and Joel J. Blickenstaff. 1997.
10.12 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
July 1, 1997 by between Eltrax Systems, Inc. and Eltrax's Current Report and on Form 8-K dated
Robert A. Hughes. July 1, 1997.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.13 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
August 15, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated August
Inc. and Edward C. Barrett. 15, 1997.
10.14 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
August 15, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated August
Inc. and Daniel M. Christy. 15, 1997.
10.15 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.3 to
August 15, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated August
Inc. and David R. Hurlbrink. 15, 1997.
10.16 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
October 31, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated October
Inc. and John M. Good. 3, 1997.
10.17 Employment and Non-Competition Agreement, dated as Incorporated by reference to Exhibit 10.1 to
of August 31, 1998 between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated
and Penelope Sellers September 10, 1998.
10.18 Credit Agreement, dated as of September 11, 1998, Incorporated by reference to Exhibit 10.2 to
between Eltrax Systems, Inc., Nordata, Inc., Four Eltrax's Current Report on Form 8-K dated
Corners Technology, Inc., Encore Systems, Inc., September 10, 1998.
Global Systems and Support, Inc., Five Star
Systems, Inc., and State Street Bank and Trust
Company
10.19 Security Agreement dated October 31, 1996 between Incorporated by reference to Exhibit 10.16 to
the Company and State Street Bank and Trust Eltrax's Annual Report on Form 10-KSB for the
Company, as amended. year ended December 31, 1997.
10.20 Consulting Agreement dated January 21, 1997 by and Incorporated by reference to Exhibit 10.21 to
between the Company and Gene A. Bier. Eltrax's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
10.21 Asset Purchase Agreement dated as of January 29, Incorporated by reference to Exhibit 99.1 to
1997 between Atlantic Network Systems, Inc. and Eltrax's Current Report on Form 8-K filed
MRK Technologies, LTD. February 12, 1997.
10.22 1997 Stock Incentive Plan. Incorporated by reference to Exhibit 10.24 to
Eltrax's Annual Report on Form 10-KSB for the
year ended December 31, 1997 (File No. 0-22190).
10.23 Real Estate Lease dated June 1, 1996 between Walt Incorporated by reference to Exhibit 10.11 to
Lovett, Doug and Lisa Roberson and Atlantic Eltrax's Annual Report on Form 10-KSB for the
Network Systems, Inc. nine month transition period ended December 31,
1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.24 Lease Agreement between Burgoe/ Wyomissing Partners Incorporated by reference to Exhibit 10.30 to
and Hi-Tech Connections, Inc. dated September 15, Eltrax's Annual Report on Form 10-KSB for the
1996. year ended December 31, 1997.
10.25 Lease Agreement between JMG Development Co. Ltd and Incorporated by reference to Exhibit 10.31 to
DataComm Associates, Inc. dated December 1, 1996. Eltrax's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
10.26 Lease Agreement between Werner Palmquist Incorporated by reference to Exhibit 10.32 to
Investments and Four Corners Technology, Inc. Eltrax's Annual Report on Form 10-KSB for the
dated February 21, 1996. year ended December 31, 1997.
10.27 1998 Stock Incentive Plan To be filed by amendment
10.28 Office Lease, dated January 15, 1992, between 900 To be filed by amendment.
Corporation and Encore Systems, Inc.
10.29 Amended and Restated Preferred Vendor Arrangement, To be filed by amendment.
dated as of May 15, 1992, between Holiday
Hospitality Corporation and Encore Systems, Inc.
10.30 Agreement and Plan of Merger dated as of May 14, Incorporated by reference to Exhibit 2.1 to
1997 by and among Eltrax Systems, Inc., EJG Eltrax's Current Report in Form 8-K dated May 14,
Techline Acquiring Corporation, EJG Techline, 1997 (File No. 0-22190).
Incorporated and Edward J. and Kathleen M.
Gorlitz and Colin E. and Diane C. Quinn
10.31 Agreement and Plan of Merger dated as of July 1, Incorporated by reference to Exhibit 2.1 to
1997 by and among Eltrax Systems, Inc., Four Eltrax's Current Report in Form 8-K dated July 1,
Corners Acquiring Corporation, Four Corners 1997 (File No. 0-22190).
Technology, Inc. and Robert A. Hughes, Joel J.
Blickenstaff and David Noall.
10.32 Agreement and Plan of Merger dated as of August 15, Incorporated by reference to Exhibit 2.1 to
1997 by and among Eltrax Systems, Inc., Hi-Tech Eltrax's Current Report in Form 8-K dated August
Acquiring Corporation, Hi-Tech Connections, Inc. 15, 1997 (File No. 0-22190).
and Edward C. Barrett, Daniel M. Christy, David
R. Hurlbrink, David R. Spatz, Raymond H. Melcher
and Timothy E. Devlin.
10.33 Agreement and Plan of Merger dated as of October Incorporated by reference to Exhibit 2.1 to
31, 1997 by and among Eltrax Systems, Inc., Eltrax's Current Report in Form 8-K dated October
DataComm Acquiring Corp., Midwest Acquiring 3, 1997 (File No. 0-22190).
Corp., DataComm Associates, Inc., Midwest Telecom
Associates, Inc. and John M. Good and Harold
Madison.
</TABLE>
II-4
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
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<C> <S> <C>
23.1 Consent of Crowe, Chizek and Company LLP, Filed herewith
independent accountants
23.2 Consent of PricewaterhouseCoopers LLP, Filed herewith
independent accountants
23.3 Consent of Jaffe, Raitt, Heuer & Weiss, P.C. Included in Exhibit 5.1.
23.4 Consent of Benesch, Friedlander, Included in Exhibit 8.1
Coplan & Aronoff LLP
24.1 Powers of Attorney Included in Part II of the Registration Statement.
99.1 Form of Proxy Card for Special Meeting of To be filed by amendment.
Shareholders of Eltrax Systems, Inc.
99.2 Form of Proxy Card for Special Meeting of To be filed by amendment.
Shareholders of Sulcus Hospitality Technologies
Corp.
99.3 Articles of Incorporation, as amended, of Incorporated by reference to Exhibit 4.1 to Sulcus'
Sulcus Hospitality Technologies Corp. Registration Statement on Form S-8 (File No.
333-43419).
99.4 Amended and Restated Bylaws of Sulcus Hospitality Incorporated by reference to Exhibit 4.2 to Sulcus'
Technologies Corp. Registration Statement on Form S-8 (File No.
333-43419).
99.5 Rights Agreement between Sulcus Hospitality Incorporated by reference to Exhibit ii to Sulcus'
Technologies Corp. and American Stock Transfer & Registration Statement on Form 8-A (File No.
Trust Company, dated as of January 30, 1998. 001-11148).
99.6 Opinion of Broadview International LLC Included in the Proxy Statement/Prospectus as Annex
B.
99.7 Consent of Leon Harris (Proposed Director) To be filed by amendment.
99.8 Consent of Christine Hughes (Proposed Director) To be filed by amendment.
99.9 Consent of Broadview International LLC Included in Exhibit 99.6.
</TABLE>
(b) Financial Statement Schedules.
None.
(c) Reports, Opinions and Appraisals.
None.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) (1) The Registrant hereby undertakes that prior to any public reoffering
of the securities registered hereunder through use of a prospectus which is
a part of this registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c), the issuer
II-5
<PAGE>
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings
by persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form within one business day of receipt of such request,
and to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed subsequent
to the effective date of the registration statement through the date of
responding to the request.
(d) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Southfield, State of Michigan, on December 8, 1998.
<TABLE>
<S> <C> <C>
EXTRAX SYSTEMS, INC.
A Minnesota corporation
By: /s/ WILLIAM P. O'REILLY
------------------------------------------
William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Eltrax Systems, Inc. hereby constitutes and appoints William P.
O'Reilly and Clunet R. Lewis, or either of them, his attorneys-in-fact and
agents, with full power of substitution and resubstitution for him in any and
all capacities, to sign any or all amendments or post-effective amendments to
this Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith or in connection with the registration
of the shares of Common Stock under the Securities Act of 1933, with the
Securities and Exchange Commission, granting unto each of such attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary in connection with such matters as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each such attorneys-in-fact and agents or his substitute or
substitutes may do or cause to be done by virtue hereof.
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer,
/s/ WILLIAM P. O'REILLY Chairman of the Board of
- ------------------------------ Directors, and Director December 8, 1998
William P. O'Reilly (principal executive
officer)
/s/ CLUNET R. LEWIS
- ------------------------------ Director December 2, 1998
Clunet R. Lewis
/s/ JAMES C. BARNARD
- ------------------------------ Director November 24, 1998
James C. Barnard
/s/ PATRICK J. DIRK
- ------------------------------ Director November 24, 1998
Patrick J. Dirk
/s/ PENELOPE SELLERS
- ------------------------------ Director December 2, 1998
Penelope Sellers
/s/ STEPHEN E. RAVILLE
- ------------------------------ Director December 2, 1998
Stephen E. Raville
/s/ MACK V. TRAYNOR, III
- ------------------------------ Director November 24, 1998
Mack V. Traynor, III
/s/ THOMAS F. MADISON
- ------------------------------ Director November 24, 1998
Thomas F. Madison
Chief Financial Officer
/s/ NICHOLAS J. PYETT (principal financial
- ------------------------------ officer and principal December 8, 1998
Nicholas J. Pyett accounting officer)
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of November Included in the Proxy Statement/Prospectus as Annex
11, 1998, by and among Eltrax Systems, Inc., A.
Sulcus Hospitality Technologies Corp. and Sulcus
Acquiring Corporation.
3.1 Amended and Restated Articles of Incorporation of Incorporated by reference to Exhibit 3.1 to
Eltrax Systems, Inc. Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
3.2 Restated Bylaws of Eltrax Systems, Inc. Incorporated by reference to Exhibit 3.2 to
Eltrax's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1996.
5.1 Opinion of Jaffe, Raitt, Heuer & Weiss, P.C. To be filed by amendment.
8.1 Opinion of Benesch, Friedlander, Coplan & Aronoff To be filed by amendment.
LLP
10.1 1992 Stock Incentive Plan. Incorporated by reference to Exhibit 10.4 to
Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
10.2 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.6 to
Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
10.3 Form of Non-Statutory Option Agreement. Incorporated by reference to Exhibit 10.7 to
Eltrax's Registration Statement on Form S-18
(File No. 33-51456).
10.4 Form of Non-Employees Director Stock Option Incorporated by reference to Exhibit 10.10 to
Agreement. Eltrax's Annual Report on Form 10-KSB for the
year ended March 31, 1993.
10.5 1995 Stock Incentive Plan. Incorporated by reference to Exhibit 10.12 to
Eltrax's Annual Report on Form 10-KSB for the
year ended March 31, 1995.
10.6 Consulting Agreement dated as of June 1, 1996 by Incorporated by reference to Exhibit 10.9 to
and between the Company and Clunet R. Lewis. Eltrax's Annual Report on Form 10-KSB for the
nine month transition period ended December 31,
1996.
10.7 Consulting Agreement dated as of June 1, 1996 by Incorporated by reference to Exhibit 10.10 to
and between the Company and William P. O'Reilly. Eltrax's Annual Report on Form 10-KSB for the
nine month transition period ended December 31,
1996.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.8 Agreement dated as of October 31, 1996 by and among Incorporated by reference to Exhibit 10.7 to
the Company William P. O'Reilly, Clunet R. Lewis, Eltrax's Current Report on Form 8-K filed
Mack V. Traynor, III and Walter C. Lovett, November 12, 1996.
Douglas L. Roberson and B. Taylor Koonce.
10.9 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.2 to
May 14, 1997 by and between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated May 15,
and Edward J. Gorlitz. 1997.
10.10 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
May 14, 1997 by and between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated May 15,
and Colin E. Quinn. 1997.
10.11 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.2 to
July 1, 1997 by and between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated July 1,
and Joel J. Blickenstaff. 1997.
10.12 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
July 1, 1997 by between Eltrax Systems, Inc. and Eltrax's Current Report and on Form 8-K dated
Robert A. Hughes. July 1, 1997.
10.13 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
August 15, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated August
Inc. and Edward C. Barrett. 15, 1997.
10.14 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
August 15, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated August
Inc. and Daniel M. Christy. 15, 1997.
10.15 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.3 to
August 15, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated August
Inc. and David R. Hurlbrink. 15, 1997.
10.16 Employment and Noncompetition Agreement dated as of Incorporated by reference to Exhibit 10.1 to
October 31, 1997 by and between Eltrax Systems, Eltrax's Current Report on Form 8-K dated October
Inc. and John M. Good. 3, 1997.
10.17 Employment and Non-Competition Agreement, dated as Incorporated by reference to Exhibit 10.1 to
of August 31, 1998 between Eltrax Systems, Inc. Eltrax's Current Report on Form 8-K dated
and Penelope Sellers. September 10, 1998.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.18 Credit Agreement, dated as of September 11, 1998, Incorporated by reference to Exhibit 10.2 to
between Eltrax Systems, Inc., Nordata, Inc., Four Eltrax's Current Report on Form 8-K dated
Corners Technology, Inc., Encore Systems, Inc., September 10, 1998.
Global Systems and Support, Inc., Five Star
Systems, Inc., and State Street Bank and Trust
Company.
10.19 Security Agreement dated October 31, 1996 between Incorporated by reference to Exhibit 10.16 to
the Company and State Street Bank and Trust Eltrax's Annual Report on Form 10-KSB for the
Company, as amended. year ended December 31, 1997.
10.20 Consulting Agreement dated January 21, 1997 by and Incorporated by reference to Exhibit 10.21 to
between the Company and Gene A. Bier. Eltrax's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
10.21 Asset Purchase Agreement dated as of January 29, Incorporated by reference to Exhibit 99.1 to
1997 between Atlantic Network Systems, Inc. and Eltrax's Current Report on Form 8-K filed
MRK Technologies, LTD. February 12, 1997.
10.22 1997 Stock Incentive Plan. Incorporated by reference to Exhibit 10.24 to
Eltrax's Annual Report on Form 10-KSB for the
year ended December 31, 1997 (File No. 0-22190).
10.23 Real Estate Lease dated June 1, 1996 between Walt Incorporated by reference to Exhibit 10.11 to
Lovett, Doug and Lisa Roberson and Atlantic Eltrax's Annual Report on Form 10-KSB for the
Network Systems, Inc. nine month transition period ended December 31,
1996.
10.24 Lease Agreement between Burgoe/ Wyomissing Partners Incorporated by reference to Exhibit 10.30 to
and Hi-Tech Connections, Inc. dated September 15, Eltrax's Annual Report on Form 10-KSB for the
1996. year ended December 31, 1997.
10.25 Lease Agreement between JMG Development Co. Ltd and Incorporated by reference to Exhibit 10.31 to
DataComm Associates, Inc. dated December 1, 1996. Eltrax's Annual Report on Form 10-KSB for the
year ended December 31, 1997.
10.26 Lease Agreement between Werner Palmquist Incorporated by reference to Exhibit 10.32 to
Investments and Four Corners Technology, Inc. Eltrax's Annual Report on Form 10-KSB for the
dated February 21, 1996. year ended December 31, 1997.
10.27 1998 Stock Incentive Plan To be filed by amendment.
10.28 Office Lease, dated January 15, 1992, between 900 To be filed by amendment.
Corporation and Encore Systems, Inc.
10.29 Amended and Restated Preferred Vendor Arrangement, To be filed by amendment.
dated as of May 15, 1992, between Holiday
Hospitality Corporation and Encore Systems, Inc.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.30 Agreement and Plan of Merger dated as of May 14, Incorporated by reference to Exhibit 2.1 to
1997 by and among Eltrax Systems, Inc., EJG Eltrax's Current Report in Form 8-K dated May 14,
Techline Acquiring Corporation, EJG Techline, 1997 (File No. 0-22190).
Incorporated and Edward J. and Kathleen M.
Gorlitz and Colin E. and Diane C. Quinn
10.31 Agreement and Plan of Merger dated as of July 1, Incorporated by reference to Exhibit 2.1 to
1997 by and among Eltrax Systems, Inc., Four Eltrax's Current Report in Form 8-K dated July 1,
Corners Acquiring Corporation, Four Corners 1997 (File No. 0-22190).
Technology, Inc. and Robert A. Hughes, Joel J.
Blickenstaff and David Noall.
10.32 Agreement and Plan of Merger dated as of August 15, Incorporated by reference to Exhibit 2.1 to
1997 by and among Eltrax Systems, Inc., Hi-Tech Eltrax's Current Report in Form 8-K dated August
Acquiring Corporation, Hi-Tech Connections, Inc. 15, 1997 (File No. 0-22190).
and Edward C. Barrett, Daniel M. Christy, David
R. Hurlbrink, David R. Spatz, Raymond H. Melcher
and Timothy E. Devlin.
10.33 Agreement and Plan of Merger dated as of October Incorporated by reference to Exhibit 2.1 to
31, 1997 by and among Eltrax Systems, Inc., Eltrax's Current Report in Form 8-K dated October
DataComm Acquiring Corp., Midwest Acquiring 3, 1997 (File No. 0-22190).
Corp., DataComm Associates, Inc., Midwest Telecom
Associates, Inc. and John M. Good and Harold
Madison.
23.1 Consent of Crowe, Chizek and Company LLP, Filed herewith
independent accountants
23.2 Consent of PricewaterhouseCoopers LLP, Filed herewith
independent accountants
23.3 Consent of Jaffe, Raitt, Heuer & Weiss, P.C. Included in Exhibit 5.1.
23.4 Consent of Benesch, Friedlander, Coplan & Aronoff Included in Exhibit 8.1.
LLP
24.1 Powers of Attorney Included in Part II of the Registration Statement.
99.1 Form of Proxy Card for Special Meeting of To be filed by amendment.
Shareholders of Eltrax Systems, Inc.
99.2 Form of Proxy Card for Special Meeting of To be filed by amendment.
Shareholders of Sulcus Hospitality Technologies
Corp.
99.3 Articles of Incorporation, as amended, of Incorporated by reference to Exhibit 4.1 to Sulcus'
Sulcus Hospitality Technologies Corp. Registration Statement on Form S-8 (File No.
333-43419).
99.4 Amended and Restated Bylaws of Sulcus Hospitality Incorporated by reference to Exhibit 4.2 to Sulcus'
Technologies Corp. Registration Statement on Form S-8 (File No.
333-43419).
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM METHOD OF FILING
- ----------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
99.5 Rights Agreement between Sulcus Hospitality Incorporated by reference to Exhibit ii to Sulcus'
Technologies Corp. and American Stock Transfer & Regisration Statement on Form 8-A (File No.
Trust Company, dated as of January 30, 1998. 001-11148).
99.6 Opinion of Broadview International LLC Included in the Proxy Statement/Prospectus as Annex
B.
99.7 Consent of Leon Harris (Proposed Director) To be filed by amendment.
99.8 Consent of Christine Hughes (Proposed Director) To be filed by amendment.
99.9 Consent of Broadview International LLC Included in Exhibit 99.6
</TABLE>
II-13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Proxy Statement/Prospectus of our report
dated February 27, 1998 on our audits on the consolidated financial statements
and schedule of Sulcus Hospitality Technologies, Corp. as of December 31, 1997
and 1996 and for each year in the period ended December 31, 1997.
We also consent to the reference to our firm under the heading "Experts."
/s/ Crowe, Chizek and Company LLP
- -------------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
December 7, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Proxy Statement/Prospectus of our report
dated March 26, 1998, on our audits of the consolidated financial statements of
Eltrax Systems, Inc. as of December 31, 1997 and 1996, and for the year ended
December 31, 1997 and the nine month transition period ended December 31, 1996,
and of our report dated November 6, 1998, on our audits of the combined
financial statements of Encore Systems, Inc. as of December 31, 1997 and 1996,
and for the years then ended. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
December 7, 1998
