ELTRAX SYSTEMS INC, DEF 14A, 1998-04-09

ELTRAX SYSTEMS INC
DEF 14A, 1998-04-09
COMPUTER INTEGRATED SYSTEMS DESIGN

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the registrant [X]
Filed by party other than the registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

ELTRAX SYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

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

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1 Title of each class of securities to which transaction applies:

2 Aggregate number of securities to which transaction applies:

3 Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

4 Proposed maximum aggregate value of transaction:

5 Total fee paid:

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1 Amount Previously Paid:

2 Form, Schedule or Registration Statement No.:

3 Filing Party:

4 Date Filed:

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<PAGE>

1998 ANNUAL MEETING OF SHAREHOLDERS
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, Michigan 48075

TO THE SHAREHOLDERS OF ELTRAX SYSTEMS, INC.:

You are cordially invited to attend our Annual Meeting of Shareholders
to be held on May 19, 1998 at 4:30 p.m., local time, at the J.W. Marriott
Hotel, 3300 Lenox Road N.E., Atlanta, Georgia.

The formal Notice of Meeting, Proxy Statement and form of proxy are
enclosed.

Whether or not you plan to attend the meeting, please date, sign and
return the enclosed proxy in the envelope provided as soon as possible so
that your vote will be recorded.

Very truly yours,

William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

April 10, 1998

PLEASE SIGN, DATE AND RETURN
THE ENCLOSED PROXY PROMPTLY
TO SAVE THE COMPANY THE EXPENSE
OF ADDITIONAL SOLICITATION.

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ELTRAX SYSTEMS, INC.
2000 TOWN CENTER, SUITE 690
Southfield, Michigan 48075

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

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1998

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

TO THE SHAREHOLDERS OF ELTRAX SYSTEMS, INC.:

Notice is hereby given that the Annual Meeting of Shareholders of Eltrax
Systems, Inc. (the "Company") will be held on May 19, 1998 at 4:30 p.m.,
local time, at the J.W. Marriott Hotel, 3300 Lenox Road N.E., Atlanta,
Georgia for the following purposes:

1. To elect seven (7) persons to serve as directors for the ensuing year
or until their successors are elected and qualified;
2. To consider and act upon a proposal to adopt the Company's 1998 Stock
Incentive Plan; and
3. To consider and act upon such other matters as may properly come
before the meeting or any adjournment thereof.

The close of business on April 2, 1998 has been fixed as the record date
for the determination of shareholders who are entitled to vote at the meeting
or any adjournments thereof.

By Order of the Board of Directors

William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

April 10, 1998

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YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. NO ADMISSION
TICKET OR OTHER CREDENTIALS WILL BE NECESSARY. IF YOU DO NOT PLAN TO ATTEND THE
MEETING, PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING BY MARKING, SIGNING,
DATING AND MAILING YOUR PROXY IN THE REPLY ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------

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ELTRAX SYSTEMS, INC.
2000 TOWN CENTER, SUITE 690
SOUTHFIELD, MICHIGAN 48075

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

PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1998

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

INTRODUCTION

The Annual Meeting of Shareholders of Eltrax Systems, Inc. (the "Company")
will be held on May 19, 1998 at 4:30 p.m., local time, at the J.W. Marriott
Hotel, 3300 Lenox Road N.E., Atlanta, Georgia, or at any adjournment or
adjournments thereof, for the purposes set forth in the Notice of Meeting (the
"Annual Meeting").

A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost
of soliciting proxies, including the preparation, assembly and mailing of the
proxies and soliciting material, as well as the cost of forwarding such material
to the beneficial owners of the Company's common stock, $.01 par value (the
"Common Stock"), will be borne by the Company. Directors, officers and regular
employees of the Company may, without compensation other than their regular
compensation, solicit proxies by telephone, facsimile or personal conversation.
The Company may reimburse brokerage firms and others for reasonable expenses in
forwarding proxy materials to the beneficial owners of the Common Stock. The
Company may also elect to retain professional solicitors to assist in the
solicitation of proxies. Any professional solicitors will be paid by the
Company.

Any proxy given pursuant to this solicitation and received in time for the
Annual Meeting will be voted in accordance with the instructions given in such
proxy. Any shareholder giving a proxy may revoke it any time prior to its use
at the Annual Meeting by giving written notice of such revocation to the Chief
Executive Officer of the Company, by filing a duly executed proxy bearing a
later date with the Chief Executive Officer of the Company or by attending the
Annual Meeting and voting in person. Proxies that are signed by shareholders
but that lack any such specification will be voted in favor of the proposals set
forth in the Notice of Meeting and in favor of the election as directors of the
nominees listed in this Proxy Statement.

THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
PROPOSALS SET FORTH IN THE NOTICE OF MEETING.

The Company expects that this proxy material will first be mailed to
shareholders on or about April 10, 1998.

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VOTING OF SHARES

The close of business on April 2, 1998, has been fixed by the Board of
Directors of the Company as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting. On
April 2, 1998 the Company had outstanding 10,856,271 shares of Common Stock,
each such share entitling the holder thereof to one vote in person or by
proxy on each matter to be voted on at the Annual Meeting, voting together as
a single class.

The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock entitled to
vote at the meeting (10,856,271 shares as of April 2, 1998) is required for a
quorum for the transaction of business. In general, shares of Common Stock
represented by a properly signed and returned proxy card will be counted as
shares present and entitled to vote at the meeting for purposes of
determining a quorum, without regard to whether the card reflects abstentions
(or is left blank) or reflects a "broker non-vote" on a matter (i.e., a card
returned by a broker on behalf of its beneficial owner customer that is not
voted on a particular matter because voting instructions have not been
received and the broker has no discretionary authority to vote).

The election of a nominee for director and the approval of any other
proposal described in this Proxy Statement require the approval of a majority
of the shares present and entitled to vote in person or by proxy on that
matter (and at least a majority of the minimum number of votes necessary for
a quorum to transact business at the meeting). Shares represented by a proxy
card voted as abstaining on any of the proposals will be treated as shares
present and entitled to vote that were not cast in favor of a particular
matter, and thus will be counted as votes against that matter. Shares
represented by a proxy card including any broker non-vote on a matter will be
treated as shares not entitled to vote on that matter, and thus will not be
counted in determining whether that matter has been approved.

PROPOSAL 1
ELECTION OF DIRECTORS

NOMINATION

The Bylaws of the Company provide that the number of directors shall
consist of at least one and not more than eight. The Board is presenting a slate
of seven (7) nominees for election as directors at the Annual Meeting, three of
whom are employees of the Company. The Board has nominated the seven (7)
individuals named herein to serve as directors of the Company until the next
annual meeting of shareholders or until their respective successors have been
elected and qualified. All of the nominees are current members of the Board and
were all elected last year except for Mr. Stephen E. Raville who was appointed
to the Board in October 1997 to fill a vacancy left by the resignation of Mark
D. Johnson. The election of each nominee requires the affirmative vote of a
majority of the shares of the Common Stock represented in person or by proxy at
the Annual Meeting.

BOARD OF DIRECTORS RECOMMENDATION

The Board recommends a vote FOR the election of each of the nominees listed
below. The election of each nominee requires the affirmative vote of the
shareholders holding at least a majority of the shares of Common Stock of the
Company represented in person or by proxy at the Annual Meeting. In the absence
of other instructions, the proxies will be voted FOR the election of the
nominees named below. If prior to the Annual Meeting the Board should learn
that any nominee will be unable to serve by reason of death, incapacity or other
unexpected occurrence, the proxies that otherwise

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would have been voted for such nominee will be voted for such substitute
nominee as selected by the Board. Alternatively, the proxies, at the Board's
discretion, may be voted for such fewer number of nominees as results from
such death, incapacity or other unexpected occurrence. The Board has no
reason to believe that any of the nominees will be unable to serve.

INFORMATION ABOUT NOMINEES

The following information has been furnished to the Company by the
persons who have been nominated by the Board to serve as directors for the
ensuing year.

NAME OF NOMINEE AGE PRINCIPAL OCCUPATION
- --------------- --- --------------------
<S> <C> <C>
William P. O'Reilly 52 Chairman of the Board and Chief Executive
Officer of the Company.

James C. Barnard 64 President of Barnard Associates, Inc.

Patrick J. Dirk 58 Chief Executive Officer of Troy Systems, Inc.

Clunet R. Lewis 51 Secretary and General Counsel of the Company.

Thomas F. Madison 62 President and Chief Executive Officer of MLM
Partners

Stephen E. Raville 50 Chairman of Charter Communications and President
of First Southeastern Corp.

Mack V. Traynor, III 39 Former President and Chief Operating Officer of
the Company
</TABLE>

OTHER INFORMATION ABOUT NOMINEES

WILLIAM P. O'REILLY has been Chief Executive Officer of the Company since
January 1997, Chairman of the Board of Directors since August 1995 and a
director of the Company since July 1995. For the past 15 years, Mr. O'Reilly
has been a private investor and entrepreneur who has managed several different
successful business ventures. In 1989, Mr. O'Reilly formed a group of investors
to acquire Military Communications Center, Inc., where he served as Chairman of
the Board and Chief Executive Officer from 1989 to 1994. In 1986, Mr. O'Reilly
founded Digital Signal, Inc., a provider of fiber optic capacity to long
distance carriers in the telecommunications industry, where he served as Chief
Executive Officer from 1986 to 1989. In 1981, Mr. O'Reilly founded Lexitel
Corporation, a long distance carrier (which was subsequently acquired by ALC
Communications, Inc.), where he served as Chairman of the Board and Chief
Executive Officer from 1980 to 1984. Mr. O'Reilly is also currently a director
of Charter Communications, Inc., a builder and operator of international
communication networks which provides voice, video and data services, and World
Access, Inc., a value added reseller of telecommunications equipment.

JAMES C. BARNARD has served as a director of the Company since 1997 and is
currently President of Barnard Associates, Inc., an investment firm which Mr.
Barnard founded in February 1996. Prior to forming Barnard Associates, Inc.,
Mr. Barnard served as Chairman and Chief Executive Officer of Access America
Telemanagement, Inc., a telecommunications management company which Mr. Barnard
founded in July 1989. Prior to forming Access America Telemanagement, Inc., Mr.
Barnard served as Chairman and Chief Executive Officer of LDX NET, INC., a
telecommunications company which merged

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with Wiltel in July 1987 to form the Williams Telecommunications Group, Inc.
From July 1987 to June 1989, Mr. Barnard served as Vice Chairman of the Board
of Directors of Williams Telecommunications Group, Inc.

PATRICK J. DIRK has served as a director of the Company since its formation
and served as Chairman of the Board from February 1995 until August 1995. Mr.
Dirk served as President and Chief Executive Officer of the Company from its
formation until September 1985 and as Chairman of the Board from formation until
May 1989. Mr. Dirk is Chairman of the Board and Chief Executive Officer of Troy
Systems, Inc., a manufacturer and marketer specializing in printing systems and
related supplies. From 1973 until 1982, Mr. Dirk was employed in various
capacities by Kroy Inc., a Minnesota corporation involved in manufacturing
automated lettering machines and related products, serving most recently as
President and a member of the Board of Directors.

CLUNET R. LEWIS has served as a director of the Company since August 1995
and as Secretary and General Counsel from April 1997. From September 1996 to
March 1997, Mr. Lewis served as Acting Chief Financial Officer of the Company.
Mr. Lewis was a member of the law firm of Jaffe, Raitt, Heuer & Weiss, P.C. for
20 years, ending in 1993. From 1989 to 1994, Mr. Lewis acted as Secretary,
General Counsel and director of Military Communications Center, Inc. Since
1993, Mr. Lewis has also served on the Board of Directors and the audit
committee of Sun Communities, Inc., a New York Stock Exchange real estate
investment trust.

THOMAS F. MADISON has served as a director of the Company since August
1993. Since January 1993, Mr. Madison has been President and Chief Executive
Officer of MLM Partners, a company involved in small business consulting and
investments. In addition, since December 1996, Mr. Madison has been Chairman
of the Board of Communications Holdings, Inc. Mr. Madison was also Vice
Chairman-Office of the CEO for Minnesota Mutual Life Insurance Company. From
July 1988 to December 1992, Mr. Madison served as President of US West
Communications -Markets. Mr. Madison is currently a director of Valmont
Industries, Inc., Minnegasco, Span Link Communications, Inc., The Delaware
Group of Funds, Communications Holdings, Inc. and ACI Telecentrics.

STEPHEN E. RAVILLE has been a director of the Company since October
1997. Since October 1996, Mr. Raville has been Chairman of the Board of
Charter Communications ("Charter") International, Inc. Mr. Raville is also
President and controlling shareholder of First Southeastern Corp., a private
investment company he formed in 1992. In 1983, Mr. Raville founded TA
Communications, a long-distance telephone company, and served as its
President. In 1985, in conjunction with a merger between TA and ATC, he
became Chairman and Chief Executive Officer of ATC until the merger of ATC
into WorldCom in late 1992. He currently serves on the Board of Advisors of
First Union National Bank of Atlanta and the Board of Directors of Charter,
World Access, Inc. and several private companies.

MACK V. TRAYNOR, III has been a director of the Company since August
1995. Until September 1997, Mr. Traynor served as Chief Operating Officer of
the Company at which time Mr. Traynor became a non-executive employee of the
Company. From August 1995 to January 1997, Mr. Traynor served as Chief
Executive Officer of the Company, and from September 1995 to May 1996, Mr.
Traynor was the Company's Chief Financial Officer. From June 1988 to July
1995, Mr. Traynor was the President and Chief Operating Officer of Military
Communications Center, Inc., a company which provided telecommunications
services to U.S. military personnel and which was acquired by LDDS
Communications in October 1994. From July 1980 to May 1988, Mr. Traynor was
employed by US West, most recently as President of the US West Enterprises
Technologies Division, which was responsible for designing, developing and
marketing new products for the telecommunications industry.

7
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INFORMATION ABOUT THE BOARD AND ITS COMMITTEES

The business and affairs of the Company are managed by the Board, which met
twelve (12) times during the year ended December 31, 1997. The Board has also
established a Compensation Committee and an Audit Committee.

The current members of the Compensation Committee are Messrs. Madison and
Barnard. The function of the Compensation Committee is to set the compensation
for those officers of the Company who are also directors of the Company and to
act on other such matters relating to compensation as it deems appropriate,
including the administration of the Company's Stock Incentive Plan. The
Compensation Committee met two (2) times during the year ended December 31,
1997.

The current members of the Audit Committee are Messrs. Dirk and Raville.
Mr. Raville was appointed in February 1998. The function of the Audit
Committee is to review the accounting, auditing, operating and reporting
practices of the Company. The Audit Committee reviews all financial releases to
the public, the Company's annual financial statements, changes in accounting
practices, the selection and scope of the work of the Company's independent
auditors and the adequacy of internal controls for compliance with corporate
policies and directives. The Audit Committee met once during the year ended
December 31, 1997.

All of the Directors attended 75% or more of the meetings of the Board and
committees on which they served during the year ended December 31, 1997.

DIRECTOR COMPENSATION

DIRECTORS' FEES. The Company pays non-employee directors $1,500 cash
compensation for each fiscal quarter. Accordingly, during the year ended
December 31, 1997, Messrs. Dirk and Madison each received $6,000 cash
compensation. Mr. Barnard, who was elected in May 1997, received $4,500 cash
compensation for serving in 1997 and Mr. Raville, who was not appointed until
October 1997, received $1,500. Messrs. O'Reilly and Lewis also received $1,500
in 1997 related to the period prior to their employment by the Company. Mr.
Traynor also received $1,500 in 1997 for director fees prior to the Board's
decision to discontinue paying employee directors. The Company reimburses
directors for out-of-pocket expenses incurred in attending Board or committee
meetings.

AUTOMATIC NON-EMPLOYEE DIRECTOR STOCK OPTIONS. Until January 1997,
non-employee directors were automatically granted options to purchase 1,500
shares of the Common Stock following each fiscal quarter in which the
director served ("Director Options"), subject to certain limitations, under
the Company's 1995 Stock Incentive Plan (the "1995 Plan"). Pursuant to the
terms of the 1995 Plan, each of such options had (i) a ten year term, (ii) an
exercise price equal to 100% of the fair market value of one share of the
Common Stock on the date of the automatic grant and (iii) become fully
exercisable immediately on the date of grant. In January 1997, the provisions
in the 1995 Plan regarding automatic non-employee director stock options
were terminated by the Board effective January 31, 1997. Prior to the
termination of the automatic grants, Messrs. Dirk, Lewis, Madison and
O'Reilly each received options to purchase an aggregate of 1,500 shares of
Common Stock under this program during the year ended December 31, 1997.

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OTHER STOCK OPTIONS. In February 1997, the Board of Directors approved
a grant, effective as of May 15, 1997 of options to purchase 25,000 shares of
Common Stock to each of Messrs. Dirk, Barnard and Madison, the Company's
non-employee directors. In addition, effective as of the date of his
appointment to the Board of Directors, Mr. Raville received an option to
purchase 25,000 shares of Common Stock. Effective February 9, 1998 an
additional option to purchase 10,000 shares of Common Stock was granted to
each non-employee director. Mr. O'Reilly received options to purchase
150,000 shares of Common Stock in 1997 and 75,000 shares of Common Stock on
February 9, 1998. Mr. Lewis received options to purchase 75,000 shares of
Common Stock in 1997 and 50,000 shares of Common Stock on February 9, 1998.

The Compensation Committee or the Board of Directors will likely grant
options to the Company's current and any future non-employee directors from time
to time.

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PRINCIPAL SHAREHOLDERS AND BENEFICIAL
OWNERSHIP OF MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 1998, unless
otherwise noted, by (a) each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) each director
and nominee for director, (c) each executive officer named in the Summary
Compensation Table below under the heading "Executive Compensation and Other
Benefits -- Summary of Cash and Certain Other Compensation," and (d) all
executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED (1)(2)
------------------------------
PERCENT
NAME AMOUNT OF CLASS
- ---- ------------- --------
<S> <C> <C>
William P. O'Reilly 1,433,266(3) 13.2%
2000 Town Center
Suite 690
Southfield, Michigan 48075

Mack V. Traynor, III 500,000(4) 4.6%
19880 Sweetwater Curve
Shorewood, MN 55331

Clunet R. Lewis 437,053(5) 4.0%
2000 Town Center
Suite 690
Southfield, Michigan 48075

Patrick J. Dirk 367,742(6) 3.4%
Troy Group, Inc.
2331 South Pullman Street
Santa Ana, California 92705

Thomas F. Madison 176,000(7) 1.6%
Suite 2100
200 South 5th Street
Minneapolis, Minnesota 55402

Stephen E. Raville 110,000(8) 1.0%
2472 Brookhaven Place
Atlanta, Georgia 30319

James C. Barnard 85,000(9) *%
14308 Spyglass Ridge
Chesterfield, Missouri 63017

All current directors and executive 3,703,683(10) 34.1%
officers as a group
</TABLE>
* LESS THAN 1% OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK.

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(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and percent
owned by such person or group.

(2) Unless otherwise noted, all of the shares shown are held by individuals
or entities possessing sole voting and investment power with respect to
such shares.

(3) Includes warrants to purchase 414,286 shares and options to purchase
235,500 shares of Common Stock, all exercisable within 60 days.

(4) Includes warrants to purchase 42,857 shares and options to purchase
278,447 shares of Common Stock, all exercisable within 60 days.

(5) Includes warrants to purchase 142,857 shares and options to purchase
135,500 shares of Common Stock, all exercisable within 60 days.

(6) Includes 11,567 shares of Common Stock owned by Troy Systems, Inc. of
which Mr. Dirk is the Chairman of the Board, as to which he may be
deemed to have (sole) voting and investment power, 280,675 shares owned
jointly with Mr. Dirk's wife, as to which he may be deemed to share
voting and investment power and options to purchase 75,500 shares of
Common Stock, all exercisable within 60 days.

(7) Includes options to purchase 66,000 shares of Common Stock all
exercisable within 60 days.

(8) Includes options to purchase 35,000 shares of Common Stock, all
exercisable within 60 days.

(9) Includes options to purchase 35,000 shares of Common Stock, all
exercisable within 60 days.

(10) Includes (i) an aggregate of 429,242 shares of Common Stock held
by controlled corporations, jointly with spouses or by spouses, as to
which members of the group may be deemed to have sole or shared voting
and investment power, (ii) options to purchase an aggregate of 925,447
shares of Common Stock exercisable within 60 days held by members of
the group, and (iii) warrants to purchase an aggregate of 600,000
shares of Common Stock exercisable within 60 days held by members of
the group.

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<PAGE>

EXECUTIVE COMPENSATION AND OTHER BENEFITS

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years, including the nine month transition period ended
December 31, 1996, awarded to or earned by the Chief Executive Officer of the
Company and the one other most highly compensated executive officer of the
Company and its subsidiaries whose salary and bonus exceeded $100,000 during the
year ended December 31, 1997 (the "Named Executive Officers"). No other
executive officer of the Company received or earned compensation in the form of
salary and bonus which exceeded $100,000 during the year ended December 31,
1997.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
-------------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- --------------------------- --------- ------------ --------- ------------ ----------------
<S> <C> <C> <C> <C>
William O'Reilly (1) 1997 $ 72,692 $ 0 150,000 $25,000
CHIEF EXECUTIVE OFFICER 1996 (3) 0 0 0 0
1996 (4) 0 0 0 0
1995 (5) 0 0 0 0

Mack V. Traynor, III (2) 1997 $112,846 $ 0 28,447 0
PRESIDENT 1996 (3) 102,885 0 0 0
1996 (4) 65,000 0 250,000 0
1995 (5) 0 0 0 0
</TABLE>

(1) William O'Reilly became the Chief Executive Officer in January 1997.
Until April 1, 1997, when he became an employee, Mr. O'Reilly was a
consultant to the Company. Mr. O'Reilly became an employee on April 1,
1997. The above table does not include $25,000 paid to Mr. O'Reilly in
1997 as a consultant. Such amount is listed under "All Other
Compensation".

(2) Mack V. Traynor, III became the Company's Chief Executive Officer and
President on August 1, 1995. Effective January 29, 1997, William P.
O'Reilly began serving as Chief Executive Officer of the Company. Mr.
Traynor served as President and Chief Operating Officer of the Company
until September, 1997.

(3) Represents the nine month period ended December 31, 1996. In October
1996, the Company changed its fiscal year end from March 31 to December
31, effective December 31, 1996.

(4) Represents the twelve month period ended March 31, 1996.

(5) Represents the twelve month period ended March 31, 1995.

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AGGREGATED OPTION EXERCISES IN THE YEAR ENDED
DECEMBER 31, 1997 AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS/SAR'S IN-THE-MONEY OPTIONS/SAR'S
SHARES AT FISCAL YEAR END (1) AT FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE IN 1997 RECEIVED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William P. O'Reilly 0 N/A 160,500 0 $ 17,672 $ 0

Mack V. Traynor, III 0 N/A 278,447 0 1,077,625 0
</TABLE>

(1) Value of the Company's unexercised, in-the-money options based on the
average of the high and low price of the Company's Common Stock as of
December 31, 1997 which was $4.81.

OPTIONS/SAR GRANTS TABLE

POTENTIAL REALIZABLE
VALUE AT ASSUMED
SHARES ANNUAL RATES OF STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION
OPTIONS/SARs OPTIONS/SARs EXERCISE FOR OPTION TERM
GRANTED IN GRANTED TO PRICE EXPIRATION ---------------------
NAME 1997 EMPLOYEES IN 1997 ($/SH.) DATE 5% 10%
- ---- ------------ ----------------- -------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
William P. O'Reilly 150,000 14.8% $5.25 May 15, 2007 $495,255 $1,255,072

Mack V. Traynor, III 28,447 2.8% $5.25 May 15, 2007 93,923 238,020
</TABLE>

CHANGE IN CONTROL ARRANGEMENTS

Under the Company's 1992 Stock Incentive Plan, the 1995 Stock Incentive
Plan, the 1997 Stock Incentive Plan, and if approved by the Company's
shareholders 1998 Stock Incentive Plan, outstanding non-vested incentive
awards are accelerated in connection with a change in control of the Company.

CERTAIN TRANSACTIONS

O'REILLY CONSULTING AGREEMENT. The Company entered into a Consulting
Agreement effective as of June 1, 1996 with William P. O'Reilly, Chairman of
the Board and Chief Executive Officer of the Company (the "O'Reilly
Consulting Agreement"), pursuant to which Mr. O'Reilly agreed to assist the
Company in seeking out and identifying various opportunities for the Company
to increase its operations and revenues including, but not limited to,
possible acquisitions, joint ventures, marketing agreements and other growth
opportunities. In January 1997, Mr. O'Reilly also assumed the duties of
Chief Executive Officer of the Company. The O'Reilly Consulting Agreement
provided for an annual consulting fee to be determined by the Company's Board
of Directors or the Compensation Committee of the Board of Directors.
Effective January 1, 1997, the

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Compensation Committee established the 1996 consulting fee as $100,000. The
O'Reilly Consulting Agreement contained a two-year non-competition clause in
the event of termination of the agreement. Commencing April 1, 1997, the
parties terminated the O'Reilly Consulting Agreement and Mr. O'Reilly became
an employee of the Company.

LEWIS CONSULTING AGREEMENT. The Company entered into a Consulting
Agreement effective as of June 1, 1996 with Clunet R. Lewis, a director of
the Company (the "Lewis Consulting Agreement"), pursuant to which Mr. Lewis
agreed to assist the Company in seeking out and identifying various
opportunities for the Company to increase its operations and revenues
including, but not limited to, possible acquisitions, joint ventures,
marketing agreements and other growth opportunities. The Lewis Consulting
Agreement provided for an annual consulting fee to be determined by the
Company's Board of Directors or the Compensation Committee of the Board of
Directors. Effective January 1, 1997, the Compensation Committee established
the 1996 consulting fee as $100,000. The Lewis Consulting Agreement
contained a two-year non-competition clause in the event of termination of
the agreement. Commencing April 1, 1997, the parties terminated the Lewis
Consulting Agreement and Mr. Lewis became an employee of the Company.

BIER PROMISSORY NOTE. Effective as of February 7, 1997, Gene A. Bier
resigned as a director of the Company. On the date of his resignation, Mr. Bier
held several stock options to purchase shares of Common Stock of the Company
which, according to the terms of the Company's 1995 Stock Incentive Plan and the
Option Agreements between the Company and Mr. Bier evidencing such options would
terminate and no longer be exercisable three months after Mr. Bier ceases to be
a member of the Board of Directors of the Company. On January 2, 1997, the
Compensation Committee (Mr. Bier refrained from participation) and the Board of
Directors (Mr. Bier refrained from participation) approved a resolution to amend
certain stock option agreements (which evidenced options with exercise prices
greater than the current market price on the date of amendment) between the
Company and Mr. Bier to eliminate the provision in each stock option agreement
which provided that the option granted thereunder will terminate and would no
longer be exercisable three months after Mr. Bier ceased to be a director of the
Company. In addition, in order to provide Mr. Bier the appropriate amount of
funds to exercise the stock options held by him evidenced by certain stock
option agreements which were not amended, the Board of Directors approved a
resolution extending to Mr. Bier a five-year term loan in the principal amount
of $38,227, evidenced by a Non-Negotiable, Unsecured Promissory Note (the
"Note"). The Note bears interest, compounded annually, at a fixed annual rate
of 6.54%, and is due January 21, 2002.

BIER CONSULTING AGREEMENT. The Company entered into a Consulting Agreement
dated January 21, 1997 with Gene A. Bier, a former director of the Company (the
"Bier Consulting Agreement'), pursuant to which Mr. Bier agreed to assist the
Company in seeking out and identifying various opportunities for the Company to
increase its operations and revenues including, but not limited to, possible
acquisitions, joint ventures, marketing agreements and other growth
opportunities, as well as various management and other duties. The Bier
Consulting Agreement provides for an annual consulting fee of $2,800. The Bier
Consulting Agreement will terminate on January 21, 1999, unless terminated
earlier, and will be automatically renewable for additional one year terms until
January 21, 2002. The Bier Consulting Agreement may be terminated (i) by the
Company immediately for cause; (ii) by either party upon 30 days prior written
notice for whatever reason; (iii) by the Company 90 days following Mr. Bier's
total disability; and (iv) automatically in the event of the death of Mr. Bier.
The Bier Consulting Agreement contains a non-competition clause during the term
of the agreement.

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PROPOSAL 2

PROPOSAL TO ADOPT THE
1998 STOCK INCENTIVE PLAN

INTRODUCTION

On February 9, 1998, the Board of Directors of the Company approved the
1998 Stock Incentive Plan (the "1998 Plan"), which will become effective if
approved by the Company's shareholders at the Annual Meeting. The 1998 Plan,
under which 1,000,000 shares of Common Stock are available for various stock
incentive awards, is intended to supplement the Company's 1997 Stock
Incentive Plan (the "1997 Plan") which was approved by the shareholders and
implemented by the Company in 1997. The 1997 Plan supplemented the Company's
1995 Stock Incentive Plan (the "1995 Plan") which was approved by the
shareholders and implemented by the Company in 1995. The 1995 Plan replaced
the Company's 1992 Stock Incentive Plan. The 1997 and 1995 Plans will
continue to exist until their stated termination dates and the Company will
continue to grant incentive awards under the 1997 and 1995 Plans. The
maximum number of shares of Common Stock authorized for issuance under the
1997 and previous Plans, including the maximum number of shares now available
or that become available for issuance based on options that expire
unexercised or were forfeited under prior Plans, is 2,000,000, of which
approximately 380,000 shares were available for grant as of April 1, 1998.

The purpose of the 1998 Plan is to advance the interests of the Company
and its shareholders by enabling the Company (i) to attract and retain
qualified employees or consultants to perform services for the Company by
providing an incentive to such individuals through equity participation in
the Company and by rewarding such individuals who contribute to the
achievement by the Company of its economic objectives; and (ii) to pursue its
growth strategy by providing a means to the Company to provide an incentive
through equity participation in the Company in the form of stock options or
other incentive awards to key employees of newly acquired companies.

The major 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,
a copy of which may be obtained from the Company.

SUMMARY OF THE 1998 PLAN

GENERAL. The 1998 Plan provides for the grant to participating eligible
recipients of the Company ("Participants") of (i) options to purchase shares
of Common Stock that qualify as "incentive stock options" ("Incentive
Options"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"); (ii) options to purchase shares of Common
Stock that do not qualify as Incentive Options ("Non-Qualified Options");
(iii) awards of shares of 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 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."

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The 1998 Plan will be administered by the Compensation Committee of the
Board of Directors of the Company (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, 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 the
Company, the Committee (or, if the Company 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.

All employees (including, without limitation, officers and directors who
are also employees), non-employee directors, consultants and independent
contractors of the Company or any subsidiary of the Company, who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company and its
subsidiaries will be eligible to participate in the 1998 Plan. As of March 1,
1998 there were approximately 160 individuals eligible to participate in 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 Common Stock underlying such Incentive Awards unless
and until such Incentive Awards are exercised for, or paid in the form of,
shares of 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. The maximum number of shares of Common Stock that will be available
for issuance under the 1998 Plan will be 1,000,000 shares of Common Stock. No
Participant may be granted any Options or Stock Appreciation Rights, or any
other Incentive Awards with a value based solely on an increase in the value of
the Common Stock after the date of grant, relating to more than 200,000 shares
of Common Stock in the aggregate in any fiscal

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<PAGE>

year of the Company (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 the Company 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, Stock Appreciation Rights or such
other Incentive Awards relating to up to 300,000 shares of Common Stock
(subject to adjustment as provided in the 1998 Plan). On April 1, 1998, the
last sale price of the Common Stock was $7.375 per share, as reported on the
Nasdaq SmallCap Market.

The 1998 Plan will terminate at midnight on May 19, 2007, unless terminated
earlier by action of the Board of Directors. The Board of Directors 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 Stock Option
or a Non-Statutory Stock Option, will be determined by the Committee, subject to
certain requirements contained in the 1998 Plan. To the extent, however, that
any Incentive Stock Option granted under the 1998 Plan ceases for any reason to
qualify as an Incentive Stock Option under the Code, such Incentive Stock Option
will continue to be outstanding for purposes of the 1998 Plan but will
thereafter be deemed to be a Non-Statutory Stock 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 Stock Options must be equal to the
fair market value of one share of Common Stock on the date of grant and 110% of
the fair market value if, at the time the Incentive Stock Option is granted, the
Participant owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company; and (b) the exercise price for Non-Statutory Stock
Options must not be less than 85% of the fair market value of one share of
Common Stock on the date of grant. The fair market value of the Company'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 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 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 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 the
Company and directs the Company to deliver stock certificates to be issued upon
such exercise directly to such broker or dealer; (ii) by tender shares of Common
Stock that are already owned by the

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<PAGE>

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.

RESTRICTED STOCK AWARDS. Restricted Stock Awards are awards of 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 the Company or any of its subsidiaries for a certain period
of time or that the Participant or the Company, or any subsidiary or division of
the Company, 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 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 Common Stock.

STOCK BONUSES. Stock Bonuses are awards of 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
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 the Company 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 or Stock Appreciation Right);
(ii) all Restricted Stock Awards then held by the Participant will become fully
vested; 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. In the event a Participant's
employment or other service is terminated with the Company 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 the Company and such subsidiary
ceases to be a subsidiary of the Company (unless the Participant continues in
the employ or service of the Company 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 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 remain
exercisable as of such termination for a period of one month after such
termination (but in no event after the expiration of any such Option)); (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.

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<PAGE>

CHANGE IN CONTROL OF THE COMPANY. In the event a "Change in Control" of
the Company 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 the Company
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
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 the Company
or any corporation that is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code) of which the Company 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 the Company 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
the Company (in one transaction or in a series of related transactions) to a
person or entity that is not controlled by the Company; (ii) the approval by the
Company's shareholders of a plan or proposal for the liquidation or dissolution
of the Company; (iii) any person becoming after the effective date of the 1997
Plan the beneficial owner, directly or indirectly, of (A) 20% or more, but less
than 50%, of the combined voting power of the Company'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 the Company's shareholders, was approved
by a vote of at least a majority of the incumbent directors (either by specific
vote or by approval of the Company'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 the
Company'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 the Company is a party if the Company'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 (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

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<PAGE>

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 the Company of a nature that would be required
to be reported pursuant to Section 13 or 15(d) of the Exchange Act, whether
or not the Company is then subject to such reporting requirements.

FEDERAL INCOME TAX CONSEQUENCES. The following description of federal
income tax consequences is based on current statutes, regulations and
interpretations. The description does not include state or local income tax
consequences. In addition, the 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 the Company 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
the Company 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 Common Stock are permitted to be
tendered in payment of an Option exercise price.

If the Participant disposes of the Incentive Option shares 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. The Company 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 the Company, 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. The Company 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.

NON-QUALIFIED OPTIONS. Neither the Participant nor the Company 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

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<PAGE>

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 the Company 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 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 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 eighteen (18) months
after the Includability Date and short-term capital gain or loss if the sale or
disposition occurs eighteen (18) months or less after the Includability Date.

In general, the Company 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 the Company 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. The
Company 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. The Company 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 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

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<PAGE>

compensation. Under Proposed Treasury 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 the Company
would not be allowed to claim any deduction with respect to such payments.

AWARDS UNDER THE 1998 PLAN. The exact number or amounts of any future
grants of Incentive Awards under the 1998 Plan have not been determined at this
time.

RECOMMENDATION OF THE BOARD. The Board recommends a vote FOR approval of
the 1998 Plan. The affirmative vote of the holders of a majority of shares of
Common Stock present in person or by proxy at the Annual Meeting, assuming a
quorum is present, is necessary for approval. Unless a contrary choice is
specified, proxies solicited by the Board will be voted for approval of the 1998
Plan.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of
the Securities Exchange Act of 1934, as amended, requires the Company's
directors and executive officers, and all persons who beneficially own more than
10% of the outstanding shares of the Company's Common Stock ("Reporting
Persons")to file with the Securities and Exchange Commission (the "SEC") initial
reports of ownership and reports of changes in ownership of the Company's Common
Stock and other equity securities of the Company. Reporting persons are also
required to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely upon a review of the copies of
such forms furnished to the Company for the year ended December 31, 1997, and
the information provided to the Company by Reporting Persons of the Company, no
Reporting Person failed to file the forms required by Section 16 of the Exchange
Act on a timely basis, except as follows: The initial reports of ownership on
Form 3 were filed with the SEC by Messrs Stephen E. Raville and James C.
Barnard, but not within 10 days of the reporting event (i.e. election to the
Board of Directors).

SELECTION OF INDEPENDENT ACCOUNTANTS. The Board of Directors appointed
Coopers & Lybrand, L.L.P. as the Company's independent accountants for the
fiscal year ending December 31, 1997. Representatives of Coopers & Lybrand,
L.L.P. will be available via teleconference at the Annual Meeting. Such
representatives will have an opportunity to make a statement if they so desire
and will be available to respond to questions.

SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING. Proposals of shareholders
intended to be presented in the proxy materials relating to the next Annual
Meeting must be received by the Company at its principal executive offices on or
before December 10, 1998. Such proposals should be directed to the Company:
2000 Town Center, Suite 690, Southfield, Michigan 48075; Attention: Chief
Financial Officer.

OTHER MATTERS. The management of the Company does not intend to present
other items of business and knows of no items of business that are likely to be
brought before the Annual Meeting except those described in this Proxy
Statement. However, if any other matters should properly come before the Annual
Meeting, the persons named in the enclosed proxy will have discretionary
authority to vote such proxy in accordance with their best judgment on such
matters.

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MISCELLANEOUS. THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS
REPORT ON FORM 10-KSB (EXCLUSIVE OF EXHIBITS) FOR THE YEAR ENDED DECEMBER 31,
1997 TO EACH PERSON WHO WAS A SHAREHOLDER OF THE COMPANY AS OF APRIL 2, 1998,
UPON RECEIPT FROM ANY SUCH PERSON OF A WRITTEN REQUEST FOR SUCH AN ANNUAL
REPORT. SUCH REQUEST SHOULD BE SENT TO: 2000 TOWN CENTER, SUITE 690,
SOUTHFIELD, MICHIGAN 48075; ATTENTION: SHAREHOLDER RELATIONS.

BY ORDER OF THE BOARD OF DIRECTORS

William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

Southfield, Michigan
April 10, 1998

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ELTRAX SYSTEMS, INC.
1998 STOCK INCENTIVE PLAN

1. PURPOSE OF PLAN

The purpose of the Eltrax Systems, Inc. 1998 Stock Incentive Plan (the
"Plan") is to advance the interests of Eltrax Systems, Inc. (the "Company")
and its shareholders by enabling the Company and its Subsidiaries to attract
and retain persons of ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute
to the achievement by the Company of its economic objectives.

2. DEFINITIONS

The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:

2.1. "BOARD" means the Board of Directors of the Company.

2.2. "BROKER EXERCISE NOTICE" means a written notice pursuant to which
a Participant, upon exercise of an Option, irrevocably instructs
a broker or dealer to sell a sufficient number of shares 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 the Company and directs the
Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.

2.3. "CHANGE IN CONTROL" means an event described in Section 11.1 of the
Plan.

2.4. "CODE" means the Internal Revenue Code of 1986, as amended.

2.5. "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.

2.6. "COMMON STOCK" means the common stock of the Company, par value
$.01 per share, or the number and kind of shares of stock or
other securities into which such Common Stock may be changed in
accordance with Section 4.3 of the Plan.

2.7. "DISABILITY" means the disability of the Participant such as
would entitle the Participant to receive disability income
benefits pursuant to the long-term disability plan of the Company
or Subsidiary then covering the Participant or, if no such plan
exists or is applicable to the Participant, the permanent and
total disability of the Participant within the meaning of Section
22(e)(3) of the Code.

2.8. "ELIGIBLE RECIPIENTS" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and
independent contractors of the Company or any Subsidiary.

2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

2.10. "FAIR MARKET VALUE" means, with respect to the Common Stock, as
of any date (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) (a) the mean between the reported high and low sale prices
of the Common Stock if the Common Stock is listed, admitted to
unlisted trading privileges or reported

<PAGE>

on any national securities exchange or on the Nasdaq National
Market; (b) if the Common Stock is not so listed, admitted to
unlisted trading privileges or reported on any national
securities exchange or on the Nasdaq National Market, the closing
bid price as reported by the Nasdaq SmallCap Market, OTC Bulletin
Board or the National Quotation Bureau, Inc. or other comparable
service; or (c) if the Common Stock is not so listed or reported,
such price as the Committee determines in good faith in the
exercise of its reasonable discretion. If determined by the
Committee, such determination will be final, conclusive and
binding for all purposes and on all persons, including, without
limitation, the Company, the shareholders of the Company, the
Participants and their respective successors-in-interest. No
member of the Committee will be liable for any determination
regarding the fair market value of the Common Stock that is made
in good faith.

2.11. "INCENTIVE AWARD" means an Option, Restricted Stock Award or
Stock Bonus granted to an Eligible Recipient pursuant to the Plan.

2.12. "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the
Plan that qualifies as an "incentive stock option" within the
meaning of Section 422 of the Code.

2.13. "NON-STATUTORY STOCK OPTION" means a right to purchase Common
Stock granted to an Eligible Recipient pursuant to Section 6 of
the Plan that does not qualify as an Incentive Stock Option.

2.14. "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.

2.15. "PARTICIPANT" means an Eligible Recipient who receives one or
more Incentive Awards under the Plan.

2.16. "PREVIOUSLY ACQUIRED SHARES" means shares of 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.

2.17. "RESTRICTED STOCK AWARD" means an award of Common Stock granted
to an Eligible Recipient pursuant to Section 7 of the Plan that
is subject to the restrictions on transferability and the risk of
forfeiture imposed by the provisions of such Section 7.

2.18. "RETIREMENT" means termination of employment or service pursuant
to and in accordance with the regular (or, if approved by the
Board for purposes of the Plan, early) retirement/pension plan or
practice of the Company or Subsidiary then covering the
Participant, provided that if the Participant is not covered by
any such plan or practice, the Participant will be deemed to be
covered by the Company's plan or practice for purposes of this
determination.

2.19. "SECURITIES ACT" means the Securities Act of 1933, as amended.

2.20. "STOCK BONUS" means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 8 of the Plan.

2.21. "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.

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<PAGE>

2.22. "TAX DATE" means the date any withholding tax obligation arises under
the Code for a Participant with respect to an Incentive Award.

3. PLAN ADMINISTRATION

3.1. THE COMMITTEE. The Plan will be administered by the Board or by
a committee of the Board. So long as the Company has a class of
its equity securities registered under Section 12 of the Exchange
Act, any committee administering the Plan will consist solely of
two or more members of the Board who are "non-employee directors"
within the meaning of Rule 16b-3 under the Exchange Act and, if
the Board so determines in its sole discretion, who are "outside
directors" within the meaning of Section 162(m) of the Code.
Such a committee, if established, will act by majority approval
of the members (including written consent of a majority of the
members), and a majority of the members of such a committee will
constitute a quorum. As used in the Plan, "Committee" will refer
to the Board or to such a committee, if established. To the
extent consistent with corporate law, the Committee may delegate
to any officers of the Company the duties, power and authority of
the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish; provided, however,
that only the Committee may exercise such duties, power and
authority with respect to Eligible Recipients who are subject to
Section 16 of the Exchange Act. The Committee may exercise its
duties, power and authority under the Plan in its sole and
absolute discretion without the consent of any Participant or
other party, unless the Plan specifically provides otherwise.
Each determination, interpretation or other action made or taken
by the Committee pursuant to the provisions of the Plan will be
conclusive and binding for all purposes and on all persons, and
no member of the Committee will be liable for any action or
determination made in good faith with respect to the Plan or any
Incentive Award granted under the Plan.

3.2 AUTHORITY OF THE COMMITTEE.

(a) In accordance with and subject to the provisions of the 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 Plan, including, without
limitation, the following: (i) the Eligible Recipients to be
selected as Participants; (ii) the nature and extent of the
Incentive Awards to be made to each Participant including the
number of shares of Common Stock to be subject to each Incentive
Award, any exercise price, the manner in which Incentive Awards
will vest or become exercisable and whether Incentive Awards will
be granted in tandem with other Incentive Awards and the form of
written agreement, if any, evidencing such Incentive Award; (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 under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common
Stock or any combination of both.

(b) The Committee will have the authority under the 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

3
<PAGE>

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 Plan as
then in effect and that any Participant adversely affected by
such amended or modified terms has consented to such amendment or
modification. No amendment or modification to an Incentive
Award, however, whether pursuant to this Section 3.2 or any other
provisions of the Plan, will be deemed to be a regrant of such
Incentive Award for purposes of this Plan.

(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering,
extraordinary dividend or divestiture (including a spin-off) or
any other change in corporate structure or shares, (ii) any
purchase, acquisition, sale or disposition of a significant
amount of assets or a significant business, (iii) any change in
accounting principles or practices, or (iv) any other similar
change, in each case with respect to the Company or any other
entity whose performance is relevant to the grant or vesting of
an Incentive Award, the Committee (or, if the Company is not the
surviving corporation in any such transaction, the board of
directors of the surviving corporation) may, without the consent
of any affected Participant, amend or modify the vesting criteria
of any outstanding Incentive Award that is based in whole or in
part on the financial performance of the Company (or any
Subsidiary or division thereof) or such other entity so as
equitably to reflect such event, with the desired result that the
criteria for evaluating such financial performance of the Company
or such other entity will be substantially the same (in the sole
discretion of the Committee or the board of directors of the
surviving corporation) following such event as prior to such
event; provided, however, that the amended or modified terms are
permitted by the Plan as then in effect.

4. SHARES AVAILABLE FOR ISSUANCE

4.1. MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares
of Common Stock that will be available for issuance under the
Plan will be 1,000,000 shares of Common Stock. Notwithstanding
any other provisions of the Plan to the contrary, 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
the Common Stock after the date of grant, relating to more than
200,000 shares of Common Stock in the aggregate in any fiscal
year of the Company (subject to adjustment as provided in Section
4.3 of the 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 the Company 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
Common Stock (subject to adjustment as provided in Section 4.3 of
the Plan).

4.2. ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding
Incentive Awards will be applied to reduce the maximum number of
shares of Common Stock remaining available for issuance under the
Plan. Any shares of Common Stock that are subject to an
Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of
Common Stock that are subject to an Incentive Award that is
settled or paid in cash or any form other than shares of Common
Stock will automatically again become

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<PAGE>

available for issuance under the Plan. Any shares of Common
Stock that constitute the forfeited portion of a Restricted Stock
Award, however, will not become available for further issuance
under the Plan.

4.3. ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. 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 the Company, the
Committee (or, if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving
corporation) will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for
issuance or payment under the Plan and, in order to prevent
dilution or enlargement of the rights of Participants, (a) the
number and kind of securities or other property (including cash)
subject to outstanding Options, and (b) the exercise price of
outstanding Options.

5. PARTICIPATION

Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected
to contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or
more Incentive Awards, singly or in combination or in tandem with other
Incentive Awards, as may be determined by the Committee in its sole
discretion. Incentive Awards will be deemed to be granted as of the date
specified in the grant resolution of the Committee, which date will be the
date of any related agreement with the Participant.

6. OPTIONS

6.1. GRANT. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms
and conditions, consistent with the other provisions of the Plan,
as may be determined by the Committee in its sole discretion.
The Committee may designate whether an Option is to be considered
an Incentive Stock Option or a Non-Statutory Stock Option. To
the extent that any Incentive Stock Option granted under the Plan
ceases for any reason to qualify as an "incentive stock option"
for purposes of Section 422 of the Code, such Incentive Stock
Option will continue to be outstanding for purposes of the Plan
but will thereafter be deemed to be a Non- Statutory Stock Option.

6.2. EXERCISE PRICE. 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 that (a)
such price will not be less than 100% of the Fair Market Value of
one share of Common Stock on the date of grant with respect to an
Incentive Stock Option (110% of the Fair Market Value if, at the
time the Incentive Stock Option is granted, the Participant owns,
directly or indirectly, more than 10% of the total combined
voting power of all classes of stock of the Company or any parent
or subsidiary corporation of the Company), and (b) such price
will not be less than 85% of the Fair Market Value of one share
of Common Stock on the date of grant with respect to a
Non-Statutory Stock Option.

6.3. EXERCISABILITY AND DURATION. 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

5
<PAGE>

exercisable after 10 years from its date of grant or, in the case
of an Eligible Participant who owns, directly or indirectly (as
determined pursuant to Section 424(d) of the Code), more than 10%
of the combined voting power of all classes of stock of the
Company or any subsidiary or parent corporation of the Company
(within the meaning of Sections 424(f) and 424(e), respectively,
of the Code), five years from its date of grant. Not withstanding
the foregoing, each Option granted to a participant shall vest at
a rate of at least 20% per year over 5 years from the date the
Option is granted.

6.4. PAYMENT OF EXERCISE PRICE. The total purchase price of the
shares to be purchased upon exercise of an Option will be paid
entirely in cash (including check, bank draft or money order);
provided, however, that the Committee, in its sole discretion and
upon terms and conditions established by the Committee, may allow
such payments to be made, in whole or in part, by tender of a
Broker Exercise Notice, Previously Acquired Shares, by tender of
a promissory note (on terms acceptable to the Committee in its
sole discretion) or by a combination of such methods.

6.5. MANNER OF EXERCISE. An Option may be exercised by a Participant
in whole or in part from time to time, subject to the conditions
contained in the Plan and in the agreement evidencing such
Option, by delivery in person, by facsimile or electronic
transmission or through the mail of written notice of exercise to
the Company (Attention: Chief Financial Officer) at its principal
executive office at 2000 Town Center, Suite 690, Southfield,
Michigan 48075, and by paying in full the total exercise price
for the shares of Common Stock to be purchased in accordance with
Section 6.4 of the Plan.

6.6. AGGREGATE LIMITATION OF COMMON STOCK SUBJECT TO INCENTIVE STOCK
OPTIONS. To the extent that the aggregate Fair Market Value
(determined as of the date an Incentive Stock Option is granted)
of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by a Participant
during any calendar year (under the Plan and any other incentive
stock option plans of the Company, any subsidiary or any parent
corporation of the Company (within the meaning of Sections 424(f)
and 424(e), respectively, of the Code)) exceeds $100,000 (or such
other amount as may be prescribed by the Code from time to time),
such excess Incentive Stock Options shall be treated as
Non-Statutory Stock Options. The determination shall be made by
taking Incentive Stock Options into account in the order in which
they were granted. If such excess only applies to a portion of
an Incentive Stock Option, the Committee, in its discretion,
shall designate which shares shall be treated as shares to be
acquired upon exercise of an Incentive Stock Option.

6.7 OPTIONS TO PURCHASE STOCK OF ACQUIRED COMPANIES. After any
reorganization, merger or consolidation involving the Company or
a subsidiary of the Company, the Committee may grant Options in
substitution of options issued under a plan of another party to
the reorganization, merger or consolidation, where such party's
stock may no longer be outstanding following such transaction.
Subject to Section 424(a) of the Code, the Committee shall have
sole discretion to determine all terms and conditions of Options
issued under this Section 6.7, including, but not limited to,
their exercise price and expiration date.

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7. RESTRICTED STOCK AWARDS

7.1. GRANT. An Eligible Recipient may be granted one or more
Restricted Stock Awards under the Plan, and such Restricted Stock
Awards will be subject to such terms and conditions, consistent
with the other provisions of the Plan, as may be determined by
the Committee in its sole discretion. The Committee may impose
such restrictions or conditions, not inconsistent with the
provisions of the Plan, to the vesting of such Restricted Stock
Awards as it deems appropriate, including, without limitation,
that the Participant remain in the continuous employ or service
of the Company or a Subsidiary for a certain period or that the
Participant or the Company (or any Subsidiary or division
thereof) satisfy certain performance goals or criteria.

7.2. RIGHTS AS A SHAREHOLDER; TRANSFERABILITY. Except as provided in
Sections 7.1, 7.3 and 12.3 of the Plan, a Participant will have
all voting, dividend, liquidation and other rights with respect
to shares of Common Stock issued to the Participant as a
Restricted Stock Award under this Section 7 upon the Participant
becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted
Common Stock.

7.3. DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement
evidencing the Restricted Stock Award at the time of grant or at
any time after the grant of the Restricted Stock Award), any
dividends or distributions (including regular quarterly cash
dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject
to the same restrictions as the shares to which such dividends or
distributions relate. In the event the Committee determines not
to pay such dividends or distributions currently, the Committee
will determine in its sole discretion whether any interest will
be paid on such dividends or distributions. In addition, the
Committee in its sole discretion may require such dividends and
distributions to be reinvested (and in such case the Participants
consent to such reinvestment) in shares of Common Stock that will
be subject to the same restrictions as the shares to which such
dividends or distributions relate.

7.4. ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions
referred to in this Section 7, the Committee may place a legend
on the stock certificates referring to such restrictions and may
require the Participant, until the restrictions have lapsed, to
keep the stock certificates, together with duly endorsed stock
powers, in the custody of the Company or its transfer agent or to
maintain evidence of stock ownership, together with duly endorsed
stock powers, in a certificateless book-entry stock account with
the Company's transfer agent.

8. STOCK BONUSES

An Eligible Recipient may be granted one or more Stock Bonuses under the
Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Participant will have all voting, dividend, liquidation and
other rights with respect to the shares of Common Stock issued to a
Participant as a Stock Bonus under this Section 10 upon the Participant
becoming the holder of record of such shares; provided, however, that the
Committee may impose such restrictions on the assignment or transfer of a
Stock Bonus as it deems appropriate.

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<PAGE>

9. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE

9.1. TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event
a Participant's employment or other service with the Company and
all Subsidiaries is terminated by reason of death, Disability or
Retirement:

(a) 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);

(b) All Restricted Stock Awards then held by the Participant will
become fully vested; and

(c) 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.

9.2. TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.

(a) In the event a Participant's employment or other service is
terminated with the Company and all Subsidiaries for any reason
other than death, Disability or Retirement, or a Participant is
in the employ or service of a Subsidiary and the Subsidiary
ceases to be a Subsidiary of the Company (unless the Participant
continues in the employ or service of the Company or another
Subsidiary), all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award will immediately
terminate without notice of any kind, and no Options then held by
the Participant will thereafter be exercisable, all Restricted
Stock Awards then held by the Participant that have not vested
will be terminated and forfeited, and 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; provided, however, that if such
termination is due to any reason other than termination by the
Company or any Subsidiary for "cause," all outstanding Options or
Stock Appreciation Rights then held by such Participant will
remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination
(but in no event after the expiration date of any such Option).

(b) For purposes of this Section 9.2, "cause" (as determined by the
Committee) will be as defined in any employment or other
agreement or policy applicable to the Participant or, if no such
agreement or policy exists, will mean (i) dishonesty, fraud,
misrepresentation, embezzlement or deliberate injury or attempted
injury, in each case related to the Company or any Subsidiary,
(ii) any unlawful or criminal activity of a serious nature, (iii)
any intentional and deliberate breach of a duty or duties that,
individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement
entered into with the Company or any Subsidiary.

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<PAGE>

9.3. MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the
other provisions of this Section 9, upon a Participant's
termination of employment or other service with the Company and
all Subsidiaries, the Committee may, in its sole discretion
(which may be exercised at any time on or after the date of
grant, including following such termination), cause Options and
Stock Appreciation Rights (or any part thereof) then held by such
Participant to become or continue to become exercisable and/or
remain exercisable following such termination of employment or
service and Restricted Stock Awards, Performance Units and Stock
Bonuses then held by such Participant to vest and/or continue to
vest or become free of transfer restrictions, as the case may be,
following such termination of employment or service, in each case
in the manner determined by the Committee; provided, however,
that no Option or Stock Appreciation Right may remain exercisable
beyond its expiration date.

9.4. BREACH OF CONFIDENTIALITY OR NONCOMPETE AGREEMENTS.
Notwithstanding anything in the Plan to the contrary, in the
event that a Participant materially breaches the terms of any
confidentiality or noncompete agreement entered into with the
Company or any Subsidiary, whether such breach occurs before or
after termination of such Participant's employment or other
service with the Company or any Subsidiary, the Committee in its
sole discretion may immediately terminate all rights of the
Participant under the Plan and any agreements evidencing an
Incentive Award then held by the Participant without notice of
any kind.

9.5. DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a
Participant's employment or other service will, for purposes of
the Plan, be deemed to have terminated on the date recorded on
the personnel or other records of the Company or the Subsidiary
for which the Participant provides employment or other service,
as determined by the Committee in its sole discretion based upon
such records.

10. PAYMENT OF WITHHOLDING TAXES

10.1. GENERAL RULES. The Company is entitled to (a) withhold and
deduct from future wages of the Participant (or from other
amounts that may be due and owing to the Participant from the
Company or a Subsidiary), or make other arrangements for the
collection of, all legally required amounts necessary to satisfy
any and all federal, state and local withholding and
employment-related tax requirements attributable to an Incentive
Award, including, without limitation, the grant, exercise or
vesting of, or payment of dividends with respect to, an Incentive
Award or a disqualifying disposition of stock received upon
exercise of an Incentive Stock Option, or (b) require the
Participant promptly to remit the amount of such withholding to
the Company before taking any action, including issuing any
shares of Common Stock, with respect to an Incentive Award.

10.2. SPECIAL RULES. The Committee may, in its sole discretion and
upon terms and conditions established by the Committee, permit or
require a Participant to satisfy, in whole or in part, any
withholding or employment-related tax obligation described in
Section 10 of the Plan by electing to tender Previously Acquired
Shares, a Broker Exercise Notice or a promissory note (on terms
acceptable to the Committee in its sole discretion), or by a
combination of such methods.

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11. CHANGE IN CONTROL

11.1. CHANGE IN CONTROL. For purposes of this Section 11, a "Change in
Control" of the Company will mean the following:

(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in
one transaction or in a series of related transactions) to a
person or entity that is not controlled by the Company,

(b) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;

(c) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of (A) 20% or more, but less than
50%, of the combined voting power of the Company'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 the Incumbent Directors, or (B) 50%
or more of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Incumbent
Directors);

(d) a merger or consolidation to which the Company is a party if the
shareholders of the Company immediately prior to effective date
of such merger or consolidation have "beneficial ownership" (as
defined in Rule 13d-3 under the Exchange Act), immediately
following the effective date of such merger or consolidation, of
securities of the surviving corporation representing (i) 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 has been approved in advance by the
Incumbent Directors (as defined in Section 11.2 below), or (ii)
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);

(e) the Incumbent Directors cease for any reason to constitute at
least a majority of the Board; or

(f) any other change in control of the Company of a nature that would
be required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not the Company is then subject to such
reporting requirements.

11.2. INCUMBENT DIRECTORS. For purposes of this Section 11, "Incumbent
Directors" of the Company will mean any individuals who are
members of the Board on the effective date of the Plan and any
individual who subsequently becomes a member of the Board whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the Incumbent Directors (either by specific vote or by approval
of the Company's proxy statement in which such individual is
named as a nominee for director without objection to such
nomination).

11.3. ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in
Control of the Company occurs, then, unless otherwise provided by
the Committee in its sole discretion either in the agreement
evidencing an Incentive Award at the time

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of grant or at any time after the grant of an Incentive Award,
(a) 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 the Company
or any Subsidiary; (b) all outstanding Restricted Stock Awards
will become immediately fully vested and non-forfeitable; and (c)
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.

11.4. CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its
sole discretion either in an agreement evidencing an Incentive
Award at the time of grant or at any time after the grant of an
Incentive Award, and without the consent of any Participant
effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or
all of the shares of Common Stock subject to such Options, as of
the effective date of any such Change in Control of the Company,
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 of the Company over the exercise price per
share of such Options.

11.5. LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding
anything in Section 11.3 or 11.4 of the Plan to the contrary, if,
with respect to a Participant, the acceleration of the vesting of
an Incentive Award as provided in Section 11.3 or the payment of
cash in exchange for all or part of an Incentive Award as
provided in Section 11.4 (which acceleration or payment could be
deemed a "payment" within the meaning of Section 280G(b)(2) of
the Code), together with any other "payments" which such
Participant has the right to receive from the Company or any
corporation that is a member of an "affiliated group" (as defined
in Section 1504(a) of the Code without regard to Section 1504(b)
of the Code) of which the Company is a member, would constitute a
"parachute payment" (as defined in Section 280G(b)(2) of the
Code), then the "payments" to such Participant pursuant to
Section 11.3 or 11.4 of the 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;
provided, however, that if a Participant is subject to a separate
agreement with the Company or a Subsidiary that expressly
addresses the potential application of Sections 280G or 4999 of
the Code (including, without limitation, that "payments" under
such agreement or otherwise will be reduced, that such "payments"
will not be reduced or that the Participant will have the
discretion to determine which "payments" will be reduced), then
this Section 11.5 will not apply, and any "payments" to a
Participant pursuant to Section 11.3 or 11.4 of the Plan will be
treated as "payments" arising under such separate agreement.

12. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.

12.1. EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with
or limit in any way the right of the Company or any Subsidiary to
terminate the employment or service of any Eligible Recipient or
Participant at any time, nor confer upon any Eligible Recipient
or Participant any right to continue in the employ or service of
the Company or any Subsidiary.

12.2. RIGHTS AS A SHAREHOLDER. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant
will have no rights as a shareholder unless and until such
Incentive Awards are exercised

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for, or paid in the form of, shares of Common Stock and the
Participant becomes the holder of record of such shares. Except
as otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to such Incentive Awards
as to which there is a record date preceding the date the
Participant becomes the holder of record of such shares, except
as the Committee may determine in its discretion.

12.3. RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will
or the laws of descent and distribution or as otherwise expressly
permitted by the Plan, no right or interest of any Participant
in an Incentive Award prior to the exercise or vesting of such
Incentive Award will be assignable or transferable, or subjected
to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise. A Participant will, however, be
entitled to designate a beneficiary to receive an Incentive Award
upon such Participant's death, and in the event of a
Participant's death, payment of any amounts due under the Plan
will be made to, and exercise of any Options (to the extent
permitted pursuant to Section 11 of the Plan) may be made by, the
Participant's legal representatives, heirs and legatees.

12.4. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved
compensation plans or programs of the Company or create any
limitations on the power or authority of the Board to adopt such
additional or other compensation arrangements as the Board may
deem necessary or desirable.

13. SECURITIES LAW AND OTHER RESTRICTIONS

Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue
any shares of Common Stock under this Plan, and a Participant may not sell,
assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to Incentive Awards granted under the Plan, unless (a) there is in
effect with respect to such shares a registration statement under the
Securities Act and any applicable state securities laws or an exemption from
such registration under the Securities Act and applicable state securities
laws, and (b) there has been obtained any other consent, approval or permit
from any other regulatory body which the Committee, in its sole discretion,
deems necessary or advisable. The Company may condition such issuance, sale
or transfer upon the receipt of any representations or agreements from the
parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or advisable
by the Company in order to comply with such securities law or other
restrictions.

14. PLAN AMENDMENT, MODIFICATION AND TERMINATION

The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Incentive Awards under the Plan will
conform to any change in applicable laws or regulations or in any other
respect the Board may deem to be in the best interests of the Company;
provided, however, that no amendments to the Plan will be effective without
approval of the shareholders of the Company if shareholder approval of the
amendment is then required pursuant to Section 422 of the Code or the rules
of any stock exchange or Nasdaq. No termination, suspension or amendment of
the Plan may adversely affect any outstanding Incentive Award without the
consent of the

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<PAGE>

affected Participant; provided, however, that this sentence will not impair
the right of the Committee to take whatever action it deems appropriate under
Sections 3.2, 4.3 and 13 of the Plan.

15. EFFECTIVE DATE AND DURATION OF THE PLAN

The Plan is effective as of May 19, 1998, the date it was adopted by the
Board and the shareholders. The Plan will terminate at midnight on May 19,
2007, and may be terminated prior to such time by Board action, and no
Incentive Award will be granted after such termination. Incentive Awards
outstanding upon termination of the Plan may continue to be exercised, or
become free of restrictions, in accordance with their terms.

16. MISCELLANEOUS

16.1. GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations
and actions relating to the Plan will be governed by and
construed exclusively in accordance with the laws of the State of
Minnesota, notwithstanding the conflicts of laws principles of
any jurisdictions.

16.2. SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure
to the benefit of the successors and permitted assigns of the
Company and the Participants.

16.3 ANNUAL REPORT. Each year the Company will provide a copy of its
Annual Report to Shareholders on Form 10-K (or Form 10-KSB, as
applicable) to all Participants.

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<PAGE>

ELTRAX SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints William P. O'Reilly and Clunet R. Lewis,
and each of them, as Proxies, each with full power to appoint his substitute,
and hereby authorizes each of them to represent and to vote, as designated
below, all the shares of Common Stock of Eltrax Systems, Inc. held of record
by the undersigned on April 2, 1998, at the Annual Meeting of Shareholders to
be held on May 19, 1998, or any adjournment, thereof.

1. ELECTION OF DIRECTORS FOR all nominees listed below AGAINST all nominees
listed below
(EXCEPT AS MARKED TO THE CONTRARY BELOW) / /

WILLIAM P. O'REILLY, JAMES C. BARNARD, PATRICK J. DIRK, STEPHEN E. RAVILLE,
CLUNET R. LEWIS, THOMAS F. MADISON, MACK V. TRAYNOR, III

(INSTRUCTION: TO VOTE AGAINST ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THE NOMINEE'S NAME.)

2. PROPOSAL TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE THE COMPANY'S 1998
STOCK INCENTIVE PLAN.
/ / FOR / / AGAINST / / ABSTAIN

3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

(CONTINUED ON REVERSE SIDE)

<PAGE>

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 2 AND FOR ALL NOMINEES NAMED IN PROPOSAL 1 ABOVE.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized officer. If
a partnership, please sign in partnership name by an authorized person.

_________________________________
Date

_________________________________
Signature

_________________________________
Signature if held jointly

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.