<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY , 1999
REGISTRATION NO. 333-68699
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
ELTRAX SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA
(STATE OR OTHER 7373 41-1484525
JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION OR INDUSTRIAL IDENTIFICATION NUMBER)
ORGANIZATION) CLASSIFICATION
CODE NUMBER)
2000 TOWN CENTER
SUITE 690
SOUTHFIELD, MICHIGAN 48075
(248) 358-1699
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM P. O'REILLY
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
2000 TOWN CENTER
SUITE 690
SOUTHFIELD, MICHIGAN 48075
(248) 358-1699
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------------------
COPIES TO:
JEFFREY L. FORMAN, ESQ. MICHAEL WAGER, ESQ.
JAFFE, RAITT, HEUER & WEISS BENESCH, FRIEDLANDER,
PROFESSIONAL CORPORATION COPLAN & ARONOFF LLP
ONE WOODWARD AVENUE 2300 BP TOWER
SUITE NO. 2400 200 PUBLIC SQUARE
DETROIT, MICHIGAN 48226 CLEVELAND, OHIO 44114-2378
(313) 961-8380 (216) 363-4500
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT THE
EFFECTIVE TIME AS DESCRIBED IN THE ATTACHED JOINT PROXY STATEMENT/PROSPECTUS.
------------------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [____]
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
-----------------------------------------
<PAGE>
The information in this Proxy Statement/Prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This Proxy Statement/Prospectus is not an
offer to sell these securities and it is not
soliciting an offer to buy these
securities in any state where
the offer or sale is not
permitted.
Subject to Completion
Preliminary Proxy Statement/Prospectus Dated February , 1999
Proxy Statement for Special Prospectus and Proxy
Meeting of Shareholders Statement for Special Meeting
of Sulcus Hospitality of Shareholders of
Technologies Corp. Eltrax Systems, Inc.
UP TO 9,421,455 SHARES OF ELTRAX
COMMON STOCK
The Boards of Directors of Eltrax Systems, Inc. and Sulcus Hospitality
Technologies Corp. have approved a merger agreement that would result in Sulcus
becoming a wholly-owned subsidiary of Eltrax. Eltrax would continue to be a
publicly-traded company. If the merger is completed, Sulcus shareholders will
receive 0.55 shares of Eltrax common stock in exchange for each share of Sulcus
common stock that they own. However, Sulcus shareholders will receive cash
instead of any fractional shares of Eltrax common stock. Eltrax shareholders
will continue to own their existing shares.
At their special meeting, shareholders of Sulcus are being asked to approve the
merger agreement and the merger. At their special meeting, shareholders of
Eltrax are being asked to approve the issuance of Eltrax shares of common stock
in the merger and an amendment to Eltrax's 1998 Stock Incentive Plan to increase
the number of shares of Eltrax common stock that may be issued under that plan
in order to convert Sulcus stock options into Eltrax stock options in the
merger. The merger cannot be completed unless the shareholders of each company
approve these actions. YOUR VOTE IS VERY IMPORTANT.
The dates, times and places of the special meetings are as follows:
<PAGE>
FOR SULCUS SHAREHOLDERS: FOR ELTRAX SHAREHOLDERS:
____________, 1999 at 10:00 a.m. ____________, 1999 at 10:00 a.m.
________________________ _________________________
________________________ _________________________
________________________ _________________________
This Proxy Statement of Sulcus and Prospectus and Proxy Statement of Eltrax
provides you with detailed information about the proposed merger. We encourage
you to read this entire document carefully. In addition, you may obtain
information about our companies from documents that we have filed with the
Securities and Exchange Commission.
Eltrax common stock is listed on the Nasdaq SmallCap Market under the symbol
"ELTX."
FOR A DISCUSSION OF THE RISKS THAT SHAREHOLDERS OF SULCUS AND ELTRAX SHOULD
CONSIDER, SEE "RISK FACTORS" BEGINNING ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated _____________, 1999 and
was first mailed to shareholders on ______________, 1999.
<PAGE>
ELTRAX SYSTEMS, INC.
2000 TOWN CENTER
SUITE 690
SOUTHFIELD, MICHIGAN 48075
Notice of Special Meeting of Shareholders
To Be Held _______________, 1999
To the Shareholders of Eltrax Systems, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Eltrax Systems,
Inc., a Minnesota corporation, will be held at 10:00 a.m., local time, on
_____________, 1999, at _____________, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
up to 9,421,455 shares of Eltrax common stock, $.01 par value per share,
pursuant to the Agreement and Plan of Merger, dated as of November 11,
1998, by and among Eltrax, Sulcus Hospitality Technologies Corp., a
Pennsylvania corporation, and Sulcus Acquiring Corporation, a Pennsylvania
corporation and wholly-owned subsidiary of Eltrax ("SAC"), which provides
for the merger of SAC with and into Sulcus resulting in Sulcus becoming a
wholly-owned subsidiary of Eltrax.
2. To consider and vote upon a proposal to approve an amendment to
Eltrax's 1998 Stock Incentive Plan to increase by 1,500,000 the number of
shares of Eltrax common stock that may be issued pursuant to such plan in
order to provide for the conversion of Sulcus stock options into Eltrax
stock options in accordance with the merger agreement.
3. To transact such other business as may properly come before the
Eltrax special meeting or any adjournments or postponements thereof.
Only holders of record of shares of Eltrax common stock at the close of business
on _____________, 1999 are entitled to notice of the Eltrax special meeting and
to vote thereat and at any and all adjournments or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
________________, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ELTRAX SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THE PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT
THE ELTRAX SPECIAL MEETING.
<PAGE>
SULCUS HOSPITALITY TECHNOLOGIES CORP.
41 NORTH MAIN STREET
GREENSBURG, PENNSYLVANIA 15601
Notice of Special Meeting of Shareholders
To Be Held _____________, 1999
To the Shareholders of Sulcus Hospitality Technologies Corp.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Sulcus
Hospitality Technologies Corp., a Pennsylvania corporation, will be held on
_______________, 1999, at 10:00 a.m., local time, at ________________________,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 11, 1998, by and among
Eltrax Systems, Inc., a Minnesota corporation, Sulcus Acquiring
Corporation, a Pennsylvania corporation and a wholly-owned subsidiary of
Eltrax ("SAC"), and Sulcus pursuant to which:
(a) SAC will be merged with and into Sulcus, resulting in Sulcus
becoming a wholly-owned subsidiary of Eltrax; and
(b) At the Effective Time (as defined in the merger agreement),
all issued and outstanding shares of common stock, no par value per
share, of Sulcus (other than shares of Sulcus common stock held in the
treasury of Sulcus or held by any Sulcus subsidiary, Eltrax or SAC or
other subsidiary of Eltrax), will be canceled and converted
automatically into the right to receive, upon the surrender of the
certificate formerly representing such shares, 0.55 fully paid and
nonassessable shares of common stock, $.01 par value per share, of
Eltrax as more fully described in the attached Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Sulcus special meeting or any adjournments or postponements thereof.
Only holders of record of shares of Sulcus common stock at the close of business
on _______________, 1999 are entitled to notice of the Sulcus special meeting
and to vote thereat and at any and all adjournments or postponements thereof.
BY ORDER OF THE BOARD OF DIRECTORS
John W. Ryba
SECRETARY
____________________, 1999
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE SULCUS SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN
THE PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE THE PROXY HAS BEEN VOTED AT
THE SULCUS SPECIAL MEETING.
DO NOT SEND ANY SHARE CERTIFICATES WITH THE ENCLOSED PROXY CARD. IF THE MERGER
IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
SHARE CERTIFICATES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Selected Unaudited Pro Forma Financial Data. . . . . . . . . . . . . . . . . . . . .9
Unaudited Pro Forma Condensed Combined Balance Sheet Data. . . . . . . . . . . . . .9
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Effect of Eltrax's Stock Price on the Merger Consideration. . . . . . . . . . 12
Ability to Efficiently Integrate and Operate Recent Acquisitions. . . . . . . 12
Ability to Efficiently Integrate and Operate Sulcus . . . . . . . . . . . . . 12
Future Eltrax Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . 13
History of Losses and Uncertainty of Future Profitability . . . . . . . . . . 13
Competition From Larger Competitors . . . . . . . . . . . . . . . . . . . . . 14
Uncertainties Regarding Intellectual Property Rights. . . . . . . . . . . . . 14
Dependence on a Significant Customer. . . . . . . . . . . . . . . . . . . . . 15
Dependence on Senior Management and Key Employees . . . . . . . . . . . . . . 15
Risks Associated with New Products and Services . . . . . . . . . . . . . . . 15
Dependence on Hospitality and Tourism Industry. . . . . . . . . . . . . . . . 16
Effect of General Economic Conditions . . . . . . . . . . . . . . . . . . . . 16
International Sales; Regulatory Standards; Currency Exchange. . . . . . . . . 17
Year 2000 Issues Associated with Eltrax . . . . . . . . . . . . . . . . . . . 17
Year 2000 Issues Associated with Sulcus . . . . . . . . . . . . . . . . . . . 18
Accounting Treatment of Merger. . . . . . . . . . . . . . . . . . . . . . . . 19
Need for Additional Capital . . . . . . . . . . . . . . . . . . . . . . . . . 19
Adverse Effect on Price of Shares Available for Future Sale . . . . . . . . . 19
Lack of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purpose of this Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Eltrax Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Record Date; Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Share Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . 21
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . 22
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Sulcus Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Record Date; Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Share Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . 23
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . 23
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Eltrax's Reasons for the Merger; Recommendation of the Eltrax Board . . . . . 27
Sulcus' Reasons for the Merger; Recommendation of the Sulcus Board. . . . . . 28
Broadview's Presentation to the Sulcus Board. . . . . . . . . . . . . . . . . 29
Plans for Sulcus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . . . . . . 41
Indemnification of Sulcus Officers and Directors. . . . . . . . . . . . . . . 43
Estimated Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . 43
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Other Legal Matters; Regulatory Approvals . . . . . . . . . . . . . . . . . . 46
Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Delisting and Deregistration of Sulcus common stock . . . . . . . . . . . . . 47
Resales of Eltrax common stock. . . . . . . . . . . . . . . . . . . . . . . . 47
Nasdaq Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Board of Directors and Management of Eltrax Following the Merger. . . . . . . 47
Comparative Market Prices and Dividends. . . . . . . . . . . . . . . . . . . . . . 48
Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Conversion of Sulcus common stock . . . . . . . . . . . . . . . . . . . . . . 49
Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Treatment of Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . 52
Interim Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . 54
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Termination; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Unaudited Pro Forma Condensed Combined Financial Statements. . . . . . . . . . . . 58
Description of Eltrax Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 65
Eltrax Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Eltrax Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Minnesota Business Corporation Act. . . . . . . . . . . . . . . . . . . . . . 66
Transfer Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . . . . 66
Comparison of the Rights of Holders of Eltrax Common Stock and Sulcus
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Repurchase and the Redemption of Shares . . . . . . . . . . . . . . . . . . . 70
Payment of Dividends to Shareholders. . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Amendments to Articles of Incorporation . . . . . . . . . . . . . . . . . . . 72
Amendments to Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Change of Control Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 72
Special Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . 73
Shareholder Consent to Action Without a Meeting . . . . . . . . . . . . . . . 74
Liquidation Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Dissenters Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Proposal to Amend Eltrax 1998 Stock Incentive Plan . . . . . . . . . . . . . . . . 75
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Summary of the 1998 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 76
New Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . 81
Business of Eltrax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Business of Sulcus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . . . . 85
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Shareholders' Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ANNEXES
Annex A Agreement and Plan of Merger A-1
Annex B Opinion, dated November 11, 1998, of Broadview International LLC B-1
</TABLE>
-iii-
<PAGE>
Forward-Looking Statements
Certain statements contained in this document under "Summary," "Risk Factors,"
"The Merger -- Sulcus' Reasons for the Merger; Recommendation of the Sulcus
Board," "The Merger -- Eltrax's Reasons for the Merger; Recommendation of the
Eltrax Board," "The Merger -- Estimated Synergies," "The Merger -- Plans for
Sulcus," in addition to certain statements contained elsewhere in this document
or incorporated herein by reference, that are not statements of historical facts
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "anticipate," and
similar expressions are examples of words that identify forward-looking
statements. Forward-looking statements include, without limitation, statements
regarding Sulcus' or Eltrax's future financial position, business strategy and
expected cost savings or synergies.
Each forward-looking statement is subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Important factors that
could cause actual results to differ materially from the results expressed or
implied by any forward-looking statements include general economic conditions,
the ability to efficiently integrate acquired businesses, competition and other
factors disclosed under "Risk Factors" ("Cautionary Statements"). All
subsequent written and oral forward-looking statements relating to the matters
described in this document and attributable to Sulcus, Eltrax or SAC or to
persons acting on behalf of any of them are expressly qualified in their
entirety by the Cautionary Statements. Neither Eltrax nor Sulcus has any
obligation to publicly update or revise these forward-looking statements to
reflect new information, future events, or otherwise.
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS DOCUMENT, AND
MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY, AND FOR MORE COMPLETE DESCRIPTIONS OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT, INCLUDING THE MERGER
AGREEMENT ATTACHED AS ANNEX A, AND THE DOCUMENTS WE HAVE REFERRED YOU TO. SEE
"WHERE YOU CAN FIND MORE INFORMATION". (PAGE )
The Companies
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, Michigan 48075
(248) 358-1699
Eltrax designs and installs networking systems for corporate and government
customers. Eltrax also provides monitoring, management and maintenance services
to support enterprise networks. Eltrax is also a leading provider of
proprietary software products and technology services to the hospitality
industry.
Sulcus Hospitality Technologies Corp.
41 North Main Street
Greensburg, Pennsylvania 15601
(724) 836-2000
Sulcus develops, manufactures, markets and installs computerized systems
designed to automate the creation, handling, storage and retrieval of
information and documents. Sulcus designs its systems primarily for the
hospitality industry.
Our Reasons for the Merger
We believe that the combined company will offer our customers advanced
technology in the managed network services business and in the hospitality
business. The combined company will be a worldwide information technology
services leader in the hospitality industry, offering a complete information
technology solution to that industry. We believe that the combination of
Sulcus' technology with the next generation software and network services
technology of Eltrax will provide our customers with comprehensive information
and performance management across their networks. We expect that the combined
company will create opportunities for increased sales, profitability and
shareholder value as the marketing, financial, and technological strengths of
the companies are integrated.
The Special Meetings
Purpose for the Special Meeting
For the Sulcus Shareholders:
The shareholders of Sulcus are being asked to approve and adopt the merger
agreement among Eltrax, Sulcus and a wholly-owned subsidiary of Eltrax whereby
Sulcus will become a wholly-owned subsidiary of Eltrax.
For the Eltrax Shareholders:
The shareholders of Eltrax are being asked to approve
(1) the issuance of up to 9,421,455 shares of Eltrax common
2
<PAGE>
stock to be issued to the Sulcus shareholders in the merger, and
(2) an amendment to Eltrax's 1998 Stock Incentive Plan to increase by 1,500,000
the number of shares of Eltrax common stock that may be issued pursuant to
the plan in order to convert Sulcus stock options into Eltrax stock options
in the merger.
Approval of the Merger
By the Sulcus Shareholders:
The affirmative vote of a majority of the votes cast by Sulcus shareholders
at the special meeting is required to approve the merger. On February __,
1999, the directors and executive officers of Sulcus and their affiliates,
who are expected to vote in favor of the merger, beneficially owned
approximately _____% of the outstanding shares of Sulcus common stock.
By the Eltrax Shareholders:
The affirmative vote of a majority of the outstanding shares of Eltrax common
stock present, in person or by proxy, at the special meeting is required to
approve the issuance of Eltrax common stock in the merger and the amendment to
Eltrax's 1998 Stock Incentive Plan. On February __, 1999, the directors and
executive officers of Eltrax and their affiliates, who are expected to vote in
favor of the issuance of Eltrax common stock and the amendment to Eltrax's 1998
Stock Incentive Plan, beneficially owned approximately _____% of the outstanding
shares of Eltrax common stock.
Our Recommendations to Shareholders:
To the Sulcus Shareholders:
The Sulcus Board has unanimously approved the merger agreement and unanimously
recommends that you vote FOR the approval and adoption of the merger agreement.
To the Eltrax Shareholders:
The Eltrax Board has unanimously approved the merger agreement, the issuance of
Eltrax common stock in the merger and the amendment to Eltrax's 1998 Stock
Incentive Plan and unanimously recommends that you vote FOR the issuance of
Eltrax common stock in the merger and the amendment to Eltrax's 1998 Stock
Incentive Plan.
The Merger
What Sulcus Shareholders will receive (see page ____)
As a result of the merger, Sulcus shareholders will receive 0.55 shares of
Eltrax common stock for each share of Sulcus common stock that they own.
However, Sulcus shareholders will receive a cash payment for any fractional
shares, based upon the market value of Eltrax common stock on the day before the
consummation of the merger, instead of any fractional shares of Eltrax common
stock that they would receive.
Options to purchase Sulcus common stock will be converted into options to
purchase an adjusted number of shares of Eltrax common stock at an adjusted
exercise price, each adjusted to give economic effect to the conversion of
Sulcus common stock into Eltrax common stock, with the same exercise period and
vesting schedules as the existing Sulcus options.
Sulcus shareholders should not send in their share certificates until requested
to do so after the merger is completed.
Ownership of Eltrax Following the Merger
We anticipate that Eltrax will issue up to 9,421,455 shares of Eltrax common
stock to Sulcus shareholders in exchange for their
3
<PAGE>
Sulcus common stock in the merger. In addition, Eltrax will reserve
approximately 1,397,650 shares of Eltrax common stock for issuance pursuant
to newly-issued Eltrax options that will replace Sulcus options in connection
with the merger. Sulcus shareholders will own, on a fully diluted basis,
approximately 42.5% of the Eltrax common stock issued and outstanding after
the merger.
However, Eltrax intends to acquire two businesses in the near future by
issuing a total of 1,505,000 shares of Eltrax common stock and reserving
60,000 shares for issuance under Eltrax's 1998 Stock Incentive Plan. The
Eltrax common stock issued and reserved in these acquisitions will represent
approximately __% of the issued and outstanding Eltrax common stock on a
fully diluted basis, assuming completion of the merger.
Board of Directors and Management of Eltrax Following the Merger (see page ____)
After the merger, Clunet R. Lewis and Mack V. Traynor, III will resign from
the Eltrax Board. The Sulcus Board will designate two individuals to fill
those vacancies upon completion of the merger. William P. O'Reilly will
remain the Chairman and Chief Executive Officer of Eltrax.
Other Interests of Officers and Directors in the Merger (see page ____)
In considering the Sulcus Board's recommendation that you vote in favor of
adoption of the merger agreement, you should be aware that:
(1) the employment agreement between Sulcus and Leon Harris, the Chief
Executive Officer and a director of Sulcus, that presently runs through
February, 2002 will be terminated upon consummation of the merger, and
Mr. Harris will enter into a consulting agreement with Eltrax running
through August 31, 2000 to provide services in connection with the
integration of Eltrax and Sulcus. Mr. Harris will receive a lump sum fee
of $722,000 as a sole consideration for the termination of his existing
employment agreement;
(2) certain directors of Sulcus will receive the benefit of the acceleration
of the vesting schedule or the extension of the expiration of certain of
their stock options; and
(3) certain non-employee directors of Sulcus have entered into consulting
agreements with Eltrax;
and as such provide them with interests in the merger that are different
from, or in addition to, yours.
Conditions to the Merger (see page ____)
The completion of the merger depends upon satisfaction of a number of
conditions, including:
(1) approval of the transaction by the shareholders of Sulcus;
(2) approval of the issuance of shares of Eltrax common stock pursuant to
the merger agreement and the amendment to Eltrax's 1998 Stock Incentive Plan by
the shareholders of Eltrax;
(3) authorization of the Eltrax common stock to be issued pursuant to the
merger for listing on the Nasdaq SmallCap Market;
(4) effectiveness of Eltrax's registration statement registering the
shares of Eltrax common stock to be issued in the merger under the Securities
Act;
(5) the absence of any preliminary or permanent injunction or other order
or decree or any statute, rule or regulation enacted in the United States
preventing the consummation of the merger or making the merger illegal; and
(6) except where failure to do so would not cause a material adverse
effect on that company,
(a) securing all required waivers, consents, orders or approvals;
(b) performance by the other party of their agreements pursuant to the merger
agreement; and
4
<PAGE>
(c) continued accuracy of each party's representations and warranties.
Termination of the Merger Agreement (see page ___)
We can agree to terminate the merger agreement without completing the merger,
and either of us can terminate the merger agreement under various circumstances,
including:
(1) a material breach of a representation, warranty or material agreement in
the merger agreement that has not been corrected;
(2) the failure to complete the merger by June 30, 1999;
(3) the failure of the Sulcus shareholders to approve the transaction; and
(4) the failure of the Eltrax shareholders to approve the issuance of shares
of Eltrax common stock pursuant to the merger agreement and the amendment to
Eltrax's 1998 Stock Incentive Plan.
Sulcus can also terminate the merger agreement if
(1) it receives an unsolicited acquisition offer, or a person begins a tender
offer for all the shares of Sulcus common stock, which, in either case, the
Sulcus Board determines would result in a transaction more favorable to the
Sulcus shareholders than the merger with Eltrax, or
(2) the average closing price of Eltrax common stock for the seven
consecutive trading days ending three days before the merger will be effective
is less than $4.50 per share, but only if the average closing price of Sulcus
common stock during the same time period is equal to or greater than $1.00 per
share. On February , 1999, the reported closing sale price of Eltrax common
stock was $ , and the reported closing sale price of Sulcus common
stock was $ .
Termination Fees (see page ____)
The merger agreement requires Sulcus to pay Eltrax a termination fee of
$2,000,000 if the merger agreement is terminated because of Sulcus' acceptance
of an unsolicited offer for an acquisition transaction or approval of a tender
offer or Sulcus' material breach of a material covenant in the merger agreement
that is not cured. Eltrax would have to pay Sulcus the same termination fee if
the merger agreement is terminated because of Eltrax's material breach of a
material covenant in the merger agreement that is not cured.
The merger agreement requires Sulcus to pay Eltrax a termination fee of
$250,000 if the merger agreement is terminated because Sulcus' shareholders
failed to approve the transaction, but such fee shall not be payable if the
average closing price of Eltrax common stock for the seven consecutive
trading days ending three days before the special meetings is less than $4.50
per share and the average closing price of Sulcus common stock during the
same time period is equal to or greater than $1.00 per share. The merger
agreement also requires Eltrax to pay Sulcus a termination fee of $250,000 if
the merger agreement is terminated because Eltrax's shareholders failed to
approve the issuance of shares of Eltrax common stock pursuant to the merger
agreement or the amendment to Eltrax's 1998 Stock Incentive Plan.
Regulatory Approvals (see page ____)
General. Eltrax is not aware of (1) any material license or regulatory permit
of Eltrax or Sulcus that might be adversely affected by the merger or (2) any
approval or other action by any governmental authority that would be required
for the consummation of the merger. Should any such approval or other action be
required, Eltrax intends to seek such approval or action.
5
<PAGE>
Antitrust. No characteristics of either Eltrax or Sulcus trigger any filing
requirements prior to consummation of the merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") and the regulations
promulgated thereunder.
At any time before or after the merger is effective, notwithstanding that the
merger is not subject to the filing requirements under the HSR Act, the federal
government could take action under the antitrust laws, including seeking to stop
the merger or seeking a sale or other transfer of substantial assets of Sulcus
or Eltrax. Additionally, any state could take similar action under the antitrust
laws and, under certain circumstances, private persons could take legal action
under the antitrust laws.
Accounting Treatment (see page ____)
We expect the merger to qualify as a "pooling of interests", which means that we
will treat our companies as if they had always been combined for accounting and
financial reporting purposes.
Opinion of Sulcus Financial Advisor (see page ____)
Broadview International LLC delivered its written opinion on November 11, 1998
to the Sulcus Board, to the effect that, based upon and subject to the various
factors and assumptions stated in such opinion, as of such date, the exchange of
one share of Sulcus common stock for 0.55 shares of Eltrax common stock is fair
from a financial point of view to the Sulcus shareholders. The full text of the
Broadview written opinion, which sets forth assumptions made, matters considered
and limitations on the review undertaken, is attached as Annex B. SULCUS
SHAREHOLDERS ARE ADVISED TO READ THE BROADVIEW OPINION CAREFULLY AND IN ITS
ENTIRETY.
Material Federal Income Tax Consequences (see page ____)
We expect that the merger will qualify as a tax-free reorganization for federal
income tax purposes so that neither Eltrax, Sulcus nor Sulcus' shareholders will
recognize any gain or loss for federal income tax purposes in the merger. You
should consult your own tax advisor concerning the specific tax consequences of
the merger to you in light of your personal circumstances.
No Appraisal Rights (see page ____)
Under Pennsylvania law, shareholders of Sulcus do not have the right to vote
against the merger and receive the appraised value of their shares in cash in
connection with the merger. Likewise, under Minnesota law, shareholders of
Eltrax do not have the right to vote against the issuance of Eltrax common
stock in the merger and receive the appraised value of their shares in cash
in connection with the merger.
Comparative Per Share Market Price Information (see page ____)
Shares of Sulcus common stock are listed on the AMEX, while shares of Eltrax
common stock are listed on the Nasdaq SmallCap Market. On November 11, 1998,
the last full trading day before the public announcement that the companies
had entered into the merger agreement, shares of Sulcus common stock closed
at $1.56 per share and shares of Eltrax common stock closed at $6.50 per
share. On ______________, 1999, shares of Sulcus common stock closed at
$_____ per share and shares of Eltrax common stock closed at $_____ per share.
Listing of Eltrax Common Stock (see page ____)
The shares of Eltrax common stock issued in connection with the merger will be
listed on the Nasdaq SmallCap Market.
6
<PAGE>
Dividends After the Merger (see page ___)
Eltrax has not paid dividends on its common stock and does not anticipate paying
dividends on its common stock after the merger or at any time in the near
future.
7
<PAGE>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The selected historical financial information of Eltrax set forth below has
been derived from and should be read in conjunction with the consolidated
financial statements. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
Nine Month
Transition
Year Ended Period Ended Years Ended March 31, (Unaudited)
December 31, December 31, ---------------------------------
------------ ------------
1997 1996 1996(b) 1995(c) 1994(c)
------------ ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (a):
Revenue $49,934 $29,731 $17,869 $13,376 $10,831
Income (Loss) from Continuing
Operations (d) (11,332) (859) 10 325 526
Income (Loss) from Continuing
Operations per Common Share -
basic (1.34) (.11) - .07 .11
Balance Sheet Data:
Total Assets 21,491 16,646 6,480 5,033 5,150
</TABLE>
(a) Includes the operations of the following companies acquired by Eltrax
from their respective dates of acquisition: Nordata, Inc. and Rudata,
Inc. (May 17, 1996), Four Corners Technology, Inc. (July 1, 1997),
Hi-Tech Connections, Inc. (August 1, 1997), and DataComm Associates, Inc.
and Midwest Telecom Associates, Inc. (October 31, 1997). The results of
Atlantic Network Systems, Inc. (ANS) and EJG Techline Incorporated
(Techline) have been included for all periods presented. These two
companies merged with Eltrax on October 31, 1996 and May 17, 1997,
respectively, in transactions accounted for as pooling-of-interests.
(b) The selected financial data for the year ended March 31, 1996 is derived
from the audited Eltrax financial statements for the year ended March
31, 1996, restated to include the results of Techline.
(c) The selected financial data for the fiscal years ended March 31, 1995
and 1994 is derived from the unaudited annual financial statements of
ANS and Techline, as well as certain Eltrax historical data. The March
31, 1995 and 1994 data includes information for the years ended December
31, 1994 and 1993, respectively, for ANS and Techline. In 1996, all
other units of Eltrax, which were operating at March 31, 1995, were
discontinued. The Eltrax data included above for 1995 and 1994
represents management's estimate of the income, expenses and assets from
those years that were unrelated to the subsequently discontinued
operations.
(d) The 1997 loss from operations includes $5,714 in goodwill impairments
and $1,316 in income taxes resulting from the recognition of a full
valuation allowance on deferred tax assets.
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share and book value per
share data of Eltrax and Sulcus and the earnings per share and book value per
share data of Eltrax on a pro forma basis to give effect to the Merger and to
the several completed transactions described more fully in "Unaudited Pro
Forma Condensed Consolidated Financial Statements". No dividends were paid by
Eltrax or Sulcus during the periods presented below. The data set forth below
should be read in conjunction with the Eltrax and Sulcus audited consolidated
financial statements and unaudited interim consolidated financial statements,
including the notes thereto, which are included in the quarterly and annual
reports for Eltrax and Sulcus that are being delivered with this Proxy
Statement/Prospectus. The data should also be read in conjunction with the
unaudited pro forma combined condensed financial information included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------------ ENDED
1995 1996 1997 SEPTEMBER 30, 1998
--------- --------- --------- -------------------
<S> <C> <C> <C> <C>
Eltrax--Historical
Net income (loss) per share--basic(a).................................... $ .03 $ (0.11) $ (1.34) $ (0.08)
Book value per share(b).................................................. 0.69 1.17
Eltrax--Pro Forma Combined
Net income (loss) per share(c)
Basic.................................................................. $ (.09) 0.04 $ (0.70) $ (0.09)
Diluted................................................................ -- 0.04 -- --
Book value per share(d).................................................. 1.60 1.77
Sulcus--Historical
Net income (loss) per share(e)
Basic.................................................................. $ (.09) 0.08 $ (0.12) $ (0.02)
Diluted................................................................ -- 0.08 -- --
Book value per share(b).................................................. 1.49 1.50
Sulcus--Pro Forma Combined per Equivalent Share(f)
Net income (loss) per share..............................................
Basic.................................................................. $ (.05) 0.02 $ (0.39) $ (0.05)
Diluted................................................................ -- 0.02 -- --
Book value per share..................................................... 0.88 0.97
</TABLE>
- ------------------------
(a) The calculation of basic net loss per share uses the weighted average number
of common shares outstanding. Common stock equivalents have been excluded
from loss per share calculations as their inclusion would be antidilutive.
The 1996 net loss per share is for the nine-month transition period ended
December 31, 1996.
(b) Calculated by dividing historical shareholders' equity by the number of
outstanding common shares.
(c) Pro forma net income (loss) per share is computed as pro forma net income
(loss) divided by the weighted average number of shares outstanding,
assuming shares issued in each of the transactions were outstanding since
the beginning of each period presented.
(d) Calculated by dividing pro forma shareholders' equity by the number of
outstanding shares of Eltrax common stock expected to be outstanding as of
the consummation of the Merger, which number does not include shares
issuable upon the exercise of stock options.
(e) The calculation of basic net income (loss) per share uses the weighted
average number of common shares outstanding. The calculation of diluted net
income per share for 1996 includes the effect of common share equivalents
that are dilutive. Common stock equivalents have been excluded from the loss
per share calculations for 1997 and 1998 as their inclusion would be
antidilutive.
(f) Calculated by multiplying the Eltrax-Pro Forma Combined data above by the
exchange ratio of 0.55.
8
<PAGE>
Selected Unaudited Pro Forma Financial Data
The selected unaudited pro forma condensed combined balance sheet data as of
September 30, 1998 set forth below, gives effect to the merger as if
consummated on September 30, 1998. The selected unaudited pro forma
condensed combined statements of operations data for the years ended December
31, 1995, 1996 and 1997 and the nine months ended September 30, 1998 set
forth below, give effect to the merger and certain transactions described in
"Unaudited Pro Forma Condensed Consolidated Financial Statements" that Eltrax
has completed as if consummated at the beginning of the respective period.
The selected pro forma information set forth below, is qualified in its
entirety by, and should be read in conjunction with, the Unaudited Pro Forma
Condensed Combined Financial Statements included herein and the historical
financial information of Eltrax and Sulcus attached hereto or incorporated
herein by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given
retroactive effect therein had been consummated as of the dates indicated,
nor is it necessarily indicative of future financial conditions or operating
results. See "Unaudited Pro Forma Condensed Combined Financial Statements."
Unaudited Pro Forma Condensed Combined Balance Sheet Data
<TABLE>
<CAPTION>
At September 30,
1998
(in thousands)
<S> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 7,423
Accounts receivable, net . . . . . . . . . . . . . . . . 16,581
Inventories . . . . . . . . . . . . . . . . . . . . . . 6,941
Other current assets . . . . . . . . . . . . . . . . . . 3,420
---------
Total current assets . . . . . . . . . . . . . . . . 34,365
---------
---------
Purchased and capitalized software, net . . . . . . . . . . 5,624
Property and equipment, net . . . . . . . . . . . . . . . . 3,526
Intangibles, net . . . . . . . . . . . . . . . . . . . . . 22,958
Other noncurrent assets . . . . . . . . . . . . . . . . . . 2,602
---------
$ 69,075
---------
---------
Current liabilities:
Short-term borrowings . . . . . . . . . . . . . . . . . $ 3,309
Accounts payable . . . . . . . . . . . . . . . . . . . . 7,031
Accrued expenses . . . . . . . . . . . . . . . . . . . . 4,870
Unearned revenue . . . . . . . . . . . . . . . . . . . . 7,828
Current portion of long-term obligations . . . . . . . . 2,439
---------
Total current liabilities . . . . . . . . . . . . . . 25,477
Long-term obligations . . . . . . . . . . . . . . . . . . . 4,258
---------
Total liabilities . . . . . . . . . . . . . . . . . 29,735
Shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . 224
9
<PAGE>
Additional paid-in capital . . . . . . . . . . . . . . . 74,657
Accumulated deficit . . . . . . . . . . . . . . . . . . (34,808)
Treasury stock . . . . . . . . . . . . . . . . . . . . . (156)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (577)
---------
Total shareholders' equity . . . . . . . . . . . . 39,340
---------
$ 69,075
---------
---------
</TABLE>
10
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
--------------------------------- -------------
1995 1996 1997 1998
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenue..................................................................... $ 61,949 85,454 $ 125,525 $ 90,195
Cost of revenue............................................................. 33,121 51,990 78,374 52,972
--------- --------- --------- --------
Gross profit................................................................ 28,828 33,464 47,151 37,223
Operating expenses:
Selling, general and administrative....................................... 29,422 30,361 46,942 33,257
Research and development.................................................. 1,199 1,398 2,478 2,314
Depreciation and amortization............................................. 1,575 1,862 4,022 3,049
Goodwill adjustments ..................................................... -- -- 5,714 --
--------- ---------- ---------- ---------
Total operating expenses................................................ 32,196 33,621 59,156 38,620
--------- ---------- ---------- ---------
Operating loss............................................................ (3,368) (157) (12,005) (1,397)
Dividend and interest income................................................ 2,293 1,368 1,281 457
Interest expense............................................................ 100 (576) (1,579) (902)
--------- ---------- ---------- ---------
Income (loss) from continuing operations.................................. (975) 635 (12,303) (1,842)
Income tax expense.......................................................... 203 -- 1,316 --
--------- ---------- ---------- ---------
Net income (loss) from continuing operations.............................. $ (1,178) 635 $ (13,619) $ (1,842)
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Net income (loss) from continuing operations per common share and common
share equivalents:
Basic..................................................................... $ .09 0.04 $ (0.70) $ (0.09)
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Diluted................................................................... -- 0.04 -- --
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Weighted average shares outstanding:
Basic..................................................................... 13,716 15,919 19,360 21,405
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
Diluted................................................................... -- 16,907 -- --
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>
11
<PAGE>
Risk Factors
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER
INFORMATION INCLUDED IN THIS DOCUMENT BEFORE YOU VOTE AT YOUR SPECIAL MEETING.
Effect of Eltrax's Stock Price on the Merger Consideration
In considering the merger, Sulcus and Eltrax shareholders should take into
account two factors related to the market price of Eltrax common stock:
(1) The price of Eltrax common stock may fluctuate between the time that
Sulcus shareholders receive this document and the time that they vote
on the merger, and it may also fluctuate between the shareholder
meeting and the time that the merger is completed. Fluctuations may
be due to changes in the business, operations or prospects of Eltrax,
market assessments of the likelihood that the merger will be completed
and when, general market and economic conditions, and other factors.
(2) Since the merger consideration is a fixed number of shares of Eltrax
common stock (0.55 shares) for each share of Sulcus common stock,
fluctuations in the market price of Eltrax common stock will affect
the total value of the consideration that Sulcus shareholders will
receive in the merger.
The following example illustrates these risk factors: Assume that the price
of Eltrax common stock is $6.00 per share on the date that Sulcus
shareholders receive this document, the price declines to $5.00 per share on
the day of the shareholder meeting, and the price rises to $6.50 per share on
the day that the merger is completed. Based on the fixed exchange rate of
0.55 shares of Eltrax common stock for each share of Sulcus common stock, the
value of the Eltrax common stock to be received in exchange for one share of
Sulcus common stock is as follows:
<TABLE>
<CAPTION>
Price of Eltrax Percent Change
Date Common Stock Exchange Value From Prior Date
- ---- --------------- --------------- ---------------
<S> <C> <C> <C>
Proxy Received $6.00 $3.30 N/A
Shareholder Meeting 5.00 2.75 -16.7%
Merger Completed 6.50 3.575 +30%
</TABLE>
As shown above, the value of the merger consideration to be received by
Sulcus shareholders may fluctuate greatly since the number of shares of
Eltrax common stock they are entitled to receive remains fixed
notwithstanding fluctuations in the price of Eltrax common stock.
Ability to Efficiently Integrate and Operate Sulcus
Because the merger of Eltrax and Sulcus will be the largest business
combination that either company has ever done, the Eltrax and Sulcus
management teams will face new and challenging issues associated with
combining and integrating the business operations of the companies,
especially the international operations of Sulcus. Eltrax and Sulcus
expect to incur significant expenses in that integration effort. The failure
to successfully combine and integrate the operations of both companies will
have a material adverse effect on the combined company's future results of
operations and financial condition.
Eltrax's Ability to Efficiently Integrate and Operate Recent Acquisitions
During the last two years, Eltrax has merged with or acquired seven
companies, including Encore Systems, Inc., Global Systems, Inc. and Five Star
Systems, Inc. in September 1998. The rapid growth associated with these
acquisitions and the difficulties associated with the integration of these
businesses into Eltrax has placed, and will continue to place, a significant
strain on Eltrax's systems and controls and its management. The management of
Eltrax has expended, and expects to continue to expend, significant time and
effort in integrating the operations of its acquisitions and in expanding the
Eltrax systems and controls to its acquisitions. The failure of Eltrax
management to accomplish these tasks could have a material adverse effect on
Eltrax's results of operations and financial condition.
12
<PAGE>
FUTURE ELTRAX ACQUISITIONS
Eltrax has an announced strategy to continue to pursue acquisitions of
complementary businesses. Future acquisitions by Eltrax may present any of
the following risks:
(1) Future acquisitions may present increased difficulties in integrating
the operations of new businesses into Eltrax;
(2) Eltrax may be unable to retain key employees of the future
acquisitions;
(3) Future acquisitions may not perform at their historical or expected
levels;
(4) Eltrax may incur additional debt in future acquisitions;
(5) Future acquisitions may result in increased amortization expenses;
(6) Eltrax's current systems, procedures and controls may not be adequate
to support the company's operations as they are combined with future
acquisitions;
(7) The addition of new acquisitions will impose significant added
responsibilities on members of senior management, including the need
to identify, recruit and integrate new senior level managers and
executives; and
(8) Future acquisitions will dilute the stock ownership of current
shareholders and may have a dilutive effect on earnings. See
"Business of Eltrax--Pending Acquisitions."
History of Losses and Uncertainty of Future Profitability
13
<PAGE>
Eltrax has a history of net losses, including a net loss of $11,332,343 for
the 1997 fiscal year, a loss of $937,109 for the first nine months of 1998
and a loss of $6,441,860 for the first nine months of 1997. Sulcus also has
a history of net losses, including a net loss of approximately $2,010,000 for
the 1997 fiscal year. Sulcus generated net income of approximately $241,000
for the first nine months of 1998, but had a net loss of $1,645,000 for the
same period in 1997.
If the merger is not completed, Eltrax and Sulcus may each continue to
generate net losses in the future. If the merger is completed, the combined
company may generate net losses in the future.
Competition From Larger Competitors
Competition in the Eltrax and Sulcus businesses is intense and is expected to
increase. In some cases, competitors of both Eltrax and Sulcus are larger
than each of Eltrax and Sulcus, have longer operating histories, have more
financial, technical, research, marketing, sales, distribution and other
resources, and have greater name recognition and larger customer bases than
either Eltrax or Sulcus. In some cases, these disparities put both Eltrax
and Sulcus at a competitive disadvantage. This competitive disadvantage could
result in reduced profit margins or loss of market share.
Uncertainties Regarding Intellectual Property Rights
The success of Sulcus and Eltrax depends in part upon the protection of the
proprietary nature of their application software and hardware products.
Sulcus and Eltrax rely on a combination of copyright and trade secret
protection, non-disclosure agreements and license agreements to establish,
protect and enforce their intellectual property rights. In considering the
merger, Sulcus and Eltrax shareholders should take into account two risk
factors related to intellectual property rights.
(1) Despite efforts to safeguard and maintain their proprietary rights,
Eltrax and Sulcus may not be successful in doing so, or their
competitors may independently develop technologies that are
substantially similar or superior to Eltrax or Sulcus technologies.
(2) The laws of certain foreign countries do not protect intellectual
property rights to the same extent or in the same manner as do the
laws of the United States. Although Eltrax and
14
<PAGE>
Sulcus will implement protective measures and intend to defend their
proprietary rights vigorously, these efforts may not be successful.
Dependence on a Significant Customer
Each of Encore Systems, Inc. (a wholly owned subsidiary of Eltrax) and Sulcus
have substantial business relationships with Bass Hotels & Resorts, Inc.,
the operator of Holiday Inns, Inc. Holiday Inn accounted for approximately
8% and 6%, respectively, of the combined pro forma revenues of Eltrax and
Sulcus for the nine months ended September 30, 1998 and the year ended
December 31, 1997. The loss of, or a material reduction in, revenues from
Holiday Inn may have a material adverse effect on the combined company.
Dependence on Senior Management and Key Employees
The success of the combined company will be effected by the performance of
its executive officers and other key personnel. In considering the merger,
Sulcus and Eltrax shareholders should take into account two risk factors
related to executive officers and other key personnel.
(1) The loss of the services of any of its executive officers or other key
employees could have a material adverse effect on the company as both
Eltrax and Sulcus greatly depend on the services of a few key
employees and do not have the management depth of some larger
companies.
(2) Eltrax's future success will also depend in part upon its ability to
attract and retain highly skilled and qualified technical, managerial
and marketing personnel. Competition for such personnel in the
information technology services industry is intense. The inability to
hire or retain qualified personnel could have a material adverse
effect on the company.
Risks Associated with New Products and Services
Many of the Eltrax and Sulcus products and services are based on new or improved
technologies that have not previously been available. The success of the
combined company depends, in large part, upon the markets' acceptance of the new
technologies of Eltrax and Sulcus.
The following list contains examples of new technologies that Eltrax or Sulcus
has recently introduced to market:
(1) Eltrax recently introduced NetWatch ONLINE, its remote network
monitoring and management services, on a nationwide basis.
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(2) Encore Systems, Inc. (an Eltrax subsidiary) recently introduced its
next generation, Microsoft-Registered Trademark- Windows NT-Registered
Trademark- based, Medallion property management software products for
the hospitality industry.
(3) Sulcus recently introduced its next generation Microsoft-Registered
Trademark- Windows NT-Registered Trademark- based version of its
Squirrel product line, which is a restaurant point-of-sale management
system.
(4) Sulcus recently introduced its Legacy data warehousing and data mining
products and services. The Legacy products and services are used to
collect data from hotels about their guests and generate a variety of
information useful in hotel management and marketing efforts.
The combined company will have to overcome the difficulties inherent in the
introduction of new or improved technologies to the market. Market
acceptance of these new products and services will depend in large part on
the ability of the combined company to demonstrate to customers the technical
capabilities and the value of these new technologies. These new technologies
may not be accepted in the market in preference to competing products and
services presently available or newer products and services that may be
developed in the future. Lack of market acceptance of the combined company's
products and services would adversely affect the combined company's
performance.
Dependence on Hospitality and Tourism Industry
The success of both Eltrax and Sulcus is dependent upon demand for their
products and services in the hospitality and tourism industry. Consequently, any
decline in capital spending by the hospitality and tourism industry, in general,
or by key customers of either Eltrax or Sulcus in those industries, may have a
material adverse effect on the combined company's business, operating results
and financial condition.
Effect of General Economic Conditions
Demand for Eltrax and Sulcus products and services depends, in large part, on
the overall demand for communications and networking products and for
applications solutions, which may be affected by general economic conditions
that affect capital spending levels. These general economic conditions
including interest rate fluctuations, economic recessions and customer
business cycles. The combined company may experience a decline in demand for
its products and services due to general economic conditions.
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Sulcus' International Sales and the Risks Associated with International
Business
Sales from Sulcus' international operations represented approximately 37% of
Sulcus' total sales for the nine months ended September 30, 1998 and
approximately 42% of total sales for the year ended December 31, 1997.
The largest portion of these international sales are generated in the Pacific
Rim Region, which represented approximately 20% of
Sulcus' total sales for the nine months ended September 30, 1998 and
approximately 22% of Sulcus' total sales for the year ended December 31,
1997. In considering the merger, Sulcus and Eltrax shareholders should take
into account the following risk factors related to sales in international
markets.
(1) There could be unexpected changes in regulatory requirements.
(2) New tariffs or other barriers to certain international markets may
develop.
(3) There are inherent difficulties in staffing and managing foreign
operations.
(4) There are often longer payment cycles and greater difficulty in
accounts receivable collection from sales in certain international
markets.
(5) Unstable political environments could affect general business
conditions in certain international markets.
(6) There may be potentially adverse tax consequences in certain
international markets.
(7) There could be gains and losses on foreign currency conversion to U.S.
dollars.
Year 2000 Issues Associated with Eltrax
As a result of certain computer programs being written using two digits
rather than four to determine the applicable year, any computer systems that
have date sensitive software may recognize a date using a "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). This causes programs
that perform arithmetic operations, comparisons or date sorts to possibly
generate erroneous results when the program is required to process dates from
both centuries. This could result in a system failure, incorrect data or
other business disruptions. In considering the merger, Sulcus and Eltrax
shareholders should take into account the following risk factors related to
the Year 2000 Issue.
Internal Business Processing Systems. The first area of concern is the
impact of the Year 2000 Issue on internal business processing systems. Due
to Eltrax's growth, through a number of acquisitions, Eltrax currently
uses a number of different business processing systems. Certain of these
systems are not Year 2000 compliant. To address the inefficiencies caused by
multiple different systems and the Year 2000 Issue, Eltrax determined in
early 1998 to replace all existing systems with new uniform Year 2000
compliant systems that are expected to improve operating efficiency. The
final software selection was
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made in late 1998. The implementation is expected to occur throughout 1999.
The cost of this system, including software, hardware, and implementation
costs, is expected to be in the range of $500,000 to $700,000. To date,
costs of approximately $350,000 have been incurred.
Customers' Network Systems. The second area of concern is with network
systems sold and/or installed by Eltrax. Eltrax has instituted a program to
review the systems of all customers who currently purchase ongoing
maintenance services from Eltrax. This program will provide assistance to
customers in reviewing their networks for Year 2000 issues. Customers not
utilizing support services will be notified of their need to review their
networks for Year 2000 risks. This process was substantially complete at the
end of 1998. The cost of this project has not resulted in any material
incremental cost to Eltrax.
Software Products. The third area of concern involves the Eltrax software
products, which are primarily the applications of Encore Systems, Inc., a
recently-acquired subsidiary of Eltrax. Encore had substantially completed
development of Year 2000 versions of its software at the time Eltrax acquired
Encore, and Encore is in the process of upgrading customers' systems to be
Year 2000 compliant. This process should be completed in early 1999, and any
future costs are expected to be minor.
Suppliers. The final area of concern is whether the products and services
procured by Eltrax from its major suppliers will function properly or be
available without interruption in the year 2000. Eltrax intends to request
assurances from its major suppliers that they are addressing the Year 2000
Issue in a timely fashion. There can be no assurance that all of the Eltrax
suppliers of products and services will successfully address the Year 2000
Issue. It will be impossible to fully assess the potential consequences if
service interruptions occur from suppliers or in infrastructure areas such as
utilities, communications, transportation, banking and government. As a
result, Eltrax also intends to develop a contingency plan by mid-1999 to
minimize the impact of such external events.
While Eltrax's efforts to address these Year 2000 risks will involve
additional costs and the time and effort of a number of employees, Eltrax
believes, based on currently available information, that it will be able to
properly manage its total Year 2000 exposure. However, Eltrax may not be
successful in this effort, which may have a material adverse effect on
Eltrax's business, financial condition or results of operations.
Year 2000 Issues Associated with Sulcus
Sulcus is in the process of evaluating and testing its internal business and
information systems and its non-technology systems, such as equipment
containing microprocessors, with respect to the Year 2000 Issue. After
inquiries of its key vendors and suppliers and its own internal evaluation,
Sulcus believes that its major internal business and information systems are,
or by April 1, 1999 will be, capable of handling the calculations and
computations necessary to be Year 2000 compliant. The costs to date
associated with Year 2000 compliance issues have not
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been significant and Sulcus does not believe that future costs associated
with implementing its Year 2000 compliance efforts will be material to its
business, results of operations, or financial condition.
Sulcus is testing the current versions, and is designing the newest versions,
of its products to process Year 2000 data. While some minor potential issues
were identified, those versions that have been tested are substantially Year
2000 compliant and the expense of revising current versions to be Year 2000
compliant has not been material. Although Sulcus is testing its products for
Year 2000 compliance, undetected errors or defects may exist that could cause
a product to fail to process Year 2000 data correctly. Sulcus expects that
it will complete its Year 2000 testing of its current products by April 1,
1999, at which time all of its current product offerings are expected to be
Year 2000 compliant. Sulcus has taken steps to assist its customers in
upgrading to current compliant product versions. However, no assurances can
be given that all customers will do so. Costs incurred by Sulcus in testing
and evaluating its products for Year 2000 compliance have been mostly
salaries and other administrative costs, none of which have been significant.
Sulcus licenses software from third parties that is integrated with its own
proprietary software. Sulcus has received assurances or warranties from such
third parties that the licensed software is Year 2000 compliant. However,
all such third-party software may not be free of errors and defects and may
not be Year 2000 compliant.
Presently, Sulcus does not have a written Year 2000 contingency plan
addressing a worse-case Year 2000 scenario. The Company intends to implement
a contingency plan by April 1, 1999.
Sulcus will continue to request and compile information regarding Year 2000
compliance, including that of its key suppliers and vendors. If any of
Sulcus' internal systems or key suppliers are not Year 2000 compliant,
Sulcus' business or operations might be adversely impacted.
Accounting Treatment of Merger
Management of Eltrax and Sulcus currently expect that the merger will be
accounted for as a "pooling of interests". However, if the merger cannot be
accounted for as a "pooling of interests", the combined company's reported
results may be materially affected due to an increase in non-cash
amortization charges.
Eltrax's Need for Additional Capital to Make Acquisitions
Eltrax has developed a strategy of growth through additional acquisitions and
it is anticipated that the combined company will continue to pursue
acquisitions. While Eltrax believes it will continue to pay the purchase
price for a majority of its acquisitions with capital stock, Eltrax
anticipates that additional capital may be required to make certain
acquisitions. However, the additional capital may not be available to the
combined company to make those acquisitions.
Adverse Effect on Price of Eltrax Shares Available for Future Sale
Sales of a substantial number of shares of Eltrax common stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the shares. Upon consummation of the merger, Eltrax's
officers and directors, former officers and directors of Sulcus, and Eltrax's
employees who are former shareholders of other companies acquired by Eltrax,
will hold, or have options or warrants to purchase, approximately ___________
shares of Eltrax common stock. In addition, the shareholders of two
businesses Eltrax intends to acquire in the near future will be issued
1,505,000 shares of Eltrax common stock upon the completion of such
acquisitions. These shares may be sold pursuant to an effective registration
statement or pursuant to an exemption from registration (such as Rule 144
promulgated by the
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Securities and Exchange Commission pursuant to the Securities Act). No
prediction can be made regarding the effect that future sales will have on
the market price of Eltrax common stock.
Lack of Dividends
Eltrax has not paid dividends on its common stock and does not anticipate
paying cash dividends in the foreseeable future. The combined company
intends to retain any earnings to finance the development of its business
and, consequently, may never pay cash dividends.
Purpose of This Document
This document is being furnished to the holders of Eltrax common stock in
connection with the solicitation of proxies by the Eltrax Board of Directors
(the "Eltrax Board") for use at the Eltrax special meeting for purposes
described herein.
This document is also being furnished to the holders of Sulcus common stock
in connection with the solicitation of proxies by the Sulcus Board of
Directors (the "Sulcus Board") for use at the Sulcus special meeting for
purposes described herein.
This document relates to the Agreement and Plan of Merger, dated as of
November 11, 1998, by and among Eltrax, Sulcus, and Sulcus Acquiring
Corporation, a wholly-owned subsidiary of Eltrax ("SAC"), which provides for
the merger of SAC with and into Sulcus, resulting in Sulcus being a
wholly-owned subsidiary of Eltrax. Subject to the terms and conditions of
the merger agreement, if the merger is consummated, each share of Sulcus
common stock issued and outstanding immediately prior to the effective time
of the merger (other than shares of Sulcus common stock held in the treasury
of Sulcus or held by any Sulcus subsidiary, Eltrax or SAC or other subsidiary
of Eltrax) shall, by virtue of the merger and without any action on the part
of the holder thereof, be converted into the right to receive 0.55 fully paid
and nonassessable shares (the "Sulcus Exchange Ratio") of Eltrax common stock.
No fractional shares of Eltrax common stock will be issued in the merger. In
lieu of any such fractional shares, each holder of Sulcus common stock who
otherwise would be entitled to receive a fractional share of Eltrax common
stock pursuant to the merger will be paid an amount in cash equal to such
fraction multiplied by the closing price per share of Eltrax common stock, as
reported by THE WALL STREET JOURNAL as of the close of business on the
business day immediately preceding the closing date of the merger. See
"Merger Agreement -- Conversion of Sulcus Common Stock".
This document also constitutes the prospectus of Eltrax filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the
"Securities Act") relating to the shares of Eltrax common stock to be issued
to the holders of Sulcus common stock pursuant to the merger agreement.
This document and the accompanying proxy card are first being mailed to
shareholders of Sulcus and Eltrax on or about ____________, 1999.
Eltrax Special Meeting
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Purpose
At the Eltrax special meeting, the shareholders of Eltrax will consider and
vote upon a proposal to approve:
- the issuance of up to 9,421,455 shares of Eltrax common stock pursuant
to the merger agreement (the "Share Issuance"), and
- an amendment to Eltrax's 1998 Stock Incentive Plan (the "Plan
Amendment") to increase by 1,500,000 the number of shares of Eltrax
common stock that may be issued pursuant to such plan in order to
provide for the conversion of Sulcus stock options into Eltrax stock
options.
The shareholders of Eltrax will also consider and take action upon any other
business that may properly be brought before the Eltrax special meeting.
THE ELTRAX BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF ELTRAX AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE SHARE ISSUANCE AND THE PLAN
AMENDMENT. ACCORDINGLY, THE ELTRAX BOARD RECOMMENDS THAT THE SHAREHOLDERS OF
ELTRAX VOTE IN FAVOR OF THE APPROVAL OF THE SHARE ISSUANCE AND THE PLAN
AMENDMENT AT THE ELTRAX SPECIAL MEETING. See "The Merger -- Eltrax's Reasons
for the Merger; Recommendation of the Eltrax Board".
Record Date; Voting Rights
Only holders of record of Eltrax common stock at the close of business on
_______________________, 1999 (the "Eltrax Record Date") are entitled to
receive notice of and to vote at the Eltrax special meeting. At the close of
business on the Eltrax Record Date, there were _____ shares of Eltrax common
stock outstanding, each of which entitles the registered holder thereof to
one vote.
Share Ownership of Management
At the close of business on the Eltrax Record Date, directors and executive
officers of Eltrax and their affiliates were the beneficial owners of an
aggregate of _________ (approximately _____%) shares of Eltrax common stock
then outstanding.
Quorum
The holders of a majority of the shares of Eltrax common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the Eltrax special meeting in order for a quorum to be present.
Shares of Eltrax common stock represented by proxies which are marked
"abstain" will be counted as shares present for purposes of determining the
presence of a quorum on all matters, as will shares that are represented by
proxies that are executed by any broker, fiduciary or other
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nominee on behalf of the beneficial owner(s) thereof regardless of whether
authority to vote is withheld by such broker, fiduciary or nominee on one or
more matters.
In the event that a quorum is not present at the Eltrax special meeting, it
is expected that such meeting will be adjourned or postponed to solicit
additional proxies.
Voting and Revocation of Proxies
All shares of Eltrax common stock represented by properly executed proxies in
the enclosed form that are received in time for the Eltrax special meeting
and have not been revoked will be voted in accordance with the instructions
indicated in such proxies. IF A PROXY IS SUBMITTED BUT NO DIRECTIONS ARE
GIVEN THEREIN, SHARES OF ELTRAX COMMON STOCK REPRESENTED BY THE PROXY WILL BE
VOTED FOR THE APPROVAL OF THE SHARE ISSUANCE AND THE PLAN AMENDMENT.
Abstentions and broker non-votes will have the effect of a vote cast against
the approval of the Share Issuance and the Plan Amendment. In addition, the
persons designated in the proxy will have discretion to vote upon any
procedural matter relating to the Eltrax special meeting, including the right
to vote for any adjournment or postponement thereof proposed by the Eltrax
Board, including a postponement and adjournment to solicit additional
proxies. Any proxy may be revoked by the shareholder executing it at any
time prior to its exercise by giving written notice thereof to the Secretary
of Eltrax, by signing and returning a later dated proxy or by voting in
person at the Eltrax special meeting. Attendance at the Eltrax special
meeting will not in and of itself constitute the revocation of a proxy.
Solicitation of Proxies
Proxies are being solicited hereby on behalf of the Eltrax Board. In
addition to the use of the mail, solicitation may be made in person or by
telephone or otherwise by directors, officers and regular employees of
Eltrax. Eltrax's directors, officers and regular employees will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. If undertaken, the
expense of such solicitation would be nominal.
Required Vote
Approval of the Share Issuance and the Plan Amendment will require the
affirmative vote of a majority of the outstanding shares of Eltrax common
stock present, in person or by proxy, at the Eltrax special meeting and
entitled to vote thereon, provided that a quorum is present at the Eltrax
special meeting.
Sulcus Special Meeting
Purpose
At the Sulcus special meeting, the shareholders of Sulcus will consider and
vote upon a proposal to approve and adopt the merger agreement. The
shareholders of Sulcus will also consider and take action upon any other
business that may be brought before the Sulcus special meeting.
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THE SULCUS BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF SULCUS AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT. ACCORDINGLY, THE SULCUS BOARD
RECOMMENDS THAT THE SHAREHOLDERS OF SULCUS VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE SULCUS SPECIAL MEETING. See "The
Merger -- Sulcus' Reasons for the Merger; Recommendation of the Sulcus Board."
For a discussion of the interests that certain directors and executive
officers of Sulcus have with respect to the merger in addition to their
interests as shareholders of Sulcus generally and information regarding the
treatment of options to purchase Sulcus common stock, see "The Merger --
Interests of Certain Persons." Such interests, together with other relevant
factors, were considered by the Sulcus Board in making its recommendation and
approving the merger agreement.
Record Date; Voting Rights
Only holders of record of Sulcus common stock at the close of business on
_________________________, 1999 (the "Sulcus Record Date") are entitled to
receive notice of and to vote at the Sulcus special meeting. At the close of
business on the Sulcus Record Date, there were ________ shares of Sulcus
common stock outstanding, each of which entitles the registered holder
thereof to one vote.
Share Ownership of Management
At the close of business on the Sulcus Record Date, directors and executive
officers of Sulcus and their affiliates were the beneficial owners of an
aggregate of __________ (approximately ___%) shares of Sulcus common stock
then outstanding.
Quorum
The holders of a majority of the shares of Sulcus common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the Sulcus special meeting in order for a quorum to be present.
Shares of Sulcus common stock represented by proxies which are marked
"Abstain" will be counted as shares present for purposes of determining the
presence of a quorum on all matters, as will shares that are represented by
proxies that are executed by any broker, fiduciary or other nominee on behalf
of the beneficial owner(s) thereof regardless of whether authority to vote is
withheld by such broker, fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the Sulcus special meeting, it
is expected that such meeting will be adjourned or postponed to solicit
additional proxies.
Voting and Revocation of Proxies
All shares of Sulcus common stock represented by properly executed proxies in
the enclosed form that are received in time for the Sulcus special meeting and
have not been revoked will be voted in accordance with the instructions
indicated in such proxies.
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IF A PROXY IS SIGNED AND SUBMITTED BUT NO DIRECTIONS ARE GIVEN THEREIN,
SHARES OF SULCUS COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED IN FAVOR
OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Abstentions will have the
effect of a vote cast against approval and adoption of the merger agreement.
Broker non-votes will be disregarded and will have no effect on the vote. In
addition, the persons designated in such proxy will have discretion to vote
upon any procedural matter relating to the Sulcus special meeting, including
the right to vote for any adjournment or postponement thereof proposed by the
Sulcus Board, including a postponement and adjournment to solicit additional
proxies. Any proxy in the enclosed form may be revoked by the shareholder
executing it at any time prior to its exercise by giving written notice
thereof to the Secretary of Sulcus, by signing and returning a later dated
proxy or by voting in person at the Sulcus special meeting. Attendance at
the Sulcus special meeting will not in and of itself constitute the
revocation of a proxy.
Solicitation of Proxies
Proxies are being solicited hereby on behalf of the Sulcus Board. In
addition to the use of the mail, solicitation may be made in person or by
telephone or otherwise by directors, officers and employees of Sulcus.
Sulcus' directors, officers and employees will not be additionally
compensated for such solicitation, but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. If undertaken, the expense of
such solicitation would be nominal. Sulcus has retained
________________________ to aid in the solicitation of proxies from its
shareholders. The fees paid to _______________________________ are not
expected to exceed approximately $__________, plus reasonable out-of-pocket
costs and expenses. Sulcus will bear its expenses in connection with the
solicitation of proxies for the Sulcus special meeting.
Required Vote
Approval and adoption of the merger agreement will require the affirmative
vote of a majority of the votes cast on the merger agreement by the holders
of Sulcus common stock, provided that a quorum is present at the Sulcus
special meeting.
The Merger
THE DESCRIPTION OF THE MERGER AND THE MERGER AGREEMENT INCLUDED IN THIS
DOCUMENT DESCRIBES THE MATERIAL ASPECTS OF THE MERGER, AND MAY NOT
CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY, AND FOR MORE COMPLETE DESCRIPTIONS OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD CAREFULLY READ THE MERGER AGREEMENT ATTACHED AS ANNEX A.
General
The merger will become effective when articles of merger have been duly filed
with the Department of State of the Commonwealth of Pennsylvania (the
"Effective Time"), or at such time as is agreed upon by the parties and
specified in the articles of merger. At the Effective Time, each share of
Sulcus common stock issued and outstanding immediately prior to the Effective
Time (other than shares of Sulcus common stock held in the treasury of Sulcus
or held by a subsidiary of Sulcus, Eltrax or SAC or other subsidiary of
Eltrax), shall, by virtue of the merger and without any action on the part of
the holder thereof, be canceled and
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converted automatically into the right to receive 0.55 fully paid and
non-assessable shares of Eltrax common stock.
No fractional shares of Eltrax common stock will be issued in the merger. In
lieu of any fractional shares, each holder of Sulcus common stock who
otherwise would be entitled to receive a fractional share of Eltrax common
stock pursuant to the merger will be paid an amount in cash equal to such
fraction multiplied by the closing price per share of Eltrax common stock, as
reported by THE WALL STREET JOURNAL, at the close of business on the business
day immediately preceding the closing date. See "Merger Agreement --
Conversion of Sulcus Common Stock."
Background of the Merger
In early 1998, Mr. Leon Harris, Chairman of the Board and Chief Executive
Officer of Sulcus, contacted Mr. Bradley Gevurtz, a principal at Broadview
International LLC ("Broadview"), to assist Sulcus in discussions with
strategic partners.
On February 23, 1998, Sulcus engaged Broadview as its financial advisor to
assist Sulcus in negotiations with any potential merger partners and evaluate
alternative strategic options.
Between March, 1998 and July, 1998, representatives of Sulcus and Broadview
engaged in exploratory discussions with four potential merger partners other
than Eltrax. On June 13, 1998, Sulcus entered into a letter of intent
regarding a potential business combination with Tridex Corporation. However,
on or about July 29, 1998, Sulcus and Tridex terminated this letter of intent
to pursue other strategic alternatives.
In early August, 1998, Mr. William O'Reilly, Chairman of the Board and Chief
Executive Officer of Eltrax, spoke with Mr. David Berkus, a director of
Sulcus, to discuss a potential business combination.
On August 12, 1998, Broadview called Mr. O'Reilly. At that time, Mr.
O'Reilly discussed Eltrax's business operations and indicated an interest in
opening discussions with Sulcus regarding a potential merger.
On September 18, 1998, Sulcus and Eltrax executed a Non-Disclosure Agreement,
after which Sulcus and Eltrax began to exchange confidential information.
On September 23, 1998, Mr. Morgan Payne, an outside consultant to Eltrax, met
with Broadview to discuss Eltrax's interest in a merger with Sulcus. At the
conclusion of the meeting, Mr. Payne indicated that Eltrax was interested in
proceeding forward with the discussions and he recommended a meeting between
Messrs. O'Reilly and Harris.
On October 13, 1998, Messrs. O'Reilly and Harris met at Broadview's offices
to discuss a potential merger and possible synergies resulting from a
business combination. At the conclusion of the meeting, Messrs. O'Reilly and
Harris expressed an interest to proceed with merger discussions.
On October 23, 1998, Mr. O'Reilly called Mr. Harris and verbally proposed a
merger of Eltrax and Sulcus, in which shareholders of Sulcus would receive
shares of Eltrax common stock equal to approximately 40% of the outstanding
common stock of Eltrax after the merger.
On October 27, 1998, a special meeting of the Eltrax Board was held via
teleconference at which Mr. O'Reilly presented a proposal to acquire Sulcus.
Mr. O'Reilly discussed the potential
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business advantages of the transaction, and Ms. Penelope Sellers, an Eltrax
Board member and President of Encore Systems, Inc., a subsidiary of Eltrax in
the hospitality technology industry, advised the Eltrax Board of her
knowledge of Sulcus and the potential benefits to Eltrax from the proposed
transaction. Mr. Nicholas J. Pyett, Eltrax's Chief Financial Officer, then
presented Sulcus' financial results and combined projections of Eltrax and
Sulcus. Mr. Clunet R. Lewis, Eltrax's general counsel and a member of the
Eltrax Board, then discussed the status of negotiations with Sulcus.
Following an extensive discussion, the Eltrax Board then authorized Messrs.
O'Reilly and Lewis to continue negotiations with Sulcus.
On October 29, 1998, a meeting was held at Broadview's offices including
representatives from Sulcus, Eltrax, Broadview, and Sulcus' legal counsel.
During the meeting, Eltrax and Sulcus agreed to a process and timetable for
proceeding with the discussions. Also on October 29, 1998, Mr. Harris
proposed a post-merger equity split which would leave Sulcus' shareholders
with 45% of the combined entity. At the conclusion of that meeting, Messrs.
O'Reilly and Harris agreed to recommend to their respective boards of
directors that the combined equity be split so that Sulcus' shareholders
would receive approximately 42.5% of the outstanding common stock of Eltrax
after the merger, on a fully diluted basis.
Between November 2, 1998 and November 11, 1998, the parties held subsequent
meetings to conduct business and legal due diligence in greater detail and to
negotiate the definitive merger agreement.
On November 9, 1998, Messrs. O'Reilly and Harris agreed, in principle, to a
share exchange of 0.55 shares of Eltrax common stock for each share of Sulcus
common stock.
On November 10, 1998, a special meeting of the Sulcus Board was held via
teleconference to discuss the proposal and alternatives. All members of the
Sulcus Board and representatives of Broadview and legal counsel to Sulcus
participated. Also during this meeting, Mr. Gevurtz was asked to present to
the Sulcus Board an account of the interactions between Sulcus and other
potential partners which were approached on behalf of Sulcus. Following
these discussions, the Sulcus Board unanimously recommended that management
continue to explore the possibility of a business combination with Eltrax.
The Sulcus Board authorized Mr. Harris and Broadview to continue negotiations
with Eltrax with respect to the completion of a definitive merger agreement
for consideration by the Sulcus Board.
On November 11, 1998, a special meeting of the Eltrax Board was held via
teleconference. All members of the Eltrax Board participated. During the
meeting, Messrs. O'Reilly and Lewis reviewed the terms of the definitive
agreement with the Eltrax Board and answered questions regarding the
agreement and information pertaining to Sulcus that had been previously sent
to the Eltrax Board. At the conclusion of the presentation, the Eltrax Board
unanimously approved the merger and the merger agreement, and authorized
management to execute and deliver the merger agreement.
On November 11, 1998, a special meeting of the Sulcus Board was held via
teleconference. All members of the Sulcus Board and representatives of
Broadview and legal counsel to Sulcus participated. Copies of Broadview's
written opinion were distributed to the Sulcus Board prior to the meeting.
During the meeting, Messrs. Gevurtz, Harris and Michael Wager, a director of
Sulcus and legal counsel to Sulcus, reviewed the terms of the definitive
agreement with the Sulcus Board and answered questions. Representatives of
Broadview then presented an oral and written opinion to the Sulcus Board that
the consideration to be received by Sulcus shareholders in the acquisition
was fair from a financial point of view. Both during and following the
presentation, Broadview representatives responded to extensive questions and
comments from the Sulcus Board. At the conclusion of the presentation, the
Sulcus Board unanimously approved the merger and the merger agreement, and
authorized
26
<PAGE>
management to execute and deliver the merger agreement. Subsequent to this
meeting, each company executed and delivered the merger agreement.
On November 11, 1998, Eltrax publicly announced the execution of the merger
agreement and, on November 12, 1998, Sulcus publicly announced the execution
of the merger agreement.
Eltrax's Reasons for the Merger; Recommendation of the Eltrax Board
The Eltrax Board has unanimously determined that the merger is advisable and
fair to and in the best interests of the shareholders of Eltrax and has
unanimously approved the merger agreement, the Share Issuance and the Plan
Amendment. Accordingly, the Eltrax Board recommends that the shareholders of
Eltrax vote in favor of approval of the Share Issuance and Plan Amendment.
For the foregoing reasons, the Eltrax Board believes that the terms and
conditions of the merger agreement are in the best interests of Eltrax and
its shareholders. In reaching its conclusion, the Eltrax Board considered,
among other things:
- The long-term interests of Eltrax and its shareholders;
- Information concerning the business, earnings, operations, financial
condition and prospects of Eltrax and Sulcus, both individually and on
a combined basis, including information with respect to the historic
earnings performance of each of Eltrax and Sulcus;
- The opportunities for expansion of existing Eltrax services and
systems by accessing Sulcus' sales force in more than 80 locations, in
20 countries all over the world;
- The experience of Sulcus' senior management in the hospitality
technology industry;
- The opportunity to leverage economies of scale and operating
efficiencies through combined purchasing and consolidation of
infrastructures, particularly from the integration of distribution
channels and support systems;
- The combined company's stronger balance sheet;
- The terms of the merger agreement, including that the merger is
expected to be treated as a tax-free reorganization and is intended to
be accounted for under the pooling of interests method of accounting;
and
- The recent and historical trading prices of Sulcus common stock and
Eltrax common stock relative to those of other industry participants,
and the potential for appreciation in the value of Eltrax common stock
following the merger resulting from opportunities for enhanced revenue
growth and accelerated earnings growth of the combined company.
The foregoing discussion of the information and factors considered and given
weight by the Eltrax Board is not intended to be exhaustive. The Eltrax
Board did not assign relative weights to the above factors or determine that
any factor was of particular importance. Rather, the Eltrax
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<PAGE>
Board viewed its position and recommendations as being based on the totality
of the information presented to, and considered by, it. In addition,
individual members of the Eltrax Board may have given different weights to
different factors.
THE ELTRAX BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ELTRAX COMMON
STOCK VOTE "FOR" APPROVAL OF THE SHARE ISSUANCE AND THE PLAN AMENDMENT.
Sulcus' Reasons for the Merger; Recommendation of the Sulcus Board
The Sulcus Board has unanimously determined that the merger is advisable and
fair to and in the best interests of the shareholders of Sulcus and has
unanimously approved the merger agreement. Accordingly, the Sulcus Board
recommends that the shareholders of Sulcus vote in favor of approval and
adoption of the merger agreement.
In reaching its conclusion to approve the merger agreement, the Sulcus Board
considered, among other things:
- The judgment, advice and analyses of Sulcus management;
- The analyses prepared by Broadview and the written opinion of
Broadview presented to the Sulcus Board on November 11, 1998 to the
effect that, based upon and subject to the various factors and
assumptions stated therein, as of that date, the Sulcus Exchange Ratio
is fair from a financial point of view to the Sulcus shareholders. A
copy of the written opinion, dated November 11, 1998, of Broadview,
setting forth the assumptions made, matters considered and limitations
on the review undertaken by Broadview, is attached as Annex B and is
incorporated by reference. SULCUS SHAREHOLDERS ARE URGED TO READ THE
OPINION OF BROADVIEW CAREFULLY AND IN ITS ENTIRETY. See "The Merger--
Opinion of Financial Advisor to Sulcus" and "The Merger--Background of
the Merger";
- The Sulcus Exchange Ratio, assuming that the average Eltrax share
price is $6.50 (the closing price of Eltrax common stock on November
11, 1998; the last full trading day prior to the execution and
delivery of the merger agreement), represents a premium of
approximately 150% over the closing price of Sulcus common stock on
that date;
- The fixed Sulcus Exchange Ratio allows the Sulcus shareholders to
participate in any increases in the value of Eltrax common stock;
- Other strategic alternatives open to Sulcus, such as remaining
independent and continuing to grow by expansion, involve greater risk
from the standpoint of shareholder value than the merger;
- The merger agreement permits Sulcus to furnish information and
participate in discussions with prospective competing bidders under
specified circumstances consistent with the legal obligations of the
Sulcus Board;
- The strategic fit between Sulcus and Eltrax, including potential
synergies;
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<PAGE>
- The merger is expected to be treated as a tax-free reorganization and
is intended to be accounted for under the pooling of interests method
of accounting; and
- The merger agreement has a very limited set of conditions to
consummation of the merger.
The foregoing discussion of the information and factors considered and given
weight by the Sulcus Board is not intended to be exhaustive. The Sulcus Board
did not assign relative weights to the factors or determine that any factor
was of particular importance. Rather, the Sulcus Board viewed its position
and recommendation as being based on the totality of the information
presented to and considered by it. In addition, individual members of the
Sulcus Board may have given different weights to different factors.
THE SULCUS BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SULCUS COMMON
STOCK VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Broadview's Presentation to the Sulcus Board
Introduction
Sulcus engaged Broadview to act as its financial advisor and to render an
opinion to the Sulcus Board regarding the fairness of the Sulcus Exchange
Ratio, from a financial point of view, to Sulcus shareholders in the Merger.
At the meeting of the Sulcus Board on Wednesday, November 11, 1998, Broadview
rendered its opinion (the "Broadview Opinion") that, as of November 11, 1998,
based upon and subject to the various factors and assumptions described in
the Broadview Opinion, the Sulcus Exchange Ratio was fair, from a financial
point of view, to the Sulcus shareholders. The Sulcus Exchange Ratio was
determined through negotiations between Sulcus and Eltrax and not through any
recommendations of Broadview.
THE TEXT OF THE BROADVIEW OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX B TO THIS DOCUMENT. SULCUS SHAREHOLDERS ARE URGED TO READ THE
BROADVIEW OPINION CAREFULLY IN ITS ENTIRETY. THE BROADVIEW OPINION ADDRESSES
ONLY THE FAIRNESS OF THE SULCUS EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF SULCUS AS TO
HOW THAT SHAREHOLDER SHOULD VOTE AT THE SULCUS SPECIAL MEETING. BROADVIEW
WILL RECEIVE A FEE FROM SULCUS CONTINGENT UPON SUCCESSFUL CONCLUSION OF THE
MERGER. THE SUMMARY OF THE BROADVIEW OPINION SET FORTH IN THIS DOCUMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Broadview, among other things:
(1) reviewed the terms of the merger agreement and its associated exhibits
in the form of the draft dated November 10, 1998 furnished to
Broadview by Jaffe, Raitt, Heuer & Weiss, P.C., Eltrax's legal
counsel, on November 10, 1998 which was not materially
29
<PAGE>
different from the definitive merger agreement;
(2) reviewed Sulcus' Form 10-K for the fiscal year ended December 31, 1997
which included results for the fiscal years ended December 31, 1997
and 1996, including the audited financial statements included in that
Form 10-K, Sulcus' Form 10-Q for the six months ended June 30, 1998,
including the unaudited financial statements included in that Form 10-
Q, and the unaudited financial information of Sulcus for its nine
months ended September 30, 1998 included in a proposed draft press
release provided to Broadview by Sulcus management;
(3) reviewed certain internal financial and operating information,
including projections through December 31, 1999, for Sulcus prepared
by Sulcus management;
(4) participated in discussions with Sulcus management concerning the
operations, business strategy, financial performance and prospects for
Sulcus;
30
<PAGE>
(5) discussed with Sulcus management its view of the strategic rationale
for the Merger;
(6) reviewed the recent reported closing prices and trading activity for
Sulcus common stock;
(7) compared certain aspects of the financial performance of Sulcus with
public companies Broadview deemed comparable;
(8) analyzed available information, both public and private, concerning
other mergers and acquisitions Broadview believed to be comparable in
whole or in part to the merger;
(9) reviewed Eltrax's annual report and Form 10-K for the fiscal year
ended December 31, 1997 which included results for the fiscal years
ended December 31, 1997 and 1996, including the audited financial
statements included in that Form 10-K, Eltrax's Form 10-Q for the six
months ended June 30, 1998, including the unaudited financial
statements included in that Form 10-Q, and the unaudited financial
information of Eltrax for its nine months ended September 30, 1998
included in a proposed draft press release provided to Broadview by
Eltrax management;
(10) reviewed certain internal financial and operating information,
including projections through December 31, 1999, for Eltrax prepared
by Eltrax management;
(11) participated in discussions with Eltrax management concerning the
operations, business strategy, financial performance and prospects for
Eltrax;
(12) reviewed the recent reported closing prices and trading activity for
Eltrax common stock;
(13) discussed with Eltrax management its view of the strategic rationale
for the merger;
(14) compared certain aspects of the financial performance of Eltrax with
public companies Broadview deemed comparable;
(15) considered the total number of shares of Eltrax common stock
outstanding and the average weekly trading volume of Eltrax common
stock;
(16) prepared PRO FORMA consolidated annual income statements through
December 31, 1999 for the combined entity based on forecasts through
December 31, 1999 for Eltrax and Sulcus provided to Broadview by
Eltrax and Sulcus managements, respectively;
(17) assisted in negotiations and discussions related to the merger among
Sulcus, Eltrax and their respective legal advisors; and
(18) conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of the Broadview Opinion.
In rendering its opinion, Broadview relied, without independent verification,
on the accuracy and completeness of all the financial and other information,
including the representations and warranties contained in the merger
agreement, that was publicly
31
<PAGE>
available or furnished to Broadview by Sulcus, Eltrax or Eltrax's legal
counsel. Broadview assumed that those financial projections and forecasts
prepared and provided by the management of each of Sulcus and Eltrax were
reasonably prepared and reflected the best available estimates and good faith
judgments of the future performance of Eltrax and Sulcus, respectively.
Broadview did not make nor obtain an independent appraisal or valuation of
any of Eltrax's or Sulcus' assets.
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<PAGE>
The Sulcus Board selected Broadview as its financial advisor on the basis of
Broadview's reputation and experience in the Information Technology sector
and the software industry in particular. Upon consummation of the merger,
Sulcus will be obligated to pay Broadview a transaction fee of approximately
$650,000. Sulcus has already paid Broadview a one-time commitment fee
of $50,000 and a fairness opinion fee of $200,000, both of which will be
credited against the transaction fee payable by Sulcus upon completion of the
merger. In addition, Sulcus has agreed to reimburse Broadview for its
reasonable expenses, including fees and expenses of its counsel, and to
indemnify Broadview and its affiliates against certain liabilities and
expenses related to their engagement, including liabilities under the federal
securities laws. The terms of the fee arrangement with Broadview, which
Sulcus and Broadview believe are customary in transactions of this nature,
were negotiated at arms' length between Sulcus and Broadview, and the Sulcus
Board was aware of the nature of the fee arrangement, including the fact that
a significant portion of the fees payable to Broadview is contingent upon
completion of the merger.
The summary of the presentation by Broadview to the Sulcus Board does not
purport to be a complete description of the presentation or of all the advice
rendered by Broadview. Broadview believes that its analyses and this summary
should be considered as a whole and that selecting portions of its analyses,
without considering all analyses, could create an incomplete view of the
process underlying the analyses set forth in Broadview's presentation to the
Sulcus Board and in the Broadview Opinion. The Broadview Opinion is
necessarily based upon market, economic, financial and other conditions as
they existed and could be evaluated as of the date of the Broadview Opinion.
The Broadview Opinion does not express an opinion on the price at which
Eltrax common stock will trade at any time. In performing its analyses,
Broadview made numerous assumptions with respect to software industry
performance and general economic conditions, many of which are beyond the
control of Sulcus or Eltrax. The analyses performed by Broadview are not
necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Analysis and Methodology of Broadview
The following is a summary explanation of the various sources of information
and valuation methodologies employed by Broadview in rendering the Broadview
Opinion. These analyses were presented to the Sulcus Board at its meeting on
November 11, 1998. This summary includes the financial analyses used by
Broadview and deemed to be material, but does not
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<PAGE>
purport to be a complete description of analyses performed by Broadview in
arriving at its opinion.
Public Company Comparables Analysis. Total Market Capitalization/Revenue,
Total Market Capitalization/Earnings Before Interest and Taxes ("EBIT") and
Price/Earnings multiples indicate the value public markets place on companies
in a particular market segment.
Broadview has employed Total Market Capitalization ratios because they enable
two critical balance sheet items, cash and debt, to be factored directly into
the valuation. The formula for Total Market Capitalization is as follows:
((market value of equity) + (short term debt + long term debt) - (cash and
cash equivalents))
Several companies in the hospitality technology market are comparable to
Sulcus based on market focus, business model and management structure.
Broadview reviewed five selected public company comparables in the
hospitality technology segment of the information technology market
from a financial point of view including each company's:
<TABLE>
<S> <C>
- - Trailing Twelve Month Revenue - Trailing Twelve Month Total Market Capitalization/Revenue ratio
- - Trailing Twelve Month Revenue Growth - Trailing Twelve Month Total Market Capitalization/EBIT ratio
- - Trailing Twelve Month Gross Margin - Trailing Twelve Month Price/Earnings ratio
- - Trailing Twelve Month EBIT - Forward Calendar Year 1998 Total Market Capitalization/Revenue ratio
- - Trailing Twelve Month Net Margin - Forward Calendar Year 1998 Total Market Capitalization/EBIT ratio
- - Trailing Twelve Month Earnings per Share - Forward Calendar Year 1998 Price/Earnings ratio
- - Forward Calendar Year 1998 Revenue - Forward Calendar Year 1999 Total Market Capitalization/Revenue ratio
- - Forward Calendar Year 1998 EBIT - Forward Calendar Year 1999 Total Market Capitalization/EBIT ratio
- - Forward Calendar Year 1998 Earnings Per Share - Forward Calendar Year 1999 Price/Earnings ratio
- - Forward Calendar Year 1999 Revenue
- - Forward Calendar Year 1999 EBIT
- - Forward Calendar Year 1999 Earnings Per Share
</TABLE>
The comparable public companies were selected from the Broadview Barometer, a
proprietary database of publicly-traded information technology companies
maintained by Broadview and broken down by industry segment.
In order of descending trailing twelve month Total Market
Capitalization/Revenue, the comparable public companies consist of:
(1) MICROS Systems, Inc.
(2) Radiant Systems, Inc.
(3) Javelin Systems, Inc.
(4) Par Technology Corp.
(5) CAM Data Systems, Inc.
The low, high and median financial ratios for the comparable public companies
are listed in the table below:
<TABLE>
<CAPTION>
Ratio Low High Median
----- --- ---- ------
<S> <C> <C> <C>
Trailing Twelve Month Total Market
Capitalization/Revenue 0.26 1.48 1.08
Trailing Twelve Month Total Market
Capitalization/EBIT 11.15 16.08 13.62
Trailing Twelve Month Price/Earnings 19.1 25.0 22.0
Forward Calendar Year 1998
Total Market Capitalization/Revenue 1.03 1.40 1.21
Forward Calendar Year 1998
Total Market Capitalization/EBIT 10.38 12.62 11.50
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C> <C>
Forward Calendar Year 1998 P/E 20.0 52.2 21.1
Forward Calendar Year 1999 TMC/R 0.67 1.16 0.83
Forward Calendar Year 1999 TMC/EBIT 6.29 11.70 7.42
Forward Calendar Year 1999 P/E 10.8 28.1 12.6
</TABLE>
The Sulcus equity value per share implied by each financial ratio's low, high
and median are listed in the table below:
<TABLE>
<CAPTION>
Ratio Low High Median
----- --- ---- ------
<S> <C> <C> <C>
TTM TMC/R $1.08 $4.95 $3.68
TTM TMC/EBIT Not Meaningful Not Meaningful Not Meaningful
TTM P/E Not Meaningful Not Meaningful Not Meaningful
Forward Calendar Year 1998 TMC/R $3.67 $4.88 $4.27
Forward Calendar Year 1998 TMC/EBIT Not Meaningful Not Meaningful Not Meaningful
Forward Calendar Year 1998 P/E Not Meaningful Not Meaningful Not Meaningful
Forward Calendar Year 1999 TMC/R $2.95 $4.89 $3.58
Forward Calendar Year 1999 TMC/EBIT $1.88 $3.26 $2.17
Forward Calendar Year 1999 P/E $3.08 $8.00 $3.57
</TABLE>
Evaluation of Eltrax Equity. Broadview compared the ranges and medians of
several companies that were comparable to Eltrax, based on market focus,
revenue size, business model and management structure, with the multiples
implied by Eltrax's November 10, 1998 share price of $7.375, and its current
and projected performance. Broadview provided a list of comparable public
companies to the Sulcus Board in order to permit the Sulcus Board to evaluate
the performance of Eltrax in light of those comparable companies.
In order of descending trailing twelve month Total Market Capitalization/
Revenue, the comparable public companies which provide network services and
equipment consist of:
(1) Datatec Systems, Inc.
(2) TechForce Corp.
(3) Daou Systems, Inc.
(4) Condor Technology Solutions, Inc.
Transaction Comparables Analysis. Valuation statistics from comparable
transactions indicate the Adjusted Price/Revenue multiple acquirers have paid
for comparable companies in a particular market segment. Adjusted Price
means the price the acquirer paid for the seller plus the debt minus the cash
on the seller's balance sheet at the time of the acquisition, if known.
Broadview reviewed six comparable public and private company merger and
acquisition ("M&A") transactions from 1996 through the present involving
sellers sharing many
35
<PAGE>
characteristics with Sulcus including size, markets served and business
model. Transactions were selected from Broadview's proprietary database of
published and confidential M&A transactions in the information technology
industry. These transactions represent six selected sellers in the
hospitality technology segment of the information technology market.
In order of descending Price/Revenue multiple, the six comparable public and
private company transactions used are the acquisition of:
(1) Progressive Software, Inc. by Tridex Corporation
(2) HTEC Group Ltd. by Card Clear
(3) RapidFire Software, Inc. by Radiant Systems. Inc.
(4) Triad Systems Corp. by Hicks, Muse, Tate & Furst, Inc.
(5) Smart Terminals Ltd. by Torex Hire PLC
(6) Info Systems of North Carolina, Inc. by Sykes Enterprises, Inc.
The low, high and median Price/Revenue ratios of the six comparable public
and private company transactions are listed in the table below:
<TABLE>
<CAPTION>
Analysis Low High Median
-------- --- ---- ------
<S> <C> <C> <C>
Public and Private Seller
Comparable Price/Revenue Multiple 0.72 1.43 1.24
</TABLE>
The Sulcus equity value per share low, high and median implied by the
Price/Revenue ratios of the six comparable public and private seller
transactions are listed in the table below:
<TABLE>
<CAPTION>
Analysis Low High Median
-------- --- ---- ------
<S> <C> <C> <C>
Public and Private Seller Comparable
Price/Revenue $2.54 $4.77 $4.17
</TABLE>
Transaction Premiums Paid Analysis. Premiums paid in comparable public
seller transactions typically indicate the amount of consideration acquirers
are willing to pay above the seller's equity market capitalization. In this
analysis, the value of consideration paid in transactions involving stock is
computed using the buyer's stock price immediately prior to announcement,
while the seller's equity market capitalization is measured one trading day
prior and twenty trading days prior to the announcement. Broadview reviewed
33 comparable M&A transactions involving selected software companies from
January 1, 1997 to the present with total consideration between $50 million
and $250 million. Transactions were selected from Broadview's proprietary
database of published and confidential M&A transactions in the information
technology industry. In order of descending premium paid based on the
seller's stock price 20 trading days prior to announcement, the selected
software transactions used were the acquisition of:
(1) FullTime Software, Inc. by Legato Systems, Inc.
(2) Calendar Yearbermedia, Inc. by Network Associates
(3) Consilium, Inc. by Applied Materials
(4) TeleBackup Systems, Inc. by VERITAS Software Corp.
(5) National Health Enhancement Systems, Inc. by HBO & Company
(6) Visigenic, Inc. by Borland International, Inc.
(7) Technology Modeling Associates, Inc. by Avant! Corp.
(8) Interactive Group by Dataworks Corp.
(9) Logic Works, Inc. by PLATINUM technology, Inc.
(10) Award Software International, Inc. by Phoenix Technologies Ltd.
(11) Kurzweil Applied Intelligence, Inc. by Lernout & Hauspie Speech
Products NV
(12) Software Artistry, Inc. by IBM Corp.
(13) Walsh International, Inc. by Cognizant Corp.
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<PAGE>
(14) The ForeFront Group by CBT Group plc.
(15) Amisys Managed Care Systems, Inc. by HBO & Company
(16) Maxis, Inc. by Electronic Arts, Inc.
(17) Globalink, Inc. by Lernout and Hauspies Speech Products NV
(18) Learmonth & Burchett Management Systems, Inc. by PLATINUM
technology, Inc.
(19) PHAMIS, Inc. by IDX Systems Corp.
(20) IQ Software Corp. by Information Advantage Software, Inc.
(21) State Of The Art, Inc. by Sage Group plc
(22) Andyne Computing Ltd. by Hummingbird Communications Ltd.
(23) Quarterdeck Corp. by Symantec Corp.
(24) Innovative Technologies Systems, Inc. by Peregrine Systems, Inc.
(25) Enterprise Systems, Inc. by HBO & Company
(26) Unison Software, Inc. by IBM Corp.
(27) Premenos Corp. by Harbinger Corp.
(28) Dataworks Corp. by Platinum Software Corp.
(29) Simulations Sciences, Inc. by Siebe plc
(30) Xcellenet, Inc. by Sterling Commerce, Inc.
(31) Fractal Design Corp. by MetaTools, Inc.
(32) Orcad, Inc. by Summit Design
(33) FTP Software, Inc. by NetManage, Inc.
Based upon Broadview's analysis of premiums paid in selected software
comparable transactions, the low, high and median premiums (discounts) paid
to sellers' equity market capitalizations (using the buyer's share price on
the day prior to the announcement date of the transaction to calculate
consideration in stock transactions) for the 20 trading days prior and one
trading day prior are listed in the table below:
<TABLE>
<CAPTION>
Analysis Low High Median
-------- --- ---- ------
<S> <C> <C> <C>
Premium Paid - 20 trading days prior (26.3%) 378.1% 40.0%
Premium Paid - One trading day prior (8.8%) 221.2% 20.0%
</TABLE>
The low, high and median Sulcus equity values per share implied by the premiums
paid to the share price 20 trading days prior to announcement and one day prior
to announcement are listed in the table below:
<TABLE>
<CAPTION>
Analysis Low High Median
-------- --- ---- ------
<S> <C> <C> <C>
Premium Paid - 20 trading days prior $0.83 $5.38 $1.57
Premium Paid - One trading day prior $1.42 $5.02 $1.88
</TABLE>
Present Value of Projected Share Price Analysis. Broadview calculated the
present value of the potential future share price of shares of Sulcus common
stock on a standalone basis using internal projections prepared by Sulcus
management for the twelve months ending December 31, 1999 discounted to today
at discount rates ranging from 5.0% to 25.0%. The potential future share
price is calculated based on earnings estimates prepared by Sulcus management
for the twelve months ending December 31, 1999 and assumes trailing twelve
month Price/Earnings multiples of between 15.0x and 30.0x in line with
comparable public company multiples for Sulcus.
The Sulcus per share valuation range implied by the present value of the
future share prices is:
37
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
Analysis Low High
<S> <C> <C>
Present Value of Projected Share Price $3.09 $8.03
===============================================================================
</TABLE>
Stock Performance Analysis. For comparative purposes, Broadview examined the
weekly historical volume and trading prices and the daily relative share
prices for both Eltrax and Sulcus common stock. Broadview examined the
following:
(1) Eltrax and Sulcus actual share prices and trading volumes from
November 7, 1997 to November 10, 1998;
(2) Eltrax, Sulcus and their respective comparable public companies
indexed share prices from November 7, 1997 to November 10, 1998;
and
(3) Relative ratio of Sulcus to Eltrax actual share prices from
November 7, 1997 to November 10, 1998.
Relative Contribution Analysis. A relative contribution analysis measures
each of the merging companies' contributions to items such as Revenue and
EBIT on a percentage basis. Broadview examined the relative contributions
during the trailing twelve month period ending June 30, 1998, Projected
calendar year ending December 31, 1998 and the Projected calendar year ending
December 31, 1999, based upon internal projections for Eltrax and Sulcus on
Revenue, EBIT and Pretax Income.
Sulcus' relative contribution for Revenue for the trailing twelve month
period ending June 30, 1998, Revenue for Projected calendar year ending
December 31, 1998, Revenue for Projected calendar year ending December 31,
1999, EBIT for the Projected calendar year ending December 31, 1999 and
Pretax Income for the Projected calendar year ending December 31, 1999 are
listed in the table below:
<TABLE>
<CAPTION>
===============================================================================
Sulcus' Contribution to
Analysis the Combined Entity
<S> <C>
Revenue for the trailing twelve month period
ending June 30, 1998 52.8%
Revenue for Projected calendar year ending December 31, 1998 53.4%
Revenue for Projected calendar year ending December 31, 1999 52.8%
EBIT for the Projected calendar year ending December 31, 1999 59.2%
Pretax Income for the Projected calendar year ending
December 31, 1999 66.2%
===============================================================================
</TABLE>
Relative Ownership Analysis. A relative ownership analysis measures each of the
merging companies' relative equity ownership and relative entity values at
various exchange ratios. Entity value is defined as ((market value of equity)
+ (short term debt + long term debt) - (cash and cash equivalents)).
The implied equity ownership using relative equity values and implied entity
ownership using relative entity values, applying a 0.55 exchange ratio, are
listed in the table below:
<TABLE>
<CAPTION>
===============================================================================
Analysis Eltrax Implied Sulcus Implied
Ownership Ownership
<S> <C> <C>
40
<PAGE>
<CAPTION>
<S> <C> <C>
Comparing Buyer and Seller Relative Equity Values 57.5% 42.5%
Comparing Buyer and Seller Relative Entity Values 59.7% 40.3%
===============================================================================
</TABLE>
Pro Forma Pooling Model Analysis. A PRO FORMA merger analysis calculates the
earnings per share accretion (dilution) of the PRO FORMA combined entity
taking into consideration various financial effects which will result from
the consummation of the merger. This analysis relies upon certain financial
and operating assumptions provided by Eltrax and Sulcus management and on
publicly available data about Eltrax and Sulcus.
Based on management forecasts for Eltrax and Sulcus, the PRO FORMa pooling
analysis indicates earnings per share accretion (dilution), without
acquisition expenses, to Eltrax shareholders, for the fiscal year ending
December 31, 1999 of $0.20 or 106.3%.
Consideration of the Discounted Cash Flows Valuation Methodology. While
discounted cash flows analysis is a commonly used valuation methodology,
Broadview did not employ such an analysis for the purposes of this opinion.
Discounted cash flows analysis is most appropriate for companies which
exhibit relatively steady or somewhat predictable streams of future cash
flows. Given the uncertainty in estimating both Sulcus' future cash flows
and sustainable long-term growth rate, Broadview considered a discounted cash
flows analysis inappropriate for valuing Sulcus.
Plans for Sulcus
Sulcus will operate in substantially the same manner as before the merger,
except that the combined company will emphasize the comprehensive information
and performance management services now available to its customers. The
combined company will also take advantage of Sulcus' worldwide distribution
channels and sales force to expand the customer base of the combined company.
There will likely be consolidation in administrative and product development
positions.
Interests of Certain Persons
Certain members of Sulcus management and the Sulcus Board may be deemed to
have certain interests in the merger that are in addition to their interests
as shareholders of Sulcus generally. The Sulcus Board was aware of these
interests and considered them, among other matters, in approving the merger
agreement and the transactions contemplated thereby. See "Merger
Agreement -- Treatment of Stock Options."
Employment Agreement. Leon Harris' current employment agreement contains
several provisions related to a change of control of Sulcus. In the event of
Mr. Harris' termination other than for "Cause", or upon his resignation for
"Good Reason" (both terms as defined in the employment agreement), at any
time during the remaining term of his employment agreement (which expires on
February 29, 2002) after the Effective Time, he will receive
(1) 300% of the sum of (A) his current base salary and (B) the highest
annual bonus paid to him in the prior two (2) fiscal years;
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<PAGE>
(2) the pro rata portion of the amount equal to the target bonus
percentage he would receive for the year in which the Effective
Time occurs multiplied by his annual base salary then in effect and
any earned, but unpaid, bonus from prior years;
(3) cash payments in lieu of options under the Amended 1991 Incentive
Stock Option Plan for Officers and other Key Employees;
(4) one (1) year of life, disability, accident and health insurance
benefits substantially similar to those he was receiving prior to
termination; and
(5) outplacement services for a period of one (1) year.
However, as of the Effective Time, Mr. Harris' employment agreement will be
terminated and Mr. Harris will receive a lump sum fee of $722,000 as sole
consideration for the termination of his existing employment agreement.
Immediately following the Effective Time, Mr. Harris will become a consultant
to Eltrax through August 31, 2000, and his primary duties will consist of
insuring a smooth integration of the Sulcus and Eltrax business operations.
For his services on behalf Eltrax following the merger, Mr. Harris will
receive a consulting fee of $24,000 per month for the first five months and
$1,450 per month during the remaining term of the agreement when he will work
on a more limited basis.
Stock Option Plans. The merger will cause all options granted under Sulcus'
1997 Non-Employee Directors' Stock Option Plan (the "1997 Director Plan") to
become automatically exercisable, without regard to any vesting limitations.
If not exercised, such options will be converted into options to purchase
Eltrax common stock in accordance with the merger agreement. There are
currently options to purchase 45,000 shares of Sulcus common stock
outstanding under the 1997 Director Plan. See "Merger Agreement -- Treatment
of Stock Options".
Options issued under Sulcus' 1983 Incentive Stock Option Plan for Officers
and other Key Employees (the "1983 Employee Plan"), the Amended 1991
Director's Stock Option Plan (the "1991 Director Plan") and the Amended 1991
Incentive Stock Option Plan for Officers and other Key Employees (the "1991
Employee Plan") will be converted into options to purchase Eltrax common
stock in accordance with the merger agreement. See "Merger Agreement --
Treatment of Stock Options".
The merger will cause all options granted to Leon Harris under the 1991 Employee
Plan or the 1991 Director Plan to become automatically exercisable, without
regard to any vesting limitations. Such options will be converted into options
to purchase Eltrax common stock in accordance with the merger agreement.
Additionally, Eltrax intends to engage certain non-employee directors of
Sulcus as consultants through December 31, 2001. As a result, options issued
to such non-employee directors under the 1991 Director Plan or the 1997
Director Plan, which otherwise would have terminated in connection with the
merger, will continue for so long as such non-employee directors are
consultants to Eltrax and will be converted into options to purchase Eltrax
common stock in accordance with the merger agreement. See "Merger Agreement
- -- Treatment of Stock Options".
Severance Agreements. Sulcus has not renewed certain change of control
severance agreements with its officers. Therefore, those officers will not be
entitled to any payments in the event any of them are terminated following the
merger.
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Indemnification of Sulcus Officers and Directors
Pursuant to the terms of the merger agreement, Eltrax has agreed to not
amend, repeal or otherwise modify the indemnification provisions of the
Certificate of Incorporation and Bylaws of Sulcus for a period of six years
after the Effective Time in any manner that would adversely affect the rights
of directors, officers, employees or agents of Sulcus. Eltrax has also
agreed that, for six years after the Effective Time, it will maintain in
effect for each director and officer of Sulcus and its subsidiaries,
liability insurance coverage with respect to matters arising at or prior to
the Effective Time, in such amounts and containing such terms and conditions
that are not materially less advantageous to such parties than the coverage
applicable to such individuals immediately prior to the Effective Time.
Estimated Synergies
Significant synergies are anticipated as a result of the merger. Sulcus
offers a sales force in more than 80 locations in 20 different countries,
which will significantly expand the marketing opportunities for the existing
Eltrax services and systems. In particular, it is anticipated that the
Eltrax services will be of interest to existing Sulcus customers who seek
network systems expertise to complement their existing Sulcus products such
as reservations systems, property management systems and customer service
programs. Customers will now have a single source to provide application
expertise and for network design, implementation and management expertise.
Sulcus' geographic penetration will also enhance the introduction of Eltrax's
Medallion property management system.
Eltrax and Sulcus believe that cost savings will also be achieved as a result
of the merger. The anticipated economies of scale, reassignment of personnel
and consolidation of certain operations are expected to reduce the costs
associated with administrative functions, research and development and
service fulfillment tasks. The total estimated cost savings as a result of
the merger are anticipated to be approximately $2.0 million in 1999 and $3.0
million in 2000, the first full year of combined operations. It is
anticipated that transaction costs of approximately $1.4 million will be
recorded in 1999 as well as costs of approximately $3.0 million relating to
integrating the Eltrax and Sulcus business operations.
THE FOREGOING ESTIMATES OF COST SAVINGS AND SYNERGIES ARE INHERENTLY SUBJECT
TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF SULCUS OR ELTRAX. THERE CAN BE NO ASSURANCE THAT THEY WILL BE
ACHIEVED AND ACTUAL SAVINGS AND SYNERGIES MAY VARY MATERIALLY FROM THOSE
ESTIMATED. THE INCLUSION OF SUCH ESTIMATES HEREIN SHOULD NOT BE REGARDED AS
AN INDICATION THAT SULCUS OR ELTRAX OR ANY OTHER PARTY CONSIDERS SUCH
ESTIMATES AN ACCURATE PREDICTION OF FUTURE EVENTS.
Certain Federal Income Tax Consequences of the Merger
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The following is a discussion of the material federal income tax consequences
of the merger. The merger is intended to qualify as a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Internal Revenue Code of 1986 (the "Code"). In this regard, the
merger agreement contains a covenant by Eltrax that it will conduct its
business, and shall cause Sulcus to conduct its business, after the Effective
Time, in a manner which would not jeopardize the characterization of the
merger as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code. In addition, certain factual representations
deemed necessary by counsel to Sulcus in order to confirm that the
requirements of Code Sections 368(a)(1)(A) and 368(a)(2)(E) are expected to
be satisfied have been obtained from the parties to the merger. However,
none of the parties to the merger intends to obtain a ruling from the
Internal Revenue Service as to the federal income tax consequences of the
merger.
Sulcus has, however, received an opinion of Benesch, Friedlander, Coplan &
Aronoff LLP substantially to the effect that for federal income tax purposes:
(1) the merger will qualify as a tax-free reorganization within the
meaning of Code Sections 368(a)(1)(A) and 368(a)(2)(E) and Sulcus
and Eltrax will each be a party to the reorganization;
(2) no gain or loss will be recognized by Sulcus as a result of the
merger;
(3) no gain or loss will be recognized by a shareholder of Sulcus upon
the exchange of shares of Sulcus common stock for Eltrax common
stock, except that gain or loss will be recognized by a shareholder
of Sulcus on the receipt of cash in lieu of fractional shares;
(4) the adjusted tax basis of the Eltrax common stock received by a
shareholder of Sulcus pursuant to the merger (including any
fractional share interests deemed received) will be the same as the
adjusted tax basis of the shares of Sulcus common stock surrendered
in exchange therefor;
(5) the holding period of the Eltrax common stock received by a
shareholder of Sulcus as a result of the merger (including any
fractional share interests deemed received) will include the
holding period of the shares of Sulcus common stock surrendered in
exchange therefor, provided that such Sulcus common stock is held
as a capital asset by the Sulcus shareholder at the consummation of
the merger; and
(6) any cash payment received by a holder of Sulcus common stock in
lieu of a fractional share of Eltrax common stock will be treated
as if such fractional share of Eltrax common stock had been issued
in the merger and then redeemed by Eltrax.
The above tax opinion is based upon certain representations and assumptions
referred to in such tax opinion and assumes that the merger will be completed
in the manner described in this document and that the representations made by
the parties to the merger are accurate and complete and will continue to be
accurate and complete as of the Effective Time. Any change in the facts,
representations or assumptions could affect the status of the merger as a
tax-free reorganization (within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code). No assurance can be given that the Internal
Revenue Service will not change its position on the tax treatment of a merger.
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THE FOREGOING DISCUSSION OF THE ANTICIPATED MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IS BASED ON THE LAW IN EFFECT AS OF THE DATE
HEREOF, INCLUDING THE CODE, THE TREASURY REGULATIONS PROMULGATED THEREUNDER,
AND ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF, ALL OF WHICH ARE
SUBJECT TO CHANGE (POSSIBLY ON A RETROACTIVE BASIS). THIS DISCUSSION DOES
NOT ADDRESS ANY ASPECT OF STATE, LOCAL OR FOREIGN TAXATION. IN ADDITION,
THIS DISCUSSION DOES NOT ATTEMPT TO ADDRESS ALL ISSUES THAT MAY BE RELEVANT
TO A PARTICULAR HOLDER OF SULCUS COMMON STOCK IN LIGHT OF SUCH HOLDER'S
PERSONAL CIRCUMSTANCES, AND DOES NOT APPLY TO HOLDERS SUBJECT TO SPECIAL
TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. FURTHER, THIS DISCUSSION MAY
NOT APPLY TO A HOLDER OF SULCUS COMMON STOCK WHO ACQUIRED HIS OR HER STOCK
PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. ACCORDINGLY, EACH HOLDER OF SULCUS COMMON STOCK SHOULD CONSULT
SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH
HOLDER OF THE MERGER, INCLUDING THE EFFECT OF STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS.
In addition, the merger will cause Sulcus to experience an ownership change
within the meaning of Section 382 of the Code. As a result, the ability of
Sulcus to utilize its "pre-change" tax losses and deductions (losses and
deductions occurring prior to the Effective Time), which as of the end of
1997 totaled $27,775,000 (the "Sulcus NOLs"), to offset its "post-change"
income and gains (income and gains occurring after the Effective Time) will
generally be limited to an annual limitation (the unused portion of which may
be carried forward in subsequent years) equal to the value of its stock
immediately prior to the Effective Time multiplied by the then applicable
long-term tax exempt rate applicable to ownership changes (currently ______%
for ownership changes occurring in February, 1999). Certain other
limitations may affect the utility of the Sulcus NOLs to Eltrax, including
the separate return limitations imposed by the consolidated return
regulations of the Code.
As of December 31, 1997, Eltrax had cumulative net operating losses for tax
purposes of approximately $5.1 million (the "Eltrax NOLs"). Although no
assurances can be given, Eltrax does not believe that the merger will trigger
an ownership change with respect to Eltrax within the meaning of Section 382
of the Code. Nevertheless, the ability of Eltrax to fully utilize the Eltrax
NOLs has been limited as a result of prior ownership changes. It is also
possible that transactions occurring after the date of this document may when
combined with the merger and other previous or subsequent transactions,
result in an ownership change of Eltrax. In this regard, the consummation of
the merger will increase the risk of a future ownership change of Eltrax for
tax purposes within the meaning of Section 382 of the Code.
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In connection with the foregoing, see "The Merger" and "Merger Agreement."
Accounting Treatment
Eltrax and Sulcus believe that the merger will qualify as a "pooling of
interests" for financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Sulcus will be carried forward to Eltrax
at their recorded amounts, operating results of Eltrax will include operating
results of Sulcus for the entire fiscal year in which the merger occurs and the
operating results of Sulcus for prior periods will be combined with and included
in the operating results of Eltrax.
Other Legal Matters; Regulatory Approvals
General. Except as otherwise disclosed herein, based upon its review of
publicly available information with respect to Sulcus and the review of certain
additional information furnished by Sulcus to Eltrax, neither Eltrax nor SAC is
aware of (1) any license or regulatory permit that appears to be material to the
business of Sulcus and its subsidiaries, taken as a whole, that might be
adversely affected pursuant to the merger or (2) any approval or other action by
any governmental, administrative or regulatory agency or authority, domestic or
foreign, that would be required for the consummation of the merger. Should any
such approval or other action be required, Eltrax and SAC currently contemplate
that such approval or action would be sought. While Eltrax does not currently
intend to delay the merger pending the outcome of any such matter, there can be
no assurance that any such approval or action, if needed, would be obtained or
would be obtained without substantial conditions or that adverse consequences
will not result to the business of Sulcus, Eltrax or SAC or that certain parts
of the businesses of Sulcus, Eltrax or SAC will not have to be disposed of in
the event that such approvals were not obtained or any other actions were not
taken.
Antitrust. Neither the "annual net sales" nor the "total assets" (as those
terms are defined in the HSR Act) of Eltrax and Sulcus for the relevant
period trigger any filing requirements prior to consummation of the merger
under the HSR Act and the regulations promulgated thereunder by the Federal
Trade Commission (the "FTC").
At any time before or after the Effective Time, notwithstanding that the
merger is not subject to the filing requirements under the HSR Act, the FTC
or the Antitrust Division of the United States Department of Justice could
take such action under the antitrust laws as it deems necessary or desirable
in the public interest, including seeking to enjoin the consummation of the
merger or seeking divestiture of substantial assets of Sulcus or Eltrax. At
any time before or after the Effective Time, any state could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
merger or seeking divestiture of substantial assets of Sulcus or Eltrax.
Private persons may also seek to take legal action pursuant to the antitrust
laws under certain circumstances.
Appraisal Rights
Under the Pennsylvania Business Corporation Act of 1988, shareholders of
Sulcus do not have appraisal rights in connection with the merger because
Sulcus is listed on the American Stock Exchange ("AMEX"), a national
securities exchange.
Under the Minnesota Business Corporation Act, shareholders of Eltrax do not
have appraisal rights in connection with the transactions contemplated in the
merger agreement.
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Delisting and Deregistration of Sulcus Common Stock
If the merger is consummated, the shares of Sulcus common stock will be
delisted from the AMEX and will be deregistered under the Securities Exchange
Act of 1934 (the "Exchange Act").
Resales of Eltrax Common Stock
This document does not cover any resales of the Eltrax common stock to be
received by the shareholders of Sulcus upon consummation of the merger, and
no person is authorized to make any use of this document in connection with
any such resale.
All shares of Eltrax common stock constituting the Share Issuance will be
freely transferable, except that shares received by any person who may be
deemed to be an "affiliate" (as used in paragraphs (c) and (d) of Rule 145
under the Securities Act) of Sulcus at the time of the Sulcus special meeting
for purposes of such Rule 145 may not be resold except in transactions
permitted by such Rule 145 or as otherwise permitted under the Securities
Act. In addition, such shares may not be transferred by an "affiliate" of
Sulcus in violation of the Commission's rules governing the treatment of the
merger as a pooling of interests.
Sulcus has agreed to use its reasonable efforts to cause any person whom
counsel for Eltrax reasonably determines is an "affiliate" (as used in the
preceding paragraph) of Sulcus to deliver to Eltrax, at or prior to the
closing date, an agreement, substantially in the form previously approved by
Sulcus and Eltrax, providing that the affiliate will not offer to sell, sell,
or otherwise dispose of any Eltrax common stock received by the affiliate in
exchange for shares of Sulcus common stock pursuant to the merger, except
pursuant to an effective registration statement, in compliance with such Rule
145 or in another transaction which, in the opinion of legal counsel
satisfactory to Eltrax, is exempt from the registration requirements of the
Securities Act. The agreement will further provide that the affiliate will
not offer to sell, sell, or otherwise dispose of any Eltrax common stock
received in the merger, until such time as financial results of Eltrax
covering at least 30 days of post-merger operations have been filed with the
Commission, sent to the shareholders of Eltrax or otherwise publicly issued,
except as otherwise permitted by Staff Accounting Bulletin No. 76 issued by
the Commission. In the merger agreement, Eltrax has agreed that as soon as
it is reasonably practicable, but in no event later than 45 business days
after the end of the first fiscal quarter of Eltrax ending at least 30 days
after the Effective Time, Eltrax will publish financial results covering at
least 30 days of post-merger combined operations.
Nasdaq Listing
Eltrax has agreed to use its reasonable best efforts to obtain, at or before
the Effective Time, authorization for listing of the shares of Eltrax common
stock to be issued in the merger or to be reserved for issuance upon the
exercise of stock options on the Nasdaq SmallCap Market, subject to official
notice of issuance. The listing of the shares of Eltrax common stock which
constitute the merger consideration on the Nasdaq SmallCap Market is also a
condition to consummation of the merger.
Board of Directors and Management of Eltrax Following the Merger
At the Effective Time, Clunet R. Lewis and Mack V. Traynor, III will resign
from the Eltrax Board, and Christine Hughes, presently a Sulcus Board member,
will join the Eltrax Board, which currently consists of eight members.
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William P. O'Reilly will remain the Chairman and Chief Executive Officer of
Eltrax.
Comparative Market Prices and Dividends
Sulcus
Shares of Sulcus common stock are listed and principally traded on the AMEX
and quoted under the symbol "SUL". The following table sets forth, for the
quarters indicated, the high and low sales prices per share of Sulcus common
stock on the AMEX.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1997:
First Quarter................................... 2.13 1.44
Second Quarter.................................. 2.19 1.44
Third Quarter................................... 2.81 1.56
Fourth Quarter 4.19 2.25
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter................................... 3.00 2.13
Second Quarter.................................. 3.13 1.75
Third Quarter................................... 2.13 1.06
Fourth Quarter..................................
FISCAL YEAR ENDING DECEMBER 31, 1999:
First Quarter (through February , 1999).....
</TABLE>
Sulcus has never paid cash dividends on the Sulcus common stock.
On November 11, 1998, the last full trading day prior to the public
announcement of the execution of the merger agreement, the reported closing
sales price of Sulcus common stock on the AMEX was $1.56 per share (or an
equivalent price per share of $3.58 determined by multiplying the Exchange
Ratio by the closing sales price of Eltrax common stock on November 11,
1998). On February __, 1999, the last full trading day for which information
was available prior to the printing and mailing of this document, the
reported closing sales price of Sulcus common stock on the AMEX was $____ per
share (or an equivalent price per share of $______ determined by multiplying
the Exchange Ratio by the closing sales price of Eltrax common stock on
February __, 1999).
Eltrax
Shares of Eltrax common stock are listed and principally traded on the Nasdaq
SmallCap Market and quoted under the symbol "ELTX". The following table sets
forth, for the quarters indicated, the high and low bid prices per share on
the Nasdaq SmallCap Market. These bid prices reflect inter-dealer prices,
without mark-up, mark-down or commission and may not necessarily represent
actual transactions.
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<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1997:
First Quarter................................... 7.38 4.75
Second Quarter.................................. 7.50 5.50
Third Quarter................................... 8.50 5.00
Fourth Quarter.................................. 7.13 3.88
FISCAL YEAR ENDING DECEMBER 31, 1998:
First Quarter................................... 7.25 4.88
Second Quarter.................................. 10.38 5.75
Third Quarter................................... 8.38 3.75
Fourth Quarter.................................. 8.00 3.88
FISCAL YEAR ENDING DECEMBER 31, 1999:
First Quarter (through February , 1999).....
</TABLE>
Eltrax has never declared or paid cash dividends on the Eltrax common stock
and does not anticipate paying dividends in the foreseeable future. After
consummation of the Merger, Eltrax intends to retain any earnings for use in
its business.
On November 11, 1998, the last full trading day prior to the public
announcement of the execution of the merger agreement, the reported closing
sales price of Eltrax common stock on the Nasdaq SmallCap Market was $6.50
per share. On February __, 1999, the last full trading day for which
information was available prior to the printing and mailing of this document,
the last sales prices reported for Eltrax common stock on the Nasdaq SmallCap
Market was $____ per share.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES OF
SULCUS COMMON STOCK AND ELTRAX COMMON STOCK.
Merger Agreement
THE FOLLOWING SUMMARY OF THE MERGER AND THE MERGER AGREEMENT INCLUDED IN THIS
DOCUMENT DESCRIBES THE MORE
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IMPORTANT ASPECTS OF THE MERGER. TO UNDERSTAND THE MERGER FULLY, AND FOR MORE
COMPLETE DESCRIPTIONS OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY
READ THIS ENTIRE DOCUMENT, INCLUDING THE MERGER AGREEMENT ATTACHED AS ANNEX
A, AND THE DOCUMENTS WE HAVE REFERRED YOU TO. SEE "WHERE YOU CAN FIND MORE
INFORMATION". (PAGE )
The Merger
The merger agreement provides that, subject to the terms and conditions
thereof, and in accordance with the Pennsylvania Business Corporation Law, at
the Effective Time, Sulcus and SAC will consummate the merger pursuant to
which (1) SAC shall be merged with and into Sulcus and the separate corporate
existence of SAC shall thereupon cease, and (ii) Sulcus shall be the
surviving corporation and shall continue as a wholly-owned subsidiary of
Eltrax. Pursuant to the merger, at the Effective Time, (x) the Articles of
Incorporation of Sulcus, as in effect immediately prior to the Effective
Time, shall continue to be the Articles of Incorporation of Sulcus until
thereafter amended as provided by law and those Articles of Incorporation,
and (y) the Bylaws of Sulcus, as in effect immediately prior to the Effective
Time, shall continue to be the Bylaws of Sulcus until thereafter amended as
provided by law, the Articles of Incorporation of Sulcus and such Bylaws.
The merger shall have the effects set forth in the Pennsylvania Business
Corporation Law.
Conversion of Sulcus Common Stock
Each share of Sulcus common stock issued and outstanding immediately prior to
the Effective Time (other than Sulcus common stock held in the treasury of
Sulcus or held by a Sulcus subsidiary, Eltrax or SAC or other subsidiary of
Eltrax) shall, at the Effective Time, by virtue of the merger and without any
action on the part of the holder thereof, be converted into the right to
receive 0.55 of a fully paid and nonassessable share of Eltrax common stock
(the "Sulcus Share Consideration").
No fractional shares of Eltrax common stock will be issued in the merger. In
lieu of any fractional shares, each holder of Sulcus common stock who
otherwise would be entitled to receive a fractional share of Eltrax common
stock pursuant to the merger will be paid an amount in cash equal to such
fraction multiplied by the closing price per share of Eltrax common stock, as
reported by THE WALL STREET JOURNAL, at the close of business on the business
day immediately preceding the closing date.
All shares of Sulcus common stock that are held in the treasury of Sulcus or
held by a Sulcus subsidiary, Eltrax or SAC or other subsidiary of Eltrax
shall, at the Effective Time, be canceled and retired and shall cease to
exist and no Eltrax common stock shall be delivered in exchange therefor.
The merger agreement provides that, on and after the Effective Time, holders
of certificates which immediately prior to the Effective Time represented
outstanding shares of Sulcus common stock shall cease to have any rights as
shareholders of Sulcus, except the right to receive the Sulcus Share
Consideration for each share of Sulcus common stock held by them, including
the right to receive cash for payment of fractional shares of Eltrax common
stock.
Eltrax and Sulcus have covenanted and agreed to consummate the merger
pursuant to the terms of the merger agreement not later than June 30, 1999.
Exchange Procedures
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Eltrax has designated Boston EquiServe (the "Exchange Agent") to act as agent
for the holders of shares of Sulcus common stock in connection with the merger
and to otherwise facilitate the exchange of shares of Sulcus common stock into
shares of Eltrax common stock pursuant to the merger agreement.
No certificates or scrip representing fractional shares of Eltrax common stock
will be issued upon the surrender of certificates representing shares of Sulcus
common stock, no dividend or distribution with respect to shares of Eltrax
common stock will be payable on or with respect to any fractional shares and
such fractional share interests will not entitle the owner thereof to vote or to
exercise any other rights of a shareholder of Eltrax. In lieu of any fractional
shares, each holder of Sulcus common stock who otherwise would be entitled to
receive a fractional share of Eltrax common stock pursuant to the merger will be
paid an amount in cash equal to such fraction multiplied by the closing price
per share of Eltrax common stock, as reported by THE WALL STREET JOURNAL, at the
close of business on the business day immediately preceding the closing date.
Promptly after the Effective Time, the Exchange Agent will mail to each holder
of record of a Sulcus common stock certificate (1) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
to the Sulcus common stock certificates will pass, only upon actual delivery of
the Sulcus common stock certificates to the Exchange Agent) and (2) instructions
for use in effecting the surrender of the Sulcus common stock certificates in
exchange for Eltrax common stock. Upon surrender of a Sulcus common stock
certificate for cancellation to the Exchange Agent, together with such duly
executed letter of transmittal and such other documents as the Exchange Agent
shall reasonably require, the holder of such Sulcus common stock certificate
will be entitled to receive in exchange therefor a certificate for that number
of whole shares of Eltrax common stock representing the Sulcus Share
Consideration for each share of Sulcus common stock surrendered and the Sulcus
common stock certificate so surrendered will forthwith be canceled. If payment
of the Sulcus Share Consideration for each share of Sulcus common stock
surrendered is to be made to a person other than the person in whose name the
surrendered Sulcus common stock certificate is registered, it will be a
condition of payment that the Sulcus common stock certificate so surrendered
will be properly endorsed or will be otherwise in proper form for transfer and
that the person requesting such payment will have paid any transfer and other
taxes required by reason of the payment of the Sulcus Share Consideration for
each share of Sulcus common stock surrendered to a person other than the
registered holder of the Sulcus common stock certificate surrendered or will
have established to the satisfaction of Eltrax that such tax either has been
paid or is not applicable.
On the closing date, Eltrax will make available to the Exchange Agent, for the
benefit of the holders of shares of Sulcus common stock, certificates
representing a sufficient number of shares of Eltrax common stock required to
pay the Sulcus Exchange Ratio for all shares of Sulcus common stock outstanding
and cash for payment of any fractional shares. No dividends or other
distributions that have been declared will be paid to persons entitled to
receive certificates for shares of Eltrax common stock until such persons
surrender their Sulcus common stock certificates, at which time all such
dividends or other distributions will be paid. In no event will the persons
entitled to receive such dividends be entitled to receive interest on such
dividends or other distributions.
Nine months after the Effective Time, the Exchange Agent will deliver to Eltrax
all cash, certificates representing shares of Eltrax common stock and other
documents in its possession relating to the merger and, upon doing so, the
Exchange Agent's duties will terminate. After such time, any holders of Sulcus
common stock certificates must contact Eltrax
51
<PAGE>
directly to exchange such Sulcus common stock certificates for shares of
Eltrax common stock or for cash in lieu of fractional shares.
Treatment of Stock Options
At the Effective Time, each outstanding option to purchase shares of Sulcus
common stock (a "Sulcus Stock Option") granted under any plan or arrangement
providing for the grant of options to purchase shares of Sulcus common stock
to current or former officers, directors, employees or consultants of Sulcus
(the "Sulcus Stock Plans"), whether vested or unvested, will be converted
automatically into an option to purchase, on substantially the same terms and
conditions as were applicable under the Sulcus Stock Option, a number of
shares of Eltrax common stock equal to the number of shares of Sulcus common
stock that could be purchased under such Sulcus Stock Option multiplied by
the Sulcus Exchange Ratio, at a per share exercise price equal to the per
share exercise price of such Sulcus Stock Option divided by the Sulcus
Exchange Ratio (an "Eltrax Stock Option"), provided that any fractional
shares of Eltrax common stock resulting from such determination will be
rounded down to the nearest share.
All options issued under the 1997 Director Plan, the 1991 Employee Plan, the
1991 Director Plan and the 1983 Employee Plan will be converted into Eltrax
Stock Options as described above.
At the Effective Time, all Sulcus Stock Plans will terminate and, within 90 days
following the closing date, each holder of a Sulcus Stock Option will receive an
award agreement with respect to the Eltrax Stock Options they acquire pursuant
to the merger agreement, which shall preserve the remaining exercise period and
vesting schedule (if any) of such converted Sulcus Stock Options and, if
applicable, will preserve the status of any converted Sulcus Stock Options as
"incentive stock options" (as defined in Section 422 of the Code).
Interim Operations
In the merger agreement, Eltrax and Sulcus agreed, that between the execution
and delivery of the merger agreement and the closing date, both companies, and
their subsidiaries, will:
- conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
- not amend their respective Articles of Incorporation or Bylaws;
- not split, combine or reclassify their outstanding capital stock,
- not declare, set aside or pay any dividend or distribution, except
for the payment of dividends or distributions to a company by its
wholly-owned subsidiary;
- not repurchase any shares of their outstanding capital stock;
- not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options,
warrants or rights to acquire any shares of, their capital stock or
any debt or equity securities convertible into or exchangeable for
such capital stock, except that each company, may (1) grant options
to non-executive employees and (2) issue shares upon the exercise
of outstanding options and warrants or pursuant to existing
agreements;
52
<PAGE>
- not assume, incur or become contingently liable with respect to any
indebtedness for borrowed money, other than (1) borrowings in the
ordinary course of business or borrowings under the existing credit
facilities of each company up to the existing borrowing limit or
(2) borrowings to refinance existing indebtedness;
- not redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or any options, warrants or rights to
acquire any of its capital stock or any security convertible into
or exchangeable for its capital stock other than pursuant to an
employee stock incentive plan of a company;
- not take any action that would jeopardize the treatment of the
merger as a pooling of interests;
- not take or fail to take any action that would cause either company
or their shareholders (except to the extent that any shareholders
receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the
consummation of the merger or would otherwise cause the merger not
to qualify as a reorganization under Section 368(a) of the Code;
- not make any acquisition of any assets or businesses other than
expenditures for current assets in the ordinary course of business
and expenditures for fixed or capital assets in the ordinary course
of business;
- not sell, pledge, dispose of or encumber any material assets or
businesses, or enter into any binding contract, agreement,
commitment or arrangement with respect to any of the foregoing;
- use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of
their respective present officers and key employees, and preserve
the goodwill and business relationships with customers and others
having business relationships with them;
- subject to restrictions imposed by applicable law, confer with one
or more representatives of the other company to report operational
matters of materiality and the general status of ongoing
operations;
- not enter into or amend any employment, severance or special pay
arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers or
key employees, except in the ordinary course of business and
consistent with past practice;
- not adopt, enter into or amend any pension or retirement plan,
trust or fund, except as required to comply with changes in
applicable law and not adopt, enter into or amend in any material
respect any bonus, profit sharing, compensation, stock option,
deferred compensation, health care, employment or other employee
benefit plan, agreement, trust, fund or arrangement for the benefit
or welfare of any employees or retirees generally, other than in
the ordinary course of business;
53
<PAGE>
- use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets
and its businesses in such amounts and against such risks and
losses as are consistent with past practice; and
- not make, change or revoke any material tax election or make any
material agreement or settlement regarding taxes with any taxing
authority.
No Solicitation
Pursuant to the merger agreement, Eltrax and Sulcus agreed that neither
company nor any of their subsidiaries will initiate, solicit, negotiate,
encourage or provide confidential information to facilitate, and each company
shall use its reasonable efforts to prevent any officer, director, affiliate
or employee of a company, or any attorney, accountant, investment banker,
financial advisor or other agent retained by it or any of its subsidiaries,
from, directly or indirectly, initiating, soliciting, negotiating,
encouraging or providing non-public or confidential information to
facilitate, any proposal or offer to acquire all or any substantial part of
the business or properties of either company or any capital stock of either
company, whether by merger, purchase of assets, tender offer, share exchange,
business combination or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as an "Acquisition Transaction").
Sulcus, may, in response to an unsolicited written offer or proposal with
respect to a potential or proposed Acquisition Transaction ("Acquisition
Proposal") which Sulcus' Board determines, in good faith and after consultation
with its independent financial advisor, would result (if consummated pursuant to
its terms) in an Acquisition Transaction more favorable to its shareholders than
the merger (any such offer or proposal being referred to as a "Superior
Proposal"), furnish (subject to the execution of a confidentiality agreement
substantially similar to the confidentiality provisions set forth in the merger
agreement), confidential or non-public information to a financially capable
corporation, partnership, person or other entity or group (a "Potential
Acquirer") and negotiate with such Potential Acquirer if the Sulcus Board, after
consulting with its outside legal counsel, determines in good faith that the
failure to provide such confidential or non-public information to or negotiate
with such Potential Acquirer would be reasonably likely to constitute a breach
of its fiduciary duty to the Sulcus shareholders. Sulcus' Board may also comply
with Rule 14-e2 under the Exchange Act in connection with an Acquisition
Proposal.
Both companies agreed to notify the other after receipt of any Acquisition
Proposal or offer to acquire all or any substantial part of their business,
properties or capital stock, whether by merger, purchase of assets, tender
offer, share exchange, business combination or otherwise, whether for cash,
securities or any other consideration or combination thereof and shall indicate
in reasonable detail the identity of the offeror and the terms and conditions of
such proposal or offer.
Representations and Warranties
In the merger agreement, Eltrax and SAC have made customary representations and
warranties to Sulcus with respect to, among other things, their organization and
qualification, capitalization, subsidiaries, authority, non-contravention,
approvals, reports and financial statements, absence of certain changes since
June 30, 1998, the information to be included in the registration statement and
proxy statement, the tax-free nature of the transaction and "pooling of
interests" accounting, brokers and finders, intellectual property and
qualification under the HSR Act.
54
<PAGE>
In the merger agreement, Sulcus has made customary representations and
warranties to Eltrax and SAC with respect to, among other things, its
organization and qualification, capitalization, subsidiaries, authority,
non-contravention, approvals, reports and financial statements, absence of
certain changes since June 30, 1998, the information to be included in the
registration statement and proxy statement, the tax-free nature of the
transaction and "pooling of interests" accounting, brokers and finders, the
opinion of Broadview, the Rights Agreement between Sulcus and American Stock
Transfer & Trust Company, as Rights Agent, dated as of January 30, 1998 (the
"Sulcus Rights Agreement"), intellectual property, qualification under the
HSR Act and appraisal rights.
Effective Time
The merger will become effective when articles of merger have been filed with
the Department of State of the Commonwealth of Pennsylvania.
Conditions to the Merger
The completion of the merger depends upon satisfaction of a number of
conditions, including
- approval of the merger agreement by the shareholders of Sulcus,
- approval of the Share Issuance and the Plan Amendment by the
shareholders of Eltrax,
- authorization of the Eltrax common stock to be issued pursuant to
the merger for listing on the Nasdaq SmallCap Market,
- effectiveness of Eltrax's registration statement registering the
shares of Eltrax common stock to be issued in the merger under the
Securities Act,
- the absence of any preliminary or permanent injunction or other
order or decree or any statute, rule or regulation enacted in the
United States preventing the consummation of the merger or making
the merger illegal, and
- except where failure to do so would not cause a material adverse
effect on that company,
(1) securing all required waivers, consents, orders or
approvals,
(2) performance by the other party of their agreements
pursuant to the merger agreement, and
(3) continued accuracy of each party's representations and
warranties.
Termination; Fees
Sulcus and Eltrax can agree to terminate the merger agreement without completing
the merger, and either company can terminate the merger agreement under various
circumstances, including
55
<PAGE>
- a material breach of a representation, warranty or material
agreement in the merger agreement that has not been corrected;
- the failure to complete the merger by June 30, 1999;
- the failure of the Sulcus shareholders to approve the merger
agreement; and
- the failure of the Eltrax shareholders to approve the Share
Issuance and the Plan Amendment.
Sulcus can also terminate the merger agreement if (1) it receives an unsolicited
acquisition offer, or a person begins a tender offer for all the shares of
Sulcus common stock, which, in either case, the Sulcus Board determines would
result in a transaction more favorable to the Sulcus shareholders than the
merger with Eltrax or (2) the average closing price of Eltrax common stock for
the seven consecutive trading days ending three days before the Effective Time
is less than $4.50 per share, but only if the average closing price of Sulcus
common stock during the same time period is not less than $1.00 per share.
The merger agreement requires Sulcus to pay Eltrax a termination fee of $2.0
million if the merger agreement is terminated because of Sulcus' acceptance of
another unsolicited offer for an Acquisition Transaction or approval of a tender
offer or Sulcus' material breach of a material covenant that is not cured.
Eltrax would have to pay Sulcus the same termination fee if the merger agreement
is terminated because of Eltrax's material breach of a material covenant that is
not cured.
The merger agreement requires Sulcus to pay Eltrax a termination fee of
$250,000 if the merger agreement is terminated because Sulcus' shareholders
failed to approve the merger agreement, but such fee shall not be payable if
the average closing price of Eltrax common stock for the seven consecutive
trading days ending three days before the merger will be effective is less
than $4.50 per share and the average closing price of Sulcus common stock
during the same time period is equal to or greater than $1.00 per share. The
merger agreement also requires Eltrax to pay Sulcus a termination fee of
$250,000 if the merger agreement is terminated because Eltrax's shareholders
failed to approve the Share Issuance and the Plan Amendment.
The following Unaudited Pro Forma Condensed Combined Financial Statements of
Eltrax give effect to the consummation of the merger and to several additional
transactions that Eltrax has completed in 1997 and 1998. The financial
statements of Eltrax and Sulcus have been combined for each of the statement of
operations as if the merger had occurred as of the beginning of the respective
period. The unaudited pro forma combined balance sheet as of September 30, 1998
includes the balance sheet of Sulcus as if the merger occurred on September 30,
1998. The Unaudited Pro Forma Condensed Combined Statement of Operations for
the nine months ended September 30, 1998 also gives effect to Eltrax's
acquisition of Encore Systems, Inc., Global Systems and Support, Inc., and Five
Star Systems, Inc. (combined as the "Encore Group") as if it had occurred on
January 1, 1998. The Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 gives effect to the Four Corners
Technology, Inc. ("Four Corners"), Hi-Tech Connections, Inc. ("Hi-Tech"),
Midwest DataComm Associates, Inc. and Midwest Telecom Associates, Inc. (combined
as "DataComm") and the Encore Group acquisitions as if they had occurred on
January 1, 1997.
56
<PAGE>
The pro forma adjustments are based upon currently available information and
upon certain assumptions that the management of Eltrax believes are reasonable.
The unaudited pro forma condensed combined financial information reflects the
merger with Sulcus accounted for using the pooling-of-interest method of
accounting. Each of the other acquisition transactions has been accounted for
using the purchase method of accounting. The adjustments recorded in the
Unaudited Pro Forma Condensed Combined Financial Statements represent the
preliminary determination of these adjustments based upon available information.
There can be no assurance that the actual adjustments will not differ from the
pro forma adjustments reflected in the Unaudited Pro Forma Condensed Combined
Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements are not
necessarily indicative of the financial position or the future results of
operations or results that might have been achieved if the foregoing
transactions had been consummated as of the indicated dates. The Unaudited Pro
Forma Condensed Combined Financial Statements should be read in conjunction with
the historical consolidated financial statements of Eltrax and Sulcus and the
related notes thereto. See "Where You Can Find More Information".
57
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELTRAX
ELTRAX SULCUS SULCUS PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ------------- -------------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........ $ 536 $ 8,287 $ (1,400)(3) $ 7,423
Accounts receivable, net......... 7,366 9,215 -- 16,581
Inventories...................... 3,180 3,761 -- 6,941
Other current assets............. 1,288 2,132 -- 3,420
------------- ------------- -------- ---------
Total current assets........... 12,370 23,395 (1,400) 34,315
Purchased and capitalized software,
net.............................. -- 5,624 -- 5,624
Property and equipment, net........ 1,434 2,092 -- 3,526
Intangibles, net................... 17,125 5,833 -- 22,958
Other noncurrent assets............ -- 2,602 -- 2,602
------------- ------------- -------- ---------
$ 30,929 $ 39,546 $ (1,400) $ 69,075
------------- ------------- -------- ---------
------------- ------------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Short-term borrowings............ $ 1,429 $ 1,880 $ -- $ 3,309
Accounts payable................. 4,281 2,750 -- 7,031
Accrued expenses................. 3,025 1,845 -- 4,870
Unearned revenue................. 2,263 5,565 -- 7,828
Current portion of long-term
obligations.................... 1,633 806 -- 2,439
------------- ------------- -------- ---------
Total current liabilities...... 12,631 12,846 -- 25,477
Long-term obligations.............. 3,098 1,160 -- 4,258
------------- ------------- -------- ---------
Total liabilities.............. 15,729 14,006 -- 29,735
Shareholders' equity:
Common stock..................... 130 41,395 94 (4) 224
(41,395)(4)
Additional paid-in capital....... 33,356 -- 41,301 (4) 74,657
Accumulated deficit.............. (18,286) (15,122) (1,400)(3) (34,808)
Treasury stock................... -- (156) -- (156)
Other............................ -- (577) -- (577)
------------- ------------- -------- ---------
Total shareholders' equity..... 15,200 25,540 (1,400) 39,340
------------- ------------- -------- ---------
$ 30,929 $ 39,546 $ (1,400) $ 69,075
------------- ------------- -------- ---------
------------- ------------- -------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
58
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ENCORE GROUP ELTRAX
ELTRAX ENCORE GROUP PRO FORMA ADJUSTED SULCUS PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS ELTRAX HISTORICAL(5) COMBINED
------------- ------------ -------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $37,908 $7,748 $-- $ 45,656 $44,539 $90,195
Cost of revenue.................... 28,555 4,070 -- 32,625 20,347 52,972
------------- ------ ------- --------- ------------- ---------
Gross profit....................... 9,353 3,678 -- 13,031 24,192 37,223
Operating expenses:
Selling, general and
administrative................. 9,354 2,451 -- 11,805 21,452 33,257
Research and development......... 87 799 -- 886 1,428 2,314
Depreciation and amortization.... 683 96 918(3) 1,697 1,352 3,049
------------- ------ ------- --------- ------------- ---------
Total operating expenses......... 10,124 3,346 918 14,388 24,232 38,620
------------- ------ ------- --------- ------------- ---------
Operating income (loss).......... (771) 332 (918) (1,357) (40) (1,397)
Dividend and interest income....... 33 33 -- 66 391 457
Interest expense................... (199) (35) (558)(4) (792) (110) (902)
------------- ------ ------- --------- ------------- ---------
Net income (loss)................ $ (937) $ 330 $(1,476) $ (2,083) $ 241 $(1,842)
------------- ------ ------- --------- ------------- ---------
------------- ------ ------- --------- ------------- ---------
Net loss per common share and
common share
equivalents--basic............... $ (0.09)
---------
---------
Weighted average shares
outstanding-- basic(6)........... 21,405
---------
---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
59
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELTRAX FOUR CORNERS HI-TECH DATACOMM ENCORE GROUP
HISTORICAL(1) HISTORICAL(2) HISTORICAL(3) HISTORICAL(4) HISTORICAL(5)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue....................... $ 49,934 $3,932 $3,742 $3,587 $10,508
Cost of revenue............... 41,329 3,092 2,653 2,260 4,200
------------- ------ ------ ------ -------------
Gross profit.................. 8,605 840 1,089 1,327 6,308
Operating expenses:
Selling, general and
administrative............ 12,075 843 1,110 1,273 3,139
Research and development.... -- -- -- -- 977
Depreciation and
amortization.............. 588 -- 62 12 125
Goodwill adjustments........ 5,714 -- -- -- --
------------- ------ ------ ------ -------------
Total operating expenses.... 18,377 843 1,172 1,285 4,241
------------- ------ ------ ------ -------------
Operating income (loss)..... (9,772) (3) (83) 42 2,067
Dividend and interest income.. 93 -- -- 44 64
Interest expense.............. (337) (4) (18) -- (15)
------------- ------ ------ ------ -------------
Income (loss) before income
taxes..................... (10,016) (7) (101) 86 2,116
Income tax expense............ 1,316 -- -- -- --
------------- ------ ------ ------ -------------
Net income (loss)........... $(11,332) $ (7) $ (101) $ 86 $ 2,116
------------- ------ ------ ------ -------------
------------- ------ ------ ------ -------------
Net loss per common share and
common share
equivalents-basic...........
Weighted average shares
outstanding-basic(9)........
<CAPTION>
ELTRAX
PRO FORMA ADJUSTED SULCUS PRO FORMA
ADJUSTMENTS ELTRAX HISTORICAL(8) COMBINED
--------------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Revenue....................... $-- $ 71,703 $53,822 $125,525
Cost of revenue............... -- 53,534 24,840 78,374
------- -------- ------------- ---------
Gross profit.................. -- 18,169 28,982 47,151
Operating expenses:
Selling, general and
administrative............ -- 18,440 28,502 46,942
Research and development.... -- 977 1,501 2,478
Depreciation and
amortization.............. 1,534(6) 2,321 1,701 4,022
Adjustment of Datatech
goodwill.................. -- 5,714 -- 5,714
------- -------- ------------- ---------
Total operating expenses.... 1,534 27,452 31,704 59,156
------- -------- ------------- ---------
Operating income (loss)..... (1,534) (9,283) (2,722) (12,005)
Dividend and interest income.. -- 201 1,080 1,281
Interest expense.............. (837)(7) (1,211) (368) (1,579)
------- -------- ------------- ---------
Income (loss) before income
taxes..................... (2,371) (10,293) (2,010) (12,303)
Income tax expense............ -- 1,316 -- 1,316
------- -------- ------------- ---------
Net income (loss)........... $(2,371) $(11,609) $(2,010) $(13,619)
------- -------- ------------- ---------
------- -------- ------------- ---------
Net loss per common share and
common share
equivalents-basic........... $ (0.70)
---------
---------
Weighted average shares
outstanding-basic(9)........ 19,360
---------
---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
60
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELTRAX NINE ELTRAX THREE ELTRAX
MONTHS MONTHS ELTRAX SULCUS PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTED HISTORICAL(3) COMBINED
------------- ------------ -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue............................ $29,731 $4,918 $ 34,649 $50,805 $85,454
Cost of revenue.................... 24,710 3,926 28,636 23,354 51,990
------------- ------ -------- ------------- ---------
Gross Profit....................... 5,021 992 6,013 27,451 33,464
Operating expenses:
Selling, general and
administrative................. 5,634 880 6,514 23,847 30,361
Research and development......... -- -- -- 1,398 1,398
Depreciation and amortization.... 241 32 273 1,589 1,862
------------- ------ -------- ------------- ---------
Total operating expenses......... 5,875 912 6,787 26,834 33,621
------------- ------ -------- ------------- ---------
Operating income (loss).......... (854) 80 (774) 617 (157)
Dividend and interest income....... -- 19 19 1,349 1,368
Interest expense................... (5) -- (5) (571) (576)
------------- ------ -------- ------------- ---------
Net income (loss) from continuing
operations..................... $ (859) $ 99 $ (760) $ 1,395 $ 635
------------- ------ -------- ------------- ---------
------------- ------ -------- ------------- ---------
Net income from continuing
operations per common share and
common share equivalents:
Basic............................ $ 0.04
---------
---------
Diluted.......................... 0.04
---------
---------
Weighted average shares
outstanding(4):
Basic............................ 15,919
---------
---------
Diluted.......................... 16,907
---------
---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
61
<PAGE>
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Atlantic
Network EJG Techline, Eltrax
Eltrax Services, Inc. Incorporated Eltrax Sulcus Pro Forma
Historical(1) Historical(2) Historical(3) Adjusted Historical(4) Combined
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ - $ 14,622 $ 2,634 $ 17,256 $ 44,693 $ 61,949
Cost of revenue - 12,194 1,962 14,156 18,965 33,121
-------------------------------------------------------------------------------------------
Gross Profit - 2,428 672 3,100 25,728 28,828
Operating expenses:
Selling, general and administrative 564 1,993 535 3,092 26,330 29,422
Research and development - - - - 1,199 1,199
Depreciation and amortization - 50 5 55 1,520 1,575
-------------------------------------------------------------------------------------------
Total operating expenses 564 2,043 540 3,147 29,049 32,196
-------------------------------------------------------------------------------------------
Operating income (loss) (564) 385 132 (47) (3,321) (3,368)
Dividend and interest income, net 121 17 - 138 2,155 2,293
Gain on settlement related to
past investment losses 100 - - 100 - 100
-------------------------------------------------------------------------------------------
Income (loss) before income taxes (343) 402 132 191 (1,166) (975)
Income tax expense - - - - 203 203
-------------------------------------------------------------------------------------------
Net income (loss) from
continuing operations $(343) $ 402 $ 132 $ 191 $ (1,369) $ (1,178)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net income from continuing operations per common share and
common share equivalents-basic : $ (0.09)
--------
--------
Weighted average shares outstanding-basic (5): 13,716
--------
--------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
62
<PAGE>
ELTRAX SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
A. CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1998
1. Represents the historical balance sheet of Eltrax as derived from the
unaudited financial statements filed on Form 10-Q for the period ended
September 30, 1998.
2. Represents the historical balance sheet of Sulcus as derived from the
unaudited financial statements filed on Form 10-Q for the period ended
September 30, 1998.
3. Represents the estimated fees and expenses to be incurred to complete
the merger.
4. Represents the issuance of 9,387,813 shares of Eltrax common stock
issued in connection with the merger of Sulcus. As of September 30, 1998
Sulcus had 17,068,751 shares outstanding multiplied by the exchange ratio
of 0.55 shares of Eltrax common stock for every share of Sulcus common
stock. This entry also eliminates the Sulcus common stock acquired by
Eltrax.
5. We estimate that costs of approximately $3.0 million will be incurred
for integration-related expenses, including the elimination of
duplicate facilities, organizational realignment and related net
workforce reductions of approximately 30 positions. The Unaudited Pro
Forma Condensed Combined Balance Sheet and the Unaudited Pro Forma
Condensed Combined Statements of Operations do not reflect the impact
of these charges as the estimates are preliminary and subject to
change. We estimate that $2.5 million of these costs will be charged
to operations in the quarter in which the merger occurs and the
remaining costs will be expensed as incurred. The Unaudited Pro Forma
Condensed Combined Financial Statements do not reflect any synergies
expected to be realized after the merger.
B. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
1. Represents the historical consolidated statement of operations of Eltrax
as derived from the unaudited financial statements filed on Form 10-Q for
the nine months ended September 30, 1998. These results include the
operations for the Encore Group only for the period subsequent to the
acquisition of the Encore Group on September 1, 1998.
2. Represents the historical combined statement of operations of the Encore
Group as derived from unaudited statements for the eight months ended
August 31, 1998.
3. Represents an adjustment associated with the amortization of intangible
assets reflecting the excess of the Eltrax purchase price over the Encore
Group book value on the acquisition date. Eltrax has not completed the
final allocation of the components of the intangible assets, which
consist principally of purchased software and goodwill. For purposes of
the pro forma statement of operations, the asset is being amortized on a
straight-line basis over the estimated average intangible life of eight
years.
4. Represents pro forma interest expense associated with $8,500,000 of debt
incurred to fund the cash component of the Encore Group purchase price.
5. Represents the historical consolidated statement of operations of Sulcus
as derived from unaudited statements filed on Form 10-Q for the nine
months ended September 30, 1998.
6. Represents the combination of the Eltrax weighted average shares
outstanding as filed on Form 10-Q for the period ended September 30, 1998
with the pro forma shares issued in connection
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with the Encore Group acquisition and the Sulcus weighted average shares
as filed on Form 10-Q for the period ended September 30, 1998 converted
to shares of Eltrax common stock using the 0.55 exchange ratio. Common
stock equivalents have been excluded from loss per share calculations as
their inclusion would be antidilutive.
C. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997
1. Represents the historical consolidated statement of operations of Eltrax
as derived from the audited financial statements filed on Form 10-KSB for
the year ended December 31, 1997.
2. Represents the unaudited historical statement of operations of Four
Corners for the 1997 period prior to the acquisition by Eltrax on July 1,
1997.
3. Represents the unaudited historical statement of operations of Hi-Tech
for the 1997 period prior to the acquisition by Eltrax on August 1, 1997.
4. Represents the unaudited historical statement of operations of DataComm
for the 1997 period prior to the acquisition by Eltrax on November 1,
1997.
5. Represents the historical combined statement of operations of the Encore
Group as derived from the audited financial statements for the year ended
December 31, 1997.
6. Represents an adjustment associated with the amortization of intangible
assets reflecting the excess of the Eltrax purchase price over the book
values of Four Corners, Hi-Tech, DataComm and the Encore Group on the
acquisition dates. Eltrax has not completed the final allocation of the
components of the Encore Group intangible assets, which consist
principally of purchased software and goodwill. For purposes of the pro
forma statement of operations, the intangible assets are being amortized
on a straight-line basis over the estimated average intangible life of
eight years for the Encore Group and fifteen years for the other
acquisitions.
7. Represents pro forma interest expense associated with $8,500,000 of debt
incurred to fund the cash component of the Encore Group purchase price.
8. Represents the historical consolidated statement of operations for
Sulcus as derived from the audited financial statements filed on Form
10-K/A for the year ended December 31, 1997.
9. Represents the combination of the Eltrax weighted average shares
outstanding as filed on Form 10-KSB for the period ended December 31,
1997 with the pro forma shares issued in connection with the acquisitions
and the Sulcus weighted average shares as filed on Form 10-K/A for the
period ended December 31, 1997 converted to shares of Eltrax common stock
using the 0.55 exchange ratio. Common stock equivalents have been
excluded from loss per share calculations as their inclusion would be
antidilutive.
D. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1996
1. Represents the historical consolidated statement of operations of Eltrax
as derived from the audited financial statements for the nine month
transition period ended December 31, 1996 as filed on Form 10-KSB for the
fiscal year ended December 31, 1997. In 1996, Eltrax changed the
Company's fiscal year end from March 31, to December 31, which resulted
in the nine month transition period.
2. Represents the unaudited historical consolidated statement of operations
of Eltrax for the quarter ended March 31, 1996.
3. Represents the historical consolidated statement of operations of Sulcus
as derived from the audited financial statements filed on Form 10-K for
the year ended December 31, 1996.
4. Represents the unaudited weighted share average of Eltrax at December
31, 1996 combined with the Sulcus weighted average shares as filed on
Form 10-K for the period ended December 31, 1996 converted to shares of
Eltrax common stock using the 0.55 exchange ratio.
E. CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1995
1. Represents the unaudited historical statement of operations of Eltrax for
the twelve months ended December 31, 1995. The revenue, cost of revenue and
certain operating expenses relating to discontinued operations have been
excluded
2. Represents the audited historical statement of operations of Atlantic
Network Systems, Inc. (ANS) for the year ended December 31, 1995. ANS
merged with Eltrax on October 31, 1996 in a transaction accounted for using
the pooling-of-interests accounting method.
3. Represents the unaudited historical statement of operations of EJG
Techline, Incorporated (Techline) for the year ended December 31, 1995.
Techline merged with Eltrax on May 14, 1997 in a transaction accounted for
using the pooling-of-interests accounting method.
4. Represents the historical consolidated statement of operations of Sulcus
for the year ended December 31, 1995 as derived from the audited financial
statements filed on Form 10-K/A for the year ended December 31, 1997.
5. Represents the unaudited weighted share average of Eltrax at December 31,
1995 combined with the Sulcus weighted average shares for 1995 as filed on
Form 10-K/A for the period ended December 31, 1997 converted to shares of
Eltrax common stock using the 0.55 exchange ratio. Common stock equivalents
have been excluded from loss per share calculations as their inclusion
would be antidilutive.
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Description of Eltrax Capital Stock
THE STATEMENTS SET FORTH UNDER THIS HEADING WITH RESPECT TO THE MINNESOTA
BUSINESS CORPORATION ACT, ELTRAX'S AMENDED AND RESTATED ARTICLES OF
INCORPORATION, AND ELTRAX'S RESTATED BYLAWS ARE BRIEF SUMMARIES THEREOF, AND MAY
NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE ELTRAX CAPITAL STOCK, YOU SHOULD CAREFULLY
READ THE DETAILED PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT, THE
ELTRAX ARTICLES OF INCORPORATION, THE ELTRAX BYLAWS, AND OTHER DOCUMENTS WE HAVE
REFERRED YOU TO. SEE "WHERE YOU CAN FIND MORE INFORMATION". (PAGE )
Under Eltrax's Articles of Incorporation, Eltrax's authorized capital stock
consists of 50,000,000 shares of Eltrax common stock, par value $.01 per share,
and 1,000,000 shares of preferred stock, par value $.01 per share ("Eltrax
Preferred Stock"). The Eltrax Board has designated 30,000 shares of such
preferred stock as "Preferred Series A," but no shares of such series are
presently outstanding.
Eltrax Common Stock
There were _______________ shares of Eltrax common stock issued and
outstanding as of ______________, 1999. In addition, Eltrax has
reserved a total of _______________ shares of Eltrax common stock for
issuance upon exercise of warrants and options granted or to be granted under
Eltrax's stock option plans.
The holders of Eltrax common stock:
(a) have equal ratable rights to dividends from funds legally available
therefor, when, as and if declared by the Eltrax Board;
(b) are entitled to share ratably in all of the assets of Eltrax
available for distribution to holders of Eltrax common stock upon
liquidation, dissolution or winding up of the affairs of Eltrax;
(c) do not have preemptive, subscription or conversion rights and there
are no redemption or sinking fund provisions applicable thereto;
and
(d) are entitled to one vote per share on all matters which
shareholders may vote on at all meetings of shareholders. All
shares of Eltrax common stock now outstanding are fully paid and
nonassessable.
The holders of Eltrax common stock do not have cumulative voting rights, which
means that the holders of more than 50% of such outstanding shares voting for
the election of directors can elect all of the directors of Eltrax to be
elected, if they so choose. In such event, the holders of the remaining shares
will not be able to elect any of Eltrax's directors.
Eltrax Preferred Stock
The Eltrax Board is authorized, without further shareholder action, to issue
preferred stock in one or more series and to fix the voting rights,
liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the preferred stock. Although there
is no current intention to do so, the Eltrax Board may, without shareholder
approval, issue shares of a class or series of preferred stock with voting
and conversion rights which could adversely affect the voting power
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of the holders of Eltrax common stock and may have the effect of delaying,
deferring or preventing a change in control of Eltrax.
Minnesota Business Corporation Act
Section 302A.671 of the Minnesota Business Corporation Act applies, with certain
exceptions, to any acquisition of voting stock of Eltrax (from a person other
than Eltrax, and other than in connection with certain mergers and exchanges to
which Eltrax is a party) resulting in the beneficial ownership of 20% or more of
the voting stock then outstanding. Section 302A.671 requires approval of any
such acquisitions by a majority vote of the shareholders of Eltrax prior to its
consummation. In general, shares acquired in the absence of such approval are
denied voting rights and are redeemable at their then fair market value by
Eltrax within 30 days after the acquiring person has failed to give a timely
information statement to Eltrax or the date the shareholders voted not to grant
voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Business Corporation Act generally prohibits
any business combination by Eltrax, or any subsidiary of Eltrax, with any
shareholder which purchases 10% or more of Eltrax's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Eltrax Board
before the interested shareholder's share acquisition date.
Transfer Agent and Registrar
The Transfer Agent and Registrar with respect to Eltrax common stock is Boston
EquiServe.
Comparison of the Rights of Holders of
Eltrax Common Stock and Sulcus Common Stock
THE STATEMENTS SET FORTH UNDER THIS HEADING WITH RESPECT TO THE MINNESOTA
BUSINESS CORPORATION ACT, THE PENNSYLVANIA BUSINESS CORPORATION LAW, THE ELTRAX
ARTICLES OF INCORPORATION, THE ELTRAX BYLAWS, THE AMENDED AND RESTATED ARTICLES
OF INCORPORATION OF SULCUS, THE AMENDED AND RESTATED BYLAWS OF SULCUS, AND THE
SULCUS RIGHTS AGREEMENT ARE BRIEF SUMMARIES THEREOF, AND MAY NOT CONTAIN ALL THE
INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE DESCRIPTION OF THE
LEGAL TERMS OF THE ELTRAX COMMON STOCK AND SULCUS COMMON STOCK, YOU SHOULD
CAREFULLY READ THE DETAILED PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION
ACT, THE PENNSYLVANIA BUSINESS CORPORATION LAW, THE ELTRAX ARTICLES OF
INCORPORATION, THE ELTRAX BYLAWS, THE SULCUS ARTICLES OF INCORPORATION, THE
SULCUS BYLAWS, AND THE SULCUS RIGHTS AGREEMENT. SEE "WHERE YOU CAN FIND MORE
INFORMATION". (PAGE )
The following summary compares certain rights of the holders of Sulcus common
stock to the rights of the holders of Eltrax common stock. The rights of Sulcus
shareholders are governed principally by the Pennsylvania Business Corporation
Law, the Sulcus Articles of Incorporation, the Sulcus Bylaws and the Sulcus
Rights Agreement. Upon consummation of the merger, Sulcus shareholders will
become holders of Eltrax common stock, and their rights will be governed
principally by the Minnesota Business Corporation Act, the Eltrax Articles of
Incorporation and the Eltrax Bylaws.
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Authorized Capital Stock
Eltrax. The Eltrax Articles of Incorporation provide for the authorization and
issuance of 50,000,000 shares of Eltrax common stock, par value $.01 per share,
and 1,000,000 shares of Eltrax preferred stock, par value $.01 per share. The
Eltrax Board is authorized by the Eltrax Articles of Incorporation to establish
and fix the voting rights, liquidation preferences, dividend rights, conversion
rights, redemption rights and other terms of the preferred stock. The Eltrax
Board can, without shareholder approval, issue shares of such preferred stock
with voting and conversion rights which could adversely affect the voting power
of the holders of Eltrax common stock and may have the effect of delaying,
deferring or preventing a change in control of Eltrax. The Eltrax Board has
designated 30,000 shares of such preferred stock as "Preferred Stock Series A",
but no shares of such series are presently outstanding.
Sulcus. The Sulcus Articles of Incorporation provide for the authorization and
issuance of 30,000,000 shares of Sulcus common stock, no par value per share,
and 10,000,000 shares of Sulcus preferred stock, no par value per share, of
which 8,000,000 shares are designated as Series A Redeemable Convertible
Preferred Stock (the "Series A Preferred Stock") and 300,000 shares are
designated as Series B Junior Participating Preferred Stock (the "Series B
Preferred Stock"). No shares of either Series A Preferred Stock or Series B
Preferred Stock are presently outstanding.
Voting Rights.
Eltrax. The Eltrax Articles of Incorporation and Eltrax Bylaws provide that
holders of Eltrax common stock are entitled to one vote for each share held.
The Eltrax Articles of Incorporation provide that shares of Preferred Stock
Series A will have no voting rights, except as provided under the Minnesota
Business Corporation Act.
Sulcus. The Sulcus Articles of Incorporation provide that holders of Sulcus
common stock are entitled to one vote for each share held.
Board of Directors
Election of Directors; Cumulative Voting.
Eltrax. The Eltrax Bylaws provide that directors shall be elected by a plurality
of the votes cast. The Eltrax Articles of Incorporation do not permit
cumulative voting.
Sulcus. The Sulcus Bylaws provide that directors shall be elected by a
plurality of the votes cast. The Pennsylvania Business Corporation Law prohibits
cumulative voting in the election of directors.
Number of Directors
Eltrax. The Minnesota Business Corporation Act provides that the Board of
Directors of a Minnesota corporation shall consist of one or more directors as
fixed by the Articles of Incorporation or Bylaws. The Eltrax Bylaws provide
that the Board of Directors shall consist of not less than one and no more than
eight natural persons. The Eltrax Board currently consists of eight persons.
Directors need not be shareholders of Eltrax.
Sulcus. The Pennsylvania Business Corporation Law provides that the Board of
Directors of a Pennsylvania corporation shall consist of one or more members as
provided in the Bylaws. If not so provided, the number of directors shall be
the same as that stated in the Articles of Incorporation or three, if no number
is so stated. The Sulcus Bylaws and the Sulcus
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Articles of Incorporation provide that the number of directors shall not be
less than one (1) nor more than seven (7) and will otherwise be fixed from
time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (without
regard to whether there are any vacancies on the Board or not). The Sulcus
Bylaws also provide that the directors should be divided into three classes,
as nearly equal in number as possible, with one class of directors' term
expiring at each annual meeting of shareholders. The Sulcus Board currently
consists of two directors in each of the three classes.
Removal of Directors; Filling Vacancies.
Eltrax. The Eltrax Bylaws provide that any and all of the directors may be
removed as provided in the Minnesota Business Corporation Act. The Minnesota
Business Corporation Act provides that a director may be removed at any time,
with or without cause, if:
(a) the director was named by the Board of Directors to fill a
vacancy;
(b) the shareholders have not elected directors in the interval
between the time of appointment to fill a vacancy and the
time of the removal; and
(c) a majority of the remaining directors present affirmatively
vote to remove the director.
Any one or all of the directors may be removed at any time, with or without
cause, by the affirmative vote of the holders of the proportion of voting
power or number of shares that was sufficient to elect such director.
The Eltrax Bylaws also provide that the directors can fill a vacancy on
the Eltrax Board by the affirmative vote of a majority of the remaining
directors, even though such vote may come from less than a quorum. Vacancies
on the Board of Directors resulting from newly created directorships may be
filled by the affirmative vote of a majority of directors serving at the time
of the increase.
Sulcus. The Sulcus Bylaws provide that, subject to the rights of the
holders of any class or series of the voting stock then outstanding, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of
at least 80% of the voting power of all of the then outstanding shares of
voting stock, voting together as a single class.
The Sulcus Bylaws and the Sulcus Articles of Incorporation provide that
vacancies on the Sulcus Board (resulting from an increase in the authorized
number of directors or from death, resignation, retirement, disqualification,
removal or other cause) may only be filled by a majority vote of the directors
then in office, even though less than a quorum.
Indemnification.
The Minnesota Business Corporation Act and the Pennsylvania Business
Corporation Law both contain provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees and other persons.
While indemnification is permitted only if certain statutory standards of
conduct are met, the Minnesota Business Corporation Act and the Pennsylvania
Business Corporation Law are substantially similar in providing for
indemnification if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to
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believe the conduct was unlawful. The statutes differ, however, with respect
to whether indemnification is permissive or mandatory, whether there is a
distinction between third-party actions and actions by or in the right of the
corporation, and whether, and to what extent, reimbursement of judgments,
fines, settlements and expenses is allowed.
Indemnification of officers, directors and employees is mandatory under
the Minnesota Business Corporation Act, provided however, the articles or
bylaws can prohibit indemnification if the prohibition applies equally to all
persons or to all persons within a given class. Indemnification of any
representative of the corporation is permissive under the Pennsylvania
Business Corporation Law. The one exception to the Pennsylvania Business
Corporation Law's permissive indemnification rule is that a corporation must
indemnify any person who is successful on the merits or otherwise in the
defense of certain specified actions, suits or proceedings for expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith.
The Pennsylvania Business Corporation Law, unlike the Minnesota
Business Corporation Act, differentiates between third-party actions and
claims by or in the right of the corporation (i.e. shareholder derivative
suits). While the Minnesota Business Corporation Act makes no distinction
between third-party actions and shareholder derivative suits and requires
indemnification in either case if the relevant statutory standard of conduct
is met, indemnification under the Pennsylvania Business Corporation Law
varies depending on whether the action is brought by a third-party or by
shareholders in a derivative suit. The Pennsylvania Business Corporation Law
allows indemnification of judgments, settlements and expenses for a
third-party action. However, the Pennsylvania Business Corporation Law does
not permit indemnification in a shareholder derivative suit if the person is
found liable to the corporation unless, and only to the extent that, the
appropriate court determines that, despite the finding of liability but in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for those expenses that the court deems
proper. The advancement of expenses is permissive under the Pennsylvania
Business Corporation Law but mandatory under the Minnesota Business
Corporation Act.
The Eltrax Bylaws provide that Eltrax will indemnify and make
advances of reasonable expenses to each current and former director and
officer of the corporation, as provided under the Minnesota Business
Corporation Act. However, it also provides that Eltrax will not indemnify or
make advances of expenses to any other persons entitled to such benefits
under the Minnesota Business Corporation Act, by reason of being a present or
former agent of Eltrax or otherwise. Nothing in the Eltrax Bylaws prohibits
Eltrax from purchasing insurance on behalf of any person in that person's
official capacity, even though Eltrax would not be required to indemnify such
person.
The Sulcus Bylaws provide that Sulcus will indemnify current and
former officers and directors to the fullest extent permitted by the
Pennsylvania Business Corporation Law. Therefore, even though the
Pennsylvania Business Corporation Law will allow indemnification for any
representative of Sulcus, Sulcus' Bylaws limit indemnification to current and
former officers and directors. Further, the Sulcus Bylaws require
advancement of expenses to such current and former officers and directors
upon receipt of an undertaking to repay such amount to the extent it shall
ultimately be determined that such person is not entitled to be indemnified
by Sulcus or, in the case of a criminal action, a majority of the Sulcus
Board so determines.
Finally, the Minnesota Business Corporation Act requires that a corporation
report any indemnification payments to its shareholders no later than the next
meeting of the shareholders. The Pennsylvania Business Corporation Law does not
contain a similar provision.
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Liability.
Eltrax. The Minnesota Business Corporation Act provides that a corporation may
include, in its bylaws, a provision which limits or eliminates the personal
liability of a director to the corporation and its shareholders for monetary
damages for such person's conduct as a director provided that such provision may
not limit a director's liability where (1) the director has breached or failed
to perform the duties of his office; and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The Eltrax
Articles of Incorporation expressly limit the personal liability of directors to
the fullest extent permitted under the Minnesota Business Corporation Act.
Sulcus. The Pennsylvania Business Corporation Law allows for similar provisions
limiting the liability for directors as described in the immediately preceding
paragraph, however, such provisions shall not eliminate or limit the liability
of directors for
(a) any breach of the director's duty of loyalty to the
corporation or its shareholders;
(b) any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
(c) any transaction from which the director derived an improper
personal benefit;
(d) any act or omission occurring prior to the date when the
provision limiting liability becomes effective; or
(e) making an unlawful distribution to shareholders provided
such director is present at the meeting where such
distribution is approved and fails to vote against it, or
consents in writing to such distribution.
The Sulcus Bylaws expressly limit the personal liability of directors to the
fullest extent permitted under the Pennsylvania Business Corporation Law.
Repurchase and the Redemption of Shares
The Minnesota Business Corporation Act provides that a corporation may redeem or
repurchase any of its shares for cash, or other property including debt
securities, except when the corporation is unable to pay its debts in the
ordinary course of business after making the distribution.
The Pennsylvania Business Corporation Law provides that a corporation may redeem
or repurchase any of its shares for cash, or other property, including debt
securities, except when the corporation is unable to pay its debts as they
become due in the ordinary course of business, or the total assets of the
corporation would be less than the sum of its total liabilities plus (unless
otherwise stated in the Articles of Incorporation) the amount that would be
needed, if the corporation were to be dissolved at the time the distribution is
to be made, to satisfy any shareholder's preferential rights upon dissolution.
Payment of Dividends to Shareholders
Eltrax. The Minnesota Business Corporation Act provides that a corporation may
declare and pay dividends upon its shares of capital stock only if the
corporation will be able to pay its debts in the ordinary course of business
after the dividend has been distributed. Moreover, a distribution may be made
to the holders of a class or series of shares only if: (1) all amounts payable
to the holders of shares having a preference for the payment of that
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kind of distribution, other than those holders who give notice to the
corporation of their agreement to waive their rights to that payment, are
paid; and (2) the payment of the dividend does not reduce the remaining net
assets of the corporation below the aggregate preferential amount payable in
the event of liquidation to the holders in the order and to the extent of
their respective priorities or the holders of shares who do not receive
distributions in that order give notice to the corporation of their agreement
to waive their rights to that distribution.
The Eltrax Articles of Incorporation provide that the holders of shares of
common stock and preferred stock are entitled to receive cash dividends when,
as, and if declared by the Eltrax Board out of funds legally available
therefor. However, the corporation shall not at any time, so long as any
shares of preferred stock are issued and outstanding, declare a cash dividend
payable with respect to any class of capital stock of the corporation without
concurrently declaring a cash dividend payable with respect to the preferred
stock. Further, in the event the Board of Directors of the corporation
declares a cash dividend payable with respect to any class of capital stock
of the corporation, the preferred stock, as a class, shall be entitled to
receive an aggregate cash dividend in an amount to be determined by the Board
of Directors of the corporation at the time of declaration of the cash
dividend, but which shall at least equal the aggregate cash dividend to be
paid by the corporation with respect to any other class of its capital stock.
Sulcus. The Pennsylvania Business Corporation Law provides that a corporation,
subject to any restrictions in its bylaws or articles of incorporation, may
declare and pay dividends upon its shares of capital stock except when the
corporation would be unable to pay its debts when they become due in the
ordinary course of business or the total assets of the corporation would be less
than the sum of its liabilities plus (unless otherwise provided in the articles
of incorporation) the amount that would be needed, if the corporation were to be
dissolved at the time the distribution is to be made, to satisfy any
shareholder's preferential rights upon dissolution. Generally, the Series A
Preferred Stock is entitled to receive dividends, when, as and if and only to
the same extent as declared on the common stock. However, the Series B
Preferred Stock is entitled to receive, when, as and if declared by the Board of
Directors out of the funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) one dollar or (b) subject to adjustment, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions. Dividends on the Series B Preferred Stock will accrue and be
cumulative on each payment date, but are junior in rank, with respect to
payment, to all other series of Sulcus Preferred Stock, including the Series A
Preferred Stock.
Preemptive Rights
Eltrax. The Minnesota Business Corporation Act provides that unless limited by
the corporation's articles or the board of directors, shareholders have
preemptive rights if the corporation proposes to issue new or additional shares
or rights to purchase shares of the same series or class as those held by the
shareholder or new or additional securities that are exchangeable for,
convertible into, or carry a right to acquire new or additional shares of the
same series or class as those held by the shareholder. The Eltrax Articles of
Incorporation provide that shareholders shall not have any preemptive rights.
Sulcus. The Pennsylvania Business Corporation Law provides that no shareholder
of a Pennsylvania corporation shall have any preemptive right to subscribe to an
additional issuance of stock or to any security convertible into such stock
unless such right is expressly granted in the Articles of Incorporation. The
Sulcus Articles of Incorporation do not expressly grant shareholders any
preemptive rights.
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Amendments to Articles of Incorporation
Eltrax. The Minnesota Business Corporation Act provides that an amendment to a
corporation's articles of incorporation must be proposed by a resolution
approved by the affirmative vote of a majority of the directors present or
proposed by a shareholder or shareholders holding 3% or more of the voting
shares entitled to vote thereon. Under the Minnesota Business Corporation Act,
any such amendment must be approved by the affirmative vote of a majority of the
shareholders entitled to vote thereon, except that the articles of incorporation
may provide for a specified proportion or number larger than a majority vote.
Sulcus. The Pennsylvania Business Corporation Law provides that an amendment to
a corporation's articles of incorporation must be proposed by adoption by the
board of directors of a resolution setting forth the proposed amendment or
proposed by a shareholder or shareholders holding 10% or more of the voting
shares entitled to vote thereon. Under the Pennsylvania Business Corporation
Law, any such amendment must be approved by the affirmative vote of a majority
of the shareholders entitled to vote thereon, except that the articles of
incorporation may provide for a specified proportion or number larger than a
majority vote. The Sulcus Articles of Incorporation provide that the Articles
of Incorporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series B Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series B Preferred Stock,
voting together as a single class. The Sulcus Articles of Incorporation also
provide that at least two-thirds of the Series A Preferred Stock, voting as a
class, must approve an adverse alteration or change to any powers, preferences
or rights of Series A Preferred Stock.
The Sulcus Articles of Incorporation also provide that the affirmative vote of
at least 80% of the voting power of all the then outstanding shares of voting
stock, voting together as a single class, is required to alter, amend or repeal
certain provisions of the Sulcus Articles of Incorporation related to removal of
directors and actions by shareholders.
Amendments to Bylaws
Eltrax. Under the Minnesota Business Corporation Act, shareholders holding 3%
or more of the voting power of the outstanding shares may propose a resolution
to adopt, amend or repeal the bylaws adopted, amended or repealed by a board of
directors, which resolution must be approved by the affirmative vote of the
holders of a majority of the shares entitled to vote thereon. The Eltrax Bylaws
and Eltrax Articles of Incorporation provide that the power to adopt, amend, or
repeal the Eltrax Bylaws is vested in the Eltrax Board, subject to the power of
the shareholders described in the preceding sentence. However, such power is
also limited in that the Eltrax Board cannot amend or repeal a Bylaw provision
fixing a quorum for shareholder meetings, prescribing procedures for removing
directors or filling vacancies on the board, or fixing the number of directors
or their classifications, qualifications or terms of office, but may increase
the number of directors.
Sulcus. Under the Pennsylvania Business Corporation Law, the shareholders shall
have the power to adopt, amend and repeal the bylaws. However, the authority to
adopt, amend and repeal the bylaws may be, and pursuant to the Sulcus Bylaws is,
expressly vested in the board of directors, subject to the power of shareholders
to change such action.
Change of Control Provisions
Eltrax. The Minnesota Business Corporation Act prohibits certain business
combinations (as defined in the Minnesota Business Corporation Act) between a
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Minnesota corporation that has shares registered under the Exchange Act and an
"Interested shareholder" unless certain conditions are satisfied or an exemption
is applicable. An "Interested shareholder" is generally defined to include a
person who beneficially owns at least 20% of the votes that shareholders would
be entitled to cast in an election of directors of the corporation. Neither the
Eltrax Articles of Incorporation nor the Eltrax Bylaws have any specific change
of control provisions. However, the ability of Eltrax's Board to issue and set
the terms of Eltrax preferred stock could have the effect of making it more
difficult for a third person to acquire, or of discouraging a third person from
attempting to acquire, control of Eltrax.
Sulcus. The Pennsylvania Business Corporation Law contains similar provisions
prohibiting certain business combinations between a Pennsylvania public
corporation and an interested shareholder that occur within five years of the
time that such stockholder became an "Interested shareholder" unless certain
conditions are satisfied. An "Interested shareholder" is generally defined to
include a person who beneficially owns at least 20% of the voting stock of the
corporation. Neither the Sulcus Articles of Incorporation nor the Sulcus Bylaws
have any specific change of control provisions.
Pursuant to the Sulcus Rights Agreement, each share of Sulcus common stock
includes an associated right to purchase one one-hundredth of a share of Series
B Preferred Stock for $50.00 per share. In the event any person becomes an
Acquiring Person (as defined in the Sulcus Rights Agreement), each right (except
any rights held by the Acquiring Person) becomes exercisable and entitles the
holder to purchase that number of shares of Sulcus common stock which, at the
time the person becomes an Acquiring Person, had a market value of two times the
exercise price of the rights.
The Sulcus Rights Agreement, as well as the ability of the Sulcus' Board to
issue and set the terms of its preferred stock, could have the effect of making
it more difficult for a third person to acquire, or of discouraging a third
person from attempting to acquire, control of Sulcus.
Special Meeting of Shareholders
Eltrax. The Minnesota Business Corporation Act provides that special meetings
of the shareholders may be called for any purpose or purposes by the chief
executive officer, the chief financial officer, two or more directors, a person
authorized in the articles of incorporation or bylaws to call special meetings
and by a shareholder or shareholders holding 10% or more of the voting power of
all shares entitled to vote, except that a special meeting for the purpose of
considering any action to directly or indirectly facilitate or effect a business
combination, including any action to change or otherwise affect the composition
of the board of directors for that purpose, must be called by 25% or more of the
voting power of all shares entitled to vote. The Eltrax Bylaws provide that
special meetings of the shareholders may be called and shall be held as
permitted by the Minnesota Business Corporation Act, as amended from time to
time. The business transacted at such special meeting shall be limited to the
purposes stated in the notice of the meeting.
Sulcus. The Pennsylvania Business Corporation Law provides that special
meetings of shareholders may be called at any time by the board of directors,
unless otherwise provided in the articles of incorporation, by shareholders
entitled to cast at least 20% of the votes entitled to be cast at the particular
meeting and by such officers or persons as may be provided in the bylaws.
However, since Sulcus is a "registered corporation", shareholders are not
entitled to call a special meeting of shareholders. The Sulcus Articles of
Incorporation and Sulcus Bylaws provide that special meetings of shareholders
may be called only by the Sulcus Board pursuant to a resolution adopted by a
majority of the total number of authorized directors, without regard to any
vacancies on the Sulcus Board.
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Shareholder Consent to Action Without a Meeting
Eltrax. The Minnesota Business Corporation Act and the Eltrax Bylaws provide
that an action required or permitted to be taken at a meeting may be taken
without a meeting by written action signed by all the shareholders entitled to
vote on that action. The written action is effective when it is signed by all
of the shareholders, unless a different effective time is provided in the
written action.
Sulcus. The Pennsylvania Business Corporation Law provides that unless
otherwise restricted in the bylaws, any action required or permitted to be taken
at a meeting of the shareholders may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto signed by all the
shareholders who would be entitled to vote at a meeting for such purpose shall
be filed with the Secretary of the corporation. The Sulcus Articles of
Incorporation and Sulcus Bylaws provide that any action to be taken by the
shareholders of Sulcus must be effected at an annual or special meeting of
shareholders and may not be effected by any consent in writing by such
shareholders.
Liquidation Rights
Generally, under both the Minnesota Business Corporation Act and Pennsylvania
Business Corporation Law, a corporation may create one or more series of stock
with such preferences as shall be stated and expressed in the articles of
incorporation or in the resolution adopted by the board of directors providing
for the issuance of such stock pursuant to authority expressly vested in the
board of directors by the provisions of the company's articles of incorporation.
These preferences may include a priority on the distribution of assets in
liquidation.
Eltrax. The Eltrax Articles of Incorporation provide that, in the event of any
involuntary or voluntary liquidation, the holders of shares of preferred stock
will be entitled to receive out of the assets of Eltrax an amount equal to $7.50
per share. If, upon any liquidation or dissolution of Eltrax, assets available
for distribution shall be insufficient to pay the holders of all outstanding
shares of preferred stock the full amounts they are entitled, the holders of
such shares shall share pro rata in any such distribution.
Sulcus. The Sulcus Articles of Incorporation provide that, upon liquidation,
dissolution or winding up of Sulcus, no distribution shall be made (1) to the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock unless,
prior thereto, the holders of Series B Preferred Stock shall have received $100
per share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series B Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to an adjustment,
equal to 100 times the aggregate amount to be distributed per share to holders
of common stock, or (2) to the holders of shares of stock on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except distributions made ratably on the Series B Preferred
Stock and all such parity stock in proportion to the amounts to which the
holders of all such shares are entitled upon liquidation, dissolution or winding
up. Shares of Series B Preferred Stock rank, with respect to the payment of
dividends and distribution of assets, junior to all other series of Sulcus
Preferred Stock, including the Series A Preferred Stock.
The Sulcus Articles of Incorporation also provide that, upon any voluntary or
involuntary liquidation, dissolution or winding up of Sulcus, holders of Series
A Preferred Stock are entitled to receive, before any distribution is made to
the holders of common stock or any other junior capital stock, an amount equal
to $3.00 per share. If such preferential amount
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cannot be paid in full, then the holders of Series A Preferred Stock will
share with the holders of any shares of capital stock ranking upon a
liquidation, dissolution or winding up on a parity with the Series A
Preferred Stock, ratably in any distribution in proportion to the full
preferential amounts to which they are entitled.
Dissenters Rights
Under both the Minnesota Business Corporation Act and the Pennsylvania Business
Corporation Law, shareholders may exercise a right to dissent from certain
corporate actions and obtain payment of the fair value of their shares. This
remedy is an exclusive remedy except where the corporate action involves fraud
or illegality. Appraisal rights are available under both the Minnesota Business
Corporation Act and the Pennsylvania Business Corporation Law. However, the
Pennsylvania Business Corporation Law provides that if the corporation's stock
is listed on a national securities exchange (such as AMEX) or held of record by
more than 2,000 shareholders, such shareholders shall not have the right to
obtain payment of the fair value of such shares.
Proposal to Amend Eltrax 1998 Stock Incentive Plan
In November, 1998, the Eltrax Board adopted an amendment to increase by
1,500,000 the number of shares of Eltrax common stock that may be issued under
the 1998 Stock Incentive Plan (the "1998 Plan") in order to provide for the
conversion of Sulcus stock options into Eltrax stock options in accordance with
the terms of the merger agreement (the "Plan Amendment"). The sole purpose of
the Plan Amendment is to facilitate the conversion of Sulcus stock options into
Eltrax stock options as required by the merger agreement. Consequently, the
Plan Amendment (even if approved by Eltrax's shareholders) will not become
effective unless the merger is consummated. Consummation of the merger is
conditioned upon Eltrax's shareholders approval of the Plan Amendment. The
shareholders of Sulcus will not vote on the Plan Amendment.
The Eltrax Board is requesting that Eltrax shareholders approve the Plan
Amendment at the Eltrax special meeting.
THE PURPOSE OF THE PLAN AMENDMENT IS TO INCREASE THE NUMBER OF SHARES OF Eltrax
COMMON STOCK THAT MAY BE ISSUED UNDER THE 1998 PLAN IN ORDER TO FACILITATE THE
CONVERSION OF SULCUS STOCK OPTIONS INTO ELTRAX STOCK OPTIONS IN ACCORDANCE WITH
THE MERGER AGREEMENT.
THE DESCRIPTION OF THE 1998 PLAN INCLUDED IN THIS DOCUMENT DESCRIBES THE KEY
FEATURES OF THE 1998 PLAN, AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE 1998 PLAN FULLY, YOU SHOULD CAREFULLY READ
THE 1998 PLAN, A COPY OF WHICH MAY BE OBTAINED FROM ELTRAX. SEE "WHERE YOU CAN
FIND MORE INFORMATION". (PAGE )
General
On February 9, 1998, the Eltrax Board approved the 1998 Plan and the
shareholders of Eltrax approved the 1998 Plan on May 19, 1998. The purpose of
the 1998 Plan is to advance the interests of Eltrax and its subsidiaries and
shareholders by enabling Eltrax and its subsidiaries (1) to attract and retain
persons of ability to perform services for Eltrax and its subsidiaries by
providing an incentive to such individuals through equity participation in
Eltrax and by rewarding such individuals who contribute to the achievement by
Eltrax of its economic
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objectives; and (2) to pursue its growth strategy by providing a means for
Eltrax to provide an incentive through equity participation in Eltrax in the
form of stock options or other incentive awards to key employees of newly
acquired companies.
Summary of the 1998 Plan
GENERAL. The 1998 Plan provides for the grant to participating eligible
recipients of Eltrax and its subsidiaries ("Participants") of:
(a) options to purchase shares of Eltrax common stock that qualify as
"incentive stock options" ("Incentive Options"), within the meaning
of Section 422 of the Code;
(b) options to purchase shares of Eltrax common stock that do not
qualify as Incentive Options ("Non-Qualified Options");
(c) awards of shares of Eltrax common stock that are subject to certain
forfeiture and transferability restrictions that lapse after
specified periods of time or upon certain events ("Restricted Stock
Awards"); and
(d) awards of shares of Eltrax common stock ("Stock Bonuses").
Incentive Options and Non-Qualified Options are collectively referred to
herein as "Options," and Options, Restricted Stock Awards, and Stock Bonuses
are collectively referred to herein as "Incentive Awards."
The 1998 Plan will be administered by the Compensation Committee of the Board
of Directors of Eltrax (the "Committee"). In accordance with, and subject to
the provisions of, the 1998 Plan, the Committee will have the authority to
determine all provisions of Incentive Awards as the Committee may deem
necessary or desirable and as consistent with the terms of the 1998 Plan,
including without limitation,
(1) the recipients to be granted Incentive Awards under the 1998 Plan;
(2) the nature and extent of the Incentive Awards to be made to each
Participant;
(3) the time or times when Incentive Awards will be granted;
(4) the duration of each Incentive Award; and
(5) the restrictions and other conditions to which the payment or
vesting of Incentive Awards may be subject.
In addition, the Committee will have the authority in its sole discretion to
pay the economic value of any Incentive Award in the form of cash, Eltrax
common stock or any combination of both.
The Committee will have the authority under the 1998 Plan to amend or modify
the terms of any outstanding Incentive Award in any manner, including,
without limitation, the authority to modify the number of shares or other
terms and conditions of an Incentive Award, extend the term of an Incentive
Award, accelerate the exercisability or vesting or otherwise terminate any
restrictions relating to an Incentive Award, accept the surrender of any
outstanding Incentive Award or, to the extent not previously exercised or
vested, authorize the grant of new Incentive Awards in substitution for
surrendered Incentive Awards; provided, however that the amended or modified
terms are permitted by the 1998 Plan as then in effect and that any
Participant adversely
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affected by such amended or modified terms has consented to such amendment or
modification. In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off) or any other change in the corporate structure or
shares of Eltrax, the Committee (or, if Eltrax is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation) will make appropriate adjustments to the number and kind of
securities or other property (including cash) available for issuance or
payment under the 1998 Plan and, in order to prevent dilution or enlargement
of the rights of Participants, (1) the number and kind of securities or other
property (including cash) subject to outstanding Options, and (2) 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 Eltrax or any subsidiary of Eltrax, who, in the judgment of
the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of Eltrax and its
subsidiaries will be eligible to participate in the 1998 Plan. As of
___________, 1999, there were approximately ___ eligible participants under
the 1998 Plan. As a holder of Incentive Awards (other than Restricted Stock
Awards and Stock Bonuses), a Participant will have no rights as a shareholder
with respect to the shares of Eltrax common stock underlying such Incentive
Awards unless and until such Incentive Awards are exercised for, or paid in
the form of, shares of Eltrax common stock and the Participant becomes the
holder of record of such shares. No right or interest of any Participant in
an Incentive Award may be assigned or transferred, except pursuant to
testamentary will or the laws of descent and distribution or as otherwise
expressly permitted by the 1998 Plan, or subjected to any lien or otherwise
encumbered during the lifetime of the Participant, either voluntarily or
involuntarily, directly or indirectly, by operation of law or otherwise,
unless approved by the Committee in its sole discretion.
Currently, up to 1,000,000 shares of Eltrax common stock may be issued under
the 1998 Plan (which will be increased to 2,500,000 shares of Eltrax common
stock if the Plan Amendment is approved by the shareholders of Eltrax). No
Participant in the Plan may be granted any Options, or any other Incentive
Awards with a value based solely on an increase in the value of Eltrax common
stock after the date of grant, relating to more than 200,000 shares of Eltrax
common stock in the aggregate in any fiscal year of Eltrax (subject to
adjustment as provided in the 1998 Plan); provided, however, that a
Participant who is first appointed or elected as an officer, hired as an
employee or retained as a consultant by Eltrax or who receives a promotion
that results in an increase in responsibilities or duties may be granted,
during the fiscal year of such appointment, election, hiring, retention or
promotion, Options or such other Incentive Awards relating to up to 300,000
shares of Eltrax common stock (subject to adjustment as provided in the 1998
Plan).
The 1998 Plan will terminate at midnight on May 19, 2007, unless terminated
earlier by action of the Eltrax Board. The Eltrax Board may suspend or
terminate the 1998 Plan or any portion thereof at any time, and may amend the
1998 Plan in any respect without shareholder approval, unless shareholder
approval is then required by federal securities or tax laws or the rules of
Nasdaq. No Incentive Award will be granted after termination of the 1998
Plan. Incentive Awards outstanding upon termination of the 1998 Plan may
continue to be exercised, or become free of restrictions, in accordance with
their terms.
Options. The terms and conditions of any Option granted under the 1998 Plan,
including whether the Option is to be considered an Incentive Option or a
Non-Qualified Option, will be determined by the Committee, subject to certain
requirements contained in the 1998 Plan. To the extent, however, that any
Incentive Option granted under the 1998 Plan ceases for any reason to qualify
as an Incentive Stock Option under the Code, such Incentive Option will
continue to be outstanding for purposes of the 1998 Plan but will thereafter
be deemed to be a Non-Qualified
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Option. The per share price to be paid by a Participant upon exercise of an
Option will be determined by the Committee in its discretion at the time of
the Option grant; provided, however, that (a) the exercise price for
Incentive Options must be equal to the fair market value of one share of
Eltrax common stock on the date of grant and 110% of the fair market value
if, at the time the Incentive Option is granted, the Participant owns,
directly or indirectly, more than 10% of the total combined voting power of
all classes of stock of Eltrax or any parent or subsidiary corporation of
Eltrax; and (b) the exercise price for Non-Qualified Options must not be less
than 85% of the fair market value of one share of Eltrax common stock on the
date of grant. The fair market value of Eltrax's common stock is equal to
the closing bid price, as reported by the Nasdaq SmallCap Market as of the
date of grant (or, if no shares were traded or quoted on such date, as of the
next preceding date on which there was such a trade or quote).
An Option will become exercisable at such times and in such installments as
may be determined by the Committee in its sole discretion at the time of
grant; provided, however, that no Option may be exercisable after 10 years
from its date of grant. For Incentive Options, the aggregate fair market
value (determined as of the time the Incentive Option is granted) of shares
of Eltrax common stock with respect to which Incentive Options become
exercisable for the first time by the Participant under the 1998 Plan during
any calendar year may not exceed $100,000.
Payment of an Option exercise price must be made entirely in cash unless the
Committee, in its sole discretion and upon terms and conditions established
by the Committee, allows such payments to be made, in whole or in part, by:
(a) tender of a written notice pursuant to which a Participant
irrevocably instructs a broker or dealer to sell a sufficient
number of shares of Eltrax common stock or loan a sufficient amount
of money to pay all or a portion of the exercise price of the
Option and/or any related withholding tax obligations and remit
such sums to Eltrax and directs Eltrax to deliver stock
certificates to be issued upon such exercise directly to such
broker or dealer;
(b) tender of shares of Eltrax common stock that are already owned by
the Participant or, with respect to any Incentive Award, that are
to be issued upon the grant, exercise or vesting of such Incentive
Award;
(c) execution of a promissory note (on terms acceptable to the
Committee in its sole discretion); or
(d) a combination of such methods.
Notwithstanding anything to the contrary, after any reorganization, merger or
consolidation involving Eltrax or a subsidiary of Eltrax, the Committee may
grant Options in substitution of options issued under a plan of another party
to the reorganization, merger or consolidation and, subject to Section 424(a)
of the Code, the Committee shall have the sole discretion to determine all
terms and conditions of such Options.
Restricted Stock Awards. Restricted Stock Awards are awards of Eltrax common
stock granted to a recipient which are subject to restrictions on
transferability and the risk of forfeiture. The Committee may impose such
restrictions or conditions, not inconsistent with the provisions of the 1998
Plan, to the vesting of Restricted Stock Awards as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of Eltrax or any of its subsidiaries for a certain period
of time or that the Participant or Eltrax, or any subsidiary or division of
Eltrax, satisfy certain performance goals or criteria. Except as otherwise
provided under the 1998 Plan, a Participant will have all voting, dividend,
liquidation and other rights with respect to such shares of Eltrax common
stock issued to the Participant as a Restricted Stock Award upon the
Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Eltrax common
stock.
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Stock Bonuses. Stock Bonuses are awards of Eltrax common stock that are not
subject to any restrictions other than, if imposed by the Committee,
restrictions on transferability. A Participant may be granted one or more
Stock Bonuses under the 1998 Plan, and such Stock Bonuses will be subject to
such terms and conditions, consistent with other provisions of the 1998 Plan,
as may be determined by the Committee in its sole discretion. Other than
transfer restrictions, if any, imposed by the Committee, the Participant will
have all voting, dividend, liquidation and other rights with respect to the
shares of Eltrax common stock issued to a Participant as a Stock Bonus under
the 1998 Plan upon the Participant becoming the holder of record of such
shares.
Effect of Termination of Employment or Other Service. If a Participant's
employment or other service with Eltrax and its subsidiaries is terminated by
reason of death, disability or retirement,
- 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);
- all outstanding Restricted Stock Awards then held by the
Participant will become fully vested; and
- all outstanding Stock Bonuses then held by the Participant will
vest and/or continue to vest in the manner determined by the
Committee and set forth in the agreement evidencing such Stock
Bonuses.
In the event a Participant's employment or other service is terminated with
Eltrax and its subsidiaries for any reason other than death, disability or
retirement, or a Participant is in the employ or service of a subsidiary of
Eltrax and such subsidiary ceases to be a subsidiary of Eltrax (unless the
Participant continues in the employ or service of Eltrax or another
subsidiary),
- 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 terminate immediately;
- 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.
Change in Control of Eltrax. In the event a "Change in Control" of Eltrax
occurs, then, unless otherwise provided by the Committee in its sole
discretion either in the agreement evidencing an Incentive Award at the time
of grant or at any time after the grant of an Incentive Award:
- all outstanding Options will become immediately exercisable in full
and will remain exercisable for the remainder of their terms,
regardless of whether the Participant to whom such Options have
been granted remains in the employ or service of Eltrax or any of
its subsidiaries;
- all outstanding Restricted Stock Awards will become immediately
fully vested and non-forfeitable; and
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- all outstanding Stock Bonuses then held by the Participant will
vest and/or continue to vest in the manner determined by the
Committee and set forth in the agreement evidencing such Stock
Bonuses.
In addition, the Committee, without the consent of any affected Participant,
may determine that some or all Participants holding outstanding Options will
receive, with respect to some or all of the shares of Eltrax common stock
subject to such Options, as of the effective date of any such Change in
Control, cash in an amount equal to the excess of the fair market value of
such shares immediately prior to the effective date of such Change in Control
over the exercise price per share of such Options.
To the extent that such acceleration of the vesting of Incentive Awards or
the payment of cash in exchange for all or part of an Incentive Award would
be deemed a "payment" (as defined in the Code), together with any other
"payments" which such Participant has the right to receive from Eltrax or any
corporation that is a member of an "affiliated group" (as defined in Section
1504(a) of the Code) of which Eltrax is a member, would constitute a
"parachute payment" (as defined in the Code), then the "payments" to such
Participant pursuant to the Change in Control provisions in the 1998 Plan
will be reduced to the largest amount as will result in no portion of such
"payments" being subject to the excise tax imposed by Section 4999 of the
Code. To the extent, however, that a Participant has a separate agreement
that specifically provides that such "payments" will not be reduced, then the
foregoing limitations will not apply.
For purposes of the 1998 Plan, a "Change in Control" of Eltrax will be deemed
to have occurred, among other things, upon:
- the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of Eltrax (in one
transaction or in a series of related transactions) to a person or
entity that is not controlled by Eltrax;
- the approval by Eltrax's shareholders of a plan or proposal for the
liquidation or dissolution of Eltrax;
- any person becoming, after the effective date of the 1998 Plan, the
beneficial owner, directly or indirectly, of
(A) 20% or more, but less than 50%, of the combined voting
power of Eltrax's outstanding securities ordinarily
having the right to vote at elections of directors,
unless the transaction resulting in such ownership has
been approved in advance by any individuals who are
members of the Board on the effective date of the 1998
Plan and any individual who subsequently becomes a
member of the Board whose election, or nomination for
election by Eltrax's shareholders, was approved by a
vote of at least a majority of the incumbent directors
(either by specific vote or by approval of Eltrax's
proxy statement in which such individual is named as a
nominee for director without objection to such
nomination) (the "Incumbent Directors"), or
(B) 50% or more of the combined voting power of Eltrax's
outstanding securities ordinarily having the right to
vote at elections of directors (regardless of any
approval by the Incumbent Directors);
- a merger or consolidation to which Eltrax is a party if Eltrax's
shareholders immediately prior to the effective date of such merger
or consolidation beneficially
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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) 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);
- the Incumbent Directors cease for any reason to constitute at least
a majority of the Board; or
- any other change in control of Eltrax of a nature that would be
required to be reported pursuant to Section 13 or 15(d) of the
Exchange Act, whether or not Eltrax is then subject to such
reporting requirements.
New Plan Benefits
The grant of Incentive Awards under the 1998 Plan is subject to the
discretion of the Committee. The Committee has not granted any Incentive
Awards under the 1998 Plan since the Eltrax Board approved the Plan Amendment
on November 11, 1998. Accordingly, Eltrax cannot currently determine the
number of shares of Eltrax common stock that may be subject to Incentive
Awards under the 1998 Plan in the future.
Federal Income Tax Consequences
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. This description does not
include state or local income tax consequences. In addition, this
description is not intended to address specific tax consequences applicable
to an individual participant who receives an Incentive Award.
Incentive Options. There will not be any federal income tax consequences to
either the Participant or Eltrax as a result of the grant to an employee of
an Incentive Option under the 1998 Plan. The exercise by a Participant of an
Incentive Option also will not result in any federal income tax consequences
to Eltrax or the Participant, except that (1) 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 (2) the Participant may be subject to an additional excise tax if
any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of Eltrax common
stock are permitted to be tendered in payment of an Option exercise price.
If the Participant disposes of shares of Eltrax common stock acquired upon
exercise of the Incentive Option, the federal income tax consequences will
depend upon how long the Participant has held the shares. If the Participant
does not dispose of the shares within two years after the Incentive Option
was granted, nor within one year after the Participant exercised the
Incentive Option and the shares were transferred to the Participant, then the
Participant will recognize a long-term capital gain or loss. The amount of
the long-term capital gain or loss will be equal to the difference between
(1) the amount the Participant realized on disposition of the
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shares, and (2) the option price at which the Participant acquired the
shares. Eltrax is not entitled to any compensation expense deduction under
these circumstances.
If the Participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the Participant will be
required to report as ordinary income, in the year the Participant disposes
of the shares, the amount by which the lesser of (1) the fair market value of
the shares at the time of exercise of the Incentive Option (or, for
directors, officers or greater than 10% shareholders of Eltrax, generally the
fair market value of the shares six months after the date of exercise, unless
such persons file an election under Section 83(b) of the Code within 30 days
of exercise), or (2) the amount realized on the disposition of the shares,
exceeds the option price for the shares. Eltrax will be entitled to a
compensation expense deduction in an amount equal to the ordinary income
includable in the taxable income of the Participant. This compensation
income may be subject to withholding. The remainder of the gain recognized
on the disposition, if any, or any loss recognized on the disposition, will
be treated as long-term or short-term capital gain or loss, depending on the
holding period.
Non-Qualified Options. Neither the Participant nor Eltrax incurs any federal
income tax consequences as a result of the grant of a Non-Qualified Option.
Upon exercise of a Non-Qualified Option, a Participant will recognize
ordinary income, subject to withholding, on the "Includability Date" in an
amount equal to the difference between (1) the fair market value of the
shares purchased, determined on the Includability Date, and (2) the
consideration paid for the shares. The Includability Date generally will be
the date of exercise of the Non-Qualified Option. However, the Includability
Date for Participants who are officers, directors or greater-than-10%
shareholders of Eltrax will generally occur six months later, unless such
persons file an election under Section 83(b) of the Code within 30 days of
the date of exercise to include as ordinary income the amount realized upon
exercise of the Non-Qualified Option. The Participant may be subject to an
additional excise tax if any amounts are treated as excess parachute payments
(see explanation below). Special rules will apply if previously acquired
shares of Eltrax common stock are permitted to be tendered in payment of an
Option exercise price.
At the time of a subsequent sale or disposition of any shares of Eltrax
common stock obtained upon exercise of a Non-Qualified Option, any gain or
loss will be a capital gain or loss. Such capital gain or loss will be
long-term capital gain or loss if the sale or disposition occurs more than
one year after the Includability Date and short-term capital gain or loss if
the sale or disposition occurs one year or less after the Includability Date.
In general, Eltrax will be entitled to a compensation expense deduction in
connection with the exercise of a Non-Qualified Option for any amounts
includable in the taxable income of the Participant as ordinary income,
provided Eltrax complies with any applicable withholding requirements.
Restricted Stock Awards and Stock Bonuses. With respect to shares issued
pursuant to a Restricted Stock Award that is not subject to a substantial
risk of forfeiture or with respect to Stock Bonuses, a Participant will
include as ordinary income in the year of receipt an amount equal to the fair
market value of the shares received on the date of receipt. With respect to
shares that are subject to a substantial risk of forfeiture, a Participant
may file an election under Section 83(b) of the Code within 30 days after
receipt to include as ordinary income in the year of receipt an amount equal
to the fair market value of the shares received on the date of receipt
(determined as if the shares were not subject to any risk of forfeiture). If
a Section 83(b) election is made, the Participant will not recognize any
additional income when the restrictions on the shares issued in connection
with the Restricted Stock Award lapse. Eltrax will receive a corresponding
tax deduction for any amounts includable in the taxable income of the
Participant as ordinary income. At the time any such shares are sold or
disposed of, any gain or loss will be treated as
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long-term or short-term capital gain or loss, depending on the holding period
from the date of receipt of the Restricted Stock Award.
A Participant who does not make a Section 83(b) election within 30 days of
the receipt of a Restricted Stock Award that is subject to a risk of
forfeiture will recognize ordinary income at the time of the lapse of the
restrictions in an amount equal to the then fair market value of the shares
free of restrictions. Eltrax will receive a corresponding tax deduction for
any amounts includable in the taxable income of a Participant as ordinary
income. At the time of a subsequent sale or disposition of any shares of
Eltrax common stock issued in connection with a Restricted Stock Award as to
which the restrictions have lapsed, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date the restrictions lapse.
Excise Tax on Parachute Payments. Section 4999 of the Code imposes an excise
tax on "excess parachute payments," as defined in Section 280G of the Code.
Generally, parachute payments are payments in the nature of compensation to
certain employees or independent contractors who are also officers,
stockholders or highly-compensated individuals, where such payments are
contingent on a change in ownership or control of the stock or assets of the
paying corporation. In addition, the payments must be substantially greater
in amount than the recipient's regular compensation. Under Proposed Treasury
Regulations issued by the Internal Revenue Service, in certain circumstances
the grant, vesting, acceleration or exercise of Options pursuant to the 1998
Plan could be treated as contingent on a change in ownership or control for
purposes of determining the amount of a Participant's parachute payments.
In general, the amount of a parachute payment (some portion of which may be
deemed to be an "excess parachute payment") would be the cash or the fair
market value of the property received (or to be received) less the amount
paid for such property. If a Participant were found to have received an
excess parachute payment, he or she would be subject to a special
nondeductible twenty percent (20%) excise tax on the amount of the excess
parachute payments, and Eltrax would not be allowed to claim any deduction
with respect to such payments.
THE ELTRAX BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF ELTRAX VOTE
FOR THE PLAN AMENDMENT.
Business of Eltrax
Eltrax designs and installs networking systems for corporate and government
customers. Eltrax also provides monitoring, management, and maintenance
services to support enterprise networks. Eltrax has acquired several
independent companies over the last two years, and these acquisitions now
comprise Eltrax's national network of regional operations. Eltrax is also a
leading provider of proprietary software products and technology services to
the hospitality industry.
Eltrax recently acquired Encore Systems, Inc. and affiliated companies (GSSI
and Five Star Systems). The Encore group of companies, headquartered in
Atlanta, Georgia, is a leading provider of proprietary software products and
technology services to the hospitality industry. Encore's clients operate
20% of the brand name hotel space in America. Over 60% of Encore revenue is
recurring from software licensing and remote systems support services. Encore
provides help desk services, seven days a week, twenty-four hours a day, from
its support center in Atlanta, which is the largest hospitality systems
support facility in North America. Encore
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expects approximately 20% of its 1998 revenue to result from on-site system
installation and support services.
Pending Acquisitions
Consistent with Eltrax's strategy of growing through acquisitions, Eltrax
recently entered into a letter of intent for two new businesses. The first
letter of intent was for the acquisition of Windward Technology Group, Inc.,
a company that provides network design, installation, and management
services, the core business of Eltrax. Windward commenced business in
February, 1998, and had revenue of approximately $3.5 million and pre-tax net
income of approximately $450,000 for the 11-month period ending December 31,
1998 according to unaudited financial information submitted to Eltrax.
Shareholders of Windward will receive 1,375,000 shares of Eltrax common stock
in exchange for their Windward common stock along with options to purchase
60,000 shares of Eltrax common stock. Assuming the consummation of
the merger, shareholders of Windward will own approximately 5% of the
combined company on a fully-diluted basis. The closing of the acquisition of
Windward is conditioned on the consummation of the merger, and will occur as
soon as practicable thereafter.
Eltrax has also entered into a letter of intent to acquire World Digital
Commerce, Inc., a company which is engaged in setting up meeting dates and
locations on behalf of clients, who may access this service through the
internet. World Digital had revenue of approximately $242,000 and net income
of approximately $76,000 in 1998 according to unaudited financial information
submitted to Eltrax. Shareholders of World Digital will receive 130,000
shares of Eltrax common stock in exchange for their interests in World
Digital. It is anticipated that the World Digital transaction will close
prior to the consummation of the merger.
You should note that each of these pending acquisitions is only evidenced by
a letter of intent, and is subject to completion of due diligence and
definitive documents. Although Eltrax believes it will complete these
transactions on terms substantially similar to those set forth in each letter
of intent, no assurance can be given that such definitive documents and
resulting transactions will be completed.
Business of Sulcus
Sulcus develops, manufactures, markets and installs computerized systems
designed to automate the creation, handling, storage and retrieval of
information and documents. Sulcus designs its systems primarily for the
hospitality industry. Sulcus' sales practices are currently systems
orientated (rather than individual sales of hardware or software) toward the
vertical marketing of its integrated products. Systems include a network of
hardware, software and cabling as well as stand alone systems for which the
hardware and software are not separately sold. Sulcus' systems are offered
together with full services, training, maintenance and support. Sulcus has
installed systems throughout North and South America, Europe, Africa, Asia
and Australia. Customers include property management companies, condominiums,
hotels, motels, restaurants, resorts, country clubs and cruise lines.
Sulcus' operating divisions include Lodgistix, Inc. and Senercomm, Inc.,
which are developers of technology solutions focused in the hospitality
industry, and Squirrel Companies, Inc., which is a developer of technology
solutions focused in the restaurant industry. Additionally, Sulcus has
international operations through the following offices:
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- a direct sales office in Australia operated by Sulcus (Australia)
Pty. Ltd.;
- a direct sales office in Vancouver, British Columbia operated by
Squirrel Systems of Canada, Ltd., a Canadian subsidiary of Squirrel
which manufacturers and sells Squirrel products;
- a direct sales office in Hong Kong operated by Sulcus Hospitality
Limited;
- a direct sales office in Singapore operated by Sulcus Singapore,
Pte. Ltd.;
- a direct sales and support office in Switzerland operated by Sulcus
Hospitality Technologies EMEA A.G.;
- a direct sales and support office in Norway operated by Sulcus
Scandinavia A.S.;
- a direct sales and support office in Malaysia operated by Sulcus
(Malaysia) SDN BHD; and
- a direct sales and support office in the United Kingdom operated by
Sulcus (U.K.) Ltd.
Where You Can Find More Information
Each of Eltrax and Sulcus is subject to the informational requirements of the
Exchange Act and files annual, quarterly and current reports, proxy
statements and other information with the Commission. These reports, proxy
statements and other information may be inspected and copied at the Public
Reference Room maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, Thirteenth Floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of these materials may also be obtained by mail, upon payment of the
Commission's customary fees, by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for further information on the public
reference facilities. These materials may also be accessed electronically by
means of the Commission's web site on the Internet at http://www.sec.gov.
Sulcus common stock is listed on the AMEX and Eltrax common stock is listed
on the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System ("Nasdaq"). Reports, proxy
statements and other information filed by Sulcus may be inspected at the
offices of AMEX, located at 86 Trinity Place, New York, New York 10006, and
such information filed by Eltrax may be inspected at the offices of Nasdaq,
located at 1735 K Street, N.W., Washington, D.C. 20006.
Eltrax has filed with the Commission a registration statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under
the Securities Act, relating to the shares of Eltrax common stock offered
hereby of which this
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document is a part. This document does not contain all of the information
set forth in the Registration Statement and the exhibits thereto filed by
Eltrax, certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. The Registration Statement and exhibits
thereto may be inspected without charge at the offices of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
The following documents previously filed with the Commission by Eltrax
pursuant to the Exchange Act are incorporated by reference in this document:
1. Eltrax's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 filed March 27, 1998, as amended by Form 10-KSB/A
filed April 17, 1998;
2. Eltrax's Quarterly Reports on Form 10-Q for the fiscal
quarter ended March 31, 1998 filed May 12, 1998; for the fiscal quarter
ended June 30, 1998 filed on August 13, 1998; and for the fiscal quarter
ended September 30, 1998 filed on November 16, 1998;
3. Eltrax's Current Report on Form 8-K dated September 25,
1998, as amended by Form 8-K/A filed on November 24, 1998; and
4. The portions of Eltrax's Proxy Statement for the Annual
Meeting of Shareholders held on May 19, 1998 that have been incorporated by
reference in Eltrax's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
ADDITIONALLY, COPIES OF ELTRAX'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, AS AMENDED, AND ELTRAX'S QUARTERLY REPORT ON
FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 ARE INCLUDED WITH
THIS DOCUMENT AND SHOULD BE CAREFULLY REVIEWED IN CONJUNCTION THEREWITH.
The following documents previously filed with the Commission by Sulcus
pursuant to the Exchange Act are incorporated by reference in this document:
1. Sulcus' Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed March 31, 1998, as amended by Form 10-K/A filed May
1, 1998.
2. Sulcus' Quarterly Reports on Form 10-Q for the fiscal quarter
ended March 31, 1998 filed on May 15, 1998; for the fiscal quarter ended June
30, 1998 filed on August 14, 1998; and for the fiscal quarter ended September
30, 1998 filed on November 16, 1998; and
3. Sulcus' Current Reports on Form 8-K dated January 14, 1998,
June 17, 1998, November 13, 1998 and November 23, 1998.
ADDITIONALLY, COPIES OF SULCUS' ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, AS AMENDED, AND SULCUS' QUARTERLY REPORT ON
FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998 ARE INCLUDED WITH
THIS DOCUMENT AND SHOULD BE CAREFULLY REVIEWED IN CONJUNCTION THEREWITH.
The information relating to Sulcus, Eltrax and SAC contained in this document
does not purport to be comprehensive and should be read together with the
information in the documents incorporated by reference herein.
All information herein with respect to Sulcus has been furnished by Sulcus
and all information herein with respect to Eltrax and SAC has been furnished
by Eltrax.
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This document does not cover any resale of the securities to be received by
shareholders of Sulcus upon consummation of the merger, and no person is
authorized to make any use of this document in connection with any such
resale.
This document incorporates documents by reference which are not presented
herein or delivered herewith. Copies of such documents (other than exhibits
thereto which are not specifically incorporated by reference herein) are
available, without charge, to any person, including any beneficial owner of
shares of Sulcus common stock or Eltrax common stock to whom this document is
delivered, upon written or oral request, to, in the case of documents
relating to Sulcus, General Counsel, Sulcus Hospitality Technologies Corp.,
41 North Main Street, Greensburg, Pennsylvania 15601, telephone number (724)
836-2000 and, in the case of documents relating to Eltrax, 2000 Town Center,
Suite 690, Southfield, Michigan 48075, telephone number (248) 358-1699. In
order to ensure delivery of documents prior to the applicable special
meeting, any request therefor should be made not later than
____________________, 1998.
Experts
The consolidated financial statements of Eltrax appearing in Eltrax's Annual
Report on Form 10-KSB for the year ended December 31, 1997, as amended,
incorporated by reference in this document, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report included therein and incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance upon the
report of such firm given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Sulcus appearing in Sulcus' Annual
Report on Form 10-K for the year ended December 31, 1997, as amended,
incorporated by reference in this document, have been audited by Crowe,
Chizek and Company LLP, independent auditors, as set forth in their report
included therein and incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance upon the
report of such firm given upon the authority of such firm as experts in
accounting and auditing.
Legal Opinions
The validity of the shares of Eltrax common stock to be issued in connection
with the merger will be passed upon by Jaffe, Raitt, Heuer & Weiss, P.C. As
of the date hereof, certain shareholders of Jaffe, Raitt, Heuer & Weiss, P.C.
beneficially own approximately ____________ shares of Eltrax common stock.
Certain of the tax consequences of the merger to Sulcus shareholders will be
passed upon by Benesch, Friedlander, Coplan & Aronoff LLP. However, no
opinion will be expressed with respect to either Sulcus' or Eltrax's ability
to use net operating loss carryovers. See "The Merger--Certain Federal
Income Tax Consequences." Mr. Michael Wager, a partner in Benesch,
Friedlander, Coplan & Aronoff LLP, is a director of Sulcus and beneficially
owns 28,000 shares of Sulcus common stock.
Shareholders' Proposals
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If the merger is not consummated, it is presently anticipated that Sulcus
will convene its postponed 1998 Annual Meeting as soon as reasonably
practicable after termination of the merger agreement. The time has expired
for any shareholder wishing to submit a proposal to Sulcus for consideration
for inclusion in its proxy statement relating to its 1998 Annual Meeting of
Shareholders. However, any shareholder wishing to submit a proposal to Sulcus
for consideration for inclusion in its proxy statement relating to its 1999
Annual Meeting of Shareholders must deliver such proposal to Sulcus by
__________, 1999.
If the merger is not consummated, it is presently anticipated that
Eltrax will hold its 1999 Annual Meeting on or about __________, 1999. Any
shareholder wishing to submit a proposal to Eltrax for consideration for
inclusion in its proxy statement relating to its 1999 Annual Meeting of
Shareholders must deliver such proposal to Eltrax by __________, 1999.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ELTRAX SYSTEMS, INC.,
SULCUS HOSPITALITY TECHNOLOGIES CORP.
AND
SULCUS ACQUIRING CORPORATION
DATED AS OF NOVEMBER 11, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 11, 1998 (the
"Agreement"), is by and among ELTRAX SYSTEMS, INC., a Minnesota corporation
("Parent"), SULCUS ACQUIRING CORPORATION, a Pennsylvania corporation, and a
wholly owned subsidiary of Parent ("SAC Acquiring Sub"), and SULCUS
HOSPITALITY TECHNOLOGIES CORP., a Pennsylvania corporation ("Sulcus") (Parent
and Sulcus are sometimes together referred to as the "Companies" and,
individually, as a "Company").
RECITALS
A. The Boards of Directors of Parent, SAC Acquiring Sub and Sulcus
each have approved the merger of SAC Acquiring Sub with and into Sulcus, upon
the terms and subject to the conditions set forth herein (the "Merger"), and
deem it advisable and in the best interest of their respective shareholders
that the Merger be consummated; and
B. For federal income tax purposes, the parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger
in accordance with the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations thereunder.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"), SAC Acquiring Sub shall be merged with and into Sulcus and the
separate existence of SAC Acquiring Sub shall thereupon cease. Sulcus shall
be the surviving corporation in the Merger and is hereinafter sometimes
referred to as the "Surviving Corporation."
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in articles
of merger, in a form mutually acceptable to Parent and Sulcus, to be filed
with the Secretary of State of Pennsylvania in accordance with the PBCL (the
"Merger Filing"), concurrently with the closing of the transactions
contemplated by this Agreement in accordance with Section 2.5.
SECTION 1.3 ARTICLES OF INCORPORATION. The Articles of Incorporation
of Sulcus as in effect immediately prior to the Effective Time shall, after
the Effective Time, be the Articles of Incorporation of the Surviving
Corporation, and thereafter may be amended in accordance with their terms and
as provided in the PBCL.
SECTION 1.4 BY-LAWS. The By-laws of Sulcus as in effect immediately
prior to the Effective Time shall, after the Effective Time, be the By-laws
of the Surviving Corporation and (subject to Section 6.9) thereafter may be
amended in accordance with their terms and as provided by the Articles of
Incorporation of the Surviving Corporation and the PBCL.
SECTION 1.5 DIRECTORS AND OFFICERS IMMEDIATELY AFTER THE EFFECTIVE TIME
OF THE MERGER. The directors and officers of the Surviving Corporation
<PAGE>
shall be as set forth below and shall serve in such capacities until their
respective successors are duly elected and qualified.
<TABLE>
<CAPTION>
Directors Officers
--------- --------
<S> <C>
Clunet R. Lewis Leon D. Harris, President
Clunet R. Lewis, Secretary
Nicholas J. Pyett, Treasurer
</TABLE>
ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 CONVERSION OF SULCUS SHARES AND OPTIONS. At the Effective
Time, by virtue of the Merger and without any action on the part of any
holder of any capital stock of Sulcus:
(a) Subject to paragraph (b) of this Section 2.1, each share of the
common stock, no par value per share, of Sulcus (the "Sulcus Common Stock"),
shall be converted into the right to receive, without interest, 0.55 fully
paid and nonassessable shares (the "Sulcus Exchange Ratio") of the common
stock, par value $.01 share of Parent ("Parent Common Stock");
(b) Each share of Sulcus Common Stock held by Sulcus or any of its
subsidiaries, and any shares of Sulcus Common Stock owned by Parent, SAC
Acquiring Sub or any other subsidiary of Parent, other than shares under any
existing Sulcus employee benefit plan which are held by Sulcus as trustee,
shall be cancelled;
(c) Each option granted by Sulcus to purchase shares of Sulcus Common
Stock that is outstanding and unexercised immediately prior thereto (a
"Sulcus Stock Option"), whether vested or unvested at the Effective Time,
shall cease to represent a right to acquire shares of Sulcus Common Stock and
shall be converted automatically into an option to purchase a number of
shares of Parent Common Stock (a "Parent Option") equal to the number of
shares of Sulcus Common Stock that could be purchased under such Sulcus Stock
Option multiplied by the Sulcus Exchange Ratio, at a price per share of
Parent Common Stock equal to the per share exercise price of such Sulcus
Stock Option divided by the Sulcus Exchange Ratio; provided, however, that
any fractional shares of Parent Common Stock resulting from such
determination shall be rounded down to the nearest share. The adjustments
provided herein with respect to any Sulcus Stock Option that is an "incentive
stock option" (as defined in section 422 of the Code) shall be and are
intended to be effected in a manner that is consistent with section 424(a) of
the Code; and
(d) Any Sulcus plans governing the issuance and administration of the
Sulcus Stock Options (the "Options Plans") shall terminate, and within 90
days following the Closing Date, each holder of a Sulcus Stock Option will
receive an award agreement with respect to the Parent Options they acquire
pursuant to Section 2.1(c) above, which shall preserve the remaining exercise
period and vesting schedule (if any) of such converted Sulcus Stock Options
and, if applicable, shall preserve the status of any converted Sulcus Stock
Options as "incentive stock options" (as defined in section 422 of the Code).
Sulcus shall take all actions necessary to ensure that following the
Effective Time, no holder of Sulcus Stock Options or any participant in the
Option Plans or any other plans, programs, agreements or arrangements shall
have any right
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thereunder to acquire any equity securities of Sulcus, the Surviving
Corporation or any subsidiary of either of the foregoing.
SECTION 2.2 CONVERSION OF SAC ACQUIRING SUB SHARES. At the Effective
Time, by virtue of the Merger and without any action on the part of Parent,
each issued and outstanding share of common stock, no par value, of SAC
Acquiring Sub shall be converted into one share of common stock, no par value
of the Surviving Corporation.
SECTION 2.3 EXCHANGE OF SULCUS CERTIFICATES.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented shares
of Sulcus Common Stock, shall receive in exchange therefor, upon surrender
thereof to an exchange agent reasonably satisfactory to Parent (the "Exchange
Agent"), a certificate or certificates representing the number of whole
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.1 based on the Sulcus Exchange Ratio. Notwithstanding any other
provision of this Agreement, (i) until holders or transferees of certificates
representing shares of Sulcus Common Stock have surrendered them for exchange
as provided herein, no dividends or other distributions shall be paid with
respect to any shares represented by such certificates and no payment for
fractional shares shall be made and (ii) without regard to when such
certificates representing shares of Sulcus Common Stock are surrendered for
exchange as provided herein, no interest shall be paid on any dividends or
other distributions or any payment for fractional shares. Upon surrender of a
certificate which immediately prior to the Effective Time represented shares
of Sulcus Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends or other distributions which became payable, but
which were not paid by reason of the foregoing, with respect to the number of
whole shares of Parent Common Stock represented by the certificate or
certificates issued upon such surrender.
(b) On the Closing Date (as hereinafter defined), Parent shall make
available to the Exchange Agent, for the benefit of each holder of Sulcus
Common Stock, a sufficient number of certificates representing shares of
Parent Common Stock required to effect the exchanges referred to in paragraph
(a) above and cash for payment of any fractional shares referred to in
Section 2.4.
(c) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a certificate or certificates (as shown on the books
of Sulcus's Exchange Agent as of the Effective Time) that immediately prior
to the Effective Time represented an outstanding share of Sulcus Common
Stock (individually, a "Certificate" and, collectively, the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon actual delivery of the Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of the Certificates for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal and such other documents
as the Exchange Agent shall reasonably require, the holder of such
Certificates shall receive in exchange therefor a certificate representing
that number of whole shares of Parent Common Stock into which the shares of
Sulcus Common Stock, heretofore represented by the Certificates so
surrendered, shall have been converted pursuant to the provisions of Section
2.1 based on the Sulcus Exchange Ratio, and the Certificates so surrendered
shall be canceled. The Exchange Agent shall not be entitled to vote or
exercise any rights of ownership with respect to the shares of Parent Common
Stock held by it from time to time hereunder, except that it shall receive
and hold all dividends or other distributions paid or distributed with
respect to such Parent Common Stock for the account of the persons entitled
thereto.
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(d) Promptly following the date which is nine months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Common Stock) and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, any holders of
Certificates shall contact Parent directly in order to exchange such
Certificates for shares of Parent Common Stock.
SECTION 2.4 NO FRACTIONAL SECURITIES. Notwithstanding any other
provision of this Agreement, no certificates or scrip representing less than
one share of Parent Common Stock shall be issued in the Merger and no Parent
Common Stock dividend, stock split or interest shall relate to any fractional
security, and such fractional interests shall not entitle the owner thereof
to vote or to any other rights of a security holder. In lieu of any such
fractional shares, each holder of shares of Sulcus Common Stock who would
otherwise have been entitled to receive a fraction of a share of Parent
Common Stock upon surrender of Certificates for exchange pursuant to this
Article II shall be entitled to receive from the Exchange Agent a cash
payment equal to such fraction multiplied by the closing price per share of
Parent Common Stock, as reported by the Wall Street Journal, as of the close
of business on the business day immediately preceding the Closing Date.
SECTION 2.5 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place simultaneously at a location
mutually agreeable to Sulcus and Parent as promptly as practicable (but in
any event within five business days) following the date on which the last of
the conditions set forth in Article VII is fulfilled or waived, or at such
other time and place as Parent and Sulcus shall agree. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date."
SECTION 2.6 CLOSING OF SULCUS TRANSFER BOOKS. At and after the
Effective Time, holders of Certificates shall cease to have any rights as
stockholders of Sulcus, except for the right to receive shares of Parent
Common Stock pursuant to Section 2.1 and the right to receive cash for
payment of fractional shares pursuant to Section 2.4. At the Effective Time,
the stock transfer books of Sulcus shall be closed and no transfer of shares
of Sulcus Common Stock which were outstanding immediately prior to the
Effective Time shall thereafter be made. If, after the Effective Time,
subject to the terms and conditions of this Agreement, Certificates are
presented to Parent or the Surviving Corporation, they shall be canceled
and exchanged for shares of Parent Common Stock in accordance with this
Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SULCUS
Sulcus represents and warrants to Parent that the following statements
are true and correct as of the date hereof and shall be true and correct as
of the Closing Date.
SECTION 3.1 ORGANIZATION AND QUALIFICATION. Sulcus is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Sulcus is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations
of Sulcus and its subsidiaries, taken as a whole (a "Sulcus Material Adverse
Effect"), and copies of good standing certificates evidencing such
qualification will be delivered to Parent at or prior to the Closing, in each
case
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bearing a date within thirty (30) days prior to the Closing Date. True,
accurate and complete copies of Sulcus's Articles of Incorporation and
By-laws, in each case as in effect the date hereof, including all amendments
thereto, have heretofore been delivered to Parent.
SECTION 3.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Sulcus
consisted of 30,000,000 shares of Sulcus Common Stock no par value and
10,000,000 shares of preferred stock, no par value per share ("SAC Preferred
Stock") of which 8,000,000 shares are designated as Series A Redeemable
Convertible Preferred Stock and 300,000 are designated as Series B Junior
Participating Preferred Stock, no par value, and (i) approximately 17,088,834
shares of Sulcus Common Stock were issued and outstanding, all of which were
validly issued and are fully paid, nonassessable and free of preemptive
rights and no shares of SAC Preferred Stock were issued and outstanding, (ii)
approximately 4,438,704 shares of Sulcus Common Stock were reserved for
issuance pursuant to Sulcus's Stock Option Plans, and (iii) no shares of
Sulcus Common Stock were reserved for issuance upon conversion of outstanding
convertible debentures, outstanding convertible notes, and outstanding
warrants.
(b) Except as set forth in subsection (a) above, as disclosed on
Schedule 3.2(b), or as otherwise contemplated by this Agreement, there are no
outstanding subscriptions, options, calls, contracts, commitments,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, and also including any rights plan or other anti-takeover
agreement, obligating Sulcus or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of Sulcus or obligating Sulcus or any of its subsidiaries to
grant, extend or enter into any such agreement or commitment. Except as
otherwise disclosed in the Sulcus SEC Reports, there are no voting trusts,
proxies or other agreements or understandings to which Sulcus or any of its
subsidiaries is a party or is bound with respect to the voting of any shares
of capital stock of Sulcus.
SECTION 3.3 SUBSIDIARIES. Each direct and indirect corporate
subsidiary (as hereinafter defined) of Sulcus is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
it is now being conducted. Each subsidiary of Sulcus is qualified to do
business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in all cases where
the failure to be so qualified and in good standing would not, when taken
together with all such other failures, result in a Sulcus Material Adverse
Effect. At or prior to Closing, copies of good standing certificates
evidencing such qualification will be delivered to Parent in each case
bearing a date within thirty (30) days prior to the Closing Date. All of the
outstanding shares of capital stock of each corporate subsidiary of Sulcus
are validly issued, fully paid, nonassessable and free of preemptive rights,
and except as set forth on Schedule 3.3, are owned directly or indirectly by
Sulcus, free and clear of any liens, claims or encumbrances, except that such
shares are pledged to secure Sulcus's credit facilities. There are no
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights
with respect to any shares of capital stock of any corporate subsidiary of
Sulcus, including any right of conversion or exchange under any outstanding
security, instrument or agreement. As used in this Agreement, the term
"subsidiary" shall mean, when used with reference to any person or entity,
any corporation, partnership, joint venture or other entity of which such
person or entity (either acting alone or together with its other
subsidiaries) owns, directly or indirectly, 50% or more of the capital stock
or other voting interests, the holders of which are entitled to vote for the
election
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of a majority of the board of directors or any similar governing body of such
corporation, partnership, joint venture or other entity.
SECTION 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Sulcus has full corporate power and authority to enter into this
Agreement and, subject to the Sulcus Stockholders' Approval (as defined in
Section 6.3(a)) and the Sulcus Required Statutory Approvals (as defined in
Section 3.4(c)), to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors of Sulcus and no other
corporate proceeding on the part of Sulcus is necessary to authorize the
execution and delivery of this Agreement and, except for the Sulcus
Stockholders' Approval, the consummation by Sulcus of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Sulcus, and, assuming the due authorization, execution and delivery hereof by
the other parties hereto, constitutes a valid and legally binding agreement
of Sulcus, enforceable against it in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by Sulcus does not
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of
Sulcus or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective charters or by-laws of Sulcus or any of its
subsidiaries, (ii) other than as provided in Section 3.4(c), any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to Sulcus
or any of its subsidiaries or any of their respective properties or assets or
(iii) except as set forth in Schedule 3.4(b), any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which
Sulcus or any of its subsidiaries is now a party or by which Sulcus or any of
its subsidiaries or any of their respective properties or assets may be bound
or affected. The consummation by Sulcus of the transactions contemplated
hereby will not, in reliance upon the representation of Parent set forth in
Section 4.11, result in any violation, conflict, breach, termination,
acceleration or creation of liens under any of the terms, conditions or
provisions described in clauses (i) through (iii) of the preceding sentence,
subject: (A) in the case of the terms, conditions or provisions described in
clause (ii) above, to obtaining (prior to the Effective Time) the Sulcus
Required Statutory Approvals and the Sulcus Stockholder's Approval and (B) in
the case of the terms, conditions or provisions described in clause (iii)
above, to obtaining (prior to the Effective Time) consents required from
commercial lenders, lessors or other third parties. Excluded from the
foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the
first sentence of this paragraph (b)(and whether resulting from such
execution and delivery or consummation), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens,
security interests, charges or encumbrances that would not, in the aggregate,
result in a Sulcus Material Adverse Effect.
(c) In reliance upon the representation of Parent set forth in Section
4.11, except for (i) the filing of the Registration Statement and Joint Proxy
Statement/ Prospectus (as such terms are defined in Section 3.7) with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration of the
effectiveness thereof by the SEC and filings with or approvals from various
state blue sky authorities, (ii) the making of the Merger Filing with the
Secretary of State of the State of Pennsylvania in connection with the
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Merger, and (iii) any required filings with or approvals from NASDAQ or AMEX
(the filings and approvals referred to in clauses (i) through (iii) are
collectively referred to as the "Sulcus Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Sulcus or the
consummation by Sulcus of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents
or approvals which, if not made or obtained, as the case may be, would not,
in the aggregate, result in a Sulcus Material Adverse Effect.
SECTION 3.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1995,
Sulcus has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto)
required to be filed by it under each of the Securities Act, the Exchange Act
and the respective rules and regulations thereunder, all of which, as amended
if applicable, complied when filed in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. No subsidiary of Sulcus is required to file any form, report or
other document with the SEC. Sulcus has previously made available to Parent,
via its EDGAR filings where available, copies (including all exhibits,
post-effective amendments and supplements thereto) of its (a) Annual Reports
on Form 10-K for the fiscal year ended December 1997 and for the two
immediately preceding fiscal years, as filed with the SEC, (b) proxy and
information statements relating to (i) all meetings of its stockholders
(whether annual or special) and (ii) actions by written consent in lieu of a
stockholders' meeting, from January 1, 1995 until the date hereof, and (c)
all other reports, including quarterly reports, and registration statements
filed by Sulcus with the SEC since January 1, 1995 (the documents referred to
in clauses (a), (b) and (c) are collectively referred to as the "Sulcus SEC
Reports"). As of their respective dates, the Sulcus SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The audited financial statements for the fiscal year ended
December 1997 and the two prior fiscal years, and the unaudited consolidated
financial statements of Sulcus included in Sulcus's Quarterly Report on Form
10-Q for the six month period ended June 30, 1998 (collectively, the "Sulcus
Financial Statements"), have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
present the financial position of Sulcus and its subsidiaries as of the dates
thereof and the results of their operations and changes in financial position
for the periods then ended.
SECTION 3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998
except as disclosed on Schedule 3.6, there has not been (a) any change that
would result in a Sulcus Material Adverse Effect except for changes that
affect the industries in which Sulcus and its subsidiaries operate generally,
(b) any event or occurrence which, insofar as can be reasonably foreseen,
would in the future result in a Sulcus Material Adverse Effect, and (c) any
entry into a commitment or transaction material to Sulcus and its
subsidiaries taken as a whole (including, without limitation, any merger,
acquisition, borrowing of money or sales of assets), except in the ordinary
course of business consistent with past practice.
SECTION 3.7 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by Sulcus or its subsidiaries for inclusion in (a)
the Registration Statement on Form S-4 to be filed under the Securities Act
with the SEC in connection with the Merger for the purpose of registering the
shares of Parent Common Stock to be issued in the Merger (the "Registration
Statement") or (b) the proxy statement to be distributed in connection with
Sulcus's and Parent's meetings of their respective stockholders to vote upon
this Agreement and the transactions contemplated hereby (the "Proxy
Statement" and, together with the prospectus included in the Registration
Statement, the "Joint Proxy Statement/Prospectus") will, in the case of the
Proxy Statement or any amendments thereof or supplements thereto, at the time
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of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meetings of stockholders of Parent and Sulcus
to be held in connection with the transactions contemplated by this
Agreement, or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such
meetings of the stockholders of Parent and Sulcus, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Joint Proxy Statement/Prospectus will, as of its mailing date, comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made by
Sulcus with respect to information supplied by Parent or the stockholders of
Parent for inclusion therein.
SECTION 3.8 REORGANIZATION AND POOLING OF INTERESTS. None of Sulcus or
its subsidiaries has willfully taken or agreed to or intends to take any
action or has any knowledge of any fact or circumstance that would prevent
the Merger from (a) constituting a reorganization within the meaning of
Section 368(a) of the Code or (b) being treated for financial accounting
purposes as a "pooling of interests" in accordance with generally accepted
accounting principles and the rules, regulations and interpretations of the
SEC (a "Pooling Transaction"). As of the date hereof, other than directors
and officers of Sulcus, to the knowledge of Sulcus, there are no "affiliates"
of Sulcus, as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act.
SECTION 3.9 BROKERS AND FINDERS. Except for the fees and expenses
payable to Broadview Int'l LLC, which fees are reflected in its agreement
with Sulcus, Sulcus has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
Sulcus to pay any finder's fees, brokerage or agent commissions or other like
payments in connection with the transactions contemplated hereby. Except for
the fees and expenses paid or payable to Broadview Int'l LLC, there is no
claim for payment by Sulcus of any investment banking fees, finder's fees,
brokerage or agent commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 3.10 OPINION OF FINANCIAL ADVISOR. The financial advisor of
Sulcus, Broadview Int'l LLC, has rendered an opinion to the Board of
Directors of Sulcus to the effect that the Sulcus Exchange Ratio is fair to
the holders of Sulcus Common Stock from a financial point of view; it being
understood and acknowledged by Sulcus that such opinion has been rendered for
the benefit of the Board of Directors of Sulcus and is not intended to, and
may not, be relied upon by Parent, its affiliates or their respective
subsidiaries.
SECTION 3.11 RIGHTS AGREEMENT. The Rights Agreement of Sulcus, dated
as of January 30, 1998, will be inapplicable to the transactions contemplated
herein.
SECTION 3.12 INTELLECTUAL PROPERTY.
(a) Sulcus owns or is licensed or otherwise possesses legally
enforceable rights, directly or through its subsidiaries, under all patents
and patent applications known to be necessary to operate its business in the
ordinary course and has the right to use all trademarks, trade names, service
marks, copyrights and any applications for such trademarks, trade names,
service marks and copyrights, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material (collectively, the "Intellectual Property) that are
reasonably necessary to conduct its business as currently conducted or as
currently planned by Sulcus to be conducted and, except as qualified by or
disclosed in Schedule 3.12, is aware of no intellectual property right of any
third party that may
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prevent Sulcus or its subsidiaries from conducting its business as currently
conducted or as planned by Sulcus to be conducted.
(b) Neither Sulcus nor any of its subsidiaries is, nor will any of them
be as a result of the execution and delivery of this Agreement or the
performance of Sulcus's obligations under this Agreement, knowingly
infringing upon any Intellectual Property rights of others or in breach of
any license, sublicense or other agreement relating to the Intellectual
Property or third party Intellectual Property rights, except as qualified by
or disclosed in Schedule 3.12.
(c) Except as set forth in Schedule 3.12, neither Sulcus nor any of its
subsidiaries has been named in any suit, action or proceeding which involves
a claim of infringement of any Intellectual Property right of any third
party. The manufacturing, marketing, licensing or sale of the products or
performance of the service offerings of Sulcus and its subsidiaries relating
to the conduct of its business consistent with past practice does not
infringe upon any Intellectual Property right of any third party; and to the
knowledge of Sulcus and its subsidiaries, the Intellectual Property rights of
Sulcus and its subsidiaries are not knowingly being infringed by activities,
products or services of any third party.
SECTION 3.13 SIZE OF PERSON TEST. For purposes of the complying with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"), as of the date of Sulcus's last regularly prepared balance sheet and
annual statement of income, Sulcus had neither "annual net sales" nor "total
assets" (as such terms are defined in the HSR Act and the rules and
regulations promulgated thereunder), with a value of at least one hundred
million ($100,000,000) dollars.
SECTION 3.14 APPRAISAL RIGHTS. No holders of Sulcus Common Stock are
entitled to dissenters or appraisal rights under the PBCL as a result of the
transactions contemplated in this Agreement.
SECTION 3.15 DISCLOSURE. To Sulcus's knowledge, the representations
and warranties of Sulcus in this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements contained herein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND SAC ACQUIRING SUB
Parent and SAC Acquiring Sub jointly and severally represent and
warrant to Sulcus, that the following statements are true and correct as of
the date hereof and shall be true and correct as of the Closing Date.
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Each of Parent and SAC
Acquiring Sub is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted.
Each of Parent and SAC Acquiring Sub is qualified to do business and is in
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing will not, when taken together with all other such failures,
have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) or results of operations of Parent and
its subsidiaries, taken as a whole (a "Parent Material Adverse Effect"), and
copies of good standing certificates evidencing such qualification will be
delivered to Sulcus at or prior to the Closing, in each case bearing a date
within thirty (30) days
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prior to the Closing Date. True, accurate and complete copies of Parent's
Articles of Incorporation and By-laws, in each case as in effect the date
hereof, including all amendments thereto, have heretofore been delivered to
Sulcus.
SECTION 4.2 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Parent
consisted of 50,000,000 shares of Parent Common Stock and 970,000 shares of
preferred stock, par value $.01 per share ("Parent Preferred Stock"), and (i)
approximately 13,039,938 shares of Parent Common Stock were issued and
outstanding, all of which were validly issued and are fully paid,
nonassessable and free of preemptive rights, (ii) no shares of Parent
Preferred Stock were issued and outstanding, (iii) approximately 2,752,993
shares of Parent Common Stock were reserved for issuance pursuant to Parent's
Stock Option Plans, (iv) approximately 551,785 shares of Parent Common Stock
were reserved for issuance upon exercise of outstanding warrants and options
not issued under Parent's Stock Option Plans, and (v) no shares of Parent
Common Stock were reserved for issuance upon conversion of outstanding
convertible debentures and outstanding convertible notes.
(b) Except as set forth in subsection (a) above or as otherwise
contemplated by this Agreement, there are no outstanding subscriptions,
options, calls, contracts, commitments, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement and also including any rights plan or
other anti-takeover agreement, obligating Parent or any of its subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Parent or obligating Parent or any
of its subsidiaries to grant, extend or enter into any such agreement or
commitment. Except as otherwise disclosed in the Parent SEC Reports, there
are no voting trusts, proxies or other agreements or understandings to which
Parent or any of its subsidiaries is a party or is bound with respect to the
voting of any shares of capital stock of Parent.
SECTION 4.3 SUBSIDIARIES. Each direct and indirect corporate
subsidiary (as hereinafter defined) of Parent is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
it is now being conducted. Each subsidiary of Parent is qualified to do
business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except in all cases where
the failure to be so qualified and in good standing would not, when taken
together with all such other failures, result in a Parent Material Adverse
Effect. At or prior to Closing, copies of good standing certificates
evidencing such qualification will be delivered to Sulcus in each case
bearing a date within thirty (30) days prior to the Closing Date. All of the
outstanding shares of capital stock of each corporate subsidiary of Parent
are validly issued, fully paid, nonassessable and free of preemptive rights,
and are owned directly or indirectly by Parent, free and clear of any liens,
claims or encumbrances, except that such shares are pledged to secure
Parent's credit facilities. There are no subscriptions, options, warrants,
rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any corporate subsidiary of Parent, including any right of
conversion or exchange under any outstanding security, instrument or
agreement.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Each of Parent and SAC Acquiring Sub has full corporate power and
authority to enter into this Agreement and, subject to the Parent
Stockholders' Approval (as defined in Section 6.3(b)) and the Parent Required
Statutory Approvals (as defined in Section 4.4(c)), to
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consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of each of Parent and SAC Acquiring Sub
and no other corporate proceeding on the part of Parent or SAC Acquiring Sub
is necessary to authorize the execution and delivery of this Agreement and,
except for the Parent Stockholders' Approval, the consummation by Parent and
SAC Acquiring Sub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Parent and SAC Acquiring Sub,
and, assuming the due authorization, execution and delivery hereof by the
other parties hereto, constitutes a valid and legally binding agreement of
each of Parent and SAC Acquiring Sub, enforceable against each in accordance
with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) The execution and delivery of this Agreement by each of Parent and
SAC Acquiring Sub does not violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its subsidiaries under any of the terms,
conditions or provisions of (i) the respective charters or by-laws of Parent
or any of its subsidiaries, (ii) other than as provided in Section 4.4(c),
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to Parent or any of its subsidiaries or any of their respective
properties or assets or (iii) except as set forth in Schedule 4.4(b), any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind to which Parent or any of its subsidiaries is now a party or by
which Parent or any of its subsidiaries or any of their respective properties
or assets may be bound or affected. The consummation by each of Parent and
SAC Acquiring Sub of the transactions contemplated hereby will not, in
reliance upon the representation of Sulcus set forth in Section 3.13, result
in any violation, conflict, breach, termination, acceleration or creation of
liens under any of the terms, conditions or provisions described in clauses
(i) through (iii) of the preceding sentence, subject (A) in the case of the
terms, conditions or provisions described in clause (ii) above, to obtaining
(prior to the Effective Time) the Parent Required Statutory Approvals and the
Parent Stockholder's Approval and (B) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the
Effective Time) consents required from commercial lenders, lessors or other
third parties. Excluded from the foregoing sentences of this paragraph (b),
insofar as they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph (b) (and
whether resulting from such execution and delivery or consummation), are such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, result in a Parent Material Adverse Effect.
(c) In reliance upon the representation of Sulcus set forth in Section
3.13, except for (i) the filing of the Registration Statement and Joint Proxy
Statement/ Prospectus with the SEC pursuant to the Exchange Act and the
Securities Act, and the declaration of the effectiveness thereof by the SEC
and filings with various or approvals from state blue sky authorities, (ii)
the making of the Merger Filing with the Secretary of State of the State of
Pennsylvania in connection with the Merger, and (iii) any required filings
with or approvals from the NASDAQ or AMEX (the filings and approvals referred
to in clauses (i) through (iii) are collectively referred to as the "Parent
Required Statutory Approvals"), no declaration, filing or registration with,
or notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of
this Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
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obtained, as the case may be, would not, in the aggregate, result in a Parent
Material Adverse Effect.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1995,
Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto)
required to be filed by it under each of the Securities Act, the Exchange Act
and the respective rules and regulations thereunder, all of which, as amended
if applicable, complied when filed in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. No subsidiary of Parent is required to file any form, report or
other document with the SEC. Parent has previously made available to Sulcus,
via its EDGAR filings where available, copies (including all exhibits,
post-effective amendments and supplements thereto) of its (a) Annual Reports
on Form 10-K for the year ended December 31, 1997 and for the two immediately
preceding fiscal years, as filed with the SEC, (b) proxy and information
statements relating to (i) all meetings of its stockholders (whether annual
or special) and (ii) actions by written consent in lieu of a stockholders'
meeting, from January 1, 1995 until the date hereof, and (c) all other
reports, including quarterly reports, and registration statements filed by
Parent with the SEC since January 1, 1995 (the documents referred to in
clauses (a), (b) and (c) are collectively referred to as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The audited financial statements for the fiscal year ended
December 1997 and the two prior fiscal years, and the unaudited consolidated
financial statements of Parent included in Parent's Quarterly Report on Form
10-Q for the six month period ended June 30, 1998 (collectively, the "Parent
Financial Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may
be indicated therein or in the notes thereto) and fairly present the
financial position of Parent and its subsidiaries as of the dates thereof and
the results of their operations and changes in financial position for the
periods then ended.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1998,
there has not been (a) any change that would result in a Parent Material
Adverse Effect, except for changes that affect the industries in which Parent
and its subsidiaries operate generally, (b) any event or occurrence which,
insofar as can be reasonably foreseen, would in the future result in a Parent
Material Adverse Effect, and (c) except as described in the Parent Form 8-K
(and its Exhibits) filed on September 25, 1998, any entry into a commitment
or transaction material to Parent and its subsidiaries taken as a whole
(including, without limitation, any merger, acquisition, borrowing of money
or sales of assets), except in the ordinary course of business consistent
with past practice.
SECTION 4.7 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by Parent or its subsidiaries for inclusion in (a)
the Registration Statement or (b) Joint Proxy Statement/Prospectus will, in
the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments
or supplements thereto, and at the time of the meetings of stockholders of
Parent and Sulcus to be held in connection with the transactions contemplated
by this Agreement, or, in the case of the Registration Statement, as amended
or supplemented, at the time it becomes effective and at the time of such
meetings of the stockholders of Sulcus and Parent, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Joint Proxy Statement/Prospectus will, as of its mailing date, comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except that no representation is made by
Parent
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with respect to information supplied by Sulcus or the stockholders of Sulcus
for inclusion therein.
SECTION 4.8 REORGANIZATION AND POOLING OF INTERESTS. None of Parent or
its subsidiaries has taken or agreed or intends to take any action or has any
knowledge of any fact or circumstance that would prevent the Merger from (a)
constituting a reorganization within the meaning of Section 368(a) of the
Code or (b) being treated for financial accounting purposes as a Pooling
Transaction.
SECTION 4.9 BROKERS AND FINDERS. Parent has not entered into any
contract, arrangement or understanding with any person or firm which may
result in the obligation of Parent to pay any finder's fees, brokerage or
agent commissions or other like payments in connection with the transactions
contemplated hereby.
SECTION 4.10 INTELLECTUAL PROPERTY.
(a) Parent owns or is licensed or otherwise possesses legally
enforceable rights, directly or through its subsidiaries, known to be
necessary to operate its business in the ordinary course and has the right to
use all Intellectual Property that is reasonably necessary to conduct its
business as currently conducted or as currently planned by Parent to be
conducted and, except as qualified by or disclosed in Schedule 4.10, is aware
of no Intellectual Property right of any third party that may prevent Parent
or its subsidiaries from conducting its business as currently conducted or as
planned by Parent to be conducted.
(b) Neither Parent nor any of its subsidiaries is, nor will any of
them be as a result of the execution and delivery of this Agreement or the
performance of Parent's obligations under this Agreement, knowingly
infringing upon any intellectual property rights of others or in breach of
any license, sublicense or other agreement relating to the Intellectual
Property or third party Intellectual Property rights, except as qualified by
or disclosed in Schedule 4.10.
(c) Except as set forth in Schedule 4.10, neither Parent nor any of
its subsidiaries has been named in any suit, action or proceeding which
involves a claim of infringement of any Intellectual Property right of any
third party. The manufacturing, marketing, licensing or sale of the products
or performance of the service offerings of Parent and its subsidiaries
relating to the conduct of its business consistent with past practice does
not infringe upon any Intellectual Property right of any third party; and to
the knowledge of Parent and its subsidiaries, the Intellectual Property
rights of Parent and its subsidiaries are not knowingly being infringed by
activities, products or services of any third party.
SECTION 4.11 SIZE OF PERSON TEST. For purposes of the complying with
the HSR Act, as of the date of Parent's last regularly prepared balance sheet
and annual statement of income, Parent had neither "annual net sales" nor
"total assets" (as such terms are defined in the HSR Act and the rules and
regulations promulgated thereunder), with a value of at least one hundred
million ($100,000,000) dollars.
SECTION 4.12 DISCLOSURE. To the knowledge of Parent and SAC Acquiring
Sub, the representations and warranties of Parent and SAC Acquiring Sub in
this Agreement do not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements contained herein
not misleading.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 CONDUCT OF BUSINESS BY PARENT AND SULCUS PENDING THE
MERGER. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this
Agreement, unless the Companies shall otherwise agree in writing, each of the
Companies shall, and shall cause each of their subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective Articles of
Incorporation or By-laws, (ii) split, combine or reclassify their outstanding
capital stock, (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, except for the payment of
dividends or distributions to a Company by a wholly-owned subsidiary of such
Company, or (iv) repurchase any shares of their outstanding capital stock;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any class
or any debt or equity securities convertible into or exchangeable for such
capital stock, except that each Company may (i) grant options to
non-executive employees and (ii) issue shares upon the exercise of
outstanding options and warrants or pursuant to existing agreements;
(d) not (i) assume, incur or become contingently liable with respect
to any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business (other than pursuant to credit facilities) or
borrowings under the existing credit facilities of each Company (the
"Existing Credit Facilities") up to the existing borrowing limit on the date
hereof or (B) borrowings to refinance existing indebtedness on terms which
are reasonably acceptable to the other Company, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or
any options, warrants or rights to acquire any of its capital stock or any
security convertible into or exchangeable for its capital stock other than
pursuant to an employee stock incentive plan of a Company, (iii) take any
action that would jeopardize the treatment of the Merger as a pooling of
interests under Opinion No. 16 of the Accounting Principles Board ("APB No.
16"), (iv) take or fail to take any action which action or failure to take
action would cause either Company or their stockholders (except to the extent
that any stockholders receive cash in lieu of fractional shares) to recognize
gain or loss for federal income tax purposes as a result of the consummation
of the Merger or would otherwise cause the Merger not to qualify as a
reorganization under Section 368(a) of the Code, (v) make any acquisition of
any assets or businesses other than expenditures for current assets in the
ordinary course of business and expenditures for fixed or capital assets in
the ordinary course of business and (vi) sell, pledge, dispose of or encumber
any material assets or businesses, or enter into any binding contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business
relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
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(f) subject to restrictions imposed by applicable law, confer with one
or more representatives of the other Company to report operational matters of
materiality and the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except in the ordinary course and consistent with past practice;
(h) not adopt, enter into or amend any pension or retirement plan,
trust or fund, except as required to comply with changes in applicable law
and not adopt, enter into or amend in any material respect any bonus, profit
sharing, compensation, stock option, deferred compensation, health care,
employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employees or retirees
generally, other than in the ordinary course of business;
(i) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(j) not make, change or revoke any material tax election or make any
material agreement or settlement regarding taxes with any taxing authority.
SECTION 5.2 ACQUISITION TRANSACTIONS.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, absent prior written consent from the other
party, each Company shall not, and shall not permit any of its subsidiaries
to, initiate, solicit, negotiate, encourage or provide confidential
information to facilitate, and each Company shall use its reasonable efforts
to cause any officer, director, affiliate or employee of a Company, or any
attorney, accountant, investment banker, financial advisor or other agent
retained by it or any of its subsidiaries, not to, directly or indirectly,
initiate, solicit, negotiate, encourage or provide non-public or
confidential information to facilitate, any proposal or offer to acquire all
or any substantial part of the business or properties of either Company or
any capital stock of either Company (other than in connection with this
Agreement or as required by law or a court order), whether by merger,
purchase of assets, tender offer, share exchange, business combination or
otherwise, whether for cash, securities or any other consideration or
combination thereof (any such transactions being referred to herein as an
"Acquisition Transaction").
(b) Notwithstanding paragraph (a) above or anything to the contrary in
this Agreement, (i) Sulcus may, in response to an unsolicited written offer
or proposal with respect to a potential or proposed Acquisition Transaction
("Acquisition Proposal") which Sulcus's Board of Directors determines, in
good faith and after consultation with its independent financial advisor,
would result (if consummated pursuant to its terms) in an Acquisition
Transaction more favorable to its stockholders than the Merger (any such
offer or proposal being referred to as a "Superior Proposal"), furnish
(subject to the execution of a confidentiality agreement substantially
similar to the confidentiality provisions of this agreement), confidential or
non-public information to a financially capable corporation, partnership,
person or other entity or group (a "Potential Acquirer") and negotiate with
such Potential Acquirer if the Board of Directors, after consulting with its
outside legal counsel, determines in good faith that the failure to provide
such confidential or non-public information to or negotiate with such
Potential Acquirer would be reasonably likely to constitute a breach of its
fiduciary duty to the Sulcus stockholders and (ii) Sulcus's Board of
Directors may comply with Rule 14e-2 under the Exchange Act in connection
with an Acquisition Proposal. It is understood and agreed that
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negotiations and other activities conducted in accordance with this paragraph
(b) shall not constitute a violation of paragraph (a) of this Section 5.2.
(c) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, Sulcus shall promptly notify Parent after
receipt of any Acquisition Proposal or offer to acquire all or any
substantial part of the business, properties or capital stock of Sulcus,
whether by merger, purchase of assets, tender offer, share exchange, business
combination or otherwise, whether for cash, securities or any other
consideration or combination thereof and shall indicate in reasonable detail
the identity of the offeror and the terms and conditions of such proposal or
offer.
(d) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, Parent shall promptly notify Sulcus after
receipt of any Acquisition Proposal or offer to acquire all or any
substantial part of the business, properties or capital stock of Parent,
whether by merger, purchase of assets, tender offer, share exchange, business
combination or otherwise, whether for cash, securities or any other
consideration or combination thereof and shall indicate in reasonable detail
the identity of the offeror and the terms and conditions of such proposal or
offer.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 ACCESS TO INFORMATION.
(a) Subject to applicable law, Sulcus and its subsidiaries shall afford
to Parent and its respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") and Parent and its
subsidiaries shall afford to Sulcus and its accountants, counsel, financial
advisors and other representatives (the "Sulcus Representatives") full access
during normal business hours with reasonable notice throughout the period
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, tax
returns) and, during such period, shall furnish promptly to one another (i) a
copy of each report, schedule and other document filed or received by any of
them pursuant to the requirements of federal or state securities laws or
filed by any of them with the SEC in connection with the transactions
contemplated by this Agreement and (ii) such other information concerning
their respective businesses, properties and personnel as either Company shall
reasonably request; provided, however, that no investigation pursuant to this
Section 6.1 shall amend or modify any representations or warranties made
herein or the conditions to the obligations of the respective parties to
consummate the Merger. Sulcus and its subsidiaries shall hold and shall use
their reasonable best efforts to cause the Sulcus Representatives to hold,
and Parent and its subsidiaries shall hold and shall use their reasonable
best efforts to cause Parent Representatives to hold, in strict confidence
all nonpublic documents and information furnished to each Company, in
connection with the transactions contemplated by this Agreement, except that
(i) Sulcus and Parent may disclose such information as may be necessary in
connection with seeking the Sulcus Required Statutory Approvals, Sulcus
Stockholders' Approval, Parent Required Statutory Approvals and Parent
Stockholders' Approval and (ii) each of Sulcus and Parent may disclose any
information that it is required by law or judicial or administrative order to
disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, each Company shall promptly redeliver to the other all nonpublic
written material provided pursuant to this Section 6.1 and shall not retain
any copies, extracts or other reproductions in whole or in part of such
written material. In such event, all documents, memoranda, notes and other
writings prepared by a Company based on the information in such material
shall be destroyed (and each
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Company shall use their respective reasonable best efforts to cause their
advisors and representatives to similarly destroy their documents, memoranda
and notes), and such destruction (and reasonable best efforts) shall be
certified in writing by an authorized officer supervising such destruction.
SECTION 6.2 REGISTRATION STATEMENT AND PROXY STATEMENT. Parent shall
file with the SEC as soon as is reasonably practicable after the date hereof
the Registration Statement and shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as
practicable. Parent shall also take any action required to be taken under
applicable state blue sky or securities laws in connection with the issuance
of Parent Common Stock pursuant hereto and shall use all reasonable efforts
to obtain required approvals and clearance with respect thereto. Parent, SAC
Acquiring Sub and Sulcus shall promptly furnish to each other all
information, and take such other actions, as may reasonably be requested in
connection with any action by any of them in connection with the preceding
sentence. The information provided and to be provided by Parent and Sulcus,
respectively, for use in the Joint Proxy Statement/Prospectus shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 6.3 STOCKHOLDERS' APPROVALS.
(a) Subject to the fiduciary duties of the Board of Directors of Sulcus
under applicable law, Sulcus shall, as promptly as practicable, submit this
Agreement and the transactions contemplated hereby for the approval of its
stockholders at a meeting of stockholders and shall use its best efforts to
obtain stockholder approval and adoption (the "Sulcus Stockholders'
Approval") of this Agreement and the transactions contemplated hereby.
Subject to the fiduciary duties of the Board of Directors of Sulcus under
applicable law, such meeting of stockholders shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the Board of Directors of
Sulcus under applicable law, Sulcus shall, through its Board of Directors,
recommend to its stockholders approval of the transactions contemplated by
this Agreement.
(b) Subject to the fiduciary duties of the Board of Directors of
Parent under applicable law, Parent shall, as promptly as practicable, submit
this Agreement and the transactions contemplated hereby for the approval of
its stockholders at a meeting of stockholders and shall use its best efforts
to obtain stockholder approval and adoption (the "Parent Stockholders'
Approval") of this Agreement and the transactions contemplated hereby.
Subject to the fiduciary duties of the Board of Directors of Parent under
applicable law, such meeting of stockholders shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the Board of Directors of
Parent under applicable law, Parent shall, through its Board of Directors,
recommend to its stockholders approval of the transactions contemplated by
this Agreement.
SECTION 6.4 COMPLIANCE WITH THE SECURITIES ACT. At or prior to the
Closing Date, Sulcus shall use its reasonable efforts to cause any person
whom counsel for Parent reasonably determines is an "affiliate" of Sulcus (as
that term is used in paragraphs (c) and (d) of Rule 145 under the Securities
Act ("Rule 145"), to deliver to Parent, a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to sell, sell or
otherwise dispose of any shares of Parent Common Stock issued in the Merger,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to Parent, is exempt from
the registration requirements of the Securities Act and, in any case, until
after the results covering 30 days of post-Merger combined operations of
Sulcus and Parent have been filed with the SEC, sent to stockholders of
Parent or otherwise publicly issued, except as
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otherwise permitted by Staff Accounting Bulletin No. 76 issued by the SEC.
As soon as is reasonably practicable but in no event later than 45 days after
the end of the first fiscal quarter of Parent ending at least 30 days after
the Effective Time, Parent will publish results including at least 30 days of
combined operations of Parent and Sulcus as referred to in the written
agreements provided for by this Section 6.4.
SECTION 6.5 EXPENSES AND FEES.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses, except that those expenses incurred in connection with
printing and filing the Registration Statement and the Joint Proxy
Statement/Prospectus shall be shared equally by Parent and Sulcus.
(b) Sulcus agrees to pay Parent a fee equal to $2,000,000 if Sulcus
terminates this Agreement pursuant to clauses (iv) or (v) of Section 8.1(a),
or if Parent terminates this Agreement pursuant to clause (v) of Section
8.1(b), and a fee of $250,000 if Parent terminates this Agreement pursuant to
clause (vi) of Section 8.1(b) or Sulcus terminates this Agreement pursuant to
clause (vi) of Section 8.1(a); provided, however, no liability under this
Section 6.5(b) will exist if Sulcus terminates pursuant to Section
8.1(a)(vi), so long as on the date of the vote described in Section
8.1(a)(vi) (the "Approval Date"), the circumstance described in Section
8.1(a)(ix) would exist, assuming that the Approval Date were substituted for
the Effective Date.
(c) Parent agrees to pay Sulcus a fee equal to $2,000,000 if Sulcus
terminates this Agreement pursuant to clause (vii) of Section 8.1(a) and a
fee of $250,000 if Parent terminates this Agreement pursuant to clause (iv)
of Section 8.1(b) or Sulcus terminates this Agreement pursuant to clause
(viii) of Section 8.1(a).
(d) The fees set forth in Sections 6.5(b) and (c) shall constitute the
sole and exclusive remedy for any loss, liability, damage or claim arising
out of or in connection with any nonperformance of a covenant, breach,
failure of a condition precedent or termination of this Agreement.
SECTION 6.6 AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided and subject to
the fiduciary duties of the respective Boards of Directors of each Company,
each of the parties hereto shall use all reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including
using its reasonable efforts to obtain all necessary or appropriate waivers,
consents or approvals of third parties required in order to preserve material
contractual relationships of each Company and their respective subsidiaries,
all necessary or appropriate waivers, consents and approvals and SEC
"no-action" letters to effect all necessary registrations, filings and
submissions and to lift any injunction or other legal bar to the Merger (and,
in such case, to proceed with the Merger as expeditiously as possible).
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, either party
shall have the right, at its own expense, to participate therein, and each
Company will not settle any such litigation without the consent of the other,
which consent will not be unreasonably withheld.
(c) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of Parent, Sulcus and the Surviving
Corporation shall take all such necessary action.
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(d) Following the Effective Time of the Merger, Parent shall conduct
its business, and shall cause the Surviving Corporation to conduct its
business, in a manner which would not jeopardize the characterization of the
Merger as a reorganization described in Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code. In this regard, Parent shall cause the Surviving
Corporation to continue its historic business or use a significant portion of
its historic business assets in a business within the meaning of Section 368
of the Code. Moreover, Parent does not have any present plan or intent to
(a) sell or otherwise dispose of the stock of the Surviving Corporation
except for transfers of stock to corporations "controlled" (within the
meaning of Section 368(c) of the Code) by Parent, (b) reacquire any of its
stock issued in connection with the Merger, (c) cause the Surviving
Corporation to issue shares of stock of the Surviving Corporation that would
result in Parent losing "control" (within the meaning of Section 368(c) of
the Code) of the Surviving Corporation, or (d) take or refrain from taking,
or permit the Surviving Corporation to take or refrain from taking, any other
action that might otherwise cause the Merger not to be treated as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code. Parent and SAC Acquiring Sub will provide Sulcus with certain
factual representations of Parent and SAC Acquiring Sub reasonably requested
by Sulcus as necessary to confirm that Parent and SAC Acquiring Sub will not
take any action on or after the Effective Time that would jeopardize the tax
free nature of the transaction.
SECTION 6.7 PUBLIC STATEMENTS. Each Company shall consult with each
other prior to issuing any press release or any written public statement with
respect to this Agreement or the transactions contemplated hereby and shall
not issue any such press release or written public statement prior to such
consultation.
SECTION 6.8 NOTIFICATION OF CERTAIN MATTERS. Each of Parent and Sulcus
agrees to give prompt notice to each other of, and to use commercially
reasonable efforts to remedy, (i) the occurrence or failure to occur of any
event which occurrence or failure to occur would be likely to cause any of
its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect on the Closing Date and (ii) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it thereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.8 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.9 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) The indemnification provisions of the Certificate of Incorporation
and By-Laws of the Surviving Corporation as in effect at the Effective Time
shall not be amended, repealed or otherwise modified for a period of six
years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of Sulcus. Parent hereby guaranties
unconditionally the satisfaction of all such rights to indemnification (and
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
the PBCL).
(b) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations of the Surviving
Corporation or the Parent, as the case may be, set forth in this Section 6.9.
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(c) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect for each director and officer of Sulcus and
its Subsidiaries as of the Effective Time, liability insurance coverage with
respect to matters arising at or prior to the Effective Time, in such amounts
and containing such terms and conditions that are not materially less
advantageous to such parties than the coverage applicable to such individuals
immediately prior to the Effective Time.
(d) The rights of each indemnified party hereunder shall be in addition
to, and not in limitation of, any other rights such indemnified party may
have under the charter or bylaws of Sulcus, any indemnification agreement,
under the PBCL, or otherwise. The provisions of this Section 6.9 shall
survive the consummation of the Merger and expressly are intended to benefit
each of the indemnified parties.
SECTION 6.10 CORRECTIONS TO THE JOINT PROXY STATEMENT/PROSPECTUS AND
REGISTRATION STATEMENT. Prior to the date of approval of the Merger by their
respective stockholders, each of Sulcus and Parent shall correct promptly any
information provided by it to be used specifically in the Joint Proxy
Statement/Prospectus and Registration Statement that shall have become false
or misleading in any material respect and shall take all steps necessary to
file with the SEC and have declared effective or cleared by the SEC any
amendment or supplement to the Joint Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause the Joint Proxy
Statement/Prospectus as so corrected to be disseminated to the stockholders
of Sulcus and Parent, in each case to the extent required by applicable law.
SECTION 6.11 EXCHANGE LISTING. Parent shall use its reasonable best
efforts to effect, at or before the Effective Time, authorization for listing
on the NASDAQ, upon official notice of issuance, of the shares of Parent
Common Stock to be issued pursuant to the Merger or to be reserved for
issuance upon the exercise of stock options.
SECTION 6.12 PARENT BOARD OF DIRECTORS. At the Effective Time, the Board of
Directors of Parent shall include two individuals designated by Sulcus.
ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) the Sulcus Stockholders' Approval and the Parent Stockholders'
Approval;
(b) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and
no proceeding for that purpose shall have been instituted by the SEC or any
state regulatory authorities;
(c) the shares of Parent Common Stock issuable in the Merger and those
to be reserved for issuance upon exercise of stock options shall have been
authorized for listing on the NASDAQ upon official notice of issuance;
(d) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in
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effect (each party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted);
(e) no statute, rule or regulation shall have been enacted by any state
or federal government or governmental agency in the United States which would
prevent the consummation of the Merger or make the Merger illegal; and
(f) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby, and all consents from lessors or other third parties (excluding any
lenders) required to consummate the Merger, shall have been obtained and be
in effect at the Effective Time, except where the failure to obtain the same
would not be reasonably likely, individually or in the aggregate, to have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or other) or results of operations of
Sulcus, Parent and their subsidiaries, taken as a whole, following the
Effective Time.
SECTION 7.2 CONDITION TO OBLIGATION OF SULCUS TO EFFECT THE MERGER.
Unless waived by Sulcus, the obligation of Sulcus to effect the Sulcus Merger
shall be subject to the fulfillment at the Closing Date of the following
additional conditions: Parent and SAC Acquiring Sub shall each have
performed their agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Parent and SAC Acquiring Sub contained in this Agreement shall
be true and correct on and as of the date made and (except to the extent that
such representations and warranties speak as of an earlier date) on and as of
the Closing Date as if made at and as of such date (provided, however, that
on such date the definition of "Parent Material Adverse Effect" shall include
only a circumstance that would trigger Sulcus's right to terminate as
described in Section 8.1(a)(ix)), except for such failures to perform or to
be true and correct that would not reasonably be expected to result in a
Parent Material Adverse Effect, and Sulcus shall have received a certificate
of the Chief Executive Officer of Parent to that effect.
SECTION 7.3 CONDITION TO OBLIGATION OF ELTRAX TO EFFECT THE MERGER.
Unless waived by Parent, the obligation of Parent to effect the Parent Merger
shall be subject to the fulfillment at the Closing Date of the following
additional conditions: Sulcus shall have performed its agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and the representations and warranties Sulcus contained in this Agreement
shall be true and correct on and as of the date made and (except to the
extent that such representations and warranties speak as of an earlier date)
on and as of the Closing Date as if made at and as of such date except for
such failures to perform or to be true and correct that would not reasonably
be expected to result in a Sulcus Material Adverse Effect, and Parent shall
have received a certificate of the Chief Executive Officer of Sulcus to that
effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after the Sulcus or Parent
Stockholders' Approval, by the mutual written consent of Sulcus and Parent or
as follows:
(a) Sulcus shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of
Parent contained in this Agreement which has not been cured in all
material respects within 30 days after written notice of such default
specifying such default in reasonable detail is given to
21
<PAGE>
Parent by Sulcus and which has caused any of the conditions set forth
in Section 7.2 to be incapable of being satisfied by the Termination
Date;
(ii) if the Merger is not completed by June 30, 1999 (the
"Termination Date") (unless due to a delay or default on the part of Sulcus);
(iii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Sulcus and if Sulcus shall
have used reasonable efforts to prevent the entry of such order;
(iv) if Sulcus receives a Superior Proposal, resolves to accept such
Superior Proposal, and Sulcus shall have given Parent two days' prior written
notice of its intention to terminate pursuant to this provision; provided,
however, that such termination shall not be effective until such time as the
payment required by Section 6.5(b) shall have been received by Parent;
(v) if (A) a tender or exchange offer is commenced by a Potential
Acquirer (excluding any affiliate of Sulcus or any group of which any
affiliate of Sulcus is a member) for all outstanding shares of Sulcus Common
Stock, (B) Sulcus's Board of Directors determines, in good faith and after
consultation with an independent financial advisor, that such offer
constitutes a Superior Proposal and resolves to accept such Superior Proposal
or recommend to the stockholders that they tender their shares in such tender
or exchange offer and (C) Sulcus shall have given Parent two days' prior
written notice of its intention to terminate pursuant to this provision;
provided, however, that such termination shall not be effective until such
time as the payment required by Section 6.5(b) shall have been received by
Parent;
(vi) if the stockholders of Sulcus fail to approve the Merger at a
duly held meeting of stockholders called for such purpose or any adjournment
or postponement thereof;
(vii) if Parent (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such default
in all material respects within 30 days after written notice of such default
specifying such default in reasonable detail is given to Parent by Sulcus;
(viii) if the Parent Stockholders' Approval has not been obtained by
May 31, 1999, provided that the Registration Statement has been declared
effective by April 15, 1999, and remained effective through May 31, 1999, and
Sulcus has materially complied with all of its covenants hereunder; or
(ix) if, for the seven consecutive trading days ending on the third
trading day immediately prior to the Effective Time, the average of the
closing sale prices as reported by the Wall Street Journal or if not reported
therein, by another authoritative source (the "Average Price"), of Parent
Common Stock, as reflected on the National Association of Securities Dealers
Automated Quotation System/Small Cap Market, is less than four and 50/100
dollars ($4.50) per share, BUT ONLY IF, the Average Price of Sulcus Common
Stock, as reflected on the American Stock Exchange, is not less than one and
00/100 dollars ($1.00) per share.
(b) Parent shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of Sulcus
contained in this Agreement which has not been cured in all material respects
within 30 days after
22
<PAGE>
written notice of such default specifying such default in reasonable
detail is given to Sulcus by Parent and which has caused any of the
conditions set forth in Section 7.3 to be incapable of being satisfied
by the Termination Date;
(ii) if the Merger is not completed by the Termination Date (unless
due to a delay or default on the part of Parent);
(iii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Parent and if Parent
shall have used reasonable efforts to prevent the entry of such order;
(iv) if the stockholders of Parent fail to approve the Merger at a
duly held meeting of stockholders called for such purpose or any
adjournment or postponement thereof;
(v) if Sulcus (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice
of such default specifying such default in reasonable detail is given
to Sulcus by Parent; or
(vi) if the Sulcus Stockholders' Approval has not been obtained by
May 31, 1999, provided that the Registration Statement has been
declared effective by April 15, 1999 and remained effective through
May 31, 1999, and Parent has materially complied with all of its
covenants hereunder.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or Sulcus pursuant to the provisions of Section
8.1, this Agreement shall forthwith become void and there shall be no
liability or further obligation on the part of Parent, Sulcus, or SAC
Acquiring Sub or their respective officers or directors (except this Section
8.2, the second sentence of Section 6.1(a), 6.1(b), 6.5, and 9.5 all of which
shall survive the termination). Nothing in this Section 8.2 shall relieve any
party from liability for any willful and intentional breach of any covenant
or agreement of such party contained in this Agreement.
SECTION 8.3 AMENDMENT. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly
authorized committees or officers thereof and then only by an instrument in
writing signed on behalf of each of the parties hereto and in compliance with
applicable law. Such amendment may take place at any time prior to the
Closing Date, and, subject to applicable law, whether before or after
approval by the stockholders of Sulcus or Parent.
SECTION 8.4 WAIVER. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No
representations, warranties or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, and
after the Effective Date of the Merger
23
<PAGE>
neither Parent nor Sulcus, or their respective officers or directors shall
have any further obligation with respect thereto, except for the
representations, warranties and agreements contained in Articles II and IX,
Sections 1.4, 1.5, 6.5, 6.6 (including any factual representations set forth
in a certificate delivered to Sulcus pursuant thereto) and 6.9, which shall
survive the Merger.
SECTION 9.2 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed
by registered or certified mail (return receipt requested) or sent via
confirmed facsimile to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to Sulcus, to:
Sulcus Hospitality Technologies Corp.
105 Morris Ave., Suite 301
Springfield, NJ 07081
Attn: Leon D. Harris
Facsimile No.: (973) 379-5217
with a copy to:
Benesch, Friedlander, Coplan
& Aronoff LLP
2300 BP Tower
200 Public Square
Cleveland, OH 44114-2378
Attn: Michael K. Wager, Esq.
Facsimile No.: (216) 363-4588
(b) If to Parent:
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Facsimile No.: (248) 358-2743
with a copy to:
Jaffe, Raitt, Heuer & Weiss
Professional Corporation
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Attn: William E. Sider, Esq.
Facsimile No.: (313) 961-8358
(c) If to SAC Acquiring Sub:
Sulcus Acquiring Corporation
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Facsimile No.: (248) 358-2743
24
<PAGE>
with a copy to:
Jaffe, Raitt, Heuer & Weiss
Professional Corporation
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Attn: William E. Sider, Esq.
Facsimile No.: (313) 961-8358
SECTION 9.3 INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
SECTION 9.4 GOVERNING LAW. This agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
Sate of Michigan applicable to contracts executed and to be performed wholly
within such state.
SECTION 9.5 ARBITRATION. Any controversy or claim arising out of or
relating to this agreement, or the making, performance or interpretation
hereof, including without limitation alleged fraudulent inducement hereof,
will be settled by binding arbitration in Southfield, Michigan, by a panel of
three arbitrators, of which Parent will choose one arbitrator, Sulcus will
choose one arbitrator, and those arbitrators will choose the third
arbitrator, who will act as chairman of the panel. The arbitrators will
select the rules and procedures under which the arbitration will be
conducted. Judgment upon any arbitration award may be entered in any court
having jurisdiction thereof and the parties consent to the jurisdiction of
the courts of the State of Michigan for this purpose.
SECTION 9.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all
of which shall constitute one and the same agreement.
SECTION 9.7 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.8 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; and (b) shall not be assigned by operation of law or otherwise,
except that SAC Acquiring Sub may assign this Agreement to any other
wholly-owned subsidiary of Parent.
25
<PAGE>
IN WITNESS WHEREOF, Parent, SAC Acquiring Sub and Sulcus have caused
this Agreement to be signed by their respective officers and attested to as
of the date first written above.
ELTRAX SYSTEMS, INC.
By:___________________________
William P. O'Reilly
Its: Chief Executive Officer
SULCUS ACQUIRING CORPORATION
By:____________________________
Clunet R. Lewis
Its: President
SULCUS HOSPITALITY TECHNOLOGIES CORP.
By:____________________________
Leon D. Harris
Its: Chief Executive Officer
26
<PAGE>
SCHEDULES
---------
<TABLE>
<S> <C>
Schedule 3.2(b) Sulcus Disclosure Regarding Capitalization
Schedule 3.3 Sulcus Disclosure Regarding Subsidiaries
Schedule 3.4(b) Sulcus Disclosure Regarding Non-contravention
Schedule 3.6 Sulcus Absence of Certain Changes or Events
Schedule 3.12 Sulcus Intellectual Property Disclosures
Schedule 4.4(b) Parent Disclosure Regarding Non-contravention
Schedule 4.10 Parent Intellectual Property Disclosures
</TABLE>
27
<PAGE>
SCHEDULE 3.2(b) SULCUS DISCLOSURE REGARDING CAPITALIZATION
Pursuant to a consulting agreement between Sulcus and David Berkus,
effective February 1, 1995, Sulcus is obligated to issue shares of Sulcus
Common Stock to Mr. Berkus as part of his compensation for being a Strategic
Consultant to the Hospitality Group. Mr. Berkus receives monthly
compensation of $6,500, one-third of which is paid in shares of Sulcus Common
Stock, based upon the closing price on the first trading day of each
successive month.
SCHEDULE 3.3 SULCUS DISCLOSURE REGARDING SUBSIDIARIES
Four shares of the issued and outstanding common stock of Sulcus
Hospitality Technologies EMEA, AG, a corporation organized under the laws of
Switzerland (the "Swiss Subsidiary"), are owned by Bernard Mantel, an
employee of a subsidiary of Sulcus. There are 100 shares of the Swiss
Subsidiary's common stock issued and outstanding.
SCHEDULE 3.4(b) - SULCUS DISCLOSURE REGARDING NON-CONTRAVENTION
The consummation of the transactions contemplated by the Agreement
(the "Merger") will create an Event of Default under the Line of Credit Loan
Agreement, dated April 29, 1997, by and between United States National Bank
in Johnstown ("Lender") and Sulcus Computer Corporation, Sulcus Law
Management Services, Inc., Radix Systems, Inc., Lodgistix, Inc., Squirrel
Companies, Inc. and NRG Management Systems, Inc. (collectively, "Borrower").
Borrower must also notify Lender of any changes in its executive management
within five (5) days of such change.
Leon Harris' employment agreement, dated March 3, 1997, as amended on
October 13, 1997, contains several provisions related to a change of control
of Sulcus.
Under John Ryba's employment agreement, effective as of August 1,
1994, if he is terminated after the Merger, Mr. Ryba will be entitled to
receive his then existing salary for one (1) year after the Merger. Although
Mr. Ryba's employment agreement has not been formally terminated, Sulcus and
Mr. Ryba have not been following certain of the substantive terms of the
employment agreement.
The Merger will cause all options granted under the 1997 Non-Employee
Directors' Stock Option Plan to terminate ninety (90) days after the Merger
and, upon completion of the Merger, become automatically exercisable, without
regard to any vesting limitations.
Under the terms of the 1997 Long-Term Incentive Plan (the "LTIP"), the
Merger gives the Stock Option Committee the ability to terminate awards under
the LTIP ninety (90) days after the Merger. If the Stock Option Committee
terminates any award, then, as appropriate, immediately upon the completion
of the Merger, (i) such options (not in tandem with stock appreciation
rights) and restricted stock awards will immediately vest, (ii) all
restrictions on such restricted stock awards will immediately lapse, and
(iii) all vesting limitations with respect to such performance plan awards
will be deemed satisfied. There are no options or other awards currently
outstanding under the LTIP.
Sulcus has entered into change of control severance agreements with
the following executive officers:
a. Agreement dated October 13, 1997 with John Ryba;
28
<PAGE>
b. Agreement dated October 13, 1997 with Barry Logan;
c. Agreement dated October 13, 1997 with Alan Ellenbogen;
d. Agreement dated June 15, 1998 with Larry Gomez;
e. Agreement dated May 11, 1998 with Joanne Yates;
f. Agreement dated May 11, 1998 with John Picardi; and
g. Agreement dated November 2, 1998 with Mark Sadosky.
The Merger will be treated as an assignment under the Lease Agreement
between the Chalpin Family Enterprises Limited Partnership (the "Landlord")
and Sulcus, effective July, 1997. The Lease Agreement provides that it
cannot be assigned without the prior written consent of the Landlord. This
Lease Agreement relates to space located at Acoma Pointe, 7345 East Acoma
Drive, Suite 300, Scottsdale, Arizona.
SCHEDULE 3.6 - SULCUS ABSENCE OF CERTAIN CHANGES OR EVENTS
Sulcus commenced a repurchase program for issued and outstanding
shares of Sulcus Common Stock in September 1998, pursuant to which 262,315
shares of Sulcus Common Stock were repurchased.
SCHEDULE 3.12 - SULCUS INTELLECTUAL PROPERTY DISCLOSURES
Pursuant to an Agreement dated October 21, 1998 between Edge
Communications, Inc. ("Edge") and Sulcus, the parties agreed that Sulcus's
use of the mark "WINNFINITY" (trademark application pending) and Edge's used
of the mark "WINFINITY" (trademark application pending) do not infringe on
each other's rights and are not likely to confuse consumers. The parties
also agreed to not interfere with each other's use of their mark and not to
make any claim of infringement based on the other party's use of their mark.
SCHEDULE 4.4(b) PARENT DISCLOSURE REGARDING NON-CONTRAVENTION
Under that certain Credit Agreement dated September 11, 1998 by and
among State Street Bank and Trust Company (the "Bank"), Parent, and its
Subsidiaries (the "Credit Agreement"), there are certain covenants described
in Section 6(m) of the Credit Agreement with which Parent must comply prior
to consummation of the Merger.
SCHEDULE 4.10 PARENT DISCLOSURE REGARDING INTELLECTUAL PROPERTY
Parent has filed applications to register the trademarks "Netwatch
Online" and "Netwatch." These registrations have been denied because of an
existing registration of the trademark "Netwatch." Parent believes that the
company owning this trademark is no longer doing business and Parent has
commenced proceedings with the United States Patent and Trademark Office to
revoke the existing trademark and to pursue Parent's applications.
29
<PAGE>
ANNEX B
[LETTERHEAD]
BROADVIEW
November 11, 1998
CONFIDENTIAL
VIA FEDERAL EXPRESS
Board of Directors
Sulcus Hospitality Technologies Corporation
Sulcus Centre
41 North Main Street
Greensburg, PA 15601
Dear Members of the Board:
We understand that Sulcus Hospitality Technologies Corporation, a
Pennsylvania corporation ("Sulcus"), Eltrax Systems, Inc., a Minnesota
corporation ("Eltrax"), and Slalom Acquisition Corporation, a Pennsylvania
corporation, and a wholly owned subsidiary of Eltrax ("SAC Acquiring Sub")
propose to enter into an Agreement and Plan of Merger (the "Agreement")
pursuant to which SAC Acquiring Sub shall be merged with and into Sulcus (the
"Merger"). Pursuant to the Merger each share of Sulcus common stock ("Sulcus
Common Stock") shall be converted into the right to receive 0.55 shares (the
"Sulcus Exchange Ratio") of the common stock of Eltrax ("Eltrax Common
Stock"). The Merger is intended to be a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended. The terms
and conditions of the above described Merger are more fully detailed in the
Agreement.
You have requested our opinion as to whether the Sulcus Exchange Ratio is
fair, from a financial point of view, to Sulcus shareholders.
Broadview International LLC focuses on providing merger and acquisition
advisory services to information technology ("IT"), communications and media
companies. In this capacity, we are continually engaged in valuing such
businesses, and we maintain an extensive database of IT, communications and
media mergers and acquisitions for comparative purposes. We are currently
acting as financial advisor to Sulcus' Board of Directors and will receive a
fee from Sulcus upon the successful conclusion of the Merger.
<PAGE>
Board of Directors November 11, 1998
Page 2
In rendering our opinion, we have, among other things:
1.) reviewed the terms of the Agreement and the associated exhibits thereto
in the form of the draft dated November 10, 1998 furnished to us by
Jaffe, Raitt, Heuer & Weiss on November 10, 1998 (which, for the
purposes of this opinion, we have assumed, with your permission, to be
identical in all material respects to the agreement to be executed);
2.) reviewed Sulcus' Form 10-K for the fiscal year ended December 31,
1997 which included results for the fiscal years ended December 31,
1997 and 1996, including the audited financial statements included
therein, Sulcus' Form 10-Q for the six months ended June 30, 1998,
including the unaudited financial statements included therein, and the
unaudited financial information of Sulcus for its nine months ended
September 30, 1998 included in a proposed draft press release provided
to us by Sulcus management;
3.) reviewed certain internal financial and operating information,
including projections through December 31, 1999, for Sulcus prepared by
Sulcus management;
4.) participated in discussions with Sulcus management concerning the
operations, business strategy, financial performance and prospects for
Sulcus;
5.) discussed with Sulcus management its view of the strategic rationale
for the Merger;
6.) reviewed the recent reported closing prices and trading activity for
Sulcus Common Stock;
7.) compared certain aspects of the financial performance of Sulcus with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning
other mergers and acquisitions we believe to be comparable in whole or
in part to the Merger;
9.) reviewed Eltrax's annual report and Form 10-K for the fiscal year ended
December 31, 1997 which included results for the fiscal years ended
<PAGE>
Board of Directors November 11, 1998
Page 3
December 31, 1997 and 1996, including the audited financial statements
included therein, Eltrax's Form 10-Q for the six months ended June 30,
1998, including the unaudited financial statements included therein, and
the unaudited financial information of Eltrax for its nine months ended
September 30, 1998 included in a proposed draft press release provided
to us by Eltrax management;
10.) reviewed certain internal financial and operating information,
including projections through December 31, 1999, for Eltrax prepared by
Eltrax management;
11.) participated in discussions with Eltrax management concerning the
operations, business strategy, financial performance and prospects for
Eltrax;
12.) reviewed the recent reported closing prices and trading activity for
Eltrax Common Stock;
13.) discussed with Eltrax management its view of the strategic rationale
for the Merger;
14.) compared certain aspects of the financial performance of Eltrax with
public companies we deemed comparable;
15.) considered the total number of shares of Eltrax Common Stock
outstanding and the average weekly trading volume of Eltrax Common
Stock;
16.) prepared PRO FORMA consolidated annual income statements through
December 31, 1999 for the combined entity based on forecasts through
December 31, 1999 for Eltrax and Sulcus provided to us by Eltrax and
Sulcus managements, respectively;
17.) assisted in negotiations and discussions related to the Merger among
Sulcus, Eltrax and the respective legal advisors; and
18.) conducted other financial studies, analyses and investigations as we
deemed appropriate for purposes of this opinion.
<PAGE>
Board of Directors November 11, 1998
Page 4
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Sulcus,
Eltrax or Eltrax's legal advisor. With respect to the financial projections
and forecasts examined by us, we have assumed that they were reasonably
prepared and reflected the best available estimates and good faith judgments
of the management of Eltrax and Sulcus as to the future performance of Eltrax
and Sulcus, respectively. We have neither made nor obtained an independent
appraisal or valuation of any of Eltrax's or Sulcus' assets.
Based upon and subject to the foregoing, we are of the opinion that the Sulcus
Exchange Ratio is fair, from a financial point of view, to Sulcus
shareholders.
For purposes of this opinion, we have assumed that neither Sulcus nor Eltrax
is currently involved in any material transaction, including financings,
recapitalizations, mergers, acquisitions and dispositions, other than the
Merger and those activities undertaken in the ordinary course of conducting
their respective businesses. We note that Eltrax management has advised us
that it intends to pursue other acquisition opportunities from time to time.
Our opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this opinion,
and any change in such conditions would require a reevaluation of this
opinion. We express no opinion as to the price at which Eltrax Common Stock
will trade subsequent to the Effective Time (as defined in the Agreement).
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Sulcus in
connection with its consideration of the Merger and does not constitute a
recommendation to any Sulcus shareholder as to how such shareholder should
vote on the Merger. This opinion may not be published or referred to, in
whole or part, without our prior written permission, which shall not be
unreasonably withheld. Broadview International LLC hereby consents to
references to and the inclusion of this opinion in its entirety in the Proxy
Statement/Prospectus to be distributed to Sulcus shareholders in connection
with the Merger.
Sincerely,
/s/ Broadview International
Broadview International LLC
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article V of Eltrax's Amended and Restated Articles of Incorporation limits
the liability of its directors to the fullest extent permitted by the
Minnesota Business Corporation Act (the "MBCA"). Specifically, directors of
Eltrax will not be personally liable for monetary damages for breach of
fiduciary duty as directors, except liability for (1) any breach of the duty
of loyalty to Eltrax or its shareholders, (2) acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law,
(3) dividends or other distributions of corporate assets that are in
contravention of certain statutory or contractual restrictions, (4)
violations of certain Minnesota securities laws, or (5) any transaction from
which the director derives an improper personal benefit.
Article IV of Eltrax's Amended and Restated Articles of Incorporation gives
Eltrax the power and authority to provide indemnification to officers,
directors, employees and agents of Eltrax to the fullest extent permissible
under the MBCA. Section 302A.521 of the MBCA requires that a company
indemnify any director, officer or employee made or threatened to be made a
party to a proceeding, by reason of the former or present official capacity
of the person, against judgments, penalties, fines, settlements and
reasonable expenses incurred in connection with the proceeding if certain
statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including a derivative action in the name of the company.
Reference is made to the detailed terms of Section 302A.531 of the MBCA for a
complete statement of such indemnification rights.
Article VII of Eltrax's Restated Bylaws provides that Eltrax shall indemnify
such persons, for such expenses and liabilities, in such manner, under such
circumstances, and to such extent, as permitted by the MBCA, as now enacted
or hereafter amended, provided that a determination is made in each case, in
the manner required by such statute, that the person seeking indemnification
is eligible therefor.
Eltrax maintains directors' and officers' liability insurance, including a
reimbursement policy in favor of Eltrax.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, Included in the Proxy
dated as of November 11, 1998, Statement/Prospectus as
by and among Eltrax, Sulcus Annex A.
Hospitality Technologies Corp.
and Sulcus Acquiring
Corporation.
3.1 Amended and Restated Articles of Incorporated by reference to
Incorporation of Eltrax Exhibit 3.1 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
3.2 Restated Bylaws of Eltrax Incorporated by reference to
Exhibit 3.2 to Eltrax's
Quarterly Report on Form 10-
QSB for the quarter ended
September 30, 1996.
5.1 Opinion of Jaffe, Raitt, Heuer & Filed herewith.
Weiss, P.C.
8.1 Opinion of Benesch, Friedlander, Filed herewith.
Coplan & Aronoff LLP
10.1 1992 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.4 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
10.2 Form of Incentive Stock Option Incorporated by reference to
Agreement. Exhibit 10.6 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
10.3 Form of Non-Statutory Option Incorporated by reference to
Agreement. Exhibit 10.7 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
II-2
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
10.4 Form of Non-Employee Director Incorporated by reference to
Stock Option Agreement. Exhibit 10.10 to Eltrax's
Annual Report on Form 10-KSB
for the year ended March 31,
1993.
10.5 1995 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.12 to Eltrax's
Annual Report on Form 10-KSB
for the year ended March 31,
1995.
10.6 Consulting Agreement dated as of Incorporated by reference to
June 1, 1996 by and between Exhibit 10.9 to Eltrax's
Eltrax and Clunet R. Lewis. Annual Report on Form 10-KSB
for the nine month transition
period ended December 31,
1996.
10.7 Consulting Agreement dated as of Incorporated by reference to
June 1, 1996 by and between Exhibit 10.10 to Eltrax's
Eltrax and William P. O'Reilly. Annual Report on Form 10-KSB
for the nine month transition
period ended December 31,
1996.
10.8 Agreement dated as of October Incorporated by reference to
31, 1996 by and among Eltrax, Exhibit 10.7 to Eltrax's
William P. O'Reilly, Clunet R. Current Report on Form 8-K
Lewis, Mack V. Traynor, III and filed November 12, 1996.
Walter C. Lovett, Douglas L.
Roberson and B. Taylor Koonce.
10.9 Employment and Noncompetition Incorporated by reference to
Agreement dated as of May 14, Exhibit 10.2 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Edward J. Gorlitz. dated May 15, 1997.
10.10 Employment and Noncompetition Incorporated by reference to
Agreement dated as of May 14, Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Colin E. Quinn. dated May 15, 1997.
10.11 Employment and Noncompetition Incorporated by reference to
Agreement dated as of July 1, Exhibit 10.2 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Joel J. Blickenstaff. dated July 1, 1997.
II-3
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
10.12 Employment and Noncompetition Incorporated by reference to
Agreement dated as of July 1, Exhibit 10.1 to Eltrax's
1997 by between Eltrax and Current Report and on Form 8-K
Robert A. Hughes. dated July 1, 1997.
10.13 Employment and Noncompetition Incorporated by reference to
Agreement dated as of August 15, Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Edward C. Barrett. dated August 15, 1997.
10.14 Employment and Noncompetition Incorporated by reference to
Agreement dated as of August 15, Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Daniel M. Christy. dated August 15, 1997.
10.15 Employment and Noncompetition Incorporated by reference to
Agreement dated as of August 15, Exhibit 10.3 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
David R. Hurlbrink. dated August 15, 1997.
10.16 Employment and Noncompetition Incorporated by reference to
Agreement dated as of October Exhibit 10.1 to Eltrax's
31, 1997 by and between Eltrax Current Report on Form 8-K
and John M. Good. dated October 3, 1997.
10.17 Employment and Non-Competition Incorporated by reference to
Agreement, dated as of August Exhibit 10.1 to Eltrax's
31, 1998 between Eltrax and Current Report on Form 8-K
Penelope Sellers dated September 10, 1998.
10.18 Credit Agreement, dated as of Incorporated by reference to
September 11, 1998, between Exhibit 10.2 to Eltrax's
Eltrax, Nordata, Inc., Four Current Report on Form 8-K
Corners Technology, Inc., Encore dated September 10, 1998.
Systems, Inc., Global Systems
and Support, Inc., Five Star
Systems, Inc., and State Street
Bank and Trust Company
10.19 Security Agreement dated October Incorporated by reference to
31, 1996 between Eltrax and Exhibit 10.16 to Eltrax's
State Street Bank and Trust Annual Report on Form 10-KSB
Company, as amended. for the year ended December
31, 1997.
II-4
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
10.20 Consulting Agreement dated Incorporated by reference to
January 21, 1997 by and between Exhibit 10.21 to Eltrax's
Eltrax and Gene A. Bier. Annual Report on Form 10-KSB
for the year ended December
31, 1997.
10.21 Asset Purchase Agreement dated Incorporated by reference to
as of January 29, 1997 between Exhibit 99.1 to Eltrax's
Atlantic Network Systems, Inc. Current Report on Form 8-K
and MRK Technologies, LTD. filed February 12, 1997.
10.22 1997 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.24 to Eltrax's
Annual Report on Form 10-KSB
for the year ended December
31, 1997 (File No. 0-22190).
10.23 Real Estate Lease dated June 1, Incorporated by reference to
1996 between Walt Lovett, Doug Exhibit 10.11 to Eltrax's
and Lisa Roberson and Atlantic Annual Report on Form 10-KSB
Network Systems, Inc. for the nine month transition
period ended December 31,
1996.
10.24 Lease Agreement between Incorporated by reference to
Burgoe/Wyomissing Partners and Exhibit 10.30 to Eltrax's
Hi-Tech Connections, Inc. dated Annual Report on Form 10-KSB
September 15, 1996. for the year ended December
31, 1997.
10.25 Lease Agreement between JMG Incorporated by reference to
Development Co. Ltd and DataComm Exhibit 10.31 to Eltrax's
Associates, Inc. dated December Annual Report on Form 10-KSB
1, 1996. for the year ended December
31, 1997.
10.26 Lease Agreement between Werner Incorporated by reference to
Palmquist Investments and Four Exhibit 10.32 to Eltrax's
Corners Technology, Inc. dated Annual Report on Form 10-KSB
February 21, 1996. for the year ended December
31, 1997.
10.27 1998 Stock Incentive Plan Filed herewith
10.28 Office Lease, dated January 15, Filed herewith.
1992, between 900 Corporation
and Encore Systems, Inc.
II-5
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
10.29 Amended and Restated Preferred Filed herewith.
Vendor Arrangement, dated as of
May 15, 1992, between Holiday
Hospitality Corporation and
Encore Systems, Inc.
10.30 Agreement and Plan of Merger Incorporated by reference to
dated as of May 14, 1997 by and Exhibit 2.1 to Eltrax's
among Eltrax, EJG Techline Current Report in Form 8-K
Acquiring Corporation, EJG dated May 14, 1997 (File No.
Techline, Incorporated and 0-22190).
Edward J. and Kathleen M.
Gorlitz and Colin E. and Diane
C. Quinn
10.31 Agreement and Plan of Merger Incorporated by reference to
dated as of July 1, 1997 by and Exhibit 2.1 to Eltrax's
among Eltrax, Four Corners Current Report in Form 8-K
Acquiring Corporation, Four dated July 1, 1997 (File No.
Corners Technology, Inc. and 0-22190).
Robert A. Hughes, Joel J.
Blickenstaff and David Noall.
10.32 Agreement and Plan of Merger Incorporated by reference to
dated as of August 15, 1997 by Exhibit 2.1 to Eltrax's
and among Eltrax, Hi-Tech Current Report in Form 8-K
Acquiring Corporation, Hi-Tech dated August 15, 1997 (File
Connections, Inc. and Edward C. No. 0-22190).
Barrett, Daniel M. Christy,
David R. Hurlbrink, David R.
Spatz, Raymond H. Melcher and
Timothy E. Devlin.
10.33 Agreement and Plan of Merger Incorporated by reference to
dated as of October 31, 1997 by Exhibit 2.1 to Eltrax's
and among Eltrax, DataComm Current Report in Form 8-K
Acquiring Corp., Midwest dated October 3, 1997 (File
Acquiring Corp., DataComm No. 0-22190).
Associates, Inc., Midwest
Telecom Associates, Inc. and
John M. Good and Harold Madison.
10.34 Consulting Agreement, dated Filed herewith
February , 1999, between
Eltrax and Michael Wager
10.35 Consulting Agreement, dated Filed herewith
February , 1999, between
Eltrax and Robert Gries
10.36 Consulting Agreement, dated Filed herewith
February , 1999, between
Eltrax and David Adler
II-6
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
10.37 Form of Termination Agreement To be filed by amendment.
between Leon Harris and
Sulcus
10.38 Form of Consulting Agreement To be filed by amendment.
between Leon Harris and
Eltrax
23.1 Consent of Crowe, Chizek and Filed herewith.
Company LLP, independent
accountants
23.2 Consent of Filed herewith.
PricewaterhouseCoopers LLP,
independent accountants
23.3 Consent of Jaffe, Raitt, Heuer & Included in Exhibit 5.1.
Weiss, P.C.
23.4 Consent of Benesch, Friedlander, Included in Exhibit 8.1.
Coplan & Aronoff LLP
24.1 Powers of Attorney Previously filed.
99.1 Form of Proxy Card for Special Filed herewith.
Meeting of Shareholders of
Eltrax
99.2 Form of Proxy Card for Special Filed herewith.
Meeting of Shareholders of
Sulcus Hospitality Technologies
Corp.
99.3 Articles of Incorporation, as Incorporated by reference to
amended, of Sulcus Hospitality Exhibit 4.1 to Sulcus'
Technologies Corp. Registration Statement on Form
S-8 (File No. 333-43419).
99.4 Amended and Restated Bylaws of Incorporated by reference to
Sulcus Hospitality Technologies Exhibit 4.2 to Sulcus'
Corp. Registration Statement on Form
S-8 (File No. 333-43419).
99.5 Rights Agreement between Sulcus Incorporated by reference to
Hospitality Technologies Corp. Exhibit ii to Sulcus'
and American Stock Transfer & Registration Statement on Form
Trust Company, dated as of 8-A (File No. 001-11148).
January 30, 1998.
II-7
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ---- ----------------
<C> <S> <C>
99.6 Opinion of Broadview Included in the Proxy
International LLC Statement/Prospectus as Annex
B.
99.7 Consent of Broadview Included in Exhibit 99.6.
International LLC
99.8 Form of Letter to Eltrax Filed herewith.
Shareholders
99.9 Form of Letter to Sulcus Filed herewith.
Shareholders
</TABLE>
(b) Financial Statement Schedules.
None.
(c) Reports, Opinions and Appraisals.
None.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) (1) The Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-8
<PAGE>
(2) The Registrant undertakes that every prospectus: (A) that is
filed pursuant to paragraph (1) immediately preceding, or (B) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(c) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Southfield, State of
Michigan, on January 29, 1999.
ELTRAX SYSTEMS, INC.,
A Minnesota corporation
By: /s/ William P. O'Reilly
-------------------------------
William P. O'Reilly
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ William P. O'Reilly Chief Executive Officer, January 29, 1999
------------------------ Chairman of the Board of
William P. O'Reilly Directors, and Director
(principal executive officer)
/s/ Clunet R. Lewis Director January 29, 1999
------------------------
Clunet R. Lewis
James C. Barnard* Director January 29, 1999
------------------------
James C. Barnard
Patrick J. Dirk* Director January 29, 1999
------------------------
Patrick J. Dirk
Penelope Sellers* Director January 29, 1999
------------------------
Penelope Sellers
II-10
<PAGE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Stephen E. Raville* Director January 29, 1999
------------------------
Stephen E. Raville
Mack V. Traynor, III* Director January 29, 1999
------------------------
Mack V. Traynor, III
Thomas F. Madison* Director January 29, 1999
------------------------
Thomas F. Madison
/s/ Nicholas J. Pyett Chief Financial Officer January 29, 1999
------------------------ (principal financial officer
Nicholas J. Pyett and principal accounting
officer)
*By: /s/ William P. O'Reilly
- -----------------------------
William P. O'Reilly
Attorney-in-fact
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, Included in the Proxy
dated as of November 11, 1998, Statement/Prospectus as Annex
by and among Eltrax, Sulcus A.
Hospitality Technologies Corp.
and Sulcus Acquiring
Corporation.
3.1 Amended and Restated Articles of Incorporated by reference to
Incorporation of Eltrax Exhibit 3.1 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
3.2 Restated Bylaws of Eltrax Incorporated by reference to
Exhibit 3.2 to Eltrax's
Quarterly Report on Form 10-
QSB for the quarter ended
September 30, 1996.
5.1 Opinion of Jaffe, Raitt, Heuer & Filed herewith.
Weiss, P.C.
8.1 Opinion of Benesch, Friedlander, Filed herewith.
Coplan & Aronoff LLP
10.1 1992 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.4 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
10.2 Form of Incentive Stock Option Incorporated by reference to
Agreement. Exhibit 10.6 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
10.3 Form of Non-Statutory Option Incorporated by reference to
Agreement. Exhibit 10.7 to Eltrax's
Registration Statement on Form
S-18 (File No. 33-51456).
II-12
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
10.4 Form of Non-Employees Director Incorporated by reference to
Stock Option Agreement. Exhibit 10.10 to Eltrax's
Annual Report on Form 10-KSB
for the year ended March 31,
1993.
10.5 1995 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.12 to Eltrax's
Annual Report on Form 10-KSB
for the year ended March 31,
1995.
10.6 Consulting Agreement dated as of Incorporated by reference to
June 1, 1996 by and between Exhibit 10.9 to Eltrax's
Eltrax and Clunet R. Lewis. Annual Report on Form 10-KSB
for the nine month transition
period ended December 31,
1996.
10.7 Consulting Agreement dated as of Incorporated by reference to
June 1, 1996 by and between Exhibit 10.10 to Eltrax's
Eltrax and William P. O'Reilly. Annual Report on Form 10-KSB
for the nine month transition
period ended December 31,
1996.
10.8 Agreement dated as of October Incorporated by reference to
31, 1996 by and among Eltrax, Exhibit 10.7 to Eltrax's
William P. O'Reilly, Clunet R. Current Report on Form 8-K
Lewis, Mack V. Traynor, III and filed November 12, 1996.
Walter C. Lovett, Douglas L.
Roberson and B. Taylor Koonce.
10.9 Employment and Noncompetition Incorporated by reference to
Agreement dated as of May 14, Exhibit 10.2 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Edward J. Gorlitz. dated May 15, 1997.
10.10 Employment and Noncompetition Incorporated by reference to
Agreement dated as of May 14, Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Colin E. Quinn. dated May 15, 1997.
10.11 Employment and Noncompetition Incorporated by reference to
Agreement dated as of July 1, Exhibit 10.2 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Joel J. Blickenstaff. dated July 1, 1997.
II-13
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
10.12 Employment and Noncompetition Incorporated by reference to
Agreement dated as of July 1, Exhibit 10.1 to Eltrax's
1997 by between Eltrax and Current Report and on Form 8-K
Robert A. Hughes. dated July 1, 1997.
10.13 Employment and Noncompetition Incorporated by reference to
Agreement dated as of August 15, Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Edward C. Barrett. dated August 15, 1997.
10.14 Employment and Noncompetition Incorporated by reference to
Agreement dated as of August 15, Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
Daniel M. Christy. dated August 15, 1997.
10.15 Employment and Noncompetition Incorporated by reference to
Agreement dated as of August 15, Exhibit 10.3 to Eltrax's
1997 by and between Eltrax and Current Report on Form 8-K
David R. Hurlbrink. dated August 15, 1997.
10.16 Employment and Noncompetition Incorporated by reference to
Agreement dated as of October Exhibit 10.1 to Eltrax's
31, 1997 by and between Eltrax Current Report on Form 8-K
and John M. Good. dated October 3, 1997.
10.17 Employment and Non-Competition Incorporated by reference to
Agreement, dated as of August Exhibit 10.1 to Eltrax's
31, 1998 between Eltrax and Current Report on Form 8-K
Penelope Sellers. dated September 10, 1998.
10.18 Credit Agreement, dated as of Incorporated by reference to
September 11, 1998, between Exhibit 10.2 to Eltrax's
Eltrax, Nordata, Inc., Four Current Report on Form 8-K
Corners Technology, Inc., Encore dated September 10, 1998.
Systems, Inc., Global Systems
and Support, Inc., Five Star
Systems, Inc., and State Street
Bank and Trust Company.
10.19 Security Agreement dated October Incorporated by reference to
31, 1996 between Eltrax and Exhibit 10.16 to Eltrax's
State Street Bank and Trust Annual Report on Form 10-KSB
Company, as amended. for the year ended December
31, 1997.
II-14
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
10.20 Consulting Agreement dated Incorporated by reference to
January 21, 1997 by and between Exhibit 10.21 to Eltrax's
Eltrax and Gene A. Bier. Annual Report on Form 10-KSB
for the year ended December
31, 1997.
10.21 Asset Purchase Agreement dated Incorporated by reference to
as of January 29, 1997 between Exhibit 99.1 to Eltrax's
Atlantic Network Systems, Inc. Current Report on Form 8-K
and MRK Technologies, LTD. filed February 12, 1997.
10.22 1997 Stock Incentive Plan. Incorporated by reference to
Exhibit 10.24 to Eltrax's
Annual Report on Form 10-KSB
for the year ended December
31, 1997 (File No. 0-22190)
10.23 Real Estate Lease dated June 1, Incorporated by reference to
1996 between Walt Lovett, Doug Exhibit 10.11 to Eltrax's
and Lisa Roberson and Atlantic Annual Report on Form 10-KSB
Network Systems, Inc. for the nine month transition
period ended December 31,
1996.
10.24 Lease Agreement between Incorporated by reference to
Burgoe/Wyomissing Partners and Exhibit 10.30 to Eltrax's
Hi-Tech Connections, Inc. dated Annual Report on Form 10-KSB
September 15, 1996. for the year ended December
31, 1997.
10.25 Lease Agreement between JMG Incorporated by reference to
Development Co. Ltd and DataComm Exhibit 10.31 to Eltrax's
Associates, Inc. dated December Annual Report on Form 10-KSB
1, 1996. for the year ended December
31, 1997.
10.26 Lease Agreement between Werner Incorporated by reference to
Palmquist Investments and Four Exhibit 10.32 to Eltrax's
Corners Technology, Inc. dated Annual Report on Form 10-KSB
February 21, 1996. for the year ended December
31, 1997.
10.27 1998 Stock Incentive Plan Filed herewith.
10.28 Office Lease, dated January 15, Filed herewith.
1992, between 900 Corporation
and Encore Systems, Inc.
II-15
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
10.29 Amended and Restated Preferred Filed herewith.
Vendor Arrangement, dated as of
May 15, 1992, between Holiday
Hospitality Corporation and
Encore Systems, Inc.
10.30 Agreement and Plan of Merger Incorporated by reference to
dated as of May 14, 1997 by and Exhibit 2.1 to Eltrax's
among Eltrax, EJG Techline Current Report in Form 8-K
Acquiring Corporation, EJG dated May 14, 1997 (File No.
Techline, Incorporated and 0-22190).
Edward J. and Kathleen M.
Gorlitz and Colin E. and Diane
C. Quinn
10.31 Agreement and Plan of Merger Incorporated by reference to
dated as of July 1, 1997 by and Exhibit 2.1 to Eltrax's
among Eltrax, Four Corners Current Report in Form 8-K
Acquiring Corporation, Four dated July 1, 1997 (File No.
Corners Technology, Inc. and 0-22190).
Robert A. Hughes, Joel J.
Blickenstaff and David Noall.
10.32 Agreement and Plan of Merger Incorporated by reference to
dated as of August 15, 1997 by Exhibit 2.1 to Eltrax's
and among Eltrax, Hi-Tech Current Report in Form 8-K
Acquiring Corporation, Hi-Tech dated August 15, 1997 (File
Connections, Inc. and Edward C. No. 0-22190).
Barrett, Daniel M. Christy,
David R. Hurlbrink, David R.
Spatz, Raymond H. Melcher and
Timothy E. Devlin.
10.33 Agreement and Plan of Merger Incorporated by reference to
dated as of October 31, 1997 by Exhibit 2.1 to Eltrax's
and among Eltrax, DataComm Current Report in Form 8-K
Acquiring Corp., Midwest dated October 3, 1997 (File
Acquiring Corp., DataComm No. 0-22190).
Associates, Inc., Midwest
Telecom Associates, Inc. and
John M. Good and Harold Madison.
10.34 Consulting Agreement, dated Filed herewith
February , 1999, between
Eltrax and Michael Wager
10.35 Consulting Agreement, dated Filed herewith
February , 1999, between
Eltrax and Robert Gries
II-16
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
10.36 Consulting Agreement, dated Filed herewith
February , 1999, between
Eltrax and David Adler
10.37 Form of Termination Agreement To be filed by amendment.
between Leon Harris and
Sulcus
10.38 Form of Consulting Agreement To be filed by amendment.
between Leon Harris and
Eltrax
23.1 Consent of Crowe, Chizek and Filed herewith.
Company LLP, independent
accountants
23.2 Consent of Filed herewith.
PricewaterhouseCoopers LLP,
independent accountants
23.3 Consent of Jaffe, Raitt, Heuer & Included in Exhibit 5.1.
Weiss, P.C.
23.4 Consent of Benesch, Friedlander, Included in Exhibit 8.1.
Coplan & Aronoff LLP
24.1 Powers of Attorney Previously filed.
99.1 Form of Proxy Card for Special Filed herewith.
Meeting of Shareholders of
Eltrax
99.2 Form of Proxy Card for Special Filed herewith.
Meeting of Shareholders of
Sulcus Hospitality Technologies
Corp.
99.3 Articles of Incorporation, as Incorporated by reference to
amended, of Sulcus Hospitality Exhibit 4.1 to Sulcus'
Technologies Corp. Registration Statement on Form
S-8 (File No. 333-43419).
99.4 Amended and Restated Bylaws of Incorporated by reference to
Sulcus Hospitality Technologies Exhibit 4.2 to Sulcus'
Corp. Registration Statement on Form
S-8 (File No. 333-43419).
II-17
<PAGE>
<CAPTION>
Exhibit
Number Item Method of Filing
- --------- ---- ----------------
<S> <C> <C>
99.5 Rights Agreement between Sulcus Incorporated by reference to
Hospitality Technologies Corp. Exhibit ii to Sulcus'
and American Stock Transfer & Registration Statement on Form
Trust Company, dated as of 8-A (File No. 001-11148).
January 30, 1998.
99.6 Opinion of Broadview Included in the Proxy
International LLC Statement/Prospectus as Annex
B.
99.7 Consent of Broadview Included in Exhibit 99.6
International LLC
99.8 Form of Letter to Eltrax Filed herewith.
Shareholders
99.9 Form of Letter to Sulcus Filed herewith.
Shareholders
</TABLE>
II-18
<PAGE>
[JAFFE, RAITT, HAUER & WEISS LETTERHEAD]
February 2, 1999
Eltrax Systems, Inc.
2000 Town Center
Suite 690
Southfield, MI 448075
Re: Eltrax Systems, Inc.
Registration Statement on Form S-4
(Registration No. 333-68699)
Ladies and Gentlemen:
This opinion is furnished to you at the request of Eltrax Systems, Inc., a
Minnesota corporation ("Eltrax") and Sulcus Acquiring Corp., a Pennsylvania
corporation ("SAC"), pursuant to a Registration Statement on Form S-4,
originally filed with the Securities and Exchange Commission (the "Commission")
on December 10, 1998 under the Securities Act of 1933, as amended (the "Act")
(such Registration Statement, as amended or supplemented, is hereinafter
referred to as the "Registration Statement"). Capitalized terms not otherwise
defined herein are as defined in the Agreement and Plan of Merger dated November
11, 1998 (the "Merger Agreement"), by and among Eltrax, SAC and Sulcus
Hospitality Technologies Corp. ("Sulcus"), whereby SAC will be merged with and
into Sulcus, with Sulcus being the surviving corporation (the "Merger").
In that connection, we have examined such corporate proceedings, documents,
records and matters of law as we have deemed necessary to enable us to render
this opinion.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
document submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the legal capacity of
all natural persons, the genuineness of the signatures of persons signing all
documents in connection with which this opinion is rendered, the authority of
such persons signing on behalf of the parties thereto other than Eltax and SAC
and the due authorization, execution and delivery of all documents by the
parties thereto other than Eltax and SAC. As to any facts material to the
opinions expressed herein, we have relied upon the statements and
representations of officers and other representatives of Eltrax.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of any
laws except the internal laws of the State of
<PAGE>
Eltrax Systems, Inc.
February 2, 1999
Page 2
Michigan, and the Minnesota Business Corporation Act and the Pennsylvania
Business Corporation Law of 1988.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we hereby advise you
that in our opinion, the shares of Eltrax common stock, $0.01 par value, to be
issued to the Sulcus shareholders pursuant to the Merger (the "Shares") have
been duly authorized and approved for issuance by the Boards of Directors of
Eltrax and SAC in accordance with the terms of the Merger Agreement, and when
(i) the Registration Statement becomes effective under the Act, (ii) the
stockholders of Eltrax and SAC have taken all necessary action to approve the
issuance of the Shares, (iii) the Shares have been issued in accordance with the
terms of the Merger Agreement and delivered to the shareholders of Sulcus in
exchange for their shares of common stock of Sulcus, and (iv) certificates
representing the Shares have been duly executed and delivered on behalf of
Eltrax and SAC and duly registered by the Eltrax's transfer agent/registrar, the
Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of Michigan, the Minnesota Business Corporation Act or the
Pennsylvania Business Corporation Law of 1988 be changed by legislative action,
judicial decision or otherwise.
This opinion is furnished to Eltrax pursuant to the applicable rules and
regulations promulgated under the Act in connection with the filing of the
Registration Statement.
Very truly yours,
JAFFE, RAITT, HEUER & WEISS
Professional Corporation
/s/ Jeffrey L. Forman
----------------------------------
Jeffrey L. Forman
<PAGE>
February 3, 1999
Sulcus Hospitality Technologies Corp.
41 North Main Street
Greensburg, Pennsylvania 15601
Ladies and Gentlemen:
This letter is in response to your request for our opinion with respect to
certain federal income tax consequences of the proposed merger (the "Merger")
of Sulcus Acquiring Corporation ("SAC"), a wholly owned subsidiary of Eltrax
Systems, Inc. ("Eltrax"), with and into Sulcus Hospitality Technologies Corp.
("Sulcus") pursuant to the Agreement and Plan of Merger dated as of
November 11, 1998, by and among Eltrax, Sulcus and SAC (the "Merger Agreement").
Unless otherwise specified, the terms used herein are defined in the
Registration Statement on Form S-4, No. 333-____, filed by Eltrax with the
Securities and Exchange Commission on December 10, 1988, as amended (the
"Registration Statement").
In connection with the Merger, we understand the following:
(a) Pursuant to the laws of Pennsylvania, SAC will merge with and into
Sulcus pursuant to a statutory merger, with Sulcus surviving the
Merger;
(b) At the Effective Time, each outstanding share of Sulcus common stock
will be converted into the right to receive .55 of a fully paid and
nonassessable share of Eltrax common stock;
(c) At the Effective Time, each holder of Sulcus common stock who
otherwise would have been entitled to a fractional share of Eltrax
common stock will receive cash in lieu thereof;
(d) As soon as practicable on or after the Effective Time, the Exchange
Agent will distribute solely Eltrax common stock, and cash in lieu
of fractional shares, to holders of Sulcus common stock;
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Sulcus Hospitality Technologies Corp.
Page 2
(e) Eltrax will cause Sulcus to continue to conduct the historic
business of Sulcus or use a significant portion of Sulcus' historic
business assets in a business within the meaning of Treasury
Regulation Section 1.368-1(d); and
(f) Following the Merger, Sulcus will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the
fair market value of its gross assets and at least 90 percent of
the fair market value of SAC's net assets and at least 70 percent
of the fair market value of SAC's gross assets held immediately
prior to the Merger within the meaning of Revenue Procedure 86-42.
In connection herewith, we have examined and relied on the accuracy and
completeness of the Merger Agreement, the Registration Statement and such
other information as we have deemed relevant. As to questions of fact
material to the opinions herein, we have relied upon the accuracy and
completeness of various representations and covenants of Sulcus and Eltrax
set forth in the Merger Agreement and in certificates executed by their
respective officers. Moreover, we have assumed that the Merger will be
completed in the manner set forth in the Registration Statement, and that the
representations and covenants made by the parties to the Merger are accurate
and complete and that such representations and covenants will continue to be
accurate and complete as of the Effective Time of the Merger.
In rendering this opinion, we have assumed with your permission that: (1) all
signatures on documents examined by us are genuine; (2) all documents
submitted to us as originals are authentic; and (3) all documents submitted
to us as certified or photostatic copies are true and complete copies of the
original documents. We have also assumed that each entity that is a party to
the documents has been duly organized or formed and is validly existing and
in good standing as a corporate or similar organization under the laws of its
jurisdiction of organization, and is qualified to do business and is in good
standing as a foreign corporation or other organization in each jurisdiction
where by law it is required to be so qualified; that each of the documents
has been duly authorized, executed and delivered by each party and
constitutes such party's valid and binding obligation, enforceable against
such party in accordance with its terms; that each party has the requisite
corporate or other organizational power and authority to perform such party's
obligations under the documents; and that each party to the documents has
performed and will perform such party's obligations under the documents.
To the extent that the opinion in this letter relates to or is dependent upon
factual information, or is expressed in terms of our knowledge or awareness,
we have relied upon the assumptions stated above and the statements of fact,
representations and warranties reflected in the documents, and we have not
undertaken to independently verify any of such facts or information.
On the basis of the foregoing and subject to the conditions, qualifications
and limitations set forth herein and in the Registration Statement, we are of
the opinion that for federal income tax purposes:
(a) the Merger will qualify as a tax-free reorganization within the
meaning of
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Sulcus Hospitality Technologies Corp.
Page 3
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code"), and Sulcus and
Eltrax will each be a party to the reorganization;
(b) no gain or loss will be recognized by Sulcus as a result of the
Merger;
(c) no gain or loss will be recognized by a shareholder of Sulcus upon
the exchange of shares of Sulcus common stock for Eltrax common
stock, except that gain or loss will be recognized by a shareholder
of Sulcus on the receipt of cash in lieu of fractional shares;
(d) the adjusted tax basis of the Eltrax common stock received by a
shareholder of Sulcus pursuant to the Merger (including any
fractional share interests deemed received) will be the same as the
adjusted tax basis of the shares of Sulcus common stock surrendered
in exchange therefor;
(e) the holding period of the Eltrax common stock received by a
shareholder of Sulcus as a result of the Merger (including any
fractional share interests deemed received) will include the
holding period of the shares of Sulcus common stock surrendered in
exchange therefor, provided that such Sulcus common stock is held
as a capital asset by the Sulcus shareholder at the consummation of
the Merger; and
(f) any cash payment received by a holder of Sulcus common stock in
lieu of a fractional share of Eltrax common stock will be treated
as if such fractional share of Eltrax common stock had been issued
in the Merger and then redeemed by Eltrax.
This opinion does not relate to or purport to cover any matters other than
the ones expressly stated herein. The opinion expressed herein is limited to
the consequences of the Merger under current federal income tax law
(including the Code, the Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof) as of the date of this
opinion letter. No opinion is expressed with respect to state, local,
foreign or other tax laws. Moreover, this opinion does not apply to
(i) holders of Sulcus common stock subject to special tax treatment under the
federal income tax laws or (ii) holders of Sulcus common stock who acquired
their stock pursuant to the exercise of an employee stock option or otherwise
as compensation. We assume no obligation to revise or supplement this opinion
should the present federal income tax laws be changed by any legislation,
judicial decisions, or otherwise. No assurance can be given that the
Internal Revenue Service will not challenge the conclusions stated in this
opinion.
This opinion is only for the benefit of Sulcus and may not be relied upon by
any person, firm or entity for any purpose without our express written
consent. Other than in connection with the Registration Statement, this
letter may not be paraphrased, quoted or summarized, nor may it be duplicated
or reproduced in part.
This opinion is furnished to you solely in connection with the Registration
Statement. We hereby consent to the filing of this opinion as an Exhibit to
the Registration Statement.
Very truly yours,
BENESCH, FRIEDLANDER,
COPLAN & ARONOFF LLP
<PAGE>
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.
<PAGE>
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 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
2
<PAGE>
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.
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
3
<PAGE>
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 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
<PAGE>
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 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
5
<PAGE>
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 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
<PAGE>
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.
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,
7
<PAGE>
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.
8
<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
10
<PAGE>
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.
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
11
<PAGE>
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 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 nonforfeitable; 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"
12
<PAGE>
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 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
13
<PAGE>
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 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 to 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.
14
<PAGE>
900 CORPORATION
ENCORE SYSTEMS, INC.
OFFICE LEASE
INDEX
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
<S> <C> <C>
1 DEMISED PREMISES 1
2 TERM 1
3 RENT 1
4 RENT ADJUSTMENT 1
5 INCREASES IN ANNUAL OPERATING COSTS 1
6 ADDITIONAL RENT 2
7 LAWS AND ORDINANCES 2
8 FURNITURE; FIXTURES; ELECTRICAL EQUIPMENT 2
9 ALTERATIONS 2
10 DAMAGE 3
11 CONDEMNATION 3
12 USE OF DEMISED PREMISES 3
13 REPAIRS BY TENANT 3
14 REPAIRS BY LANDLORD 3
15 ROOF RIGHTS 3
16 LANDLORD'S REMEDIES UPON DEFAULTS 3
17 SERVICES OF LANDLORD 4
18 INSURANCE 4
19 PROPERTY AT TENANT'S RISK 4
20 ASSIGNMENT; SUBLETTING 4
21 SIGNS 4
22 RULES AND REGULATIONS 4
23 PARKING 4
24 LANDLORD ACCESS 4
25 SUBORDINATION 4
26 MORTGAGEE PROTECTION 4
27 CONSTRUCTION OF TENANT IMPROVEMENTS BY LANDLORD 4
28 HOLD-OVER 5
29 ESTOPPEL CERTIFICATES 5
30 QUIET ENJOYMENT 5
31 DELAY 5
32 RELOCATION OF TENANT 5
33 MODIFICATIONS DUE TO FINANCING 5
34 ATTORNEYS' FEES; HOMESTEAD 5
35 NOTICES 5
36 REMEDIES CUMULATIVE; NO WAIVER 5
37 MODIFICATION 5
38 WAIVER OF JURY TRIAL 5
39 HEADINGS 5
40 APPLICABLE LAW 5
41 NO OPTION 5
42 GENDER; ASSIGNS AND SUCCESSORS 5
43 SEVERABILITY 6
44 SPECIAL STIPULATIONS 6
</TABLE>
<PAGE>
900 CORPORATION OFFICE LEASE
THIS LEASE, made this 15th day of January, 1992, by and between (i) 900
CORPORATION (hereinafter "Landlord"); and (ii) Encore Systems, Inc. (hereinafter
"Tenant").
W I T N E S S E T H:
1. DEMISED PREMISES. For and in consideration of the rent hereinafter
reserved and the mutual covenants hereinafter contained, Landlord does hereby
lease and demise unto Tenant, and Tenant does hereby hire, lease and accept,
from Landlord. An area for one Satellite Earth Station which is located
adjacent to service drive on west side of Building which area is to be
designated by Landlord. of the building known as 900 Circle 75 Parkway (the
"Building") located in the Circle 75 Office Park, at 900 Circle 75 Parkway,
Atlanta, Georgia 30339 (the "Property") all upon the terms and conditions
hereafter set forth.
2. TERM. The term of this lease shall commence on the date hereof (the
"Lease Date") and shall end Seventeen (17) months after the "Rent Commencement
Date," as hereinafter defined. The "Rent Commencement Date" shall be the 1st
day of December, 1991, or the date Tenant actually commences occupancy of the
Demised Premises, whichever is earlier. In the event the Rent Commencement Date
is a date other than the first day of a calendar month, the term of the lease
shall run for the number of months set forth above from the first day of the
calendar month following the Rent Commencement Date. Landlord and Tenant hereby
agree to execute a Commencement Agreement specifying the Rent Commencement Date
hereof.
3. RENT. Commencing with the Rent Commencement Date, Tenant shall pay as
annual rent for the Demised Premises the sum of Six Thousand and No/100 Dollars
($6,000.00) per annum, payable in equal monthly installments of Five Hundred and
No/100 Dollars ($500.00) each (the "Initial Base Rent"). All such monthly
installments of rent shall be payable to Landlord or its designated agent, in
advance, without previous notice or demand therefor, and without deduction or
setoff, with the first monthly installment to be due and payable no later than
the Rent Commencement Date and each subsequent monthly installment to be due and
payable on the first day of each and every month following the Rent Commencement
Date during the term hereof. If the Rent Commencement Date is a date other than
the first day of a month, rent for the period commencing with and including the
Rent Commencement Date until the first day of the following month shall be
pro-rated at the rate of one-thirtieth (1/30th) of the fixed monthly rental per
day.
Landlord hereby acknowledges receipt of One Thousand and No/100
Dollars ($1,000.00) of which Five Hundred and No/100 Dollars ($500.00) shall
constitute prepayment of the first month's rent, and Five Hundred and No/100
dollars ($500.00) shall be held by Landlord as security for the full and prompt
compliance and performance of each of the terms, covenants and conditions of
this lease.
4. RENT ADJUSTMENT.
(a) At the expiration of each Lease Year (as hereinafter defined),
the rent shall be adjusted to reflect any increases in the "Consumer Price
Index" (the "CPI" as hereinafter defined). Such adjustment shall be
accomplished by multiplying the Initial Base Rent by a fraction, the numerator
of which shall be the sum of (i) the CPI as of the most recent month prior to
the Rent Commencement Date (the "Original CPI") and (ii) One Hundred Percent
(100%) of the difference between the CPI as of the most recent month prior to
the date of adjustment and the Original CPI, and the denominator of which shall
be the Original CPI. In no event shall any adjustment made pursuant to this
paragraph result in a reduction of the then-current rent.
(b) The "Consumer Price Index" is hereby defined to be the Index
now known as "United States Bureau of Labor Statistics, Revised Consumer
Price Index for Urban Wage Earners and Clerical Workers, United States City
Average, all items -- Series A (1982-1984 = 100 Base Year)"; and if such
Index shall be discontinued, then any successor consumer price index of the
United States Bureau of Labor Statistics or successor agency thereto shall be
used and if there is no successor consumer price index, then the parties
hereto shall attempt to agree on a substitute index or formula. In the event
that Landlord and Tenant shall be unable to agree on a substitute index or
formula, the matter shall be submitted for arbitration in accordance with the
rules of the American Arbitration Association then prevailing.
(c) For all purposes of this lease, the term "Lease Year" shall be
defined to mean a period of twelve (12) full calendar months. The first Lease
Year shall commence on the Rent Commencement Date (or on the first day of the
first calendar month following the Rent Commencement Date if said date is
other than the first day of a calendar month), and each succeeding Lease Year
shall commence on the anniversary date of the beginning of the first Lease Year.
<PAGE>
6. ADDITIONAL RENT. Any amounts required to be paid by Tenant hereunder
and any charges or expenses incurred by Landlord on behalf of Tenant under
the terms of this lease shall be considered additional rental payable in the
same manner and upon the same terms and conditions as the rent reserved
hereunder. Any failure on the part of Tenant to pay such additional rental when
and as the same shall become due shall entitle Landlord the remedies available
to it for non-payment of rent.
7. LAWS AND ORDINANCES. Tenant will, at its own cost, promptly comply
with and carry out all orders, requirements or conditions now or hereunder
imposed upon it by the ordinances, laws and/or regulations of the municipality,
county and/or state in which the Demised Premises are located, whether required
of Landlord or otherwise, in the conduct of Tenant's business, except that
Landlord shall comply with any orders affecting structural walls and columns
unless due to Tenant's particular business or use of the premises. Tenant will
indemnify and save Landlord harmless from all penalties, claims, and demands
resulting from Tenant's failure or negligence in this respect.
8. FURNITURE; FIXTURES; ELECTRICAL EQUIPMENT.
(b) Landlord shall at its expense furnish electric facilities to the
Premises and electricity for lighting and small business machinery only (e.g.,
writers, dictating machines, adding machines, calculators, small copiers,
postage machines, teletypes and any other small office equipment that is
computer related). Tenant will not use any electrical equipment which in
Landlord's opinion will overload the wiring installations or interfere with the
reasonable use thereof by other users in the Building. Tenant will not without
Landlord's prior written consent in each instance, connect any additional
(e.g., electric heaters, vending equipment, printing, or duplicating machines,
computers, word processors, terminals, auxiliary air conditioners, and computer
related equipment) to the Building's electrical system, or make any alterations
or additions to the system. Should Landlord grant such consent, additional
circuits, meters or equipment required therefor shall be installed by Landlord
and the costs of installation, equipment and metering device to be paid by
Tenant within five (5) days of receipt of bill. The consumption of electricity
for such additional equipment shall be paid monthly by Tenant to Landlord at
the prevailing utility company rates. Landlord and Tenant agree that in the
event Tenant adds additional equipment which in Landlord's opinion produces
enough heat to cause a comfort problem in the Building or any part thereof,
then Landlord may install a supplemental air conditioner, and Tenant agrees
to pay Landlord for such equipment, installation and consumption of electricity
for supplemental air conditioner. Landlord shall not be liable for any damages
directly or indirectly resulting from the installation, use or interruption
of use of any equipment in connection with the furnishing of services
referred to in this paragraph.
9. ALTERATIONS. Tenant shall make no alterations or changes, structural
or otherwise, to any part of the Demised Premises, either exterior or interior,
without Landlord's written consent. In the event of any such approved changes,
Tenant shall have all work done at its own expense. Request for such consent
shall be accompanied by plans stating in detail precisely what is to be done.
Tenant shall comply with the building codes, regulations and now or hereafter
to be made or enforced in the municipality, county and/or state in which said
premises are located and which pertain to such work. The additions,
improvements, alterations and/or installations made by Tenant (except only
office furniture and business equipment) shall become and are a part of the
Building and be and remain Landlord's property upon the termination of
Tenant's occupancy of said premises; provided, however, the Landlord gives
written notice to Tenant at the expiration or other termination of this lease
to such effect, it may require Tenant to restore said Demised Premises to
their original condition at Tenant's sole cost and expense. Tenant shall save
Landlord harmless from and against all expenses, liens, XXX or damages to
either property or person which may or might arise by reason of the making of
any such additions, improvements, alterations and/or installations. Landlord
reserves the right to change, increase or reduce, from time to time, the
number, composition, dimensions or location of any park areas, signs, the
Building name, service areas, walkways, roadways or other common areas or
make alterations or additions to the Building, in its sole discretion.
<PAGE>
10. DAMAGE. If the Demised Premises shall be damaged by fire or other
cause, without the fault or neglect of Tenant, its servants, employees,
agents, visitors or licensees, the damage shall be diligently repaired within
a reasonable time by and at the expense of Landlord, and the rent until such
repairs shall have been made shall abate pro-rata according to the part of
the Demised Premises which is unusable by Tenant. Due allowance shall be made
for reasonable delay which may arise by reason of adjustment of fire
insurance on the part of Landlord and/or Tenant, and for personal delay on
account of "labor troubles" or any other cause beyond Landlord's control. If,
however, the Demised Premises are rendered wholly untenantable by fire or
other cause and Landlord shall decide not to rebuild the same, or if the
entire Building be so damaged that Landlord shall decide to demolish it or
not to rebuild it, then or in any of such events, Landlord may, at its
option, cancel and terminate this lease by giving Tenant, within thirty (30)
days from the date of such damage, notice in writing of its intention to
cancel this lease, whereupon the term of this lease shall cease and determine
upon the third day after such notice is given, and Tenant shall vacate the
Demised Premises and surrender the same to Landlord; in neither of the
certain contingencies in this paragraph mentioned shall there be any
liability on the part of Landlord to Tenant covering or in respect of any
period during which the occupation of said Demised Premises by Tenant may not
be possible because of the matters hereinabove stated.
11. CONDEMNATION. If the Demised Premises or any part thereof shall be
taken by any governmental or quasi-governmental authority pursuant to the
power of eminent domain, or by deed in lieu thereof, Tenant agrees to make no
claim for compensation in the proceedings, and hereby assigns to Landlord any
rights which Tenant may have to any portion of any reward made as a result of
such taking, and this lease shall terminate as to the portion of the Demised
Premises taken by the condemning authority and rental shall be adjusted to
such date. The foregoing notwithstanding, Tenant shall be entitled to claim,
prove and receive in the condemnation proceedings such awards as may be
allowed for relocation expenses and for fixtures and other equipment
installed by it which shall not, under the terms of this lease, be or become
the property of Landlord at the termination hereof, but only if such awards
shall be made by the condemnation court in addition to and stated separately
from the award made by it for the land and the building or part thereof so
taken.
If the nature, location or extent of any proposed condemnation
affecting the Building in such that Landlord elects in good faith to demolish
the Building, then Landlord may terminate this lease by giving at lease sixty
(60) days' written notice of termination to Tenant at any time after such
condemnation and this lease shall terminate on the date specified in such
notice.
12. USED OF DEMISED PREMISES. The Demised Premises shall be used and
occupied by Tenant solely for the purpose of Installation of Satellite Earth
Station, and for no other purpose whatsoever. The premises shall not be used for
any illegal purpose or in violation of any valid regulation of any governmental
body, or in any manner to (i) create any nuisance or trespass; (ii) annoy or
embarrass Landlord or any other Tenant of the Property; (iii) vitiate any
insurance; (iv) alter the classification or increase the rate of insurance on
the Property.
13. REPAIRS BY TENANT. Tenant agrees to maintain the Demised Premises
and the fixtures therein (including any special heating, ventilating and air
conditioning equipment or other special installations for Tenant's fixtures and
equipment) in good order and condition during the term of this lease at its sole
cost and expense, and will, at the expiration of other termination of the term
hereof, surrender and deliver up the same and all keys, locks and other fixtures
connected therewith (except only office furniture and business equipment) in
like good order and condition, as the same is now or shall be at the Rent
Commencement Date, ordinary wear and tear excepted.
14. REPAIRS BY LANDLORD. Landlord shall have no duty to Tenant to make
any repairs or improvements to the Demised Premises except structural repairs
necessary for safety and tenantability, and then only if not brought about by
any act or neglect of Tenant, it agents, employees or invitees. Landlord
shall not be liable for any damage caused to the person or property of
Tenant, its agents, employees or invitees, due to the Property or the
Building or any part or appurtenances thereof being improperly constructed or
being or becoming out of repair, or arising from the leaking of gas, water,
sewer or steam pipes, or from electricity, or from any other cause
whatsoever. Tenant agrees to report immediately in writing to Landlord any
defective condition on or about the Demised Premises known to Tenant which
Landlord is required to repair, and a failure to so report shall make Tenant
liable to Landlord for any expense, damage or liability resulting from such
defects.
15. ROOF RIGHTS. Except as otherwise provided in this Lease, Landlord
shall have the exclusive right to use all or any portion of the roof of the
Building for any purposes.
16. LANDLORD'S REMEDIES UPON DEFAULT. In the event Tenant shall
default in the payment, when due, of any installment of rent or other charges
or money obligation to be paid by Tenant hereunder (all of which monetary
obligations of Tenant shall bear interest at the highest rate allowable by
law, not to exceed Eighteen Percent (18%) per annum, from the date due until
paid in full) and fails to cure said default within five (5) days after the
same shall become due; or if Tenant shall default in performing any of the
covenants, terms or provisions of this lease (other than the payment, when
due, of any of Tenant's monetary obligations hereunder) or any of the Rules
and Regulations now or hereafter established by Landlord to govern the
operation of the Building and fails to cure such default within 20 days after
written notice thereof from Landlord; or if Tenant shall abandon the Demised
Premises; or if Tenant is adjudicated a bankrupt; or if a permanent receiver
is appointed for Tenant's property; or if, whether voluntarily or
involuntarily, Tenant takes advantage of any debtor relief proceedings under
any present or future law, whereby the rent or any part thereof, is or is
proposed to be, reduced as payment thereof deferred; or if Tenant makes an
assignment for the benefit of creditors; or if Tenant's property or effects
should be levied upon or breached under process against Tenant, not satisfied
or dissolved within 10 days after written notice from Landlord to Tenant to
obtain satisfaction thereof; then, and in any of said events, Landlord, at
its option may pursue any one or more of the following remedies without any
notice or demand whatsoever.
(a) Landlord, at its option, may at once, or at any time
thereafter terminate this lease by written notice to Tenant, whereupon this
lease will end. Upon such termination by Landlord, Tenant will at once
surrender possession of the Demised Premises to Landlord and remove all of
Tenant's effects therefrom, and Landlord may forthwith re-enter the premises
and repossess himself thereof, and remove all persons and effects therefrom,
using such force as may be necessary, without being guilty of trespass,
forcible entry, detainer or other tort.
(b) Landlord may, without terminating this lease, enter upon and
take possession of the Demised Premises and expel or remove Tenant and any
other person who may be occupying the premises or any part thereof, without
being liable for prosecution or any claim for damages therefor, and, if
Landlord so elects, make such alterations and repairs as, in Landlord's
judgment, may be necessary to relet the premises, and relet the premises and
any part thereof for such rent and for such period of time and subject to
such terms and conditions as Landlord may deem advisable and receive the rent
therefor. Upon each such reletting, all rent received by Landlord from such
reletting shall be applied first to the payment of any indebtedness other
than rent due hereunder from Tenant to Landlord, including interest thereon;
second, to the payment of any loss and expenses of such reletting, including
brokerage fees, attorneys' fees and the cost of such alterations and repairs;
third, to the payment of rent due and unpaid hereunder, together with
interest thereon as herein provided; and the residue, if any, shall be held
by Landlord and applied in payment of future rent as the same may become due
and payable hereunder. Tenant agrees to pay to Landlord, on demand, any
deficiency that may arise by reason of such reletting. Notwithstanding any
such reletting without termination, Landlord may at any time thereafter elect
to terminate this lease for such prior default.
(c) In the event Landlord terminates this lease in accordance with
the provisions of this paragraph 16, Landlord may, in addition to any other
remedy it may have, recover from Tenant all damages and expenses Landlord may
suffer or incur by reason of Tenant's default hereunder, including, without
limitation, the cost of recovering the premises, reasonable attorneys' fees
and the worth at the time of such termination of the excess, if any, of the
amount of rent and charges equivalent to the rent reserved in this lease for
the remainder of the stated term over the then reasonable rental price of the
premises for the remainder of the stated term, all of which sums shall become
immediately due and payable by Tenant to Landlord upon demand of Landlord.
(d) If the rent agreed to be paid, including all other sums of
money which under the provisions hereto are declared to be rent, shall be in
arrears in whole or in part for five (5) or more days, Landlord may at its
option (if such arrearage remains unpaid after ten (10) days' written notice
to Tenant) declare the tenancy hereunder converted into a tenancy from month
to month, and upon giving written notice to Tenant of the exercise of such
option, Landlord shall forthwith be entitled to all provisions of law
relating to summary of eviction of monthly tenants in default in rent.
Pursuit of any of the foregoing remedies shall not preclude
Landlord from pursuing any other remedies herein or at law or in equity
provided, nor shall pursuit of any remedy by Landlord constitute a forfeiture
or waiver of any rent due to Landlord hereunder or of any damages accrued to
Landlord by reason of Tenant's violation of any of the covenants and
provisions of this lease.
Anything in this Lease to the contrary notwithstanding, in order to
cover the extra expense involved in handling delinquent payments, Tenant
shall pay a "late charge" of $150.00 when any installment of rent (Initial
Base Rent or any other sum which may be considered additional rental under
this Lease) is paid more than five (5) days after the due date thereof. It is
hereby understood that this charge is for extra expenses incurred by the
Landlord in processing the delinquency.
Tenant hereby appoints the person in charge of the Demised Premises
at the time as its agent to receive service of all dispossessory or complaint
proceedings and notices hereunder and under this lease, and if no person is
then in charge of the premises, such service of notice may be made attaching
the same to the main entrance of the premises, provided that a copy of any
such proceedings or notices shall be mailed to Tenant in the manner set forth
in paragraph 35 hereof.
-3-
<PAGE>
18. INSURANCE.
(a) Tenant agrees that it will indemnify and save Landlord
harmless from any and all liabilities, damages, causes of action, suits,
claims, judgments, costs and expenses of any kind (including attorneys' fees)
(i) relating to or arising from or in connection with the possession, use,
occupation, management, repair, maintenance or control of the Demised
Premises or any portion thereof, or (ii) arising from or in connection with
any act or omission of Tenant or Tenant's agents, employees or invitees, or
(iii) resulting from any default, violation or injury to person or property
or loss of life sustained in or about the Demised Premises. To assure such
indemnity, Tenant shall carry and keep in full force and effect at all times
during the term of this lease for the protection of Landlord and Tenant
herein, public liability insurance with limits of at least One Million
Dollars ($1,000,000.00) for each occurrence and Five Hundred Thousand Dollars
($500,000.00) for each separate injury, and property damage insurance in the
amount of One Hundred Thousand Dollars ($100,000.00), with an approved
insurance company and deliver to Landlord a copy of said policy or
certificate showing the same to be in full force and effect.
(b) Said public liability and property damage insurance policies
and any other insurance policies carried by Tenant with respect to the
Demised Premises, shall (i) be issued in form acceptable to Landlord by good
and solvent insurance companies qualified to do business in the State in
which the Demised Premises is located and reasonably satisfactory to
Landlord; (ii) be issued in the names of Landlord, Tenant and any other
parties in interest from time to time designated in writing by notice from
Landlord to Tenant; (iii) be written as primary policy coverage and not
contributing with [Illegible] in excess of any coverage which Landlord may
carry; (iv) provide for 10 days' prior written notice to Landlord of any
cancellation or other expiration [Illegible] such policy or any defaults
thereunder; and (v) contain an express waiver of any right of subrogation by
the insurance company against Landlord. Neither the issuance of any insurance
policy required hereunder, nor the minimum limits specified herein with
respect to Tenant's insurance coverage, shall be deemed to limit or restrict
in any way Tenant's liability arising under or out of this lease.
19. PROPERTY AT TENANT'S RISK. It is understood and agreed that all
personal property in the Demised Premises, of whatever nature, whether owned
by Tenant or any other person, shall be and remain at Tenant's sole risk and
Landlord shall not assume any liability or be liable for any damage to or
loss of such personal property, arising from the bursting, overflowing, or
leaking of the roof or of water, sewer, or steam pipes, or from heating or
plumbing fixtures or from the handling of electric wires or fixtures or from
any other cause whatsoever.
20. ASSIGNMENT; SUBLETTING. Landlord hereby grants the right to
possess and enjoy the use of the Demised Premises to Tenant, but no estate
shall [Illegible] out of Landlord; it being understood and agreed that Tenant
has only a usufruct not subject to levy or sale. Tenant will not assign,
transfer, mortgage [Illegible] encumber this lease or sublet or rent (or
permit occupancy or use of) the Demised Premises, or any part thereof,
without obtaining the prior written consent of Landlord; nor shall any
assignment or transfer of this lease be effectuated by operation of law or by
transfer of any interest in Tenant or otherwise without the prior written
consent of Landlord. The consent by Landlord to any assignment or subletting
shall not be construed as a waiver or lease of Tenant from the terms of, or
Tenant's liability under, any covenant or obligation under this lease, nor
shall any such assignment or subletting construed to relieve Tenant from
obtaining the consent in writing of Landlord to any further assignment or
subletting.
Anything in this Lease to the contrary notwithstanding, in order to
cover the extra expense involved in handling Landlord consent of assignment
or subletting, Tenant shall pay a "sublease/assignment fee" of $500.00 when
any sublease or assignment is submitted to the Landlord [Illegible] its
consent. It is understood that this charge is for extra expenses incurred by
the Landlord in processing the sublease or assignment.
22. RULES AND REGULATIONS. Tenant shall at all times comply with the
rules and regulations set forth on Exhibit B attached hereto, and with any
additions thereto and modifications thereof adopted from time to time by
Landlord, and each such rule or regulation shall be deemed to be a covenant
of this lease to be performed and observed by Tenant.
24. LANDLORD ACCESS. Landlord may enter the Demised Premises at
reasonable hours to exhibit the same to prospective purchasers, mortgagees
[Illegible] tenants, to inspect the premises to see that Tenant is complying
with all its obligations hereunder, to make repairs required of Landlord
under the terms hereof or to make repairs to Landlord's adjoining property.
25. SUBORDINATION.
(a) This lease is subject and subordinate to the lien of any
mortgages or deeds to secure debt, which may now or hereafter affect or
encumber the Building or the real property of which the Demised Premises form
a part and to all renewals, modifications, consolidations, replacements or
extensions thereof. This paragraph shall be self-operative and no further
instrument of subordination shall be required. In confirmation of any such
subordination, Tenant shall execute within five (5) days after receipt, any
certificate that Landlord may reasonably so request. Tenant covenants and
agrees to attorn [Illegible] Landlord or to any successor to Landlord's
interest in the Demised Premises, whether by safe, foreclosure or otherwise.
(b) Notwithstanding the foregoing, in the event any mortgagee or
the holder of any deed to secure debt shall elect to make the lien of this
[Illegible] prior to the lien of its mortgage or deed to secure debt, then,
upon such party giving Tenant written notice to such effect, this lease shall
be deemed [Illegible] prior in lien to the lien of such mortgage or deed to
secure debt, whether dated prior or subsequent thereto.
26. MORTGAGEE PROTECTION. Tenant agrees to give any Mortgagees and/or
Trust Deed Holders, by Registered Mail, a copy of any Notice of Default
[Illegible] upon Landlord, provided that prior to such notice Tenant has been
notified, in writing, (by way of Notice of Assignment of Rents and Leases, or
otherwise) of the address of such Mortgagees and/or Trust Deed Holders.
Tenant further agrees that if Landlord shall have failed to cure such default
within the time provided for in this lease, then the Mortgagees and/or Trust
Deed Holders shall have an additional thirty (30) days within which to cure
such default or if such default cannot be cured within that time, then such
additional time as may be necessary if within such thirty (30) days, any
mortgagee and/or Trust Deed Holder has commenced and is diligently pursuing
the remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure),
in which event this lease shall not be terminated while such remedies are
being so diligently pursued. Tenant agrees that in the event of the sale of
the Property, by foreclosure or deed in lieu thereof, the purchaser at such
sale will only be responsible for the return of any security deposit paid by
Tenant to Landlord in connection with this Lease to the extent that such
purchaser actually receives such security deposit.
-4-
<PAGE>
28. HOLD-OVER. If Tenant shall not immediately surrender the Demised
Premises on the day after the end of the term hereby created, then Tenant
shall, by virtue of this agreement, become a Tenant by the month at twice the
rental agreed by said Tenant to be paid as aforesaid, commencing said monthly
tenancy with the first day next after the end of the term above demised; and
said Tenant, as a monthly Tenant, shall be subject to all of the conditions
and covenants of this lease as though the same had originally been a monthly
tenancy. Each party hereto shall give to the other at least thirty (30) days'
written notice to quit the Demised Premises, except in the event of
non-payment of rent in advance or of the other additional rents provided for
herein when due, or of the breach of any other covenant by the said Tenant,
in which event Tenant shall not be entitled to any notice to quit, the usual
thirty (30) days' notice to quit being expressly waived; provided, however,
that in the event that Tenant shall hold over after expiration of the term
hereby created, and if Landlord shall desire to regain possession of said
premises promptly at the expiration of the term aforesaid, then at any time
prior to the acceptance of the rent by Landlord from Tenant, as a monthly
Tenant hereunder, Landlord, at its election or option, may re-enter and take
possession of the Demised Premises forthwith, without process, or by any
legal action or process in force in the State in which the Demised Premises
is located.
29. ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from time to
time, upon not less than five (5) days' prior written notice by Landlord, to
execute, acknowledge and deliver to Landlord or to such person(s) as may be
designated by Landlord, a statement in writing (i) certifying that Tenant is
in possession of the Demised Premises, has unconditionally accepted the same
and is currently paying the rents reserved hereunder, (ii) certifying that
this lease is unmodified and in full force and effect (or if there have been
modifications, that the lease is in full force and effect as modified and
stating the modifications), (iii) stating the dates to which the rent and
other charges hereunder have been paid by Tenant and (iv) stating whether or
not to the best knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition contained in this lease,
and, if so, specifying each such default of which notices to Landlord should
be sent. Any such statement delivered pursuant hereto may be relied upon by
any owner, prospective purchaser, mortgagee or prospective mortgagee of the
Building or of Landlord's interest therein, or any prospective assignee of
any such mortgagee.
30. QUIET ENJOYMENT. Landlord warrants that it has the right to make
this lease for the term aforesaid and that it will put Tenant into complete
and exclusive possession of the Demised Premises. Landlord covenants that if
Tenant pays the rent and all other charges provided for herein, performs all
of its obligations provided for hereunder and observes all of the other
provisions hereof, Tenant shall at all times during the term hereof peaceably
and quietly have, hold and enjoy the Demised Premises, without any
interruption or disturbance from Landlord, or anyone claiming through or
under Landlord, subject to the terms hereof.
31. DELAY. In the event Landlord for any reason is unable to deliver
possession of the Demised Premises to Tenant on or before the Rent
Commencement Date, at Landlord's option, this lease shall remain in full
force and effect and Tenant shall have no claim against Landlord by reason of
any such delay but no rent shall be payable during the pendency of any such
delay, or upon written notice to Tenant, Landlord may terminate this Lease
and, except for the return of any security deposit or prepaid rent, Landlord
shall have no further obligation or liability to Tenant. In the event that
Landlord does not so terminate this lease, at such time as Landlord tenders
possession of the Demised Premises to Tenant in writing, Tenant shall
commence payment of rent pursuant to paragraph 3 hereof, and the expiration
date of the term of this lease shall be extended for a period equal to the
period of such delay. In the event of any such delay, Tenant shall execute a
commencement agreement specifying the date on which possession of the Demised
Premises was tendered by Landlord.
32. RELOCATION OF TENANT. It is understood that Landlord shall have
the right, at its sole cost and expense, upon thirty (30) days prior notice
to Tenant to relocate Tenant to other Premises within the Property of equal
or greater kind and quality. In no event shall any relocation accomplished
pursuant to this paragraph result in an increase in the rent payable under
this Lease.
33. MODIFICATIONS DUE TO FINANCING. If, in connection with obtaining
temporary or permanent financing for the Building or the land upon which the
Building is located, any such lender shall request reasonable modifications
of this Lease as a condition to such financing, Tenant agrees that Tenant
will not unreasonably withhold, delay or defer the execution of an agreement
of modification of this Lease provided such modifications do not increase the
financial obligations of Tenant hereunder or materially adversely affect the
leasehold interest hereby created or Tenant's reasonable use and enjoyment of
the Demised Premises.
34. ATTORNEYS' FEES; HOMESTEAD. In any rent owing under this lease is
collected by or through an Attorney at Law, Tenant agrees to pay any costs or
expenses, including attorneys fees, incurred by Landlord. Tenant waives all
homestead rights and exemptions which he may have under any law as against
any obligation owing under this lease and assigns same to Landlord.
35. NOTICES. All notices required or desired to be given hereunder by
either party to the other shall be sent, postage prepaid, by certified or
registered mail. All rents and other monetary obligations arising hereunder,
and all notices to the respective parties shall be addressed and sent as
follows:
<TABLE>
<S> <C> <C> <C>
If to Landlord: CORRESPONDENCE with a copy to: RENT PAYMENTS, ETC.
900 Corporation Franklin Property Company
c/o Franklin Property Company 900 Circle 75 Parkway
8401 Connecticut Avenue Suite 100
Chevy Chase, Maryland 20815 Atlanta, Georgia 30339 THE TRAVELERS INSURANCE COMPANY
P. O. BOX 905497
CHARLOTTE, NORTH CAROLINA 28290-5497
RE: 501944
If to Tenant: ENCORE SYSTEMS, INC.
900 Circle 75 Parkway
Suite 1700
Atlanta, Georgia 30339
</TABLE>
36. REMEDIES CUMULATIVE; NO WAIVER. All rights and remedies given
herein and/or by law or in equity to Landlord are separate, distinct and
cumulative, and no one of them, whether exercised by Landlord or not, shall
be deemed to be in exclusion of any of the others. No failure of Landlord to
exercise any power given Landlord hereunder, or to insist upon strict
compliance by Tenant with his obligations hereunder, and no custom or
practice of the parties at variance with the terms hereof shall constitute a
waiver of Landlord's right to demand exact compliance with the terms hereof.
37. MODIFICATION. This writing is intended by the parties as the final
expression of their agreement and as a complete and exclusive statement of
the terms thereof, all negotiations, considerations and representations
between the parties having been incorporated herein. No course of prior
dealings between the parties or their affiliates shall be relevant or
admissible to supplement, explain or vary any of the terms of this lease.
Acceptance of, or acquiescence in, a course of performance rendered under
this or any prior agreement between the parties or their affiliates shall not
be relevant or admissible to determine the meaning of any of the terms of
this lease. No representations, understandings or agreements have been made
or relied upon in the making of this lease other than those specifically set
forth herein. This lease can only be modified by a writing signed by all of
the parties hereto or their duly authorized agents.
38. WAIVER OF JURY TRIAL. Landlord and Tenant each hereby waives all
right to trial by jury in any claim, action, proceeding or counterclaim by
either party against the other on any matters arising out of or in any way
connected with this lease, the relationship of Landlord and Tenant and/or
Tenant's use or occupancy of the Demised Premises.
39. HEADINGS. Captions and headings are for convenience and reference
only.
40. APPLICABLE LAW. This lease shall be construed under the laws of
the State in which the Demised Premises is located.
41. NO OPTION. The submission of this lease for examination does not
constitute a reservation of or option for the Demised Premises, and this
lease becomes effective only upon execution and delivery thereof by Landlord.
42. GENDER; ASSIGNS AND SUCCESSORS. Feminine or neuter pronouns shall
be substituted for those of the masculine form, and the plural may be
substituted for the singular number, in any place or places herein in which
the context may require such substitution or substitutions. The term
"Landlord" as used in this lease, means only the owner for the time being of
the Landlord's interest in this lease; and, in the event of the sale,
assignment or transfer by such owner of the Landlord's interest in this
lease, such owner shall thereupon be released and discharged of all covenants
and obligations of Landlord hereunder thereafter accruing. Except as provided
in the preceding sentence, all of the covenants, agreements, terms,
conditions, provisions and undertakings in this lease shall inure to the
benefit of, and shall extend to and be binding upon, the parties hereto and
their respective heirs, executers, legal representatives, successors and
assigns, to the same extent as if they were in every case named and expressed.
-5-
<PAGE>
43. SEVERABILITY. If any term, covenant or condition of this lease or the
application thereof to any person or circumstance shall to any extent be held
invalid or unenforceable, the remainder of this lease or the application of such
term, covenant or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant and condition of this lease shall be valid and enforced to
the fullest extent permitted by law.
44. SPECIAL STIPULATIONS. If any of the following stipulations supplement
or conflict with any of the foregoing provisions hereof, the following
provisions shall control.
SEE SPECIAL STIPULATIONS ATTACHED HERETO AND MADE A PART HEREOF.
IN WITNESS WHEREOF, the parties hereto have executed this lease under seal
on the day and year first above written.
ATTEST: TENANT: ENCORE SYSTEMS, INC.
/s/ Penelope A. Sellers
--------------------------------------
/s/ Margaret Lee By: President
- ------------------------------ --------------------------------------
ATTEST: LANDLORD:
900 CORPORATION
/s/ M.H. Greene By: /s/ [ILLEGIBLE]
- ------------------------------ --------------------------------------
-6-
<PAGE>
SPECIAL STIPULATIONS
TO THE LEASE BETWEEN
900 CORPORATION
AND
ENCORE SYSTEMS, INC.
The foregoing Lease between 900 CORPORATION, as Landlord, and ENCORE
SYSTEMS, INC. as Tenant, is modified, amended, and or supplemented as
hereinafter set forth, and any language or provision in said Lease inconsistent
or in conflict with the following, although not herein expressly referred to,
shall be deemed appropriately amended or modified in accordance with the terms
hereof.
45. (a) It is understood and agreed that Landlord shall not make any
improvements to the premises and the Satellite Dish shall be installed
adjacent to the west drive of the 900 Building in a location subject to
Landlord's approval at the expense of Encore Systems, Inc., under the
complete supervision of the Landlord and all construction and improvements
are subject to Landlord's approval. Tenant agrees to paint dish in a color
acceptable to Landlord.
(b) The leased premises shall be used solely by Tenant and shall not be
assigned or sublet all or in part to any third party.
(c) Tenant shall be responsible for obtaining any utility services
required and cost of same and Landlord shall not be liable to Tenant for
any interruption in such service caused by the making of necessary repairs,
or any other reason.
(d) Tenant agrees that it will repair promptly at its own expense any
damage to the leased premises, or the building and/or parking decks caused
by bringing into the premises any property for Tenant's use, or by the
installation or removal of such property, or by the negligence of Tenant or
Tenant's employees, and that it will surrender the leased premises at the
expiration of the term hereof, or should Tenant vacate the 900 Circle 75
Parkway Office, or at such time as this Satellite Dish is no longer
required by Tenant's business operation, in as good condition as when
received, excepting depreciation caused by ordinary wear and tear, damage
by fire, or act of God.
(e) Tenant will indemnify Landlord and save it harmless from and against
any and all claims, actions, damages, liability and expense in connection
with loss of life, personal injury and/or damage to property arising from
or out of the occupancy or use by Tenant of the leased premises or any part
thereof or any other part of Landlord's property, or occasioned wholly or
in part by any act or omission of Tenant, his agents, contractors, or
employees. Tenant agrees to maintain at its own expense so long as Tenant
occupies the lease premises with minimum limits of One Million Dollars
($1,000,000) for each occurrence and Five Hundred Thousand Dollars
($500,000) for each separate injury on account of bodily injuries or death
of more than one person as a result of any one accident or disaster, and
One Hundred Thousand ($100,000) on account of property damage; and Tenant
will further deposit the policy of such insurance of certificate thereof
with Landlord. Said public liability and property damage insurance
policies and any other insurance policies carried by Tenant with respect to
the Demised Premises, shall (i) be issued in form acceptable to Landlord by
good and solvent insurance companies qualified to do business in the State
in which the Demised Premises is located and reasonably satisfactory to
Landlord; (ii) to be issued in the names of Landlord, Tenant and any other
parties in interest from time to time designated in writing by notice from
Landlord to Tenant; (iii) be written as primary policy coverage and not
contributing with or in excess of any coverage which Landlord may carry;
(iv) provide for 10 days' prior written notice to Landlord for any
cancellation or other expiration of such policy or any defaults thereunder;
<PAGE>
and (v) contain an express waiver of any right of subrogation by the
insurance company against Landlord. Neither the issuance of any insurance
policy required hereunder, nor the minimum limits specified herein with
respect to Tenant's insurance coverage, shall be deemed to limit or
restrict in any way Tenant's liability arising under or out of this
lease.
(f) Landlord reserves the right to relocate at Tenant's expense the
Satellite dish at any time during the term of this Lease.
(g) Landlord assumes no responsibility for interference to Satellite Dish
caused by the development of additional buildings in Circle 75 Office Park
and Tenant agrees to assume all costs for relocation of Satellite Dish if
required due to future development.
(h) Landlord and Tenant shall have the right to terminate this lease at
any time by giving sixty days written notice to the other party.
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. No advertisement, or other notice, shall be inscribed, painted or
affixed on any part of the outside or inside of said building, except upon
the doors, and of such order, size and style, and at such places as shall be
designated by Landlord. Interior signs on doors will be supplied for tenants
by Landlord, the cost of the signs to be charged to and paid for by tenants.
2. The sidewalks, entry passages, corridors, halls, elevators and
stairways shall not be obstructed by tenants, or used by them for any purpose
other than for ingress and egress. The floors, and skylights and windows that
reflect or admit light into any place in said building, shall not be covered
or obstructed by tenants. The water closets and other water apparatus, shall
not be used for any other purpose than those for which they were constructed
and no sweepings, rubbish, or other obstructing substances shall be thrown
therein. Any damage resulting to them, or to associated systems, from misuse,
shall be repaired by tenants who, or whose clerks, agents, invitees, or
servants shall cause it.
3. No tenant shall do or permit to be done in said premises, or bring
or keep anything therein, which shall in any way obstruct or interfere with
the rights of other tenants or in any way injure or annoy them. Tenants,
their clerks and servants, shall maintain order in the building, shall not
make or permit any improper noise in the building or interfere in any way
with other tenants or those having business with them. Nothing shall be
thrown by tenants, their clerks or servants, out of the windows or doors, or
down the passages or skylights of the building. No rooms shall be occupied or
used as sleeping or lodging apartments at any time. No part of the building
shall be used or in any way appropriated for gambling, immoral or other
unlawful practices, and no intoxicating liquor or liquors shall be sold in
said building.
4. Tenants shall not employ any person other than the janitors of
Landlord (who will be provided with pass-keys into the offices) for the
purpose of cleaning or taking charge of said premises. It is understood and
agreed that the Landlord shall not be responsible to any tenant for any loss
of property from rented premises, however occurring, or for any damage done
to the furniture or other effects of any tenant by the janitor or any of its
employees.
5. No animals, birds, bicycles or vehicles shall be allowed in the
offices, halls, corridors, elevators or elsewhere in the building.
6. All tenants and occupants shall observe strict care not to leave
their windows or doors open when it rains or snows, or while air-conditioning
or heating systems are in operation, and, for any fault or carelessness in
any of these respects, shall make good any injury sustained by other tenants,
and to Landlord for damage to paint, plastering or other parts of the
building, resulting from such default or carelessness. No painting shall be
done, nor shall any alterations be made, to any part of the building by
putting up or changing any partitions, doors or windows, nor shall there be
any nailing, boring or screwing into the woodwork or plastering, nor shall any
connection be made to the electric wires or electric fixtures, without the
consent in writing on each occasion of Landlord or its Agent. All glass,
locks and trimmings in or upon the doors and windows of the building shall be
kept whole and, when any part thereof shall be broken, the same shall be
immediately replaced or repaired and put in order under the direction and to
the satisfaction of Landlord, or its Agent, and shall be left whole and
in good repair. Tenant shall not injure, overload or deface the building, the
woodwork or the walls of the premises, nor carry on upon the premises any
noisome, noxious, noisy, or offensive business.
7. Not more than two keys for each office will be furnished without
charge; the charge for additional keys shall be Five Dollars ($5.00) each. No
additional locks or latches shall be put upon any door without written
consent of Landlord. Tenants, at termination of their lease of the premises,
shall return to Landlord, all keys to doors in the building and all plastic
cards for parking and entry to building.
8. Security Cards will be required by Tenants to enter the building
during non business hours. There will be a charge of $10.00 for each security
card requested. These cards remain the property of and must be returned to the
Landlord upon expiration of the Lease, or upon Landlord's request. If any
card is not returned, or is lost or damaged by Tenant, then there will be an
additional charge of $50.00 per card at Landlord's discretion.
9. Landlord in all cases retains the power to prescribe the weight and
position of iron safes or other heavy articles. Tenants must make
arrangements with the manager of the building when the elevator is required
for the purpose of the carrying of any kind of freight.
10. The Tenant shall not (without the Landlord's prior written consent)
install or operate any electric heating device, steam engine, boiler,
machinery or stove upon the premises, or carry on any mechanical business
thereon, or do any cooking thereon, or use or allow to be used upon the
demised premises oil, burning fluids, camphene, gasoline or kerosene for
heating, warming or lighting. No article deemed extra hazardous on account of
fire and no explosives shall be brought into said premises. No offensive
gases or liquids will be permitted.
11. If tenants desire blinds or window covering of any kind over the
windows, they must be of such shape, color and material as may be prescribed
by Landlord, and shall be erected with Landlord's prior consent and at the
expense of said tenants. No awnings shall be placed on said buildings.
12. Landlord reserves all vending rights. Request for such service will
be made to Landlord.
13. If at any time the building is in charge of a night watchman, every
person entering and leaving the building is expected to be confronted by him
as to his purpose in the building, if unknown to the night watchman, and
shall sign his or her name on a form provided by the building for registering
such persons.
14. The elevators in the premises are not to be used by the tenants, or
their agents, for moving furniture into the premises, incident to the initial
occupancy, or moving furniture out, incident to vacating, except during the
hours from 5:30 p.m. to 7:00 a.m., or on Saturdays after the hour of 1:30
[Illegible], unless approved by Manager of Building.
15. Tenants and occupants shall observe and obey all parking and
traffic regulations as imposed by Landlord on the premises. Landlord in all
cases retains the power to designate "No Parking" zones, traffic right
of ways, and general parking area procedures.
16. The Landlord reserves the right to make such other rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the premises, and for the preservation of good order
therein.
17. Violation of these rules, or any amendments thereof or additions
thereto, shall be sufficient cause for termination of this Lease at the
option of Landlord in accordance with the provisions of paragraph 16 of
the Lease.
<PAGE>
FIRST AMENDMENT
TO THE LEASE BETWEEN
900 CORPORATION
AND
ENCORE SYSTEMS INC.
THIS FIRST AMENDMENT made and entered into this 28th day of July, 1993,
by and between 900 CORPORATION (hereinafter referred to as "Landlord") and
ENCORE SYSTEMS INC. (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease dated March 8, 1993
for 16,440 square feet of space in the office building known as 900 Circle 75
Parkway, Suite 1700, Atlanta, Georgia (hereinafter referred to as the
"Lease"); and
WHEREAS, the parties hereto desire to enter into this First Amendment for
the purposes hereinafter set out.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. The Demised Premises as referred to under Paragraph 1 of
the aforesaid Lease is hereby increased in size so that
it shall include an additional area containing
approximately 2,122 rentable square feet (hereinafter
defined as "Expansion Space") located on the Twelfth
Floor, (Suite 1230), (as shown outlined in red on Exhibit
A-1) increasing the total Demised Premises to
approximately 18,562 rentable square feet. Effective
September 1, 1993, all references in said Lease to the
Demised Premises shall refer to the Demised Premises as
increased in size.
2. Effective September 1, 1993, Initial Base Rent, as described in
Paragraph 3 of the Lease is hereby amended to increase
Tenant's Initial Base Rent by Forty Four Thousand Seventy
Three and 96/100 ($44,073.96) per year payable in equal
monthly installments of Three Thousand Six Hundred
Seventy Two and 83/100 ($3,672.83) per month.
3. The effective date of this amendment is
September 1, 1993.
4. CONSTRUCTION. Landlord agrees to complete
improvements to the Expansion Space as shown on the
attached Exhibit C-1 using Building Standard Materials at
Landlord's expense.
5. AFTER HOURS AIR CONDITIONING. Landlord agrees
to install a separate meter on the after hours air
conditioning system for the Expansion Space. Tenant
agrees to pay Landlord, as additional rent, all
electricity expenses relating to the operation of the
after hours air conditioning system as provided in
Paragraph 8 of the Lease. Tenant also agrees to pay for
all maintenance and repair expenses relating to the after
hours air conditioning system for the Expansion Space.
6. FIRST RIGHT OF REFUSAL. Tenant shall have the
right of first refusal on the space outlined in blue on
Exhibit "A-1" (the "Adjacent Premises") as hereinafter in
this Article set forth. If at any time during the term
hereof, Landlord shall receive a BONA FIDE offer from a
third party (not the existing Tenant, if any) for the
lease of the Adjacent Premises, which offer Landlord
shall desire to accept, Landlord shall promptly deliver
to Tenant a copy of such offer, and Tenant may, within
three (3) days thereafter, elect to lease the Adjacent
Premises on the same terms as those set forth in
<PAGE>
such offer. If Tenant shall not accept such offer within the same time
herein specified therefor, said right of refusal shall cease to exist,
but this Lease shall continue otherwise on all the other terms, covenants
and conditions in this Lease set forth.
7. COMMISSION. Pursuant to Georgia Real Estate regulation 520-1-.08,
Landlord and Tenant acknowledge and agree that Franklin Property Company
has acted as agent for the Landlord in this transaction and is to be paid
a commission by the Landlord pursuant to separate agreement. Franklin
Property Company has not acted as agent in this transaction for the
Tenant. The Griffin Company has acted as agent for the Tenant in this
transaction and the Griffin Company is to be paid a commission by the
Landlord pursuant to a separate agreement.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their respective officers duly authorized so to do as of the date
first hereinabove written.
ATTEST: LANDLORD: 900 CORPORATION
/s/ [illegible] By: /s/ Philip D. Caraci
- ----------------------------- ------------------------------
Philip D. Caraci, President
ATTEST: TENANT: ENCORE SYSTEMS, INC.
/s/ Johnny Butler By: /s/ Penelope A. Sellers
- ----------------------------- ------------------------------
Penelope A. Sellers, President
<PAGE>
EXHIBIT "C-1"
TO THE FIRST AMENDMENT
TO THE LEASE BETWEEN
900 CORPORATION
AND
ENCORE SYSTEMS INC.
[FLOOR PLAN OF ENCORE'S SPACE]
<PAGE>
EXHIBIT "A-1"
TO THE FIRST AMENDMENT
TO THE LEASE BETWEEN
900 CORPORATION
AND
ENCORE SYSTEMS INC.
[FLOOR PLAN OF THE 12TH FLOOR]
<PAGE>
SECOND AMENDMENT
TO THE LEASE BETWEEN
900 CORPORATION
AND
ENCORE SYSTEMS INC.
THIS SECOND AMENDMENT made and entered into this 31st day of January,
1994, by and between 900 CORPORATION (hereinafter referred to as "Landlord")
and ENCORE SYSTEMS INC. (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease dated March 8, 1993 for
16,440 square feet of space in the office building known as 900 Circle 75
Parkway, Suite 1700, Atlanta, Georgia (hereinafter referred to as the
"Lease"); and
WHEREAS, Landlord and Tenant Amended the Lease on July 28, 1993.
WHEREAS, the parties hereto desire to enter into this Second Amendment
for the purposes hereinafter set out.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. The Demised Premises as referred to under Paragraph 1 of the aforesaid
Lease is hereby increased in size so that it shall include an additional
area containing approximately 2,588 rentable square feet (hereinafter
defined as "Expansion Space") located on the Twelfth Floor, (as shown
outlined in red on Exhibit A-2) increasing the total Demised Premises to
approximately 21,150 rentable square feet. Effective February 15, 1994,
all references in said Lease to the Demised Premises shall refer to the
Demised Premises as increased in size.
2. Effective February 15, 1994, Initial Base Rent, as described in Paragraph
3 of the Lease is hereby amended to increase Tenant's Initial Base Rent
by Fifty Two Thousand Five Hundred Thirty Six and 36/100 Dollars
($52,536.36) per year payable in equal monthly installments of Four
Thousand Three Hundred Seventy Eight and 03/100 ($4,378.03) per month.
3. The effective date of this amendment is February 15, 1994.
4. CONSTRUCTION. Landlord shall pay the Tenant Improvement Costs up to
but not exceeding $8.00 per square foot of the Expansion Space (the
"Landlord's Allowance for Tenant Improvement Costs"). Landlord shall make
such improvements as to the Demised Premises as are designated on
Tenant's layout and specifications subject to Landlord's prior written
approval, and such improvements shall be constructed by Landlord's
contractor using building-standard materials. If the Tenant Improvement
Costs (including design costs, engineering fees, contractor fees and
Landlord's overhead and management fees) exceed the Landlord's Allowance
for Tenant Improvement Costs, then such excess shall be paid by Tenant,
as additional rent, within ten (10) days of presentation of a bill
therefore. If Tenant Improvement Costs do not exceed the Landlord's
Allowance for Tenant Improvement Costs, then the unused balance shall be
applied as a credit against the Initial Base Rent due under Paragraph 2
above. Such credit, if any, shall be recovered evenly over the Lease Term.
5. COMMISSION. Pursuant to Georgia Real Estate regulation 520-1-.08,
Landlord and Tenant acknowledge and agree that Franklin Property Company
has acted as agent for the Landlord in this transaction and is to be paid
a commission by the Landlord pursuant to separate agreement. Franklin
Property Company has not acted as agent in
<PAGE>
this transaction for the Tenant. The Griffin Company has acted as agent
for the Tenant in this transaction and The Griffin Company is to be paid
a commission by the Landlord pursuant to a separate agreement.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their respective offices duly authorized so to do as of the date
first hereinabove written.
ATTEST: LANDLORD: 900 CORPORATION
/s/ [illegible] By: /s/ Philip D. Caraci
- ----------------------------- ------------------------------
Philip D. Caraci, President
ATTEST: TENANT: ENCORE SYSTEMS, INC.
/s/ [illegible] By: /s/ Penelope A. Sellers
- ----------------------------- ------------------------------
Penelope A. Sellers, President
<PAGE>
EXHIBIT "A-2"
TO THE LEASE BETWEEN
900 CORPORATION
AND
ENCORE SYSTEMS INC.
[FLOOR PLAN]
<PAGE>
THIRD AMENDMENT
TO LEASE BETWEEN
900 CORPORATION
AND ENCORE SYSTEMS, INC.
THIS THIRD AMENDMENT made and entered into this 3rd day of January, 1995,
by and between 900 CORPORATION (hereinafter referred to as "Landlord"); and
ENCORE SYSTEMS, INC. (hereinafter referred to as "Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated March
8, 1993, for 16,440 square feet of space in the 900 Circle 75 Parkway, Suite
1700, Atlanta, Georgia (hereinafter referred to as "Lease").
WHEREAS, Landlord and Tenant Amended the Lease on July 28, 1993 and on
January 31, 1994 increasing the Demised Premises to 21,150 square feet.
WHEREAS, the parties hereto desire to enter into this Third Amendment for
the purposes hereinafter set out.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. RENT. Effective May 1, 1995, the Initial Base Rent, as described in
Paragraph 3 of the Lease shall be Two Hundred Eighty Five Thousand Five
Hundred Twenty Five and No/100 Dollars ($285,525.00) per year payable in
equal monthly installments of Twenty Three Thousand Seven Hundred Ninety
Three and 75/100 Dollars ($23,793.75).
Effective May 1, 1996, the Initial Base Rent, as described in
Paragraph 3 of the Lease shall be Three Hundred Six Thousand Six Hundred
Seventy Five and No/100 Dollars ($306,675.00) per year payable in equal
monthly installments of Twenty Five Thousand Five Hundred Fifty Six and
25/100 ($25,556.25).
Effective May 1, 1997, the Initial Base Rent, as described in
Paragraph 3 of the Lease shall be Three Hundred Seventeen Thousand Two
Hundred Fifty and No/100 ($317,250.00) per year payable in equal monthly
installments of Twenty Six Thousand Four Hundred Thirty Seven and 50/100
($26,437.50).
2. TERM. The term of this Lease is hereby extended (hereinafter referred
to as "Renewal Term") thirty six (36) months commencing on May 1, 1995 and
terminating on April 30, 1998.
3. The effective date of this Amendment is May 1, 1995.
4. Tenant accepts Demised Premises in "as is" condition.
5. INCREASE IN ANNUAL OPERATING COSTS. Paragraph 5 of the Lease is
hereby modified by changing the Budgeted Annual Operating Costs from
"Actual Operating Costs for Fiscal Year 1993" to "Actual Operating Costs
for Fiscal Year 1995". Notwithstanding anything contained herein to the
contrary, Tenant shall pay no Increases in Annual Operating Costs during
the first twelve (12) months of the Renewal Term.
6. COMMISSION. Pursuant to Georgia Real Estate Commission Regulation
520-1-.08, Landlord and Tenant acknowledge and agree that Franklin
Property Company has acted as agent for the Landlord in this transaction
and is to be paid a commission by the Landlord pursuant to a separate
agreement. Franklin Property Company has not acted as agent for Tenant in
this transaction. The Griffin Company has acted as agent for the Tenant
in this Transaction and The Griffin Company is to be paid a commission by
the Landlord pursuant to a separate agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their respective offices duly authorized so to do as of the date
first hereinabove written.
WITNESS THE FOLLOWING SIGNATURES AND SEALS:
ATTEST: LANDLORD: 900 CORPORATION
/s/ [illegible] By: /s/ Philip D. Caraci
- ----------------------------- ------------------------------
PHILIP D. CARACI, PRESIDENT
ATTEST: TENANT: ENCORE SYSTEMS, INC.
/s/ Johnny Butler By: /s/ Penelope A. Sellers
- ----------------------------- ------------------------------
Johnny Butler, Vice President PENELOPE A. SELLERS, PRESIDENT
<PAGE>
February, 1998, by and between 900 CORPORATION (hereinafter referred to
as "Landlord"); and ENCORE SYSTEMS, INC. (hereinafter referred to as
"Tenant").
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated
March 8, 1993, for 16,440 square feet of space in the 900 Circle 75
Parkway, Suite 1700, Atlanta, Georgia (hereinafter referred to as
"Lease").
WHEREAS, Landlord and Tenant Amended the Lease on July 28, 1993, on
January 31, 1994 increasing the Demised Premises to 21,150 square feet,
and on January 3, 1995.
WHEREAS, the parties hereto desire to enter into this Fourth
Amendment for the purposes hereinafter set out.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. DEMISED PREMISES. The Demised Premises as referred to under Paragraph
1 of the aforesaid Lease is hereby reduced in size so that it shall
exclude an area containing approximately 4,199 rentable square feet
located on the Seventeenth Floor (hereinafter defined as "Reduction Space
A")(as shown outlined in red on Exhibit A-4) decreasing the total Demised
Premises to approximately 16,951 rentable square feet. Effective May 1,
1998, all references in said Lease to the Demised Premises shall refer to
the Demised Premises as Reduced in size.
2. RENT. Effective May 1, 1998, the Initial Base Rent, as described in
Paragraph 3 of the Lease shall be Three Hundred Twenty Six Thousand Six
Hundred Eighty Eight and No/100 Dollars ($326,688.00) per year payable in
equal monthly installments of Twenty Seven Thousand Two Hundred Twenty
Four and No/100 Dollars ($27,224.00).
Effective May 1, 1999, the Initial Base Rent, as described in
Paragraph 3 of the Lease shall be Three Hundred Thirty Six Thousand Four
Hundred Eighty Eight and 88/100 Dollars ($336,488.88) per year payable in
equal monthly installments of Twenty Eight Thousand Forty and 74/100
Dollars ($28,040.74).
3. TERM. The term of this Lease is hereby extended (hereinafter referred
to as "Renewal Term") Twenty Four (24) months commencing on May 1, 1998
and terminating on April 30, 2000.
4. The Rent Commencement Date of this Amendment is May 1, 1998.
5. CONSTRUCTION. Tenant accepts Demised Premises in "as is" condition,
except Landlord agrees to construct sixty (60) linear feet of demising
wall using building standard materials.
6. INCREASE IN ANNUAL OPERATING COSTS. Paragraph 5 of the Lease is
hereby modified by changing the Budgeted Annual Operating Costs from
"Actual Operating Costs for Fiscal Year 1995" to "Actual Operating Costs
for Fiscal Year 1998". Tenant's Pro-Rata Share is hereby changed to
".049".
<PAGE>
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their respective offices duly authorized so to do as of the date
first hereinabove written.
WITNESS THE FOLLOWING SIGNATURES AND SEALS:
ATTEST: LANDLORD: 900 CORPORATION
/s/ [illegible] BY: /s/ Philip D. Caraci
- ----------------------------- ------------------------------
PHILIP D. CARACI, PRESIDENT
ATTEST: TENANT: ENCORE SYSTEMS, INC.
/s/ [illegible] BY: /s/ Penelope A. Sellers
- ----------------------------- ------------------------------
PENELOPE A. SELLERS, PRESIDENT
<PAGE>
[FLOOR PLAN]
<PAGE>
[LETTERHEAD]
October 12, 1993
Ms. Penelope A. Sellers
President
Encore Systems, Inc.
900 Circle 75 Parkway
Suite 1700
Atlanta, Georgia 30339
Dear Penny:
This letter confirms your agreement to lease Suite 1890 containing
approximately 189 rentable square feet located on the eighteenth (18th)
floor, 900 Circle 75 Parkway, Atlanta, Georgia for storage purposes only.
Effective November 1, 1993, the initial Lease Agreement will be increased by
$30.00 per month.
It is agreed that Landlord has no obligation to provide any services or
utilities for said storage space except elevator service and several light
fixtures, and that any such services or utilities desired by the Tenant are
the sole responsibility of Tenant. Tenant further agrees to maintain the
storage space in a neat and orderly manner in order to permit Landlord access
at any time for maintenance and servicing of Landlord's equipment if any,
located in the storage space.
Tenant's pro-rata share as provided in the Lease shall remain unchanged.
This storage space lease shall run for a month to month term. However,
Landlord or Tenant shall have the right to terminate the storage space lease
at any time upon 30 days written notice to other party.
Storage rent is due on the first of the month and should be made payable to
Travelers Insurance Company and mailed to the following:
Travelers Insurance Company
P.O. Box 905497
Charlotte, N.C. 28290-5497
Re: 501944
To signify your agreement to these terms and conditions, please sign in the
space provided below.
Very truly yours, AGREED AND ACCEPTED:
ENCORE SYSTEMS, INC.
/s/ H. C. Parrish, III
H. C. Parrish, III BY: /s/ Penelope Sellers
Senior Vice President ------------------------
NAME: Penelope A. Sellers
----------------------
TITLE: President
---------------------
DATE:
----------------------
<PAGE>
WHEREAS, Landlord and Tenant Amended the Lease on July 28, 1993, on
January 31, 1994 increasing the Demised Premises to 21,150 square feet, on
January 3, 1995, and on February 9, 1998.
WHEREAS, the parties hereto desire to enter into this Fifth Amendment
for the purposes hereinafter set out.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. DEMISED PREMISES. Paragraph 1 of the Fourth Amendment to the Lease is
hereby modified by changing the date from "May 1, 1998" to "March 1,
1998."
2. RENT. Commencing March 1, 1998 through April 30, 1998, the Initial Base
Rent, as described in Paragraph 3 of the Lease is hereby decreased to
Two Hundred Fifty Four Thousand Two Hundred Sixty Five and No/100
Dollars ($254,265.00) per year payable in equal monthly installments of
Twenty One Thousand One Hundred Eighty Eight and 75/100 Dollars
($21,188.75).
3. The Effective Date of this Amendment is March 1, 1998.
4. INCREASE IN ANNUAL OPERATING COSTS. Effective March 1, 1998. Paragraph 5
of the Lease is hereby modified by changing the Tenant's Pro-Rata Share
to ".049".
5. COMMISSION. Pursuant to Georgia Real Estate Commission Regulation
520-1-.08, Landlord and Tenant acknowledge and agree that Franklin
Property Company has acted as agent for the Landlord in this transaction
and is to be paid a commission by the Landlord pursuant to a separate
agreement. Franklin Property Company has not acted as agent for Tenant
in this transaction.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their respective offices duly authorized so to do as of the
date first hereinabove written.
WITNESS THE FOLLOWING SIGNATURES AND SEALS:
ATTEST: LANDLORD: 900 CORPORATION
/s/ [illegible] BY: /s/ Philip D. Caraci
- ----------------------------- ------------------------------
PHILIP D. CARACI, PRESIDENT
ATTEST: TENANT: ENCORE SYSTEMS, INC.
/s/ [illegible] BY: /s/ Penelope A. Sellers
- ----------------------------- ------------------------------
PENELOPE A. SELLERS, PRESIDENT
<PAGE>
5/13/92
AMENDED AND RESTATED
PREFERRED VENDOR AGREEMENT
THIS AMENDED AND RESTATED PREFERRED VENDOR AGREEMENT is made effective as
of the 15th day of May, 1992 by and between Holiday Inns, Inc. ("HII") and
Encore Systems, Inc. ("Vendor") as an amendment to and complete restatement of
that certain Preferred Vendor Agreement between the parties hereto executed on
August 23, 1991 (the "Original Agreement").
WHEREAS, Vendor is in the business of providing automated computerized
property management systems to hotels such as the hotels owned, managed or
licensed by HII, Holiday Inns Franchising, Inc. or Affiliates (as that term is
defined herein); and
WHEREAS, Vendor desires to provide current and future hotels owned, managed
or licensed by Holiday Inns, Inc., Holiday Inns Franchising, Inc. or their
Affiliates (such hotels are referred to individually as a "Hotel" and
collectively as the "Hotels") with its property management system software by
licensing certain software and providing certain services to those Hotels and by
developing software to allow Vendor's property management system to interface
with Holidex and with certain third party systems so as to provide capabilities
to Hotels that are currently provided by HII's Hotel Management System (HMS) and
Basic Front Desk System (BFDS); and
WHEREAS, HII is willing to provide certain interface specifications to
Vendor and utilize Vendor's property management systems at Hotels pursuant to
the terms and conditions of this Agreement;
WHEREAS, HII intends to implement a program whereby HII will provide the
Hotels with a basic Property Management System, including Vendor's property
management system software and certain computer hardware and devices, and HII
desires for Vendor to provide maintenance, training and support for such
software.
NOW THEREFORE, for good and valuable consideration, including the
additional covenants and obligations of each party created under this amendment
to the Original Agreement, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
1.1 ACCEPTANCE TEST/CERTIFICATION. HII's criteria for evaluating and
approving interfaces for use with Holidex. Each specification delivered to
Vendor will include the Acceptance Test/Certification criteria for the software
to be developed pursuant to the specification. Such criteria may be modified
from time to time by HII within its reasonable discretion. The test procedures
are outlined on Exhibit 1.1.
1.2 AFFILIATE. Any person or entity that directly or indirectly controls,
is ultimately controlled by, or is under common control with HII or Holiday Inns
Franchising, Inc., the parent entity or ultimate group parent of either such
corporation (or the successors of either such corporation), as well as any
partnership, joint venture or other business organization in which HII or
Holiday Inns Franchising, Inc. or any person or entity that directly or
indirectly controls, is ultimately controlled by, or is under common control
with HII or Holiday Inns Franchising, Inc., the parent entity or ultimate group
parent of either such corporation (or the successors of either such corporation)
is the general partner, the holder of a majority of the limited partnership or
other equity interests, or a joint venturer. For purposes of this Section 1.2, a
person or entity shall be deemed to control another person or entity (and the
persons or entities which it controls) if:
(a) It holds at least twenty percent of the outstanding shares of voting
stock (or securities convertible into at least twenty percent of the
outstanding shares of voting stock);
(b) It has the ability to elect at least one-third of the members of the
Board of Directors or other governing body of the entity; or
(c) It has the right or ability to control or directly influence the
management activities or objectives of the entity.
The term "Affiliate" shall also mean any third party engaged by HII or any other
Affiliate to provide installation, training, or implementation with respect to
the System Software.
1.3 BASIC PMS SYSTEM. The hardware, software and services provided to the
Hotels by HII, or which the Hotels are required by HII to obtain, including
Vendor's front desk system software, One Way Interface, the Two Way Interface
(as those terms are defined herein), an approved Point of Sale interface, an
approved
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Call Accounting interface and support services. The Basic PMS System is more
particularly described on Exhibit 1.3.
1.4 HOLIDAY INN TELECOMMUNICATIONS NETWORK. A system of the computerized
hardware, software, satellite equipment and services, as may be modified from
time to time, owned or licensed to Holiday Inns, Inc. or its Affiliate,
including but not limited to the Holidex Reservation System. For purposes of
this Agreement, the Holiday Inn Telecommunications Network shall be referred to
as "Holidex". Holidex capabilities include, but are not limited to, the handling
of reservations (recording, modifying and cancelling), electronic funds
transfers, credit authorizations, and travel agent commission payments.
1.5 MIP (MULTIPLE INTERFACE PROCESSOR). Software owned by HII that enables
approved third party hotel automation systems to interface with certain LAN
based property management systems at Hotels so that data can be sent and
received by each system in usable form.
1.6 ONE WAY INTERFACE. A two-way communications link between Holidex and
Vendor's system that enables data to be transferred from Holidex to Vendor's
systems in a form that is usable by Vendor's System. The specifications for the
One Way Interface will be developed by HII.
1.7 PMS SOFTWARE. Vendor's Front Desk System Software, including DB/C, as
more particularly described on Exhibit 1.3.
1.8 PREFERRED VENDOR. A vendor of software, hardware and services that
meets and maintains HII requirements as set forth in this Agreement, including
software development and support requirements and HII's Customer Service
Standards. HII's Customer Service Standards are set forth on Exhibit 1.8.
1.9 REVENUE AND OCCUPANCY TRANSMISSION. Daily transmission of a data file
containing revenue and occupancy information which is produced by the night
audit process in a format specified by HII.
1.10 ROLLOUT. HII's implementation of its plan to provide a Basic PMS
System to existing Hotels, commencing on or about June 1, 1992 and continuing
thereafter for a period of approximately 28 months.
1.11 SYSTEM SOFTWARE. The Vendor software included and to be included in
the Basic PMS System distributed to the Hotels and Affiliates by HII, including
PMS Software and the interfaces and software to be developed by Vendor pursuant
to this Agreement.
1.12 THIRD PARTY INTERFACE. A two-way communications link between Vendor's
system and other vendors' systems that provide
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additional automation to hotel operational functions (e.g. Point of Sale
systems, in-room movie systems, credit card readers, energy efficiency systems).
Such Third Party Interface will enable data to be transferred to and from
Vendor's system and the third party systems in usable form.
1.13 TWO WAY INTERFACE. A two-way communications link between Holidex and
Vendor's system that enables data, including but not limited to detailed
checkout data and inventory updates data, to be transferred to and from Holidex
in a form that is usable by Holidex and by Vendor's system. Time frames for
HII's delivery of the specifications for Phase I of the Two Way Interface (for
Data Collection/Detailed Checkout) and for the joint development of the
specifications for Phase II of the Two Way Interface (for Inventory Updates) are
set forth in Article IV.
1.14 SEAMLESS INTERFACE. A communications link between Holidex and Vendor's
system that enables all required functions to be performed, including, but not
limited to, the functions performed by the Two Way Interface, and that
eliminates any and all bridging between Holidex and Vendor's system.
ARTICLE II
PURPOSE
The parties understand and agree that this Agreement has been entered into
for the two separate but related purposes described below.
2.1 PMS SYSTEM: ROLLOUT. Vendor will assist HII with the Rollout and the
distribution of the System Software by making available to HII the System
Software and services to be included within the Basic PMS System to be provided
to the Hotels by HII, and by establishing the terms and conditions pursuant to
which Vendor and HII will provide training, installation and support services to
HII and the Hotels throughout the term of this Agreement. Under this Agreement,
the above described services and assistance by Vendor shall relate to hotels
located in the United States, Canada and Mexico.
2.2 SOFTWARE DEVELOPMENT. Vendor will develop software to interface with
only certain parts of Holidex as specified by HII and only those functions that
HII may specifically provide for in this Agreement. This Agreement sets forth
the terms and conditions upon which HII will (i) supply specifications to allow
Vendor to create the interface software which will become a part of the Basic
PMS System, (ii) consult with Vendor in the development of its software, and
(iii) test and certify such software for use with Hotels.
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Vendor understands and agrees that Holidex is not only one of the most
advanced systems in the hotel industry but that it represents a substantial
investment on the part of HII and is in fact one of the primary features that
gives value to the Holiday Inn hotel license. Vendor also understands and
agrees that the integrity and proper functioning of Holidex is of the utmost
importance to HII and that damage to Holidex caused by the interconnection
and/or operation of other software or computers could cause severe financial
and other harm to HII's business. For this reason, HII will not allow such
interconnection without prior testing and written certification by HII of
the interface software.
Vendor understands that HII has not previously developed the Two Way
Interface and other specifications or testing methods being provided hereunder
and is doing so as an accommodation to Vendor.
ARTICLE III
ROLLOUT AND DISTRIBUTION OF PMS SYSTEM
3.1 GENERAL. This Article III addresses the terms and conditions pursuant
to which HII and Vendor will cooperate to provide HII's Basic PMS System to the
Hotels, including installation and implementation of such system and training of
employees and agents of HII and the Hotels, as well as ongoing support and
maintenance of the System Software.
3.2 DISTRIBUTION OF SYSTEM SOFTWARE. Subject to the terms and conditions
set forth in this Agreement, and in addition to the rights and licenses granted
elsewhere in this Agreement, Vendor hereby grants to HII the perpetual,
exclusive right and license to (i) market and distribute site licenses and
support agreements for the System Software to itself, the Affiliates and the
Hotels, either separately or as a component of the Basic PMS System, and (ii)
copy and distribute to each Hotel and Affiliate which has executed Vendor's site
license agreement, one copy of the most recent version of the PMS Software and
all other System Software, including the software and interfaces developed
pursuant to this Agreement, any software created, licensed or owned by third
parties necessary for the use of the System Software (other than DOS, UNIX or
other operating systems, compilers other than DB/C, Novell or other LAN software
or Holidex), in machine readable object code only and on such media as HII and
the licensee deem appropriate, as well as one or more copies of the user manuals
and support documentation associated therewith, one copy of such manuals and
documentation to be furnished to HII at no additional cost by Vendor. HII
understands that its right to market and distribute the System Software is
limited to HII, the Affiliates and the Hotels and agrees not to market or
distribute the System Software to any other party without the prior approval of
Vendor.
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3.2.1 NUMBER OF SITE LICENSES. HII shall initially be entitled to market
and distribute that number of site licenses as defined and set forth on Exhibit
3.2.1 hereto, and shall be entitled to distribute additional site licenses upon
payment of the additional fees specified therefor on such Exhibit 3.2.1. HII
shall be entitled to distribute copies of the System Software to its Affiliates
involved in the training, installation or implementation of the Basic PMS System
and any copies so distributed shall not be deducted from the number of licenses
which may be distributed by HII without additional payment. Any Affiliate
receiving the System Software for HII shall execute a Site License or similar
agreement appropriately restricting its use to such purposes. Vendor's software
modules not included within the System Software and other software and
interfaces developed by Vendor pursuant to this Agreement may be licensed or
distributed by HII to the Hotels and Affiliates pursuant to the terms of the
Site License (as defined below) and upon the rates set forth in Exhibit 3.2.1.
3.2.2 LICENSE AGREEMENTS. The System Software shall be licensed pursuant to
the terms and conditions contained in Vendor's site license agreement as set
forth on Exhibit 3.2.2 hereto (the "Site License" ). The Site License specifies
the terms and conditions under which an end user receives, holds and uses the
System Software and the associated manuals and support documentation, as well as
the respective obligations of the end user and Vendor. The Site License shall
grant any and all appropriate rights to use software created, licensed or owned
by third parties, other than DOS, UNIX or other operating systems, compilers
other than DB/C, Novell or other LAN software or Holidex, that is necessary for
the use of System Software. Neither Vendor nor HII shall change or modify the
terms of the Site License without the written approval of the other, which
approval will not be withheld unreasonably. Following the approval of any
modified form of Site License, HII shall discontinue its use of the previous
form of license and shall thereafter market and distribute the System Software
only pursuant to the terms of the modified Site License. Vendor agrees to
execute and deliver Site Licenses for the Hotels and HII and the Affiliates upon
request and without payment of any additional consideration therefor.
3.2.3 RESTRICTIONS. HII shall make no representations or warranties to the
Hotels or any third party attributable to Vendor with respect to the System
Software or any other product of Vendor, except for those made expressly by
Vendor in the Site License or Vendor's published user documentation. HII
understands that any modification or addition to the System Software by HII, the
Affiliates or
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any Hotel that is not performed in accordance with Section 4.4 of this Agreement
will void Vendor's warranty for such software. Notwithstanding any provisions of
this Agreement to the contrary, HII agrees that it will not distribute or
license the System Software to any hotel other than hotels which are either
owned or leased by or which use or are licensed to use the proprietary marks or
logos of HII, Holiday Inns Franchising, Inc. or any Affiliate, unless Vendor
approves in advance of the licensing or distribution of the System Software to
such hotel, which approval shall not be unreasonably withheld, conditioned or
delayed.
3.2.4 OPTIONAL RIGHT TO SUBLICENSE TO HOTELS. It is understood and agreed
by the parties hereto that HII does not presently intend to sublicense the
System Software, but will simply be distributing the System Software to the
Hotels for the benefit of Vendor. Nevertheless, Vendor agrees that in the event
HII desires to grant sublicenses to Hotels or Affiliates for the System
Software, HII shall be entitled to do so upon advance notice to Vendor and
provided that the terms and conditions of any such sublicense contain provisions
substantially the same as those in the Site License which protect the
proprietary rights of Vendor and do not expand the scope of Vendor's obligations
beyond that included in the most recent version of the Site License and HII
otherwise complies with the terms and conditions of this Agreement.
3.2.5 CERTIFICATION OF BASIC PMS SYSTEM. Vendor has reviewed the
configuration of the Basic PMS System described on Exhibit 1.3 hereto. Vendor
represents and warrants that the System Software, when properly installed as
part of the Basic PMS System will operate substantially in accordance with the
specifications for the System Software as set forth in the System Highlights
attached as Exhibit 3.2.5 hereto and as provided in the user documentation
provided for such software. The foregoing warranty applies only to the Basic PMS
System as described on Exhibit 1.3 and the equipment listed on the schedule of
equipment set forth in Exhibit 3.2.5, which schedule may be amended from time to
time as the parties both agree, and shall not apply to any additional software
or hardware added to the system without the prior written approval of Vendor.
Except for the above-described certification, Vendor makes no representation or
warranty as to the equipment supplied by anyone other than Vendor.
3.2.6 AUTHORITY. Vendor represents and warrants to HII that it has the
right and the authority to grant to HII, the Affiliates and the Hotels, the
rights and licenses set forth in this Agreement and contemplated by the Exhibits
attached hereto.
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3.3 DELIVERIES. Within ten (10) days following HII's request, Vendor shall
deliver to HII, in machine readable form and on media acceptable to HII (i) two
copies of the complete object code for the PMS Software and those interfaces
that have passed the HII Acceptance Test and have been certified in writing by
HII in a format which will enable HII to generate sufficient copies of
executable versions of the System Software for distribution as contemplated by
this Article III, (ii) one complete copy of the most recent version or edition
of all end user documentation and manuals, and such additional copies of such
materials as HII may request (provided that HII shall reimburse Vendor for its
costs in preparing such copies), and (iii) two complete copies of all training
manuals, materials, tutorials and other documents in Vendor's possession which
are customarily used by Vendor in training new users of the PMS Software. Vendor
will deliver to HII copies of all upgrades, enhancements and modifications to
the System Software, together with one copy of any new or revised user
documentation and other materials described in this Section 3.3, prior to their
approval for general release. Vendor will provide HII with an additional copy of
the user manual, training materials and other items described in this Section
3.3, promptly following each revision or modification thereto by Vendor.
3.3.1 RETROFITTING. The parties recognize that some Hotels have
purchased property management systems from Vendor previously, and that
other Hotels and Affiliates will take delivery of the Basic PMS System from
HII prior to completion of all required interface and software development
being performed by Vendor pursuant to Article IV hereof. At the time of
development completion of each interface or other component of the System
Software, HII shall determine the most efficient manner of distribution of
the newly developed interfaces and software to Hotels and HII and the
Affiliates who have executed Site Licenses for the System Software and such
distribution shall be implemented by Vendor in cooperation with HII as a
part of its software support obligations. All such software distributed to
licensees shall become a part of the "System Software" upon receipt by the
licensee. HII will pay the cost of distribution of the newly developed
interfaces and software (but not upgrades or enhancements to the System
Software) to such Hotels and Affiliates, including telephone expenses if
distribution is accomplished via telephone. Vendor will instruct Hotels and
Affiliates on the proper installation and usage of the software and
interfaces. If on-site visits by Vendor are necessary, as determined by
HII, Vendor will perform such on-site visits and either HII or the Hotels
and Affiliates will be billed according to Exhibit 3.3.1.
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3.3.2 UPGRADES AND ENHANCEMENTS. Pursuant to the Support Agreement to
be entered into by Vendor with each of the Hotels, Vendor will agree to
provide ongoing support and maintenance of the PMS Software and other
System Software developed pursuant to this Agreement. Vendor will provide
HII with advance notice and copies of all upgrades, enhancements and
modifications to the PMS Software and other System Software distributed by
HII or developed by Vendor pursuant to this Agreement, together with any
support documentation associated therewith. Vendor will not distribute such
upgrades, enhancements and modifications to the Hotels and Affiliates until
the same has been evaluated and approved by HII or its designee. If any
upgrades, modifications and enhancements to the System Software are
approved by HII, Vendor will provide HII with two copies of such software
and all associated user documentation therefore, and shall also deliver the
source code and other requisite materials into escrow as provided below.
Distribution to the Hotels and Affiliates of all upgrades, enhancements and
modifications approved by HII shall be performed by Vendor as a part of its
support obligations described in Section 3.5 below; provided, however, that
if such upgrade, enhancement or modification requires on-site installation
or training, Vendor shall provide such services only at the specific
request of HII at the rates set forth in Exhibit 3.3.1. Vendor shall
provide annually a minimum of one upgrade to the System Software.
3.3.3 ESCROW ARRANGEMENT. At the time of execution of this Agreement,
Vendor will place with an escrow agent acceptable to HII, to the extent
such materials are available, copies of all components of the System
Software consisting of the full source code language of each component of
the System Software, including, but not limited to, utilities and
interfaces in magnetic tape or other media specified by HII, together with
complete system programming, maintenance documentation, including, but not
limited to, system documentation describing the interrelationships and
functions of each module and component, and all other necessary and
available information which will enable a reasonably skilled computer
programmer or analyst to reconstruct, maintain, or enhance the System
Software without the aid of Vendor or any other person or reference to any
other materials. Similar materials relating to the interfaces and other
software developed by Vendor pursuant to this Agreement, and all upgrades,
modifications, enhancements and corrective releases shall be delivered to
the escrow agent promptly following acceptance by HII, but no later than
the next quarterly deposit date following the date of general release or
release to the Hotels. The foregoing information and materials are
hereinafter referred to as the "Materials". The Materials will be held in
escrow
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by the escrow agent pursuant to the terms of the escrow agreement in the
form attached as Exhibit 3.3.3 hereto (the "Escrow Agreement"). The escrow
agent may from time to time inspect and test the Materials to ensure that
the Materials are sufficient to allow a reasonably skilled computer
programmer or analyst to reconstruct, maintain, or enhance the System
Software without the aid of Vendor or any other person or reference to any
other materials. If the Materials deposited by Vendor are insufficient for
such purpose, Vendor shall deposit such additional Material as HII or the
Escrow Agent may request, regardless of whether or not such material is
readily available to Vendor or must be specifically created. Upon the
occurrence of any of the events described in Section 2(a) or Section 3 of
Article V of the Escrow Agreement, HII shall be entitled to obtain the
Materials from Vendor (at no cost to HII) or the escrow agent (pursuant to
the terms of the Escrow Agreement), and HII shall be entitled to use the
Materials as it may deem necessary or desirable in order to exercise any of
the rights and benefits afforded to HII, the Affiliates or the Hotels under
this Agreement or the Escrow Agreement. HII will pay the reasonable cost of
maintaining the Materials in escrow and will have title to the copies of
the Materials and full rights to use and license the System Software in
executable code to Hotels and Affiliates upon the occurrence of any of the
events set forth in Section 2(a) or Section 3 of Article V of the Escrow
Agreement; provided, however, in the event HII does license the System
Software, HII shall be required to pay the license fees set forth on
Exhibit 3.2.1 (for additional Site Licenses above the number for which HII
has prepaid), provided that Vendor has continued as a going concern or its
successor continues to fully support the System Software.
3.4 INSTALLATION AND TRAINING. Installation, implementation and training
with respect to the System Software and the Basic PMS System will be performed
either by Vendor or HII (or its subcontractors or other designees) in accordance
with the following procedures.
3.4.1 INITIAL TRAINING BY VENDOR. In addition to services provided by
Vendor pursuant to Sections 3.4.2 and 3.4.4 below, commencing with the
beginning of the Rollout and continuing thereafter through the completion
of the training of HII personnel contemplated by Section 3.4.5 (but in any
event through January 31, 1994), Vendor will install and implement the
Basic PMS System, including the equipment and the System Software, and
train the designated employees of the Hotels and Affiliates in the use of
the Basic PMS System, but only for those Hotels and Affiliates designated
in writing by HII. Vendor acknowledges that such Hotels may consist of (i)
Hotels that were existing Holiday Inn brand
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hotels on March 31, 1992 and obtained the Basic PMS System from HII
pursuant to the Rollout ("Existing Hotels"), (ii) Hotels that become
Holiday Inn brand hotels after March 31, 1992 ("New Hotels"), and (iii)
Hotels that have obtained equipment and PMS Software from Vendor prior
to the date of this Agreement ("Vendor Supplied Hotels") but for which
installation, implementation and training has not yet commenced.
Vendor's installation, implementation and training services shall
include those services described in Exhibit 3.3.1 hereto and comply with
HII's service standards as set forth in Exhibit 1.8 to this Agreement.
Vendor will be available to provide installation, implementation and
training at the Hotels and Affiliates designated by HII in accordance
with a schedule established by HII and reasonably acceptable to Vendor.
The services provided by Vendor to Existing Hotels and Vendor Supplied
Hotels shall be billed to HII at the Special HII Rates set forth on
Exhibit 3.3.1. Vendor shall not charge any Existing Hotel or Vendor
Supplied Hotel for its installation, implementation and training
services, unless such services are approved in advance and in writing by
HII with respect to each such Hotel. Installation, implementation and
training at New Hotels shall be performed at the Special HII Rates set
forth on Exhibit 3.3.1 hereto and shall be billed directly to the
appropriate Hotel.
3.4.2 TRAINING BY HII. Beginning with the completion of the training
of HII personnel described below in Section 3.4.4 and continuing throughout
the duration of the Rollout, installation, implementation and training with
respect to the Basic PMS System at Existing Hotels will be primarily the
responsibility of HII. Nevertheless, Vendor will provide training and
implementation for the Hotels and Affiliates designated by, and on a
reasonable schedule acceptable to, HII to enable HII sufficient time to
develop its own training methods. Installation, implementation and training
at the New Hotels during this same period may be performed either by HII or
by Vendor at the rates set forth on Exhibit 3.4.2 hereto, as determined by
each New Hotel. Vendor shall provide such support and assistance as may be
requested by HII in support of HII's installation, implementation and
training services, with such assistance and support being charged to HII at
the rates set forth on Exhibit 3.4.2 hereto. HII and Vendor acknowledge
that such continuing assistance by Vendor is meant only as backup technical
support for HII's or its contractor's training efforts and that Vendor is
not required to provide routine "help desk" support in connection with the
training and installation efforts of HII and its contractors. HII
will provide to Vendor at no charge one copy of all training materials and
any extraordinary equipment required to utilize such materials properly,
solely for the use by
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Vendor in providing training, maintenance and support services to Hotels
and Affiliates (but to no other party), and Vendor shall not reproduce,
market, distribute or otherwise utilize training materials developed by HII
or its contractors (other than Vendor) with respect to any party other than
Hotels and Affiliates.
3.4.3 CERTIFICATION OF HII TRAINING. Following the execution of this
Agreement, HII intends to contract with a third party to develop a training
program for use of the System Software and the Basic PMS System. At the
request of HII, Vendor will review and evaluate HII's training program to
determine whether or not such training is, in Vendor's reasonable opinion,
equivalent to the training routinely provided by Vendor. If Vendor
determines that the training program developed by HII and its contractors
(the "HII Training Program") is not so equivalent, it shall notify HII in
writing within 10 days following its evaluation of the HII Training
Program, which notice shall clearly describe the reasons why the HII
Training Program is not equivalent to the training routinely provided by
Vendor. The foregoing evaluation process shall be repeated until Vendor has
certified the HII Training Program as being equivalent to training
routinely made available by Vendor. The foregoing notwithstanding, the HII
Training Program shall be deemed the equivalent of Vendor's training if the
majority of any group of persons selected by HII and trained under the HII
Training Program score as high or higher as any group of persons selected
by HII and trained by Vendor on any test developed by HII to measure the
effectiveness of training methods for the System Software. Any person who
completes the HII Training Program after it has been certified by Vendor
shall be deemed to have received sufficient and Vendor equivalent training
for all purposes of this Agreement and the Support Agreement between Vendor
and the Hotel or Affiliate where such person is employed. Regardless of
whether or not the HII Training Program has been "certified" by Vendor, any
person who scores at least seventy percent on any test developed by HII to
measure the effectiveness of training methods for the System Software shall
be deemed to have received training equivalent to that provided by Vendor.
3.4.4 AFTER ROLLOUT. Following the completion or expiration of the
Rollout and continuing throughout the term of this Agreement, installation,
implementation and training may be performed by either HII (or its
designees) or Vendor, as selected by each Hotel. In the event a Hotel
selects Vendor to provide such services, Vendor will make its services
available at the rates set forth on Exhibit 3.4.2 and will comply with
HII's applicable service standards.
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Throughout the term of this Agreement, Vendor shall provide support and
assistance to HII as described in Section 3.4.2 above and at the rates set
forth on Exhibit 3.4.2 then in effect.
3.4.5 TRAINING OF HII PERSONNEL. Promptly following the execution of
this Agreement, Vendor and HII shall implement a formal training program
whereby qualified employees of Vendor will train and instruct the employees
and other persons designated by HII in the installation, implementation
and use of the PMS Software and methods of training Hotel personnel in the
proper use of the System Software and the Basic PMS System. Such training
shall be conducted at times and locations reasonably requested by HII and
at no additional cost to HII (other than costs associated with the
transportation, lodging, meals and other travel expenses of its personnel
attending such training). The training will continue until HII has a
sufficient number of personnel available to conduct the end user training
at the Hotels; provided, however, that any training by Vendor in excess of
720 hours (which may be divided into such increments as HII or its
contractors deem necessary) will be compensated by HII based upon Vendor's
reasonable costs in providing such additional training. Similar training
will be made available at no additional cost with respect to upgrades,
enhancements and modifications to the PMS Software and following delivery
and acceptance of each interface and other software component of the System
Software being developed by Vendor hereunder.
3.5 SOFTWARE SUPPORT. Throughout the ten (10) year term of this Agreement,
Vendor hereby agrees to make available to each Hotel and Affiliate which has
licensed the PMS Software, and received or agreed to receive training by Vendor,
HII or HII's designees, whether pursuant to the Rollout or otherwise, its
software maintenance and support services in accordance with the terms and
conditions of its software support agreement set forth as Exhibit 3.5, attached
hereto and incorporated herein by this reference (the "Support Agreement").
Vendor covenants and warrants that such support and maintenance services shall
be performed in a manner consistent with the Service Standards attached as
Exhibit 1.8 and the terms and conditions of the Support Agreement between Vendor
and each Hotel and Affiliate. Vendor's fees for software support and maintenance
pursuant to the Support Agreement shall, for a period of one year beginning with
the date hereof, be no more than $1.25 per room per month. Thereafter, Vendor
may increase the software support fees as may be necessary as a result of costs
incurred by Vendor in providing such support; provided, however, that Vendor
shall not increase the support fees more than one time during any calendar year
and that Vendor shall not increase its software support fees by more than five
(5) percent during the second and third years under
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this Agreement, six (6) percent during the fourth and fifth years under this
Agreement and seven (7) percent per year thereafter for the remainder of the
term of this Agreement. Any modifications to the form of Support Agreement shall
be handled in the same manner as described in Section 3.2.2 with respect to Site
Licenses. If, in Vendor's reasonable judgement, a Hotel has not received
installation and training by HII or HII's designees, Vendor shall so notify HII
and shall have the option to refer usage and operation questions from that Hotel
to HII until such time as HII confirms to Vendor that HII or HII's designees
have provided training to the appropriate individual at the Hotel.
3.6 BILLING SERVICES. As part of its monthly invoicing process for Holidex
Reservation System fees and other fees, HII will invoice the Hotels for software
support fees and other charges due Vendor pursuant to Support Agreements between
Vendor and each Hotel which has entered into a Site License and Support
Agreement. Provided that Vendor supplies HII with the following information on
such charges and Hotel by the fifth (5th) day of a month in a mutually agreeable
format on a diskette or other suitable computer readable media or by means of
telecommunications network, HII will cause the amount of such charges to be
deposited by wire transfer into the account of Vendor on or before the fifteenth
(15th) day of such month:
(a) Hotel five-character Holidex code,
(b) Hotel name and address,
(c) Services provided,
(d) Amount of telephone charges, including any late charge or penalty
to be invoiced, and
(e) Any other supporting information that HII may reasonably request.
3.6.1 NON-PAYMENT BY HOTELS. The amount of payments received for
software support fees shall be forwarded to Vendor each month with a
statement indicating the amount received from each Hotel. If HII receives
only partial payment from a Hotel, HII will forward payment in full to
Vendor for the software support fees due for that particular month and
shall advise Vendor of the Hotel's failure to make full payment. In such
circumstance, HII shall have the right to require Vendor to declare the
Hotel in default of the Site License and/or Support Agreement. In the event
HII notifies Vendor to declare the Hotel in default, HII's billing and
payment obligation to Vendor shall terminate 30 days after such notice
unless the Hotel has cured the default by paying HII all amounts HII has
invoiced to such Hotel. Notwithstanding the foregoing, if a Hotel makes no
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payment of the software support fee or does not pay the amount invoiced for
Vendor's services due to a dispute with Vendor, HII shall notify Vendor of
such non-payment but shall not be required to pay Vendor the amount due
from the Hotel until such time as Vendor and the Hotel have resolved such
dispute and HII has received all amounts previously withheld by the Hotel.
Furthermore, Vendor acknowledges that HII will be making payment of the
support fees and other charges to Vendor in advance of payment to HII from
the Hotels, and if any Hotel fails to pay amounts owed after the exercise
of normal collection efforts by HII (which shall not require formal legal
action or termination of any franchise agreement with such Hotel), Vendor
will reimburse HII for the amounts uncollected.
3.6.2 BILLING CHARGE. In exchange for the billing services to be
provided Vendor by HII hereunder, Vendor shall pay to HII an amount equal
to three dollars ($3.00) per month for each Hotel for which HII acts as the
billing agent. Vendor and HII acknowledge that as of the date of this
Agreement, HII estimates that an amount equal to five dollars ($5.00) per
month for each Hotel reflects fairly the costs which will be incurred by
HII in providing such billing services. Notwithstanding such current
estimate, HII has agreed to provide the billing services for $3.00 per
month for each Hotel in order to facilitate the performance of this
Agreement. Vendor and HII further agree that HII shall be entitled to
increase such charge in order to reflect the actual costs incurred by HII
as follows: after the second year under the Agreement, an increase to $3.50
per month for each Hotel; after the fourth year, an increase to $4.00 per
month for each Hotel; after the sixth year, an increase to $4.50 per month
for each Hotel; and after the eighth year, an increase to $5.00 per month
for each Hotel. The billing charge shall be setoff against amounts
otherwise due Vendor as calculated by HII from the Hotels and shall be
reflected on the monthly statements delivered to Vendor hereunder. Vendor
shall be responsible for remitting to the appropriate authorities any and
all sales taxes due on the Software Support fees and other charges
collected by HII.
3.6.3 TERMINATION. In the event Vendor determines to terminate the
Site License and/or Support Agreement with a Hotel due to the Hotel's
default under the Site License or Support Agreement, Vendor shall provide
HII with 15 days' prior written notice of such determination and may
exercise any rights it may have under existing agreements with the Hotel,
including the right to disable Vendor's Front Desk System Software or other
software provided by Vendor to the Hotel, provided that in no event shall
Vendor take any action that prevents the Hotel's access to Holidex through
software provided by HII or that otherwise will adversely
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affect Holidex or Holidex services to or at the Hotel or other Hotels. HII
will provide Vendor with instructions describing the manner in which the
System Software may be disconnected from Holidex. Except as set forth
above, HII shall in no event be responsible for the enforcement of Vendor's
rights under the Support Agreement, or for collection of unpaid or
partially paid invoiced amounts. In the event Vendor elects to disable or
otherwise interfere with any party's use of the System Software it will
indemnify and hold HII and its Affiliates harmless from and against any and
all claims, demands, costs and expenses resulting from such action.
3.6.4 REPRESENTATION. Vendor hereby represents and warrants to HII
that the software support fee to be charged to the Hotels is substantially
equivalent to the fees charged to parties other than the Hotels which have
purchased software support services from Vendor for the PMS Software and
are based upon the costs and expenses Vendor reasonably anticipates in
making such support services available to the Hotels.
3.6.5 VENDOR'S FAILURE TO PROVIDE SUPPORT. In the event Vendor fails
to provide support and maintenance of the System Software in the manner
contemplated by this Agreement and the Support Agreements with the Hotels,
then HII shall be entitled to withhold all or any portion of the support
fees and other charges collected by HII from the Hotels and Affiliates
under the Support Agreement. Any amounts so withheld by HII shall be paid
to Vendor upon substantial completion of its support and maintenance
obligations; provided, however, that HII shall be entitled to retain an
amount equal to its costs and expenses in performing support and
maintenance services which Vendor was obligated to provide, including the
costs of obtaining the Materials from escrow and the fees and expenses of
third parties retained by HII to perform Vendor's support and maintenance
obligations. HII shall notify Vendor promptly in the event it intends to
withhold any portion of the amounts collected pursuant to the Support
Agreements due to a failure by Vendor to provide support and maintenance of
the System Software, and afford Vendor a reasonable opportunity (not to
exceed 30 days) to perform its obligations. If Vendor has not corrected
such failure within the time afforded, then HII, upon five (5) days advance
written notice may withhold the amounts collected pursuant to this Section
3.6. The withholding of funds pursuant to this Section 3.6.5 shall be in
addition to and not in lieu of any other rights and remedies of HII. The
withholding of funds by HII shall not relieve Vendor of any of its
obligations under this Agreement or the Support Agreements with the Hotels
and Affiliates.
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3.6.7 TERMINATION OF BILLING ARRANGEMENT. Either party shall be
entitled to terminate the billing arrangement described in the this Section
3.6 upon not less than 60 days advance written notice; provided, however,
that Vendor shall not be entitled to terminate such arrangement (i) within
28 months following execution of this Agreement, (ii) if Vendor has
received a notice from HII that it intends to withhold payment within the
90 days prior to Vendor's request to terminate the arrangement, or (iii) if
HII is currently withholding payments due Vendor pursuant to Section 3.6.5.
3.7 TRANSITIONAL SALES: REBATES. HII acknowledges that prior to the date
hereof, Vendor has been engaged in the business of selling property management
systems to hotels, including the Vendor Supplied Hotels as defined in Section
3.4.1. Attached as Exhibit 3.7 hereto is a list (including the name of the
Hotel, a description of all items purchased and the purchase price paid for such
items) of all Vendor Supplied Hotels who purchased a property management system
from Vendor after October 1, 1991 and prior to the date hereof. Vendor
acknowledges that under the Rollout, HII intends to provide the Basic PMS System
without charge to Existing Hotels. In order to minimize disruption to the
Hotels, and to make available to certain Vendor Supplied Hotels some of the
benefits afforded through the relationship between Vendor and HII, Vendor and
HII agree upon the following procedures.
3.7.1 PREVIOUS SALES BY VENDOR. With respect to each the Hotels listed
on Exhibit 3.7, HII will reimburse the Hotel for the cost of certain
equipment and training fees and, in consideration therefor, will pay to
such Hotel an amount equal to the sum of (i) the purchase price paid to
Vendor for that equipment sold to such Hotel by Vendor which HII determines
to comprise a Basic PMS System for such Hotel, (ii) the amount of the
license fees charged by Vendor for the use of all items of computer
software included within the Basic PMS System, and (iii) the reasonable
charges of Vendor for the installation, implementation and training
associated with each of the foregoing (excluding travel, lodging and
related out-of-pocket expenses of trainers, implementation consultants and
Hotel personnel). HII shall notify Vendor of each payment to the
aforementioned Hotels and Vendor shall rebate to HII an amount equal to the
fees received by Vendor from such Hotels for front office software,
standard interfaces and DB/C licenses by crediting to HII such amount
against the final amount due Vendor from HII as set forth in Exhibit 3.2.1.
In the event a Hotel does not accept an amendment or novation to Vendor's
existing agreement(s) with the Hotel to conform to the arrangements
contemplated by this Agreement (including Sections 3.2.2 and 3.5 hereof),
then Vendor shall so notify HII and HII shall not make any payments as
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described in this Section to such Hotel and in which case, Vendor shall
have no obligation to make any rebates to HII, unless and until such Hotel
does execute such amendment or new agreement and HII authorizes such
payment.
3.7.2 PENDING AND FUTURE SALES BY VENDOR. After the date of this
Agreement, Vendor shall direct all inquiries regarding the purchase of
property management systems received from Hotels to HII and shall not
thereafter make the System Software available to any Hotel, except through
HII or the Affiliates. Vendor shall be entitled to complete the pending
sales identified on the list delivered pursuant to Section 3.7, provided
that such sales are consummated prior to the date of execution of this
Agreement. Pending sales which are consummated within the aforementioned
time period shall be handled through the same rebate procedure employed
with respect to prior sales as described in Section 3.7.1.
3.7.3 NO THIRD PARTY BENEFICIARIES. The provisions of this Section 3.7
concerning the payments to be made by HII and Vendor are intended solely
for the benefit of HII and Vendor and shall not give rise to any right to
payment in favor of any third party, including any Hotel or any third party
licensor of software or equipment sold to a Hotel, the parties hereto
agreeing that there are no intended third party beneficiaries of the
obligations set forth in this Section 3.7.
3.7.4 SALES OF COMPLEMENTARY PRODUCTS. HII acknowledges that Vendor
may, from time to time, offer software products in addition to the System
Software. Except as expressly provided herein, this Agreement shall not
serve to limit the sale or licensure by Vendor of such additional products
to the Hotels, provided that such additional products meet HII standards
for such products which may then be in effect.
3.8 TERMINATION OF SITE LICENSE AND SUPPORT AGREEMENTS. Vendor
acknowledges and agrees that each Site License and Support Agreement distributed
by HII in accordance with this Agreement shall automatically terminate upon the
expiration (without renewal) or earlier termination of the Franchise Agreement
pursuant to which such Hotel operates as a Hotel. Vendor agrees to take such
reasonable action as HII may request to ensure that the Site License and Support
Agreement is terminated upon the expiration (without renewal) or earlier
termination of the Franchise Agreement and that the Hotel ceases to use the
System Software. In the event a Site License is terminated for any reason, such
Site License shall automatically be added to the number of Site Licenses which
have been purchased by HII and shall be available for distribution to any other
Hotel without the payment of any additional fee to Vendor or any of Vendor's
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licensors, unless the license to use the System Software is not re-issued within
12 months following the date on which the particular Site License was
terminated.
3.9 CUSTOMER SERVICE STANDARDS. Vendor shall comply with HII's customer
service standards as set forth on Exhibit 1.8.
ARTICLE IV
SOFTWARE DEVELOPMENT
4.1 DELIVERY OF SPECIFICATIONS. The parties acknowledge that HII has
provided interface specifications to Vendor as set forth below:
(a) One Way Interface - previously delivered.
(b) Phase I of the Two Way Interface - delivered approximately 10 days
after the execution of the Original Agreement.
(c) Phase II of the Two Way Interface - specifications were developed
jointly by HII and Vendor within approximately 10 days after the execution
of the Original Agreement.
(d) MIP - No Specification will be delivered. Development will occur
as set forth in Section 4.2.6.
Vendor shall obtain specifications for Unix-based third party interfaces in
accordance with Exhibit 4.1.
Upon completion of the mutually agreed upon specifications, such
specifications shall become a part of this Agreement and attached hereto as
Exhibit 4.1.
HII hereby grants to Vendor the following:
(a) a license to use specifications provided to Vendor by HII or
jointly developed by Vendor and HII for the sole purpose of developing and
testing the Two Way Interface and Vendor's other software to work with
Holidex at Hotels, including establishing Software-Holidex interfaces; and
(b) a license to use MIP software for the sole purpose of connecting
approved third party hotel automation systems with the Basic PMS System at
the Hotels.
4.2 SOFTWARE DEVELOPMENT. Vendor agrees to develop interfaces that conform
to the specifications as are attached as Exhibit 4.1 and to develop other
software to levels acceptable to HII pursuant to the following requirements:
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4.2.1 ONE WAY INTERFACE. Vendor will complete all work necessary to
provide a One Way Interface no later than 60 days following the execution
of the Original Agreement. At such time and thereafter, Vendor shall
provide the One Way Interface as a part of the System Software at no
additional charge to HII, Affiliates or the Hotels. Vendor warrants that
the One Way Interface will enable HII and the Hotels to perform the
following functions on the Basic PMS System:
- Receive reservations as and when delivered by Holidex;
- Automatically update each Hotel's System with reservations data
as the reservations occur;
- Receive Holidex Administrative Messages (e.g. modifications,
additions, and deletions to reservations).
4.2.2 TWO WAY INTERFACE-PHASE I. Vendor will develop and provide a Two
Way Interface for Data Collection/Detailed Checkouts pursuant to HII
specifications. The parties currently intend that such development be
completed within 60 days of the delivery of the specifications to Vendor.
If the work required by the specifications cannot reasonably be completed
within such 60 day period, the parties will mutually and in good faith
agree on a work plan for completion of the development. Vendor must then
complete development according to the work plan. At such time and
thereafter, Vendor shall provide such Two Way Interface to HII or to the
Hotels as part of the System Software at no additional charge to HII or to
the Hotel. Vendor warrants that the Two Way Interface will enable HII and
the Hotels to perform the following functions on the Basic PMS System:
- Transmit detailed checkout data to Holidex per specifications,
including but not limited to Travel Agent Commission Payables
(TACP);
- Transmit Electronic Data Transmission (EDT) to Holidex per
specifications;
- Transmit revenue and operating statistics as may be required by
HII to Holidex;
- Allow for Credit Authorization via magnetic card reader.
4.2.3 TWO WAY INTERFACE-PHASE II. Vendor will develop and provide the
Two Way Interface for Inventory Updates within approximately 180 days after
the completion of the
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joint development of the specification as set forth in Section 4.1(c)
above. The 180 day period may be extended for a reasonable period of time,
as may be mutually agreed upon by HII and Vendor. At the time of completion
of development of the interface and thereafter, Vendor shall provide such
Inventory Updates Two Way Interface to HII, and Vendor and HII shall
cooperate in distributing such interfaces as set forth above in
Section 3.3.1. Vendor warrants that the Inventory Updates Two Way
Interface will enable HII and the Hotels to perform the following functions
on the Basic PMS System:
- Full inventory conditions synchronization between each Hotel's
Basic PMS System and Holidex
- Transmit and receive additions, modifications or deletions from
the Basic PMS System to Holidex;
- Transmit and receive administrative messages and broadcasts;
- Current day and future inventory related events are synchronized
with Holidex;
4.2.4 CCA/EDT. Vendor will establish CCA/EDT independent of Holidex
with Citibank and with one other bank as required by HII by no later than
60 days following the date on which Vendor receives the specifications from
such banks. Such timing may be mutually extended by the parties.
4.2.5 UNIX THIRD PARTY INTERFACES. Vendor will complete all work
necessary to provide the Third Party Interfaces listed on Exhibit 4.2.5 on
Unix no later than 60 days after the execution of the Original Agreement,
provided, however, such time period may be mutually extended for a
reasonable amount of time. At the time of completion and thereafter, Vendor
shall provide Unix based Third Party Interfaces listed on Exhibits 4.1 and
4.2.5 to Hotels and Affiliates as a part of the System Software at no
additional charge to HII and as a part of Vendor's obligations under the
Support Agreement with each Hotel. When available, the Unix based Third
Party Interface may be included as a part of the System Software
distributed by HII, at the rates for such interfaces set forth on Exhibit
3.2.1. Vendor warrants that the Third Party Interfaces will enable HII and
the Hotels to perform the following functions on the Basic PMS System:
collection of and processing of data from third party systems required by
HII.
4.2.6 MIP THIRD PARTY INTERFACE. HII will provide Vendor with all
information possessed by HII that may be required in developing an
interface between the System
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Software and the MIP and will assist Vendor in developing such interface.
Vendor will develop a MIP interface that will enable the Basic PMS System
to send and receive information to and from third party systems listed on
Exhibit 4.2.5 in usable form. Such development shall be completed within 60
days of the execution of the Original Agreement or within a reasonable
extension time period as may be mutually agreed upon.
4.2.7 ROOM TYPES. Vendor will develop the capability for the System
Software to allow four (4) character room types and allow the total
number of room types as specified by HII in Exhibit 4.1 to be used as the
sole identifier of rooms in the Basic PMS System. The parties acknowledge
that such development has been completed and is available for use by Hotels
and Affiliates as part of the System Software and shall be distributed to
the Hotels at no additional charge to HII or to the Hotels.
4.2.8 REVENUE AND OCCUPANCY TRANSMISSION CAPABILITIES. Vendor will
work with HII in developing Revenue and Occupancy Transmission capabilities
between the System Software and HII and will implement the capabilities in
the System Software once developed. Such development shall begin at such
time in the future as HII deems appropriate after giving Vendor at least 30
days notice of HII's desire to proceed and shall be completed by a mutually
agreed upon reasonable date.
4.2.9 SEAMLESS INTERFACE. Vendor will work with HII to develop the
Seamless Interface. The specifications and design of the Seamless Interface
shall be completed jointly by HII and Vendor. Such development shall be
completed within 12 to 24 months following the execution of this Agreement,
and the total fee charged by Vendor and paid by HII for Vendor's services
relating to the Seamless Interface shall not exceed cost plus five (5)
percent.
4.2.10 UPGRADES AND ENHANCEMENTS. Vendor will exercise reasonable
diligence in developing software upgrades and enhancements that may be
requested from time to time by HII. Unless otherwise agreed by the parties,
software upgrades and enhancements custom developed for HII shall be the
property of Vendor but shall become a part of the System Software and shall
be licensed to the Hotels and Affiliates pursuant to the Site License to be
used exclusively with Holidex at Hotels and Affiliates, and Vendor will not
license or otherwise distribute such software upgrades and enhancements to
any other party. Notwithstanding the foregoing, HII shall retain an
unrestricted right to use and to provide to third parties any ideas,
know-how, methods, techniques or technical
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information that is provided to Vendor by HII or that HII assists Vendor in
developing. Except as may be specifically agreed by the parties, if Vendor
develops upgrades and enhancements for general release and HII is not
required to pay for substantially all of the development costs of such
upgrades and enhancements, and the upgrades and enhancements are not able
to interface with or otherwise provide access to Holidex, then the
exclusivity restriction set forth above shall not apply to such general
releases.
4.2.11 DELAYS AND EXTENSIONS. The parties acknowledge that the time
limits established above for the completion of development (with the
exception of the One Way and Third Party interfaces) are dependent on
Vendor receiving correct specifications for the interfaces and on HII
making internal coding changes to Holidex so that Holidex can receive
transmissions from the Basic PMS System. If any delays are caused by HII,
the completion dates established herein shall be extended for a time period
equal to the delay period caused by HII. Additionally, if HII delivers a
specification containing an error or omission which requires changes to be
made in the interface, the parties will mutually agree upon a reasonable
extension of the completion time limit.
4.3 DEVELOPMENT EXPENSES.
4.3.1 ONE WAY INTERFACE. Vendor shall bear all costs and expenses
connected with the development of the One Way Interface.
4.3.2 TWO WAY INTERFACES. HII will provide and pay the salaries of up
to five (5) qualified software developers who will work under the direction
and control of Vendor in developing the Two Way Interface described in this
Agreement and any two way interfaces or enhancements to the two way
interfaces that may be required by HII in the future. Such developers shall
be provided to Vendor no later than August 31, 1991. Vendor shall be
responsible for the activities of such personnel within the scope of their
interface development activities. Vendor will provide a project leader and
all other personnel necessary to the development of the Two Way Interface
within the time limits set forth in this Agreement. Vendor will also
provide such personnel in the development of any interfaces that may be
required by HII in the future. Each party will bear all costs and expenses
incurred by that party and its employees during the development of the
interfaces, except that HII will pay the hotel room costs of Vendor
personnel who must travel to a location designated by HII and will allow
Vendor to use HII equipment that is directly necessary to the development
requirements set forth in this Agreement.
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4.3.3 REVENUE AND OCCUPANCY TRANSMISSION CAPABILITIES. Payment for
Vendor's services in developing Revenue and Occupancy Transmission
capabilities shall be at a mutually agreed upon cost plus fee, with
Vendor's fee not to exceed cost plus five (5) percent. Cost shall include
the cost of reasonable previously established employee benefits and
reasonable costs directly attributable to such development, but shall not
include office overhead or other costs that would be incurred by Vendor
regardless of such development. HII shall reimburse Vendor for all
adequately documented ordinary and reasonable expenses directly incurred by
Vendor in developing the Revenue and Occupancy Transmission capabilities.
4.3.4 SOFTWARE ENHANCEMENTS. If HII requires software enhancements to
the interfaces, HII will pay the cost of developing the enhancements,
except, however, if an upgrade or enhancement requirement was caused by
Vendors negligence or a malfunction of Vendor-supplied software or
hardware, Vendor shall pay such development costs. Cost as used in this
paragraph shall have the same definition as used in Section 4.3.3 above.
4.3.5 OTHER CAPABILITIES. Cost of required interface and software
development not otherwise specifically provided for herein shall be
Vendor's responsibility (e.g. CCA/EDT, four character room type
development).
4.3.6 FUTURE DEVELOPMENT NOT SET FORTH IN THIS AGREEMENT. The cost of
software development not required by this Agreement that may be (a)
requested by individual Hotels and (b) approved in advance in writing by
HII shall be borne as may be agreed between Vendor and the Hotel.
4.4 OWNERSHIP. Vendor shall own any and all copyrights and patent rights in
and to any software that emanate from and are attributable to Vendor as a result
of Vendor's development of the software. Vendor's copyrights, patent rights and
other proprietary rights shall not extend to the specifications or to any ideas,
concepts or information provided by HII. If HII provides an idea, know-how,
method, technique or technical information to Vendor during the term of this
Agreement or assists Vendor in the development of same, HII will retain the
unrestricted right to use and to provide to third parties the ideas, know-how,
methods, techniques or technical information during and after the termination of
this Agreement notwithstanding any proprietary rights Vendor may have in any
software developed under this Agreement. Further, all specifications, software,
and technical data provided by HII and all information concerning the MIP are
owned and are trade secrets of HII to be used by Vendor solely as set forth in
this Agreement. Notwithstanding any other provision hereof, nothing contained
herein shall be construed to grant to Vendor ownership
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of, or any right or title in any software product that HII has developed outside
of this Agreement. Each party shall retain ownership of any and all copyrights,
trade secrets and patent rights in and to any software, algorithms, formulas,
ideas, know-how, methods, techniques and the like which that party had the right
to prior to the execution of this Agreement and the other party shall use and
disclose same only as allowed in this Agreement.
4.4.1 INTERFACES, ENHANCEMENTS AND MODIFICATIONS, GENERALLY. In the
event HII desires to have developed any interfaces, including the Unix
Third Party Interfaces and the Seamless Interface, and any modifications,
enhancements and upgrades to the System Software, and so long as this
Agreement shall remain in effect, HII shall first offer Vendor the
opportunity to develop such product, and Vendor shall use its reasonable
best efforts to perform and complete such development work, at the
consultant rate of fifty dollars ($50.00) per hour (adjusted annually
based upon the percentage change, during such period, in the Cost of Living
Index published by the Bureau of Labor Statistics). Vendor will keep HII
informed as to the progress and costs incurred towards developing the
interfaces, modification, upgrades or enhancements requested by HII.
Except with respect to the interfaces which Vendor has agreed to develop by
specific reference in this Agreement, Vendor shall perform such development
work on a schedule reasonably acceptable to HII and Vendor. In the event
that Vendor fails to complete such work (including the development work set
forth in this Agreement) on the terms agreed with HII, HII shall be
entitled to cause alternative contractors to perform or complete such
development upon thirty (30) days advance written notice to Vendor, and
Vendor will cooperate with HII and its contractors, at the expenses and to
the extent requested by HII, in completing the development effort refused
or not completed by Vendor. So long as HII is an authorized Vendor
licensee for Vendor proprietary products, and subject to Vendor's right of
first refusal to perform the development work requested, HII shall retain
the right to modify and enhance the System Software and its components,
modules and interfaces, by itself, or through any outside consultants that
it chooses to retain. Vendor shall provide to HII the source code for the
System Software as HII may reasonably request to enable HII or HII's
consultants to perform the development work required and to provide
continuing support to the Hotels for such interfaces, upgrades,
modifications and enhancements. Any such interfaces, upgrades, enhancements
or modifications created by HII or its consultants shall be the property of
HII and shall be considered to be outside the terms of this Agreement and
the Support Agreements with the Hotels for the purposes of maintenance of
such modifications or
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enhancements. At such time as Vendor has certified such modification or
enhancement for use with the System Software, which certification shall not
be unreasonably withheld, conditioned or delayed, HII shall license the
modification or enhancement to Vendor, solely for distribution to HII,
Affiliates and the Hotels pursuant to this Agreement and the Site Licenses.
In connection with Vendor's certification procedures, HII shall deliver to
Vendor the source code and other information Vendor may reasonably request.
Each party agrees that any consultants retained by it shall be bound by the
terms and conditions of the Confidentiality Agreement dated January 19,
1991, and signed by the parties. If HII modifies or enhances the software
without Vendor's assistance or involvement, any such modifications or
enhancements, if identified by HII as proprietary, shall not be reproduced
or marketed by Vendor without the express written permission of HII, but
nothing contained herein shall be construed to prevent Vendor from
independently developing any of its own modifications or enhancements even
if functionally equivalent to HII's modifications or enhancements.
4.5 LICENSES GRANTED BY VENDOR. Vendor hereby grants to HII an exclusive,
perpetual and fully paid license to use all the software, source codes, object
codes, manuals, file layouts, designs and other documentation included among the
Materials for the software developed by Vendor pursuant to this Agreement or the
Original Agreement (provided, however, such exclusivity does not apply to the
four digit room type and the third party interfaces that are Unix based) and a
perpetual nonexclusive license to use all software, source codes (if any),
object codes, manuals, file layouts, designs and other documentation included
among the Materials for all other components of the System Software. The
exclusive nature of HII's license to use software other than the One Way
Interface, the Two Way Interface and any other software developed in the future
by HII and Vendor shall expire one year after all such software has passed the
HII Acceptance Test for such software; thereafter the license to use such
software shall be non-exclusive. HII's right to use the Materials relating to
the System Software shall be limited to (i) the right to use, test and evaluate
the System Software, (ii) send and receive information to and from Hotels and
Affiliates via such software, (iii) to use any and all training, installation
and implementation materials in connection with the installation and
implementation of the System Software at the Hotels and Affiliates and the
training of their personnel, and (iv) subject to the obligation to offer
Vendor the opportunity to develop future enhancements or modifications to the
System Software described in Section 4.4.1, to develop or have developed,
modifications and enhancements to the System Software and to support and
maintain such modifications and enhancements (and the other components of the
System Software following
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expiration of this Agreement or its earlier termination by HII as a result of
Vendor's default), provided, however, HII also shall have the right to use,
market, distribute and sublicense the System Software and object code versions
of any other software, including modifications and enhancements to the System
Software developed by Vendor or HII or its consultants, and the right to
support and maintain modifications and enhancements to the System Software
developed by HII or its consultants pursuant to Article III and Section 4.4.1 of
this Agreement and as provided in the Escrow Agreement. All of the foregoing
rights and licenses shall survive the termination or expiration of this
Agreement.
4.6 MODIFICATIONS IN SPECIFICATIONS. HII reserves the right to modify the
specifications at any time without prior notice to Vendor. Upon receipt of such
modifications to the specifications, Vendor shall promptly quote time and cost
estimates for making changes in the System Software to reflect such changes.
Upon receipt of written approval of HII, Vendor shall diligently develop the
capabilities for implementing the modifications and shall make such
modifications to the System Software to HII's satisfaction within a reasonable
amount of time after receiving notification of the modifications to the
specifications. If such modifications require changes in Vendor's interface or
other software, equipment, or system architecture, all such changes shall be
Vendor's sole responsibility and shall be at Vendor's sole cost and expense;
provided, however, HII shall provide up to five (5) qualified software
developers to Vendor to be directed by Vendor in making such modifications and
HII shall pay for the cost of distribution of the modified software; and
provided further, that if additional equipment or third party software is
necessary at Hotels to accommodate the modifications, Vendor shall not be
responsible for the cost of such equipment or software.
4.7 MODIFICATIONS OF HOLIDEX. HII reserves the right to modify Holidex,
including but not limited to changes in line protocol and format, at any time at
HII's sole discretion. Vendor understands that this may require changes in the
specifications and subsequent changes in Vendor's HII interfaces or other
software, equipment or system architecture in order for the Basic PMS System to
interface with Holidex and that all such changes shall be Vendor's sole
responsibility and shall be at Vendor's sole cost and expense, provided,
however, HII shall provide up to five (5) qualified software developers to
Vendor to be directed by Vendor in making such modifications and HII shall pay
for the cost of distribution of the modified software. Notwithstanding the
foregoing, if HII requires new equipment or operating systems (Novell, DOS or
Unix) at Hotels as a result of such modification to Holidex, Vendor shall not be
responsible for the cost of such additional equipment.
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4.8 TESTING. All software developed by Vendor pursuant to this Agreement
must pass an HII Acceptance Test which will have been defined with the
specifications. Vendor shall provide its software and software documentation to
the location of HII's Information Technology division for preliminary acceptance
testing and preliminary written certification by HII prior to interfacing the
System Software to Holidex and its or Hotel's site for on-line final testing and
final written certification. While the preliminary testing and certification
processes are ongoing, Vendor agrees to send to the premises of HII qualified
systems development and operations personnel, who are familiar with Vendor's
software, so that problems with Vendor's interface software uncovered during
testing can be corrected immediately.
4.9 CERTIFICATION AND INTERCONNECTION. Upon final written certification,
Vendor or Hotels will be authorized to maintain an on-line connection to
Holidex. Such final written certification shall be subject to a continuing
condition that Vendor's software not cause at any time any Holidex integrity or
operating problems or any loss of or damage to Holidex. In the event any such
problems occur, HII shall notify the President of Vendor of the problem with all
available relevant information that Vendor may request. If the problem does not
involve a risk of loss of use or of proper operation of Holidex, Vendor shall
have 30 days from the date of notice to correct the problem. If the problem
could, in HII's sole reasonable judgment, cause a loss of use or of proper
operation of Holidex if not immediately corrected, HII shall have the right
to withdraw certification of Vendor's software and disconnect the Basic PMS
System-Holidex interface prior to giving notice to Vendor. Further, HII shall
have the right to take all other steps reasonably necessary to prevent
further problems, losses or damages including, but not limited to, notifying
third parties of the withdrawal of certification, disconnection, or
difficulties encountered. Vendor hereby releases HII, Holiday Inns
Franchising, Inc., their parent and subsidiary corporations and Affiliates
and all their respective officers, employees, directors and agents from any
and all liability arising out of or relating to such withdrawal of
certification, disconnection, or notification to third parties and any other
steps taken by HII to prevent further problems, losses or damages to Holidex
or any system.
Vendor shall have reasonable access to the HII Holidex testing facility to
verify any problems HII has found to exist.
4.10 VENDOR REPRESENTATIVE. At all times that Vendor's System Software is
interfaced with Holidex, Vendor shall have a designated representatives
available by telephone on a 24-hour per day, seven day per week basis so that
HII may notify such representatives of any Holidex integrity or operating
problems. Such representatives shall cooperate fully in locating, isolating and
correcting such problems, however, HII reserves the right at
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all times to disconnect the Basic PMS System-Holidex connection as provided
above. For the purposes of this Agreement, Vendor's representatives shall be:
Terry Green
Penny Sellers, President
all at the following address:
Encore Systems, Inc.
900 Circle 75 Parkway
Suite 1700
Atlanta, Georgia 30339
(404) 612-3500
Vendor shall immediately notify HII in writing of any change in its
designated representative, address or phone number.
4.11 LIMIT OF RESPONSIBILITY. HII shall be responsible for providing
correct specifications to Vendor and Vendor shall have the right to rely on the
accuracy of the specifications. Notwithstanding HII's agreement and efforts to
provide specifications, consulting and testing services, Vendor is exclusively
responsible for developing the interface software and the use of such software
with Holidex. HII shall not be responsible for the Basic PMS System-Holidex
interface. In no event shall HII be liable for indirect, incidental,
consequential, punitive or exemplary damages including, but not limited to, any
lost profits or lost savings.
NO SERVICES PERFORMED BY HII SHALL BE DEEMED A WARRANTY OF VENDOR'S
PRODUCTS, INCLUDING THE SYSTEM SOFTWARE FOR ANY PURPOSE WHATSOEVER.
4.12 WARRANTY DISCLAIMER. HII MAKES AND VENDOR AND ITS SUBSIDIARIES
RECEIVE, NO WARRANTY, EXPRESSED OR IMPLIED, PARTICULARLY NO WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AGAINST
INFRINGEMENT. ALL INFORMATION AND MATERIALS SUPPLIED BY HII HEREUNDER IS
SUPPLIED "AS IS" AND "WITH ALL FAULTS."
4.13 NON-EXCLUSIVE AGREEMENT. It is HII's intent that during the
development of the two way and third party interfaces, and for up to one year
following the date of execution of this Agreement (or 180 days after completion
of Phase II of the Two Way Interface, whichever occurs first), HII will work
solely with Vendor in the development of interfaces that fulfill the needs of
the Holiday Inn hotel system, as determined by HII and subject to any legal
restrictions that may exist or be imposed. During this development period, HII
will name Vendor as the HII Preferred Vendor for property management systems.
Vendor acknowledges, however, that nothing herein shall preclude HII from
supplying any specifications to any other party or from approving
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interfaces between Holidex and any other system or naming other Preferred
Vendors of property management systems.
ARTICLE V
GENERAL PROVISIONS
5.1 ASSIGNMENT. This Agreement may not be assigned or performance
delegated by Vendor without the prior written approval of HII, which approval
shall not be unreasonably withheld or delayed, provided such potential
assignee demonstrates the capability to fulfill the obligations of this
Agreement. Any attempted assignment or delegation of this Agreement or duties
hereunder without such written approval shall be void. Purchase of more than
50 percent of the ownership interest of Vendor by a third party shall be
deemed an assignment for purposes of this Agreement. In no event shall
this paragraph prohibit any sale by Vendor's of Vendor's company. HII may
assign any or all of its rights or benefits hereunder and delegate any
performance due to any Affiliate, provided that such assignment or delegation
will not relieve HII of its obligations hereunder, unless expressly agreed to
in writing by Vendor.
5.2 RELATIONSHIP OF PARTIES. This Agreement is not intended to nor does
it create or establish an agency, partnership or joint venture relationship
between HII and Vendor. Each party to this Agreement is an independent
contractor. Neither party is the legal representative or agent of or has the
power to obligate the other for any purpose whatsoever.
5.3 INDEPENDENT DISCRETION. Except as otherwise provided for herein,
this Agreement is not intended to and shall in no way prevent Vendor from
exercising its independent discretion in selection of customers or from
selling at whatever price it deems necessary to any party in its sole
discretion. This is not an exclusive agreement. Although HII does not
intend to provide development assistance to other vendors of property
management systems, HII may provide the services and status to other vendors
as are provided under this Agreement, subject to the restrictions set forth
in this Agreement.
5.4 TERM. This Agreement shall be for a term of ten (10) years,
commencing with the date of execution hereof; provided, however, (i) HII may
terminate this Agreement at any time by giving Vendor notice of such
termination at least 90 days in advance and (ii) either party may terminate
this Agreement as a result of the default of the other party as provided in
Section 5.5 below. The respective obligations of the parties hereto with
respect to the Escrow Agreement, and the Escrow Agreement itself, shall
survive any such termination of this Agreement unless expressly agreed in
writing by HII following such termination.
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All obligations of Vendor and all rights and licenses granted to HII, the Hotels
and Affiliates pursuant to the Site Licenses, Support Agreements or other
license/equipment sales agreements with Hotels shall continue as set forth
therein, without regard to any termination of this Agreement.
5.4.1 RIGHTS UPON EXPIRATION OR TERMINATION BY HII. Upon the
expiration of the term of this Agreement and nonrenewal by the parties of
the Agreement or upon the earlier termination of the Agreement by HII as a
result of any default by Vendor, HII shall have a perpetual, non-exclusive,
fully-paid and royalty-free right and license to use the most-recent
version of the Materials relating to the System Software at that time,
solely to enable HII or its consultants to continue to provide the System
Software to the Hotels or the Affiliates and to support, maintain, upgrade,
enhance and modify the System Software. HII shall be entitled to sublicense
and/or distribute the System Software as contemplated by this Agreement,
provided HII pays the license fees required for additional Site Licenses as
contemplated by Section 3.2.1 and the Exhibits referenced therein;
provided, however, that HII shall not be required to pay any license or
other fees in the event Vendor or its successor ceases doing business as a
going concern, or following the twenty-fifth (25th) anniversary of the
expiration or earlier termination of this Agreement. Unless and until the
expiration or earlier termination of this Agreement as a result of any
default by Vendor (as defined in Section 5.5 below), and except as provided
in the Escrow Agreement, Vendor shall have the exclusive right to provide
software maintenance services with respect to the System Software.
5.4.2 RIGHTS UPON TERMINATION BY VENDOR. Upon the termination of this
Agreement by Vendor as a result of any default by HII, HII shall not be
entitled to purchase any additional Site Licenses for the System Software,
however such termination shall not limit HII's ability to distribute or
sublicense any copies of the System Software it has previously purchased
under Site Licenses for which it has paid. The rights and licenses granted
to HII pursuant to Article IV of this Agreement, including, without
limitation, the right to possess, use, license, distribute, modify and
support the software and interfaces developed by Vendor pursuant to such
Article IV, as well as the respective rights and obligations of the parties
hereto pursuant to Section 3.3.3 hereof and the Escrow Agreement, shall
survive any such termination of this Agreement, unless HII elects to
terminate the Escrow Agreement following termination of this Agreement. No
termination of this Agreement shall in any way affect the rights and
licenses granted to HII, its Affiliates or the Hotels pursuant to the Site
Licenses, the
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Support Agreements, or serve to relieve Vendor of its obligations
thereunder.
5.5 DEFAULT. Should a party fail to perform any of its obligations, fail to
fulfill any conditions of this Agreement or should any of the representations or
warranties of a party prove to be untrue (any of which shall be deemed a
"default"), and such default is not cured within 30 days after written notice,
specifying the nature of the default, or, at the option of HII, in the event of
a breach or default (however defined) under any agreement between HII or its
Affiliate and Vendor regarding the use, licensing or distribution of the System
Software in countries not covered under this Agreement, the non-defaulting party
may terminate this Agreement upon written notice giving the date of termination
and may exercise any other rights it may have at law or equity (including, but
not limited to, the rights under the Escrow Agreement).
5.6 INSOLVENCY. Except for the provisions dealing with the Escrow
Agreement, this Agreement shall automatically terminate should either party
become bankrupt or insolvent, however evidenced.
5.7 LICENSE TERMINATION. Except as expressly provided in this Section 5.7,
in the event of termination of this Agreement, any license granted by HII to
Vendor hereunder shall automatically terminate. Vendor shall, within 30 days of
such termination, return all specifications and other materials and information
supplied to it by HII in whatever form. Such termination shall not affect the
rights of HII, the Hotels or Affiliates under the Site Licenses, Support
Agreements, the Escrow Agreement or other license/equipment sales agreements
between such parties and Vendor. Vendor agrees that following the termination or
expiration of this Agreement for any reason, it will not, directly or
indirectly, license, sell, or otherwise distribute the One-Way Interface, the
Two-Way Interface, the Seamless Interface or any other software that interfaces
with, connects to or communicates with Holidex (or any successor thereto),
without the prior written permission of HII. The license rights granted by HII
to Vendor hereunder shall survive any termination of this Agreement to the
limited extent any such license is required for Vendor to fulfill its warranty
or support obligations to the Hotels and Affiliates. Any continuation of such
license rights shall not apply to Hotels or Affiliates which cease to be Hotels
or Affiliates.
5.8 CONFIDENTIALITY. Vendor agrees to keep all information received from
HII or developed for use with Holidex or the interfaces described herein in
strictest confidence. Such information shall not be disclosed to third parties
except under an appropriate burden of confidentiality or used for any purpose
other than as allowed by this Agreement unless specifically authorized by HII in
writing. The Confidentiality Agreement
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between HII and Vendor, dated January 18, 1991, is incorporated herein by
reference and remains in full force and effect. Except as authorized in writing
by the other party, neither party shall use or disclose to third parties any
confidential information (or the existence thereof) concerning the business of
the other, including but not limited to information technology and new
developments, that either may acquire in the course of its activities under this
Agreement, and each shall take reasonable precautions to prevent any such
disclosure by any employees.
5.9 CERTIFICATION. The parties understand and agree that by certifying
Vendor's interface software as having passed HII's test procedures in a test
environment in no way limits or negates Vendor's obligations and
responsibilities hereunder when Vendor's software is actually connected to
Holidex and is used operationally by Vendor and/or Hotels. Further, the parties
agree that preliminary testing and certification of Vendor's system does not
imply or guarantee that Vendor's system will operate on-line at Hotels.
Certification shall only apply to the interface software version and its
effective date all as identified in HII's certification letter.
5.10 TRADEMARKS AND SERVICE MARKS. The parties agree that nothing herein
shall give either party the right to use the trade names, company names,
trademarks or service marks of the other party in any way without the prior
written consent of the other party.
5.11 RIGHT OF FIRST REFUSAL. In the event that Vendor, during the term of
this Agreement, desires to enter into any transaction, or a series of related
transactions, involving either (i) the sale or assignment of it rights and
interests in the System Software, or (ii) a change in control over the
properties and assets of Vendor, whether by sale of assets, sale and issuance
(to persons other than the current shareholders of Vendor) of common or other
voting stock which would constitute more than 50% of its outstanding shares of
such stock after such sale and issuance, or pursuant to a merger or other
business combination in which Vendor is not the surviving entity (each a
"Transaction"), Vendor will not engage in such Transaction, or make or accept
any offer to engage in such Transaction, unless it has first offered HII the
opportunity to assume and perform the terms of the Transaction and HII shall
have failed to accept such offer within the time required. Any offer by Vendor
pursuant to this Section 5.11 shall be in writing, shall describe the nature of
the Transaction in which Vendor proposes to engage, and shall be accompanied by
a copy of the written offer from the party or parties to such proposed
Transaction other than Vendor (the "Proposed Purchaser"), setting forth the
complete terms and conditions applicable to such proposed Transaction,
including, without limitation, the purchase price and payment terms, and shall
be accompanied by a copy of all information regarding
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Vendor and the proposed Transaction as has been furnished to the Proposed
Purchaser, including, without limitation, financial information, lists of
customers and suppliers, descriptions of properties and assets (whether tangible
or intangible), appraisals, stockholder lists, environmental audits and the
like. HII shall have a period of two weeks following receipt of the offer (and
all information required to be delivered therewith) to determine whether or not
it will accept such offer. During such two-week period, Vendor will provide HII
and its agents and representatives such reasonably available additional
information as HII may require in order to evaluate the offer, all at HII's
expense, but this provision shall not extend the two-week period. If HII fails
to accept the offer within the time required, Vendor shall be free to
consummate the Transaction with the Proposed Purchaser, on terms which are no
more favorable to the Proposed Purchaser than as set forth in the offer to HII.
In the event the Transaction is not completed within 120 days following HII's
receipt of the offer, Vendor shall not consummate the Transaction without once
again making the offer to HII described herein.
5.12 NOTICES. All notices provided for in this Agreement shall be in
writing, addressed to the appropriate party specified below:
HII: Holiday Inns, Inc.
Three Ravinia Drive, Suite 2000
Atlanta, Georgia 30346-2149
Attn: Vice President Information Technology
VENDOR: Encore Systems, Inc.
900 Circle 75 Parkway
Suite 1700
Atlanta, Georgia 30339
Attn: Penny Sellers, President
Notices of default or termination must be sent United States Mail, return
receipt requested.
5.13 GOVERNING LAW AND JURISDICTION. This Agreement shall be construed and
enforced in accordance with the laws of the State of Georgia and venue shall lie
in Atlanta.
5.14 INDEMNITY. Vendor agrees to indemnify and hold harmless HII, Holiday
Inns Franchising, Inc. and their divisions, subsidiaries, affiliates, officers
and employees (each a "Vendor Indemnified Party") against any and all claims
(including but not limited to claims by Hotels), actions, liabilities, losses,
costs, and expenses (including attorney's fees and court costs) of whatever kind
or nature (even when the negligence of a Vendor Indemnified Party is alleged)
arising or alleged to have arisen in whole or part out of (a) any alleged acts
or omissions of Vendor, its employees, agents or subcontractors; (b) any alleged
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breach of this Agreement by Vendor; (c) the alleged failure of the System
Software to conform to applicable specifications or warranties including implied
warranties of merchantability and fitness for a particular purpose, (d) an
alleged defect or deficiency in the System Software, the interfaces, or any
components thereof, the System Software's or interfaces' design, manufacture or
installation (other than for software elements provided by a Vendor Indemnified
Party), and/or (e) any allegation that the software provided by Vendor to HII,
Affiliates or Hotels (other than for software elements licensed directly by a
Vendor Indemnified Party) violates another's proprietary rights. Notwithstanding
the foregoing, Vendor shall not be responsible for damages caused by the gross
negligence of a Vendor Indemnified Party or due to causes beyond the control of
Vendor. The foregoing indemnities are subject to HII providing Vendor with
reasonably prompt notice of any Vendor Indemnified Party having received notice
of an indemnifiable occurrence. Vendor shall have control of the defense or
settlement of any indemnifiable claim, action or proceeding brought by a third
party provided, however, Vendor shall not make any admission or settlement that
would be against any Vendor Indemnified Party's interests and Vendor shall keep
HII informed of the status of such claim, action or proceeding. This indemnity
shall survive the termination of this Agreement.
5.15 NO GUARANTEE. HII does not guarantee or give any assurances that
Vendor will obtain any particular amount of business by reason of this
Agreement.
5.16 INSURANCE. Vendor shall carry Broad Form Vendor's Liability Insurance
coverage in an amount of not less than $1,000,000 (combined single limit per
occurrence), such other insurance as is necessary to cover potential liabilities
assumed by Vendor under this Agreement, and workers compensation insurance and
employers liability insurance as required by law, with a reputable insurance
company satisfactory to HII. Vendor shall provide HII with a certificate of
insurance evidencing such coverage within 30 days of the execution of this
Agreement showing HII as an additional insured and certificate holder and
providing that such insurance shall not lapse or be cancelled or modified unless
HII has been given 30 days prior written notice of the intended cancellation,
termination or modification.
5.17 ENTIRE AGREEMENT. This document, the exhibits, the letter dated May
17, 1991, regarding bailment of Holidex and HMS hardware and software, and the
January 18, 1991 letter (copies of such letters being attached as Exhibit 5.17
hereto), all of which are incorporated herein by reference, set forth the entire
Agreement between the parties hereto relating to the subject matter herein and
cancels and supersedes any and all prior representations and agreements, whether
oral or written, relating to the promotion of Vendor's system by HII including,
without
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limitation, the Original Agreement. This Agreement may be modified or amended or
any term waived only by a writing signed by a duly authorized representative of
each party. Any attempted or purported amendment, modification or waiver that
does not comply with this requirement shall be null and void. Vendor and HII or
its Affiliates contemplate entering into similar agreements with respect to the
use, licensing and distribution of the System Software in countries other than
those covered by this Agreement. To the extent any such subsequent agreement
contains terms, conditions or limitations which either desires to be made a part
of this Agreement, HII and Vendor will negotiate in good faith to incorporate
such terms, conditions or limitations into this Agreement by an appropriate
amendment.
VENDOR: ENCORE SYSTEMS, INC. HII: HOLIDAY INNS, INC.
By: /s/ Penelope A. Sellers By: /s/ Illegible
------------------------------- --------------------------------
Title: President Title: Vice President
------------------------------ -------------------------------
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AMENDMENT TO AGREEMENT
AMENDMENT #1
Whereas, the undersigned parties have entered into a certain Amended and
Restated Preferred Vendor Agreement (the Agreement) dated May 15, 1992 and:
Whereas, the undersigned parties are desirous of amending the aforementioned
Agreement, it being to the mutual benefit of all parties to do so:
Now therefore, for and in consideration of mutual promises and other valuable
considerations paid by each to the other, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to modify and amend
the aforementioned Agreement as follows:
Folio Retention which was originally listed on Exhibit 3.2.1 of the
Agreement as an optional software application will now be listed in
Exhibit 1.3 and will be included in the Basic PMS System.
It is agreed by the parties hereto that all of the other terms and conditions
of the original Agreement shall remain in full force and effect other than as
modified herein. Upon execution by all parties, this Amendment shall be
attached to and form a part of the Agreement.
HOLIDAY INNS, INC.
BY: [Illegible Signature]
------------------------------------
ENCORE SYSTEMS, INC.
BY: /s/Penelope A. Sellers
------------------------------------
11/8/92 President
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SECOND AMENDMENT TO
AMENDED AND RESTATED PREFERRED VENDOR AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED PREFERRED VENDOR AGREEMENT is
entered into this 30 day of December, 1995, by and among ENCORE SYSTEMS, INC.
("Encore"), GLOBAL SYSTEMS AND SUPPORT, INC. ("Global") and HOLIDAY INNS, INC.
("HII").
Pursuant to the terms of that certain Amended and Restated Preferred Vendor
Agreement dated May 15, 1992, and as amended November 11, 1992 (the "Vendor
Agreement"), by and between Encore and HII, Encore provides software support and
other services to certain Hotels and Affiliates (as those terms are defined in
the Vendor Agreement). Encore wishes to amend certain provisions of the Vendor
Agreement so that Global may perform certain of those software support and other
services. HII agrees to amend the Vendor Agreement pursuant to the terms and
provisions provided herein.
NOW THEREFORE, in consideration of the foregoing premises, the covenants
and commitments set forth below and for other good and sufficient consideration,
the parties agree as follows:
1. AMENDMENTS.
(a) Section 3.5 (Software Support) of the Vendor Agreement is amended by
adding the following paragraph at the end of Section 3.5:
"Vendor may in its discretion assign any of the Support Agreements to
Global Systems and Support, Inc. ("Global") (an "Assignment") at any
time provided that such Assignment shall not create or be deemed to
impose any new or additional obligations on the part of HII and
further provided that Encore provides written notice to HII of the
Assignment setting forth the Assignment's effective date and the name
of the Hotel or Affiliate party to the assigned Support Agreement.
Following any such Assignment of a Support Agreement, Global shall
perform the duties and obligations under the Support Agreement in
compliance with the terms of the Support Agreement, this Agreement and
in a manner substantially the same as historically performed by
Vendor. Global hereby makes and gives each of the representations and
warranties of Vendor and agrees to perform each of the covenants and
obligations of Vendor set forth in this Section 3.5. With respect to
any assigned Support Agreement, HII agrees to treat Global as the
"Vendor" for invoicing and billing purposes."
(b) Section 3.6 (Billing Services) of the Vendor Agreement is amended by
adding new section 3.6.8 as follows:
" 3.6.8 ASSIGNMENTS TO GLOBAL. With respect to any Support
Agreement assigned by Vendor to Global pursuant to the second
paragraph of Section 3.5, Global shall be deemed to be the "Vendor"
for all purposes under this Section 3.6 and shall perform the duties
and obligations of Vendor as set forth in this Section 3.6."
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(c) Section 3.8 (Termination of Site License and Support Agreements) of
the Vendor Agreement is amended as follows:
(i) The first sentence is amended by replacing the word "Vendor" with
the phrase "Each of Vendor and Global"; and
(ii) The second sentence is amended by replacing the word "Vendor"
with the phrase "Each of Vendor and Global".
(d) Section 3.9 of the Vendor Agreement is amended by inserting the phrase
"and Global" after the word "Vendor".
(e) Article V (General Provisions) of the Vendor Agreement is amended as
follows:
(i) Section 5.1 (Assignment). The phrase "or Global" is added after
the word "Vendor" in the first and third sentences and the phrase "or
Global's" is added after the word "Vendor's" in the fourth sentence.
(ii) Section 5.2 (Relationship of Parties). The phrase "and/or Global"
is added immediately prior to the end of the first sentence.
(iii) Section 5.4.1 (Rights Upon Expiration or Termination by HII). In
the first sentence, the phrase "Vendor or Global" shall replace the
word "Vendor". In the third sentence, the phrase "and Global" shall be
added immediately following every reference to "Vendor".
(iv) Section 5.8 (Confidentiality). The phrase "Vendor and Global
agree" shall replace the word "Vendor". Further, Global agrees to be
bound by the terms of Confidentiality Agreement referenced and
incorporated by Section 5.8 as if Global were an original party
thereto.
(v) Sections 5.4 (Term), sub-section (ii), 5.5 (Default) and 5.10
(Trademarks). Global, Encore and HII acknowledge that the reference to
"parties" or "party" shall be deemed to include Global.
(vi) Section 5.11 (Right of First Refusal). The following sentence is
added at the end of the text of Section 5.11:
"For purposes of this Section 5.11, the term "Vendor" shall be
deemed to include Global as well as Encore Systems, Inc. and the
provisions of this Section shall apply to Global in all
respects."
(vii) Section 5.12 (Notices). The following text shall be added prior
to the last sentence of Section 5.12:
39
<PAGE>
"GLOBAL: Global Systems and Support, Inc.
900 Circle 75 Parkway
Suite 1700
Atlanta, Georgia 30339
Attn: Penny Sellers, President"
(ix) Section 5.14 (Indemnity).
(A) The following sentence shall be added immediately after the
first sentence:
"Global agrees to indemnify and hold harmless the Vendor
Indemnified Parties against any and all claims (including
but not limited to claims by Hotels), actions, liabilities,
losses, costs, and expenses (including attorney's fees and
court costs) of whatever kind and nature (even when the
negligence of a Vendor Indemnified Party is alleged) arising
or alleged to have arisen in whole or part out of (a) any
alleged acts or omissions of Global, its employees, agents
or subcontractors; (b) any alleged breach of this Agreement
by Global; (c) the alleged failure of the System Software to
conform to applicable specifications or warranties including
implied warranties of merchantability and fitness for a
particular purpose to the extent such conformity failure is
a result of any action by Global; (d) an alleged defect or
deficiency in the System Software, the interfaces, or any
components thereof, the System Software's or interfaces'
design, manufacture or installation (other than for software
elements provided by a Vendor Indemnified Party), to the
extent such defect or deficiency is a result of any action
by Global, and/or (e) any allegation that the software
provided by Vendor to HII, Affiliates or Hotels (other than
for software elements licensed directly by a Vendor
Indemnified Party) violates another's proprietary rights to
the extent that such violation is a result of any action by
Global."
(B) The phrase "neither Vendor nor Global shall be" shall
replace the phrase "Vendor shall not be" in the existing second
sentence.
(x) Section 5.16 (Insurance). The phrase "Vendor and/or Global" shall
replace the second occurrence of the word "Vendor" in the first
sentence.
2. CROSS GUARANTEES.
(a) Subject to Section 2(c) below, Encore hereby fully and unconditionally
guarantees the full and timely performance by Global of Global's
obligations under any and all assigned Support Agreements and under the
Vendor Agreement as amended.
40
<PAGE>
(b) Subject to Section 2(c) below, Global hereby fully and unconditionally
guarantees the full and timely performance by Encore of the obligations
under Sections 3.5 and 3.6 of the Vendor Agreement as amended.
(c) HII agrees that with respect to any disputes arising among HII and
Global and Encore which give rise to Encore's and/or Global's guarantee
obligations provided in this Section 2, each of Encore and Global may avail
itself of the legal and equitable defenses available to the other with
respect to its performance of the guaranteed obligations.
(d) With respect to any default or failure by either Encore or Global to
perform its obligations under Section 3.5 of the Vendor Agreement as
amended or this Amendment, HII agrees to provide notice to both Encore and
Global and permit Encore and Global to cure such default or failure to
perform, in accordance with Section 5.5 of the Vendor Agreement as amended.
(e) Notwithstanding the foregoing, nothing herein shall be deemed to create
or impose any new or additional obligations on the part of Encore, except
as solely set forth in Section 2(a) above, or to establish or grant any new
or additional rights to HII except as specifically set forth in this
Amendment.
3. REPRESENTATIONS.
(a) Each of Encore and Global represents and warrants to HII that as of the
date of execution of this Amendment, neither Encore nor Global has a
present intention of transferring control of its business to any third
party or of selling all or substantially all of its assets to any third
party.
(b) Each of Encore and Global represents and warrants to HII that Global
has the corporate capacity and authority and the financial, operational,
logistical, personnel and administrative resources and wherewithal to fully
perform each and every obligation and duty assigned to Global pursuant to
this Amendment.
4. NO OTHER AMENDMENTS. Except as specifically set forth above, the terms
and conditions of the Vendor Agreement shall remain and continue in full force
and effect. Upon execution by all parties hereto, this Amendment shall be
attached to and form a part of the Vendor Agreement.
5. DUPLICATE EXECUTION. This Amendment may be executed in duplicates which,
when taken together, shall constitute the full and binding agreement of the
parties.
[Signatures On Following Page]
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
ENCORE SYSTEMS, INC. GLOBAL SYSTEMS AND SUPPORT, INC.
By: /s/ Penelope A. Sellers By: /s/ Penelope A. Sellers
-------------------------------- -------------------------------
Penelope A. Sellers Penelope A. Sellers
President President
HOLIDAY INNS, INC.
By: /s/ Richard L. Smith
--------------------------------
Richard L. Smith
Senior Vice President - Information
Technology
42
<PAGE>
AMENDMENT TO AGREEMENT
AMENDMENT NO. 2
WHEREAS, the undersigned parties have entered into a certain Amended and
Restated Preferred Vendor Agreement (the "Agreement") originally dated May 15,
1992 and amended by that certain Amendment to Agreement Amendment No. 1, dated
November 8, 1992; and
WHEREAS, the undersigned parties are desirous of amending the
aforementioned Agreement, it being to the mutual benefit of all parties to do
so;
NOW THEREFORE, for and in consideration of the mutual promises and other
valuable consideration paid by each to the other, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to modify Exhibit 3.2.1
to the Agreement by adding the following language thereto at the current end
thereof:
The foregoing notwithstanding, if more than fourteen hundred (1,400)
licenses but fewer than sixteen hundred one (1,601) are purchased under
this Agreement, such additional licenses will be acquired at Seven Hundred
Fifty Dollars ($750.00) per copy of Software (as defined in the Agreement),
in an increment of two hundred (200), payable as a one time license fee of
One Hundred Fifty Thousand Dollars ($150,000) upon purchase of such
incremental amount.
It is agreed by the parties hereto that all of the other terms and
conditions of the original Agreement shall remain in full force and effect other
than as modified herein. Upon execution by all parties, this amendment shall be
attached to and form a part of the Agreement.
HOLIDAY INNS, INC.
By: /s/ [Illegible]
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
ENCORE SYSTEMS, INC.
By: /s/ Penelope A. Sellers
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
43
<PAGE>
AMENDMENT TO AGREEMENT
AMENDMENT NO. 3
WHEREAS, the undersigned parties have entered into a certain Amended and
Restated Preferred Vendor Agreement (the "Agreement") originally dated May 15,
1992 and amended by that certain Amendment to Agreement Amendment No. 1, dated
November 8, 1992; and further amended by that certain Amendment to Agreement
Amendment No. 2, and,
WHEREAS, the undersigned parties are desirous of amending the
aforementioned Agreement, it being to the mutual benefit of all parties to do
so;
NOW THEREFORE, for and in consideration of the mutual promises and other
valuable consideration paid by each to the other, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to modify Exhibit 3.2.1
to the Agreement by adding the following language thereto at the current end
thereof
The foregoing notwithstanding, if more than sixteen hundred (1,600)
licenses but fewer than eighteen hundred one (1,801) repurchased under
this Agreement, such additional licenses will be acquired at Seven Hundred
Fifty Dollars ($750.00) per copy of Software (as defined in the Agreement),
in an increment of two hundred (200), payable as a one-time license fee of
One Hundred Fifty Thousand Dollars ($150,000) upon purchase of such
incremental amount.
It is agreed by the parties hereto that all of the other terms and conditions of
the original Agreement shall remain in full force and effect other than as
modified herein. Upon execution by parties, this amendment shall be attached to
and form a part of the Agreement. This 7th day of September, 1995.
HOLIDAY INNS, INC.
By: /s/ Richard Smith
----------------------------------
Name: Richard Smith
----------------------------------
Its: SVP Information Technology
----------------------------------
ENCORE SYSTEMS, INC.
By: /s/ Penelope Sellers
----------------------------------
Name: Penelope Sellers
----------------------------------
Its: President
----------------------------------
44
<PAGE>
AMENDMENT TO AGREEMENT
AMENDMENT NO. 4
WHEREAS, the undersigned parties have entered into a certain Amended and
Restated Preferred Vendor Agreement (the "Agreement") originally dated May 15,
1992 and amended by that certain Amendment to Agreement Amendment No. 1, dated
November 8, 1992; and further amended by that certain Amendment to Agreement
Amendment No. 2; and, further amended by that certain Amendment to Agreement
Amendment No. 3, dated _______ 1995; and
WHEREAS, the undersigned parties are desirous of amending the
aforementioned Agreement, it being to the mutual benefit of all parties to do
so;
NOW THEREFORE, for and in consideration of the mutual promises and other
valuable consideration paid by each to the other, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to modify Exhibit 3.2.1
to the Agreement by adding the following language thereto at the current end
thereof:
The foregoing notwithstanding, if more than eighteen hundred (1,800)
licenses but fewer than eighteen hundred fifty-one (1,851) purchased under
this Agreement, such additional licenses will be acquired at Seven Hundred
Fifty Dollars ($750.00) per copy of Software (as defined in the Agreement),
in an increment of fifty (50), payable as a one-time license fee of
Thirty-Seven Thousand Five Hundred Dollars ($37,500) upon purchase of such
incremental amount.
It is agreed by the parties hereto that all of the other terms and
conditions of the original Agreement shall remain in full force and effect other
than as modified herein. Upon execution by all parties, this amendment shall be
attached to and form a part of the Agreement. This 25th day of November 1996.
HOLIDAY INNS, INC. ENCORE SYSTEMS, INC.
By: /s/ Jan M. Grayson By: /s/ Penelope Sellers
------------------------------ ----------------------------------
Name: Jan M. Grayson Name: Penelope Sellers
------------------------------ ----------------------------------
Its: Chief Information Officer Its: President
------------------------------ ----------------------------------
45
<PAGE>
AMENDMENT TO AGREEMENT
AMENDMENT NO. 5
WHEREAS, Holiday Inns, Inc. and Encore Systems, Inc. entered into that
certain Amended and Restated Preferred Vendor Agreement (the "Agreement")
originally dated May 15, 1992 and amended by that certain Amendment to Agreement
Amendment No. 1, dated November 8, 1992; and further amended by that certain
Amendment to Agreement Amendment No.2, dated May 4, 1995; and further amended by
that certain Amendment to Agreement No. 3, dated September 7, 1995; and further
amended by that certain Amendment to Agreement Amendment No. 4, dated November
25, 1996; and
WHEREAS, Holiday Inns, Inc. assigned its right, title, and interest in and
to the Agreement (as amended) to Holiday Hospitality Corporation as of April 28,
1997, and
WHEREAS, the undersigned parties are desirous of amending the
aforementioned Agreement, it being to mutual benefit of all parties to do so;
NOW THEREFORE, for and in consideration of the mutual promises and other
valuable consideration paid by each to the other, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to modify Exhibit 3.2.1
to the Agreement by adding the following language thereto at the current end
thereof:
The foregoing notwithstanding, if more than eighteen hundred fifty-one
(1,851) licenses but fewer than nineteen hundred (1,900) are purchased
under this Agreement, such additional licenses will be acquired at Seven
Hundred Fifty Dollars ($750.00) per copy of Software (as defined in the
Agreement), in an increment of fifty (50), payable as a one-time license
fee of Thirty-Seven Thousand Five Hundred Dollars ($37,500) upon purchase
of such incremental amount.
It is agreed by the parties hereto that all of the other terms and
conditions of the original Agreement shall remain in full force and effect other
than as modified herein. Upon execution by all parties, this amendment shall be
attached to and form a part of the Agreement. This 22 day of May, 1997.
HOLIDAY HOSPITALITY CORP. ENCORE SYSTEMS, INC.
By: /s/ Jan M. Grayson By: /s/ Penelope A. Sellers
------------------------------ ----------------------------------
Name: Name: Penelope A. Sellers
------------------------------ ----------------------------------
Its: Its: President
------------------------------ ----------------------------------
46
<PAGE>
AMENDMENT TO AGREEMENT
AMENDMENT NO.6
WHEREAS, the undersigned parties have entered into a certain Amended and
Restated Preferred Vendor Agreement (the "Agreement") originally dated May 15,
1992 and amended by that certain Amendment to Agreement Amendment No. 1, dated
November 8, 1992; and further amended by that certain Amendment to Agreement
Amendment No. 2, dated May 4, 1925; and further amended by that certain
Amendment to Agreement Amendment No. 3, dated September 7, 1995; and further
amended by that certain Amendment to Agreement Amendment No. 4, dated November
25, 1996; and further amended by that certain Amendment to Agreement Amendment
No. 5, dated May 22, 1997 ; and
WHEREAS, the undersigned parties are desirous of amending the
aforementioned Agreement, it being to mutual benefit of all parties to do so;
NOW THEREFORE, for and in consideration of the mutual promises and other
valuable consideration paid by each to the other, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to modify Exhibit 3.2.1
to the Agreement by adding the following language thereto at the current end
thereof:
The foregoing notwithstanding, if more that nineteen hundred (1,900)
licenses but fewer than nineteen hundred and fifty (1,950) purchased under
this Agreement, such additional licenses will be acquired at Seven Hundred
Fifty Dollars ($750.00) per copy of Software (as defined in the Agreement),
in an increment of fifty (50), payable as a one-time license fee of
Thirty-Seven Thousand Five Hundred Dollars ($37,500) upon purchase of such
incremental amount.
It is agreed by the parties hereto that all of the other terms and
conditions of the original Agreement shall remain in full force and effect other
than as modified herein. Upon execution by all parties, this amendment shall be
attached to and form a part of the Agreement. This 2nd day of March, 1998.
HOLIDAY HOSPITALITY CORP. ENCORE SYSTEMS, INC.
By: /s/ Jeff Eckard By: /s/ Michelle Yablin
-------------------------------- ----------------------------------
Name: Jeff Eckard Name: Michelle Yablin
-------------------------------- ----------------------------------
Its: JPE Its: Director of Corp Accts
-------------------------------- ----------------------------------
47
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement is made as of February 1, 1999, by and between
Eltrax Systems, Inc. (the "Company") and Michael Wager (the "Consultant").
The parties hereby agree as follows:
1. The Company and Sulcus Hospitality Technologies Corp. ("Sulcus") have
entered into an Agreement and Plan of Merger dated as of November 11, 1998
(the "Merger Agreement"). This Agreement shall be effective as of the
Effective Time (as defined in the Merger Agreement). In the event that the
Merger (as defined in the Merger Agreement) is not completed, this
Agreement shall be null and void.
2. The Company shall engage Consultant on the terms and conditions set forth
herein for a term commencing at the Effective Time through and until
December 31, 2001 (the "Consulting Period"). The consulting engagement
described in this Agreement is not terminable by the Company during the
Consulting Period.
3. During the Consulting Period, the Consultant shall provide the Company with
advice and recommendations concerning various matters respecting the
business of Sulcus; provided, however, that Consultant does not need to
make himself available to the Company for more than two (2) hours per
month. Consultant will be reimbursed for his reasonable business expenses
incurred in connection with services requested to be performed under this
Agreement, subject to appropriate documentation of such expenses in
accordance with Company policy. Consultant will not have to provide
consulting services that would require travel by him more than 30 miles
from his normal place of business. Consultant shall keep all Company
matters confidential.
4. The Company shall pay consulting fees to Consultant during the Consulting
Period, in the amount of One Hundred Dollars ($100.00) per month, in
arrears.
5. The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction shall nevertheless
be binding and enforceable.
6. The rights and obligations of the Company and Consultant under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company and the heirs, estate and personal
representatives of Consultant.
7. Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such
provision or provisions as to future violations thereof, nor prevent that
party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the
waiver by a party of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to that
party under the circumstances.
<PAGE>
8. This Agreement contains the entire agreement of the parties hereto with
respect to the subject matter hereof. It may not be changed orally but may
be changed only by an agreement in writing signed by both parties.
9. This Agreement shall be interpreted and enforced pursuant to the laws of
the State of Michigan, without regard to the principles of conflicts of
law. The parties hereto consent to the jurisdiction of the courts of the
State of Michigan and to venue within the State of Michigan.
10. Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, may be settled by arbitration in Southfield, Michigan
in accordance with the commercial arbitration rules of the American
Arbitration Association then pertaining.
ELTRAX SYSTEMS, INC.
By: _______________________
Nicholas J. Pyett, CFO
CONSULTANT
______________________________________
Michael Wager
2
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement is made as of February 1, 1999, by and between
Eltrax Systems, Inc. (the "Company") and Robert Gries (the "Consultant").
The parties hereby agree as follows:
1. The Company and Sulcus Hospitality Technologies Corp. ("Sulcus") have
entered into an Agreement and Plan of Merger dated as of November 11, 1998
(the "Merger Agreement"). This Agreement shall be effective as of the
Effective Time (as defined in the Merger Agreement). In the event that the
Merger (as defined in the Merger Agreement) is not completed, this
Agreement shall be null and void.
2. The Company shall engage Consultant on the terms and conditions set forth
herein for a term commencing at the Effective Time through and until
December 31, 2001 (the "Consulting Period"). The consulting engagement
described in this Agreement is not terminable by the Company during the
Consulting Period.
3. During the Consulting Period, the Consultant shall provide the Company with
advice and recommendations concerning various matters respecting the
business of Sulcus; provided, however, that Consultant does not need to
make himself available to the Company for more than two (2) hours per
month. Consultant will be reimbursed for his reasonable business expenses
incurred in connection with services requested to be performed under this
Agreement, subject to appropriate documentation of such expenses in
accordance with Company policy. Consultant will not have to provide
consulting services that would require travel by him more than 30 miles
from his normal place of business. Consultant shall keep all Company
matters confidential.
4. The Company shall pay consulting fees to Consultant during the Consulting
Period, in the amount of One Hundred Dollars ($100.00) per month, in
arrears.
5. The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction shall nevertheless
be binding and enforceable.
6. The rights and obligations of the Company and Consultant under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company and the heirs, estate and personal
representatives of Consultant.
7. Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such
provision or provisions as to future violations thereof, nor prevent that
party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the
waiver by a party of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to that
party under the circumstances.
<PAGE>
8. This Agreement contains the entire agreement of the parties hereto with
respect to the subject matter hereof. It may not be changed orally but may
be changed only by an agreement in writing signed by both parties.
9. This Agreement shall be interpreted and enforced pursuant to the laws of
the State of Michigan, without regard to the principles of conflicts of
law. The parties hereto consent to the jurisdiction of the courts of the
State of Michigan and to venue within the State of Michigan.
10. Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, may be settled by arbitration in Southfield, Michigan
in accordance with the commercial arbitration rules of the American
Arbitration Association then pertaining.
ELTRAX SYSTEMS, INC.
By: ______________________
Nicholas J. Pyett, CFO
CONSULTANT
___________________________
Robert Gries
2
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement is made as of February 1, 1999, by and between
Eltrax Systems, Inc. (the "Company") and David Adler (the "Consultant").
The parties hereby agree as follows:
1. The Company and Sulcus Hospitality Technologies Corp. ("Sulcus") have
entered into an Agreement and Plan of Merger dated as of November 11, 1998
(the "Merger Agreement"). This Agreement shall be effective as of the
Effective Time (as defined in the Merger Agreement). In the event that the
Merger (as defined in the Merger Agreement) is not completed, this
Agreement shall be null and void.
2. The Company shall engage Consultant on the terms and conditions set forth
herein for a term commencing at the Effective Time through and until
December 31, 2001 (the "Consulting Period"). The consulting engagement
described in this Agreement is not terminable by the Company during the
Consulting Period.
3. During the Consulting Period, the Consultant shall provide the Company with
advice and recommendations concerning various matters respecting the
business of Sulcus; provided, however, that Consultant does not need to
make himself available to the Company for more than two (2) hours per
month. Consultant will be reimbursed for his reasonable business expenses
incurred in connection with services requested to be performed under this
Agreement, subject to appropriate documentation of such expenses in
accordance with Company policy. Consultant will not have to provide
consulting services that would require travel by him more than 30 miles
from his normal place of business. Consultant shall keep all Company
matters confidential.
4. The Company shall pay consulting fees to Consultant during the Consulting
Period, in the amount of One Hundred Dollars ($100.00) per month, in
arrears.
5. The provisions of this Agreement are severable, and if any one or more
provisions may be determined to be illegal or otherwise unenforceable, in
whole or in part, the remaining provisions and any partially unenforceable
provision to the extent enforceable in any jurisdiction shall nevertheless
be binding and enforceable.
6. The rights and obligations of the Company and Consultant under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company and the heirs, estate and personal
representatives of Consultant.
7. Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such
provision or provisions as to future violations thereof, nor prevent that
party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the
waiver by a party of any single remedy shall not constitute a waiver of
such party's right to assert all other legal remedies available to that
party under the circumstances.
<PAGE>
8. This Agreement contains the entire agreement of the parties hereto with
respect to the subject matter hereof. It may not be changed orally but may
be changed only by an agreement in writing signed by both parties.
9. This Agreement shall be interpreted and enforced pursuant to the laws of
the State of Michigan, without regard to the principles of conflicts of
law. The parties hereto consent to the jurisdiction of the courts of the
State of Michigan and to venue within the State of Michigan.
10. Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, may be settled by arbitration in Southfield, Michigan
in accordance with the commercial arbitration rules of the American
Arbitration Association then pertaining.
ELTRAX SYSTEMS, INC.
By: _______________________
Nicholas J. Pyett, CFO
CONSULTANT
_____________________________
David Adler
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the Eltrax Systems,
Inc. Registration Statement (Registration No. 333-68699) on Form S-4 of
our report dated February 27, 1998 on our audits on the consolidated
financial statements and schedule of Sulcus Hospitality Technologies, Corp.
as of December 31, 1997 and 1996 and for each year in the period ended
December 31, 1997.
We also consent to the reference to our firm under the heading "Experts."
/s/ Crowe, Chizek and Company LLP
- -------------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
February 1, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Proxy Statement/Prospectus of our report
dated March 26, 1998, on our audits of the consolidated financial statements of
Eltrax Systems, Inc. as of December 31, 1997 and 1996, and for the year ended
December 31, 1997 and the nine month transition period ended December 31, 1996,
and of our report dated November 6, 1998, on our audits of the combined
financial statements of Encore Systems, Inc. as of December 31, 1997 and 1996,
and for the years then ended. We also consent to the reference to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 3, 1999
<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. (the "Company")
held of record by the undersigned on _______________, 1999, at a Special
Meeting of Shareholders to be held on _________________, 1999, or any
adjournment, thereof.
1. PROPOSAL TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE THE COMPANY'S
ISSUANCE OF UP TO [10,205,259] SHARES OF THE COMPANY'S COMMON STOCK
PURSUANNT TO THE AGREEMENT AND PLAN OF MERGER, DATED AS OF NOVEMBER 11,
1998 BY AND AMONG THE COMPANY, SULCUS ACQUIRING CORPORATION, A PENNSYLVANIA
CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF THE COMPANY, AND SULCUS
HOSPITALITY TECHNOLOGIES CORP., A PENNSYLVANIA CORPORATION (THE "MERGER
AGREEMENT"), WHICH PROVIDES FOR THE MERGER OF SULCUS ACQUIRING CORPORATION
WITH AND INTO SULCUS HOSPITALITY TECHNOLOGIES CORP., RESULTING IN SULCUS
HOSPITALITY TECHNOLOGIES CORP. BEING A WHOLLY OWNED SUBSIDIARY OF THE
COMPANY.
/ / FOR / / AGAINST / / ABSTAIN
2. PROPOSAL TO CONSIDER AND ACT UPON A PROPOSAL TO AMEND THE COMPANY'S 1998
STOCK INCENTIVE PLAN TO INCREASE BY 1,500,000 THE NUMBER OF SHARES OF THE
COMPANY'S COMMON STOCK THAT MAY BE ISSUED PURSUANT TO SUCH PLAN IN ORDER
TO PROVIDE FOR THE CONVERSION OF SULCUS HOSPITALITY TECHNOLOGIES CORP.
STOCK OPTIONS INTO OPTIONS TO PURCHASE THE COMPANY'S COMMON STOCK IN
ACCORDANCE WITH THE MERGER AGREEMENT.
/ / 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 THE PROPOSALS IN NUMBERS 1 AND 2 ABOVE. The undersigned
acknowledges receipt prior to the execution this proxy a Notice of Special
Meeting of Shareholders and a Proxy Statement/Prospectus dated _________,
199___.
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.
2
<PAGE>
SULCUS HOSPITALITY TECHNOLOGIES CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leon D. Harris and ________________, 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 Sulcus Hospitality Technologies Corp. (the
"Company") held of record by the undersigned on ______________, 1999, at a
Special Meeting of Shareholders to be held on ________________, 1999, or any
adjournment, thereof.
1. PROPOSAL TO CONSIDER AND ACT UPON A PROPOSAL TO APPROVE AND ADOPT THE
AGREEMENT AND PLAN OF MERGER, DATED AS OF NOVEMBER 11, 1998 (THE "MERGER
AGREEMENT") BY AND AMONG THE COMPANY, SULCUS ACQUIRING CORPORATION, A
PENNSYLVANIA CORPORATION, AND ELTRAX SYSTEMS, INC., A MINNESOTA
CORPORATION, WHICH PROVIDES FOR THE MERGER OF SULCUS ACQUIRING CORPORATION
WITH AND INTO THE COMPANY, RESULTING IN THE COMPANY BEING A WHOLLY OWNED
SUBSIDIARY OF ELTRAX SYSTEMS, INC.
/ / FOR / / AGAINST / / ABSTAIN
2. 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 THE PROPOSAL IN ITEM NUMBER 1 ABOVE. The undersigned
acknowledges receipt prior to the execution this proxy a Notice of Special
Meeting of Shareholders and a Proxy Statement/Prospectus dated _________,
199___.
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.
<PAGE>
[ELTRAX LETTERHEAD]
_____________, 1999
Dear Shareholder of Eltrax Systems, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders of
Eltrax Systems, Inc. to be held at 10:00 a.m., local time, on
_______________, 1999, at ____________.
The purpose of the Eltrax special meeting is to consider and vote upon
proposals to approve (1) the issuance of up to [10,205,259] shares (the "Share
Issuance") of Eltrax common stock, $.01 par value per share, pursuant to the
Agreement and Plan of Merger, dated as of November 11, 1998, by and among
Eltrax, Sulcus Hospitality Technologies Corp., a Pennsylvania corporation,
and Sulcus Acquiring Corporation, a Pennsylvania corporation and a
wholly-owned subsidiary of Eltrax ("SAC"), which provides for the merger of
SAC with and into Sulcus, resulting in Sulcus being a wholly-owned subsidiary
of Eltrax and (2) an amendment to Eltrax's 1998 Stock Incentive Plan (the
"Plan Amendment") to increase by 1,500,000 the number of shares of Eltrax
common stock that may be issued pursuant to such plan in order to provide for
the conversion of Sulcus stock options into Eltrax stock options in
accordance with the merger agreement.
In the merger, each share of common stock, no par value per share, of
Sulcus (other than shares held in the treasury of Sulcus or held by any
Sulcus subsidiary, Eltrax or SAC or other subsidiary of Eltrax), will, by
virtue of the merger and without any action on the part of the holder
thereof, be canceled and converted into the right to receive 0.55 fully paid
and nonassessable shares of Eltrax common stock, with cash being paid in lieu
of fractional shares, on and subject to the terms and conditions set forth in
the merger agreement, all as more fully described in the attached Proxy
Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF ELTRAX AND HAS APPROVED THE
MERGER AGREEMENT, THE SHARE ISSUANCE AND THE PLAN AMENDMENT AND ACCORDINGLY
RECOMMENDS THAT ELTRAX SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO APPROVE
THE SHARE ISSUANCE AND THE PLAN AMENDMENT.
Your vote is important, regardless of the number of shares you own.
Under the Minnesota Business Corporation Act, the affirmative vote of the
holders of a majority of the outstanding shares of Eltrax common stock
present, in person or by proxy, at the Eltrax special meeting and entitled to
vote is required for approval of the Share Issuance and the Plan Amendment.
The Notice of Special Meeting and Proxy Statement/Prospectus accompanying
this letter describe the proposed transactions more fully and include other
information about Eltrax, Sulcus and SAC. In addition, Eltrax's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997, as
amended, Eltrax's Quarterly Report on Form 10-Q for the fiscal quarter ended
September
<PAGE>
30, 1998, Sulcus' Form 10-K for the fiscal year ended December 31, 1997, as
amended, and Sulcus' Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1998 accompany this letter. Please give this information
your careful attention.
On behalf of your Board of Directors, I urge you to complete, date and
sign the accompanying proxy and return it promptly in the enclosed
postage-paid envelope. This will not prevent you from attending the Eltrax
special meeting or voting in person, but will assure that your vote is
counted if you are unable to attend the Eltrax special meeting. You may
revoke your proxy at any time by filing a written notice of revocation with,
or delivering a duly executed proxy bearing a later date to the Secretary of
Eltrax at Eltrax's main office prior to the Eltrax special meeting or by
attending the Eltrax special meeting and voting in person.
On behalf of your Board of Directors, I thank you for your support and
urge you to vote FOR approval of the Share Issuance and the Plan Amendment.
Sincerely,
William P. O'Reilly
Chairman of the Board and
Chief Executive Officer
<PAGE>
[SULCUS LETTERHEAD]
_______________, 1999
Dear Shareholder of Sulcus Hospitality Technologies Corp.:
You are cordially invited to attend the Special Meeting of Shareholders
of Sulcus Hospitality Technologies Corp. to be held at 10:00 a.m., local
time, on _____________, 1999 at ___________________.
The purpose of the Sulcus special meeting is to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
November 11, 1998, by and among Eltrax Systems, Inc., a Minnesota
corporation, Sulcus Acquiring Corporation, a Pennsylvania corporation and a
wholly-owned subsidiary of Eltrax ("SAC"), and Sulcus which provides for the
merger of SAC with and into Sulcus, resulting in Sulcus being a wholly-owned
subsidiary of Eltrax.
In the merger, each share of common stock, no par value per share, of
Sulcus (other than shares held in the treasury of Sulcus or held by any
Sulcus subsidiary, Eltrax or SAC or other subsidiary of Eltrax), will, by
virtue of the merger and without any action on the part of the holder
thereof, be canceled and converted into the right to receive 0.55 fully paid
and nonassessable shares (the "Sulcus Exchange Ratio") of common stock, $.01
par value per share, of Eltrax, with cash being paid in lieu of fractional
shares, on and subject to the terms and conditions set forth in the merger
agreement, all as more fully described in the attached Proxy
Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
ADVISABLE, FAIR TO AND IN THE BEST INTERESTS OF SULCUS AND HAS APPROVED THE
MERGER AGREEMENT AND ACCORDINGLY RECOMMENDS THAT SULCUS SHAREHOLDERS VOTE IN
FAVOR OF THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT. BROADVIEW
INTERNATIONAL LLC, THE FINANCIAL ADVISOR FOR SULCUS, HAS DELIVERED ITS
OPINION, DATED NOVEMBER 11, 1998, TO THE SULCUS BOARD OF DIRECTORS THAT THE
SULCUS EXCHANGE RATIO, WHICH PROVIDES FOR THE CONVERSION OF SHARES OF SULCUS
COMMON STOCK INTO SHARES OF ELTRAX COMMON STOCK, IS FAIR TO THE HOLDERS OF
SULCUS COMMON STOCK FROM A FINANCIAL POINT OF VIEW.
Your vote is important, regardless of the number of shares you own.
Under the Pennsylvania Business Corporation Law of 1988, the affirmative vote
of the holders of a majority of the votes cast by Sulcus shareholders is
required for adoption of the merger agreement. The Notice of Special Meeting
and Proxy Statement/Prospectus accompanying this letter describe the proposed
transactions more fully and include other information about Sulcus, Eltrax
and SAC. In addition, Eltrax's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, as amended, Eltrax's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998, Sulcus' Form 10-K for
the fiscal year ended December 31, 1997, as amended, and Sulcus' Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1998 accompany
this letter. Please give this information your careful attention.
On behalf of your Board of Directors, I urge you to complete, date and
sign the
<PAGE>
accompanying proxy card and return it promptly in the enclosed postage-paid
envelope. This will not prevent you from attending the Sulcus special
meeting or voting in person, but will assure that your vote is counted if you
are unable to attend the Sulcus special meeting. You may revoke your proxy
at any time by filing a written notice of revocation with, or delivering a
duly executed proxy bearing a later date to the Secretary of Sulcus at
Sulcus' corporate headquarters in Greensburg, Pennsylvania, prior to the
Sulcus special meeting or by attending the Sulcus special meeting and voting
in person.
On behalf of your Board of Directors, I thank you for your support and
urge you to vote FOR approval and adoption of the merger agreement.
PLEASE DO NOT SEND ANY SHARE CERTIFICATES WITH THE PROXY CARD.
Sincerely,
Leon D. Harris
Chairman of the Board and
Chief Executive Officer
