<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16 , 1999
REGISTRATION NO. 333-68699
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 2 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 7373 41-1484525
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION
ORGANIZATION) 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
ELTRAX SYSTEMS, INC. SULCUS HOSPITALITY
TECHNOLOGIES CORP.
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
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. 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 up to 9,421,455 shares of
Eltrax 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. The merger cannot be completed unless the shareholders of each
company approve these actions.
Whether or not you plan to attend a meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If Eltrax
shareholders sign, date and mail their proxy cards without indicating how
they want to vote, their proxy will be counted as a vote in favor of the
issuance of shares and amendment to Eltrax's 1998 Stock Incentive Plan. If
Sulcus shareholders sign, date and mail their proxy cards without indicating
how they want to vote, their vote will be counted as a vote in favor of the
merger. If any shareholders fail to return their cards, the effect in most
cases will be a vote against these events.
The dates, times and places of the special meetings are as follows:
FOR SULCUS SHAREHOLDERS:
____________, 1999 at 10:00 a.m.
________________________
________________________
________________________
FOR ELTRAX SHAREHOLDERS:
____________, 1999 at 10:00 a.m.
2000 Town Center
Suite 690
Southfield, MI 48075
This document provides you with detailed information about the proposed
merger. In addition, you may obtain information about our companies from
documents that we have filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
______________________________ _______________________________
William P. O'Reilly Leon Harris
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
Eltrax Systems, Inc. Sulcus Hospitality Technologies Corp.
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.
<PAGE>
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 .
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>
<CAPTION>
<S> <C>
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Selected Unaudited Pro Forma Financial Data. . . . . . . . . . . . . . . . . . . . 10
Unaudited Pro Forma Condensed Combined Balance Sheet Data. . . . . . . . . . . . . 10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Effect of Eltrax's Stock Price on the Merger Consideration. . . . . . . . . . 13
Ability to Efficiently Integrate and Operate Sulcus . . . . . . . . . . . . . 13
Eltrax's Ability to Efficiently Integrate and Operate Recent Acquisitions . . 14
Future Eltrax Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . 14
History of Losses and Uncertainty of Future Profitability . . . . . . . . . . 14
Competition From Larger Competitors . . . . . . . . . . . . . . . . . . . . . 15
Uncertainties Regarding Intellectual Property Rights. . . . . . . . . . . . . 15
Dependence on a Significant Customer. . . . . . . . . . . . . . . . . . . . . 15
Dependence on Senior Management and Key Employees . . . . . . . . . . . . . . 15
Risks Associated with New Products and Services . . . . . . . . . . . . . . . 16
Dependence on Hospitality and Tourism Industry. . . . . . . . . . . . . . . . 17
Effect of General Economic Conditions . . . . . . . . . . . . . . . . . . . . 17
Sulcus International Sales and the Risks Associated with International
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Year 2000 Issues Associated with Eltrax . . . . . . . . . . . . . . . . . . . 17
Year 2000 Issues Associated with Sulcus . . . . . . . . . . . . . . . . . . . 18
Accounting Treatment of Merger. . . . . . . . . . . . . . . . . . . . . . . . 19
Eltrax's Need for Additional Capital to Make Acquisitions . . . . . . . . . . 19
Adverse Effect on Price of Eltrax Shares Available for Future Sale. . . . . . 19
Lack of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purpose of this Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Eltrax Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Record Date; Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Share Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . 22
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . 22
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Sulcus Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Record Date; Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Share Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . 23
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . . . . . . . 24
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Interests of Certain Persons. . . . . . . . . . . . . . . . . . . . . . . . . 38
Indemnification of Sulcus Officers and Directors. . . . . . . . . . . . . . . 40
Estimated Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . 40
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Other Legal Matters; Regulatory Approvals . . . . . . . . . . . . . . . . . . 42
Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Delisting and Deregistration of Sulcus common stock . . . . . . . . . . . . . 43
Resales of Eltrax common stock. . . . . . . . . . . . . . . . . . . . . . . . 43
Nasdaq Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Board of Directors and Management of Eltrax Following the Merger. . . . . . . 44
Comparative Market Prices and Dividends. . . . . . . . . . . . . . . . . . . . . . 44
Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Conversion of Sulcus common stock . . . . . . . . . . . . . . . . . . . . . . 46
Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Treatment of Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . . 48
Interim Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . 51
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Termination; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Unaudited Pro Forma Condensed Combined Financial Statements. . . . . . . . . . . . 52
Unaudited Pro Forma Condensed Combined Financial Statements. . . . . . . . . . . . 55
Description of Eltrax Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 62
Eltrax Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Eltrax Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Minnesota Business Corporation Act. . . . . . . . . . . . . . . . . . . . . . 63
Transfer Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . . . . 63
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Comparison of the Rights of Holders of Eltrax Common Stock and Sulcus Common
Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Authorized Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Repurchase and the Redemption of Shares . . . . . . . . . . . . . . . . . . . 67
Payment of Dividends to Shareholders. . . . . . . . . . . . . . . . . . . . . 67
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Amendments to Articles of Incorporation . . . . . . . . . . . . . . . . . . . 68
Amendments to Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Change of Control Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 69
Special Meeting of Shareholders . . . . . . . . . . . . . . . . . . . . . . . 69
Shareholder Consent to Action Without a Meeting . . . . . . . . . . . . . . . 70
Liquidation Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Dissenters Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Proposal to Amend Eltrax 1998 Stock Incentive Plan . . . . . . . . . . . . . . . . 71
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Summary of the 1998 Stock Incentive Plan. . . . . . . . . . . . . . . . . . . 72
New Plan Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . 77
Business of Eltrax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Business of Sulcus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . . . . . 81
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Shareholders' Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
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>
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 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
2
<PAGE>
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 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.
3
<PAGE>
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 work for Eltrax 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 sole consideration for the termination
of his existing employment agreement; and
(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
(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
4
<PAGE>
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.
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
5
<PAGE>
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.
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.
6
<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.
7
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings per share and book value per share
data of Eltrax and Sulcus and the earnings per share and book value per share
data of Eltrax on a pro forma basis to give effect to the merger and to the
several completed transactions described more fully in "Unaudited Pro Forma
Condensed Consolidated Financial Statements." No dividends were paid by Eltrax
or Sulcus during the period 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 document. 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 - - $ .03 $ (0.11) $ (1.34) $ (0.08)
basic(a)
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.
8
<PAGE>
(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.
9
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The selected unaudited pro forma condensed combined balance sheet data as of
September 30, 1998 set forth below, gives effect to the merger as if consummated
on September 30, 1998. The selected unaudited pro forma condensed combined
statements of operations data for the years ended December 31, 1996 and 1997 and
the nine months ended September 30, 1998 set forth below, give effect to the
merger and certain transactions described in "Unaudited Pro Forma Condensed
Consolidated Financial Statements" that Eltrax has completed as if consummated
at the beginning of the respective period. The selected pro forma information
set forth below, is qualified in its entirety by, and should be read in
conjunction with, the Unaudited Pro Forma Condensed Combined Financial
Statements included herein and the historical financial information of Eltrax
and Sulcus attached hereto or incorporated herein by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA
<TABLE>
<CAPTION>
At September 30, 1998
(in thousands)
<S> <C>
Current assets:
Cash and cash equivalents.................................... $ 7,423
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
--------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1998
(in thousands)
<S> <C>
Total liabilities........................................ 29,735
Shareholders' equity:
Common stock................................................. 224
Additional paid-in capital................................... 74,657
Accumulated deficit.......................................... (34,808)
Treasury stock............................................... (156)
Other........................................................ (577)
--------
Total shareholders' equity.............................. 39,340
--------
$ 69,075
--------
--------
</TABLE>
11
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine months
Ended
Years ended December 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 $ (0.09) $ 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>
12
<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.
IF ELTRAX'S STOCK PRICE FALLS, THE MERGER CONSIDERATION RECEIVED BY SULCUS
SHAREHOLDERS WILL DECREASE
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.
THE VALUE OF THE COMBINED COMPANY WILL BE ADVERSELY EFFECTED IF ELTRAX AND
SULCUS ARE UNABLE TO SUCCESSFULLY INTEGRATE THEIR OPERATIONS.
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.
13
<PAGE>
IF ELTRAX IS UNABLE TO EFFICIENTLY INTEGRATE AND OPERATE RECENT ACQUISITIONS,
THIS COULD HAVE A MATERIAL ADVERSE EFFECT ON ELTRAX'S OPERATIONS AND FINANCIAL
CONDITION.
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.
ELTRAX PLANS TO MAKE ADDITIONAL ACQUISITIONS AND SUCH STRATEGY WILL INCREASE THE
RISK OF HOLDING ELTRAX COMMON STOCK.
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."
ELTRAX AND SULCUS HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE
FUTURE.
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. In addition, Sulcus is expected to take a charge of
approximately $2.0 million during 1998 with respect to a write-off of certain
computer software which will result in a net loss for fiscal 1998.
14
<PAGE>
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 MAY PUT US AT A COMPETITIVE DISADVANTAGE AND
RESULT IN REDUCED PROFIT MARGINS OR LOSS OF MARKET SHARE.
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.
WE ARE UNCERTAIN AS TO WHETHER WE CAN PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
WITH RESPECT TO OUR HARDWARE AND SOFTWARE PRODUCTS, AND A FAILURE TO OBTAIN SUCH
PROTECTION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
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 Sulcus will implement
protective measures and intend to defend their proprietary rights
vigorously, these efforts may not be successful, and could have a
material adverse effect on the combined company since 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.
SALES TO HOLIDAY INN COMPRISED BETWEEN 6% AND 8% OF OUR COMBINED SALES DURING
THE LAST TWO YEARS.
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.
WE ONLY HAVE A FEW KEY EXECUTIVE OFFICERS AND A FAILURE TO ATTRACT ADDITIONAL
MANAGEMENT PERSONNEL WILL ADVERSELY AFFECT US.
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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) Leon Harris, the President and Chief Executive Officer of Sulcus, will
be an employee of Eltrax for a period of five months after the merger,
and will then only provide limited consulting services through August
31, 2000. Eltrax has hired an executive search firm to locate a
replacement for Mr. Harris. However, no assurances have been given as
to when such replacement will be located.
(3) 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.
WE ARE FREQUENTLY OFFERING NEW PRODUCTS AND SERVICES, AND OUR SUCCESS DEPENDS
UPON THE ACCEPTANCE OF SUCH 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.
(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.
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OUR REVENUES ARE HEAVILY DEPENDENT UPON THE HOSPITALITY AND TOURISM INDUSTRY.
Declines in the hospitality and tourism industry could adversely affect the
revenues of Eltrax and Sulcus. 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.
WE MAY EXPERIENCE A DECLINE IN DEMAND FOR PRODUCTS AND SERVICES IF THE STATE OF
THE ECONOMY DECLINES.
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.
A LARGE PERCENTAGE OF SULCUS' REVENUE IS DERIVED FROM INTERNATIONAL OPERATIONS.
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.
SYSTEM FAILURES DUE TO THE YEAR 2000 ISSUE WOULD HAVE A LARGE IMPACT ON OUR
BUSINESS.
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. This causes programs that perform arithmetic operations,
comparisons or date sorts to possibly generate erroneous
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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 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.
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
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evaluation, Sulcus believes that its major internal business and information
systems are, or by April 1, 1999 will be, capable of handling the
calculations and computations necessary to be Year 2000 compliant. The costs
to date associated with Year 2000 compliance issues have not been significant
and Sulcus does not believe that future costs associated with implementing
its Year 2000 compliance efforts will be material to its business, results of
operations, or financial condition.
Sulcus is testing the current versions, and is designing the newest versions, of
its products to process Year 2000 data. While some minor potential issues were
identified, those versions that have been tested are substantially Year 2000
compliant and the expense of revising current versions to be Year 2000 compliant
has not been material. Although Sulcus is testing its products for Year 2000
compliance, undetected errors or defects may exist that could cause a product to
fail to process Year 2000 data correctly. Sulcus expects that it will complete
its Year 2000 testing of its current products by April 1, 1999, at which time
all of its current product offerings are expected to be Year 2000 compliant.
Sulcus has taken steps to assist its customers in upgrading to current compliant
product versions. However, no assurances can be given that all customers will
do so. Costs incurred by Sulcus in testing and evaluating its products for Year
2000 compliance have been mostly salaries and other administrative costs, none
of which have been significant.
Sulcus licenses software from third parties that is integrated with its own
proprietary software. Sulcus has received assurances or warranties from such
third parties that the licensed software is Year 2000 compliant. However, all
such third-party software may not be free of errors and defects and may not be
Year 2000 compliant.
Presently, Sulcus does not have a written Year 2000 contingency plan addressing
a worse-case Year 2000 scenario. The Company intends to implement a contingency
plan by April 1, 1999.
Sulcus will continue to request and compile information regarding Year 2000
compliance, including that of its key suppliers and vendors. If any of
Sulcus' internal systems or key suppliers are not Year 2000 compliant,
Sulcus' business or operations might be adversely impacted.
IF WE ARE NOT PERMITTED TO ACCOUNT FOR THE MERGER AS A "POOLING OF INTERESTS",
OUR FINANCIAL RESULTS WILL BE ADVERSELY AFFECTED.
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.
WE MAY NEED ADDITIONAL CAPITAL TO CONTINUE OUR STRATEGY OF GROWING THROUGH
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.
SUBSTANTIAL RESALES OF ELTRAX COMMON STOCK MAY DEPRESS THE ELTRAX COMMON STOCK
PRICE.
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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 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.
WE HAVE NOT PAID ANY DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY ANY
DIVIDENDS IN THE FORESEEABLE FUTURE.
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.
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".
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 such factors. Neither Eltrax nor Sulcus has any obligation
to publicly update or revise these forward-looking statements to reflect new
information, future events, or otherwise.
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 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 for
use at the Sulcus special meeting for purposes described herein.
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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
under the Securities Act of 1933 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
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
- Eltrax's 1998 Stock Incentive Plan Amendment, which increases 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 1998 STOCK
INCENTIVE PLAN AMENDMENT. ACCORDINGLY, THE ELTRAX BOARD RECOMMENDS THAT THE
SHAREHOLDERS OF ELTRAX VOTE IN FAVOR OF THE APPROVAL OF THE SHARE ISSUANCE AND
THE 1998 STOCK INCENTIVE PLAN AMENDMENT AT THE ELTRAX SPECIAL MEETING. See "The
Merger -- Eltrax's Reasons for the Merger; Recommendation of the Eltrax Board".
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RECORD DATE; VOTING RIGHTS
Only holders of record of Eltrax common stock at the close of business on
, 1999 are entitled to receive notice of and to vote
at the Eltrax special meeting. At the close of business on
, 1999, 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 , 1999, directors and
executive officers of Eltrax and their affiliates were the beneficial owners of
an aggregate of _________ (approximately _____%) shares of Eltrax common stock
then outstanding.
QUORUM
The holders of a majority of the shares of Eltrax common stock issued and
outstanding and entitled to vote must be present in person or represented by
proxy at the Eltrax special meeting in order for a quorum to be present.
Shares of Eltrax common stock represented by proxies which are marked "abstain"
will be counted as shares present for purposes of determining the presence of a
quorum on all matters, as will shares that are represented by proxies that are
executed by any broker, fiduciary or other nominee on behalf of the beneficial
owner(s) thereof regardless of whether authority to vote is withheld by such
broker, fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the Eltrax special meeting, it is
expected that such meeting will be adjourned or postponed to solicit additional
proxies.
VOTING AND REVOCATION OF PROXIES
All shares of Eltrax common stock represented by properly executed proxies in
the enclosed form that are received in time for the Eltrax special meeting and
have not been revoked will be voted in accordance with the instructions
indicated in such proxies. IF A PROXY IS SUBMITTED BUT NO DIRECTIONS ARE GIVEN
THEREIN, SHARES OF ELTRAX COMMON STOCK REPRESENTED BY THE PROXY WILL BE VOTED
FOR THE APPROVAL OF THE SHARE ISSUANCE AND THE 1998 STOCK INCENTIVE PLAN
AMENDMENT. Abstentions and broker non-votes will have the effect of a vote cast
against the approval of the Share Issuance and the 1998 Stock Incentive 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
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expenses incurred in connection therewith. If undertaken, the expense of
such solicitation would be nominal.
REQUIRED VOTE
Approval of the Share Issuance and the 1998 Stock Incentive Plan Amendment will
require the affirmative vote of a majority of the outstanding shares of Eltrax
common stock present, in person or by proxy, at the Eltrax special meeting and
entitled to vote thereon, provided that a quorum is present at the Eltrax
special meeting.
SULCUS SPECIAL MEETING
PURPOSE
At the Sulcus special meeting, the shareholders of Sulcus will consider and vote
upon a proposal to approve and adopt the merger agreement. The shareholders of
Sulcus will also consider and take action upon any other business that may be
brought before the Sulcus special meeting.
THE SULCUS BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND
FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF SULCUS AND HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT. ACCORDINGLY, THE SULCUS BOARD
RECOMMENDS THAT THE SHAREHOLDERS OF SULCUS VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AT THE SULCUS SPECIAL MEETING. See "The Merger
- - Sulcus' Reasons for the Merger; Recommendation of the Sulcus Board."
For a discussion of the interests that certain directors and executive officers
of Sulcus have with respect to the merger in addition to their interests as
shareholders of Sulcus generally and information regarding the treatment of
options to purchase Sulcus common stock, see "The Merger -- Interests of Certain
Persons." Such interests, together with other relevant factors, were considered
by the Sulcus Board in making its recommendation and approving the merger
agreement.
RECORD DATE; VOTING RIGHTS
Only holders of record of Sulcus common stock at the close of business on
, 1999 are entitled to receive notice of and to vote
at the Sulcus special meeting. At the close of business on
, 1999, 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 , 1999, 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.
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Shares of Sulcus common stock represented by proxies which are marked "Abstain"
will be counted as shares present for purposes of determining the presence of a
quorum on all matters, as will shares that are represented by proxies that are
executed by any broker, fiduciary or other nominee on behalf of the beneficial
owner(s) thereof regardless of whether authority to vote is withheld by such
broker, fiduciary or nominee on one or more matters.
In the event that a quorum is not present at the Sulcus special meeting, it is
expected that such meeting will be adjourned or postponed to solicit additional
proxies.
VOTING AND REVOCATION OF PROXIES
All shares of Sulcus common stock represented by properly executed proxies in
the enclosed form that are received in time for the Sulcus special meeting and
have not been revoked will be voted in accordance with the instructions
indicated in such proxies. IF A PROXY IS SIGNED AND SUBMITTED BUT NO DIRECTIONS
ARE GIVEN THEREIN, SHARES OF SULCUS COMMON STOCK REPRESENTED BY THE PROXY WILL
BE VOTED IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Abstentions
will have the effect of a vote cast against approval and adoption of the merger
agreement. Broker non-votes will be disregarded and will have no effect on the
vote. In addition, the persons designated in such proxy will have discretion to
vote upon any procedural matter relating to the Sulcus special meeting,
including the right to vote for any adjournment or postponement thereof proposed
by the Sulcus Board, including a postponement and adjournment to solicit
additional proxies. Any proxy in the enclosed form may be revoked by the
shareholder executing it at any time prior to its exercise by giving written
notice thereof to the Secretary of Sulcus, by signing and returning a later
dated proxy or by voting in person at the Sulcus special meeting. Attendance at
the Sulcus special meeting will not in and of itself constitute the revocation
of a proxy.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Sulcus Board. In addition
to the use of the mail, solicitation may be made in person or by telephone or
otherwise by directors, officers and employees of Sulcus. Sulcus' directors,
officers and employees will not be additionally compensated for such
solicitation, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. If undertaken, the expense of such solicitation would be
nominal. Sulcus has retained Innisfree M&A Incorporated to aid in the
solicitation of proxies from its shareholders. The fees paid to Innisfree M&A
Incorporated 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.
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GENERAL
The merger will become effective when articles of merger have been duly filed
with the Department of State of the Commonwealth of Pennsylvania (the
"Effective Time"), or at such time as is agreed upon by the parties and
specified in the articles of merger. At the Effective Time, each share of
Sulcus common stock issued and outstanding immediately prior to the Effective
Time other than shares of Sulcus common stock held in the treasury of Sulcus
or held by a subsidiary of Sulcus, Eltrax or SAC or other subsidiary of
Eltrax, shall, by virtue of the merger and without any action on the part of
the holder thereof, be canceled and converted automatically into the right to
receive 0.55 fully paid and non-assessable shares of Eltrax common stock.
No fractional shares of Eltrax common stock will be issued in the merger. In
lieu of any fractional shares, each holder of Sulcus common stock who otherwise
would be entitled to receive a fractional share of Eltrax common stock pursuant
to the merger will be paid an amount in cash equal to such fraction multiplied
by the closing price per share of Eltrax common stock, as reported by THE WALL
STREET JOURNAL, at the close of business on the business day immediately
preceding the closing date. See "Merger Agreement -- Conversion of Sulcus
Common Stock."
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, 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
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conclusion of the meeting, Messrs. O'Reilly and Harris expressed an interest
to proceed with merger discussions.
On October 23, 1998, Mr. O'Reilly called Mr. Harris and verbally proposed a
merger of Eltrax and Sulcus, in which shareholders of Sulcus would receive
shares of Eltrax common stock equal to approximately 40% of the outstanding
common stock of Eltrax after the merger.
On October 27, 1998, a special meeting of the Eltrax Board was held via
teleconference at which Mr. O'Reilly presented a proposal to acquire Sulcus.
Mr. O'Reilly discussed the potential business advantages of the transaction,
and Ms. Penelope Sellers, an Eltrax Board member and President of Encore
Systems, Inc., a subsidiary of Eltrax in the hospitality technology industry,
advised the Eltrax Board of her knowledge of Sulcus and the potential
benefits to Eltrax from the proposed transaction. Mr. Nicholas J. Pyett,
Eltrax's Chief Financial Officer, then presented Sulcus' financial results
and combined projections of Eltrax and Sulcus. Mr. Clunet R. Lewis, Eltrax's
general counsel and a member of the Eltrax Board, then discussed the status
of negotiations with Sulcus. Following an extensive discussion, the Eltrax
Board then authorized Messrs. O'Reilly and Lewis to continue negotiations
with Sulcus.
On October 29, 1998, a meeting was held at Broadview's offices including
representatives from Sulcus, Eltrax, Broadview, and Sulcus' legal counsel.
During the meeting, Eltrax and Sulcus agreed to a process and timetable for
proceeding with the discussions. Also on October 29, 1998, Mr. Harris
proposed a post-merger equity split which would leave Sulcus' shareholders
with 45% of the combined entity. At the conclusion of that meeting, Messrs.
O'Reilly and Harris agreed to recommend to their respective boards of
directors that the combined equity be split so that Sulcus' shareholders
would receive approximately 42.5% of the outstanding common stock of Eltrax
after the merger, on a fully diluted basis.
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.
26
<PAGE>
On November 11, 1998, a special meeting of the Sulcus Board was held via
teleconference. All members of the Sulcus Board and representatives of
Broadview and legal counsel to Sulcus participated. Copies of Broadview's
written opinion were distributed to the Sulcus Board prior to the meeting.
During the meeting, Messrs. Gevurtz, Harris and Michael Wager, a director of
Sulcus and legal counsel to Sulcus, reviewed the terms of the definitive
agreement with the Sulcus Board and answered questions. Representatives of
Broadview then presented an oral and written opinion to the Sulcus Board that
the consideration to be received by Sulcus shareholders in the acquisition
was fair from a financial point of view. Both during and following the
presentation, Broadview representatives responded to extensive questions and
comments from the Sulcus Board. At the conclusion of the presentation, the
Sulcus Board unanimously approved the merger and the merger agreement, and
authorized management to execute and deliver the merger agreement.
Subsequent to this meeting, each company executed and delivered the merger
agreement.
On November 11, 1998, Eltrax publicly announced the execution of the merger
agreement and, on November 12, 1998, Sulcus publicly announced the execution of
the merger agreement.
ELTRAX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE ELTRAX BOARD
The Eltrax Board has unanimously determined that the merger is advisable and
fair to and in the best interests of the shareholders of Eltrax and has
unanimously approved the merger agreement, the Share Issuance and the 1998
Stock Incentive Plan Amendment. Accordingly, the Eltrax Board recommends that
the shareholders of Eltrax vote in favor of approval of the Share Issuance and
1998 Stock Incentive 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;
27
<PAGE>
- The terms of the merger agreement, including that the merger is
expected to be treated as a tax-free reorganization and is intended to
be accounted for under the pooling of interests method of accounting;
and
- The recent and historical trading prices of Sulcus common stock and
Eltrax common stock relative to those of other industry participants,
and the potential for appreciation in the value of Eltrax common stock
following the merger resulting from opportunities for enhanced revenue
growth and accelerated earnings growth of the combined company.
The foregoing discussion of the information and factors considered and given
weight by the Eltrax Board is not intended to be exhaustive. The Eltrax Board
did not assign relative weights to the above factors or determine that any
factor was of particular importance. Rather, the Eltrax Board viewed its
position and recommendations as being based on the totality of the information
presented to, and considered by, it. In addition, individual members of the
Eltrax Board may have given different weights to different factors.
THE ELTRAX BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF ELTRAX COMMON STOCK
VOTE "FOR" APPROVAL OF THE SHARE ISSUANCE AND THE 1998 STOCK INCENTIVE 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;
28
<PAGE>
- Other strategic alternatives open to Sulcus, such as remaining
independent and continuing to grow by expansion, involve greater risk
from the standpoint of shareholder value than the merger;
- The merger agreement permits Sulcus to furnish information and
participate in discussions with prospective competing bidders under
specified circumstances consistent with the legal obligations of the
Sulcus Board;
- The strategic fit between Sulcus and Eltrax, including potential
synergies;
- The merger is expected to be treated as a tax-free reorganization and
is intended to be accounted for under the pooling of interests method
of accounting; and
- The merger agreement has a very limited set of conditions to
consummation of the merger.
The foregoing discussion of the information and factors considered and given
weight by the Sulcus Board is not intended to be exhaustive. The Sulcus Board
did not assign relative weights to the factors or determine that any factor was
of particular importance. Rather, the Sulcus Board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. In addition, individual members of the Sulcus Board may
have given different weights to different factors.
THE SULCUS BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SULCUS COMMON STOCK
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
SUMMARY OF BROADVIEW OPINION
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 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 SETS FORTH THE MATERIAL PARTS OF SUCH OPINION,
BUT MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE
COMPLETE DESCRIPTION OF THE BROADVIEW OPINION, PLEASE READ THE COPY OF THE
OPINION ATTACHED TO THIS DOCUMENT AS ANNEX B.
INFORMATION REVIEWED AND ANALYZED BY BROADVIEW
29
<PAGE>
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 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;
(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;
30
<PAGE>
(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 available or furnished to Broadview by Sulcus, Eltrax or
Eltrax's legal counsel. Broadview assumed that those financial projections and
forecasts prepared and provided by the management of each of Sulcus and Eltrax
were reasonably prepared and reflected the best available estimates and good
faith judgments of the future performance of Eltrax and Sulcus, respectively.
Broadview did not make nor obtain an independent appraisal or valuation of any
of Eltrax's or Sulcus' assets.
The 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 between $650,000
and $800,000. 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.
BROADVIEW'S PRESENTATION TO THE SULCUS BOARD
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
31
<PAGE>
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 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:
- Trailing Twelve Month Revenue - Trailing Twelve Month Total
Market Capitalization/Revenue
ratio
- Trailing Twelve Month Revenue - Trailing Twelve Month Total
Growth Market Capitalization/EBIT ratio
- Trailing Twelve Month Gross - Trailing Twelve Month
Margin 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 - Forward Calendar Year 1998
per Share Price/Earnings ratio
- Forward Calendar Year 1998 - Forward Calendar Year 1999 Total
Revenue Market Capitalization/Revenue
ratio
- Forward Calendar Year 1998 EBIT - Forward Calendar Year 1999 Total
Market Capitalization/EBIT ratio
- Forward Calendar Year - Forward Calendar Year 1999
1998 Earnings per Share Price/Earnings ratio
- Forward Calendar Year 1999 - Forward Calendar Year 1999 EBIT
Revenue
- Forward Calendar Year 1999
Earnings per
32
<PAGE>
Share
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 0.26 1.48 1.08
Capitalization/Revenue
- -------------------------------------------------------------------------
Trailing Twelve Month Total Market 11.15 16.08 13.62
Capitalization/EBIT
- -------------------------------------------------------------------------
Trailing Twelve Month Price/Earnings 19.1 25.0 22.0
- -------------------------------------------------------------------------
Forward Calendar Year 1998 Total 1.03 1.40 1.21
Market Capitalization/Revenue
- -------------------------------------------------------------------------
Forward Calendar Year 1998 Total 10.38 12.62 11.50
Market Capitalization/EBIT
- -------------------------------------------------------------------------
Forward Calendar Year 1998 20.0 52.2 21.1
Price/Earnings
- -------------------------------------------------------------------------
Forward Calendar Year 1999 Total 0.67 1.16 0.83
Market Capitalization/Revenue
- -------------------------------------------------------------------------
Forward Calendar Year 1999 Total 6.29 11.70 7.42
Market Capitalization/EBIT
- -------------------------------------------------------------------------
Forward Calendar Year 1999 10.8 28.1 12.6
Price/Earnings
- -------------------------------------------------------------------------
</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>
Trailing Twelve Month Total
Market Capitalization/Revenue $1.08 $4.95 $3.68
- --------------------------------------------------------------------------------
Trailing Twelve Month Total
Market Capitalization/EBIT Not Meaningful Not Meaningful Not Meaningful
- --------------------------------------------------------------------------------
33
<PAGE>
Trailing Twelve Month Not Meaningful Not Meaningful Not Meaningful
Price/Earnings
- --------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Ratio Low High Median
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Forward Calendar Year 1998 $3.67 $4.88 $4.27
Total Market
Capitalization/Revenue
- --------------------------------------------------------------------------------
Forward Calendar Year 1998 Not Meaningful Not Meaningful Not Meaningful
Total Market
Capitalization/EBIT
- --------------------------------------------------------------------------------
Forward Calendar Year 1998 Not Meaningful Not Meaningful Not Meaningful
Price/Earnings
- --------------------------------------------------------------------------------
Forward Calendar Year 1999 $2.95 $4.89 $3.58
Total Market
Capitalization/Revenue
- --------------------------------------------------------------------------------
Forward Calendar Year 1999 $1.88 $3.26 $2.17
Total Market
Capitalization/EBIT
- --------------------------------------------------------------------------------
Forward Calendar Year 1999 $3.08 $8.00 $3.57
Price/Earnings
- --------------------------------------------------------------------------------
</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
transactions from 1996 through the present involving sellers sharing many
characteristics with Sulcus including size, markets served and business model.
Transactions were selected from Broadview's proprietary database of published
and confidential merger and acquisition transactions in the information
technology industry. These transactions represent six selected sellers in the
hospitality technology segment of the information technology market.
34
<PAGE>
In order of descending Adjusted 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 Adjusted Price/Revenue ratios of the six comparable
public and private company transactions are listed in the table below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Analysis Low High Median
- --------------------------------------------------------------------------
<C> <C> <C> <C>
Public and Private Seller Comparable 0.72 1.43 1.24
Adjusted Price/Revenue Multiple
- --------------------------------------------------------------------------
</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
- --------------------------------------------------------------------------
<C> <C> <C> <C>
Public and Private Seller Comparable $2.54 $4.77 $4.17
Adjusted Price/Revenue
- --------------------------------------------------------------------------
</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
merger and acquisition 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 merger and acquisition 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) Cybermedia, 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
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<PAGE>
(12) Software Artistry, Inc. by IBM Corp.
(13) Walsh International, Inc. by Cognizant Corp.
(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
36
<PAGE>
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:
<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 the projected calendar year ending
December 31, 1998, Revenue for the 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
Analysis to the Combined Entity
<S> <C>
Revenue for the trailing twelve month period ending 52.8%
June 30, 1998
Revenue for the projected calendar year ending 53.4%
December 31, 1998
Revenue for the projected calendar year ending 52.8%
December 31, 1999
EBIT for the projected calendar year ending December 59.2%
31, 1999
Pretax Income for the projected calendar year ending 66.2%
December 31, 1999
</TABLE>
37
<PAGE>
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>
Eltrax Sulcus
Analysis Implied Implied
Ownership Ownership
<S> <C> <C>
Comparing Buyer and Seller Relative Equity 57.5% 42.5%
Values
Comparing Buyer and Seller Relative Entity 59.7% 40.3%
Values
</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."
38
<PAGE>
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;
(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 work for 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
salary of $24,000 per month for the first five months and a consulting fee of
$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 for nominal consideration.
As a result, options issued to such non-
39
<PAGE>
employee directors under the 1991 Director Plan or the 1997 Director Plan,
which otherwise would have terminated in connection with the merger, will
continue for so long as such non-employee directors are consultants to Eltrax
and will be converted into options to purchase Eltrax common stock in
accordance with the merger agreement. See "Merger Agreement - Treatment of
Stock Options".
SEVERANCE AGREEMENTS. Sulcus has not renewed certain change of control
severance agreements with its officers. Therefore, those officers will not
be entitled to any payments in the event any of them are terminated following
the merger.
INDEMNIFICATION OF SULCUS OFFICERS AND DIRECTORS
Pursuant to the terms of the merger agreement, Eltrax has agreed to not
amend, repeal or otherwise modify the indemnification provisions of the
Certificate of Incorporation and Bylaws of Sulcus for a period of six years
after the Effective Time in any manner that would adversely affect the rights
of directors, officers, employees or agents of Sulcus. Eltrax has also
agreed that, for six years after the Effective Time, it will maintain in
effect for each director and officer of Sulcus and its subsidiaries,
liability insurance coverage with respect to matters arising at or prior to
the Effective Time, in such amounts and containing such terms and conditions
that are not materially less advantageous to such parties than the coverage
applicable to such individuals immediately prior to the Effective Time.
ESTIMATED SYNERGIES
Significant synergies are anticipated as a result of the merger. Sulcus
offers a sales force in more than 80 locations in 20 different countries,
which will significantly expand the marketing opportunities for the existing
Eltrax services and systems. In particular, it is anticipated that the
Eltrax 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.
In conjunction with Sulcus' policy of evaluating recorded amounts for
capitalized software, Sulcus revised revenue projections for its wINNfinity
software product and determined that the projected revenues would not support
the recorded amount. Accordingly, Sulcus will write off its investment in
wINNfinity in the fourth quarter of 1998. This CHARGE TO INCOME will
approximate $2.0 million, and Sulcus expects to report a loss in the fourth
quarter and for fiscal 1998.
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
40
<PAGE>
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.
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
41
<PAGE>
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.
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
42
<PAGE>
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.
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
Federal Trade Commission 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, 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.
DELISTING AND DEREGISTRATION OF SULCUS COMMON STOCK
If the merger is consummated, the shares of Sulcus common stock will be
delisted from the American Stock Exchange and will be deregistered under the
Securities Exchange Act of 1934.
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
43
<PAGE>
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 the Sulcus Board will designate two individuals to
join the Eltrax Board, which currently consists of eight members. 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
American Stock Exchange 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 American Stock Exchange.
<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
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
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 American Stock Exchange 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
American Stock Exchange 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.
<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.
45
<PAGE>
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 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
46
<PAGE>
and retired and shall cease to exist and no Eltrax common stock shall be
delivered in exchange therefor.
The merger agreement provides that, on and after the Effective Time, holders
of certificates which immediately prior to the Effective Time represented
outstanding shares of Sulcus common stock shall cease to have any rights as
shareholders of Sulcus, except the right to receive the Sulcus Share
Consideration for each share of Sulcus common stock held by them, including
the right to receive cash for payment of fractional shares of Eltrax common
stock.
Eltrax and Sulcus have covenanted and agreed to consummate the merger
pursuant to the terms of the merger agreement not later than June 30, 1999.
EXCHANGE PROCEDURES
Eltrax has designated Boston EquiServe (the "Exchange Agent") to act as agent
for the holders of shares of Sulcus common stock in connection with the
merger and to otherwise facilitate the exchange of shares of Sulcus common
stock into shares of Eltrax common stock pursuant to the merger agreement.
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.
47
<PAGE>
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 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 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, 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;
48
<PAGE>
- 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;
- 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
49
<PAGE>
agreements with any directors, officers or key employees, except in
the ordinary course of business and consistent with past practice;
- not adopt, enter into or amend any pension or retirement plan, trust
or fund, except as required to comply with changes in applicable law
and not adopt, enter into or amend in any material respect any bonus,
profit sharing, compensation, stock option, deferred compensation,
health care, employment or other employee benefit plan, agreement,
trust, fund or arrangement for the benefit or welfare of any employees
or retirees generally, other than in the ordinary course of business;
- use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and
its businesses in such amounts and against such risks and losses as
are consistent with past practice; and
- not make, change or revoke any material tax election or make any
material agreement or settlement regarding taxes with any taxing
authority.
NO SOLICITATION
Pursuant to the merger agreement, Eltrax and Sulcus agreed that neither
company nor any of their subsidiaries will initiate, solicit, negotiate,
encourage or provide confidential information to facilitate, and each company
shall use its reasonable efforts to prevent any officer, director, affiliate
or employee of a company, or any attorney, accountant, investment banker,
financial advisor or other agent retained by it or any of its subsidiaries,
from, directly or indirectly, initiating, soliciting, negotiating,
encouraging or providing non-public or confidential information to
facilitate, any proposal or offer to acquire all or any substantial part of
the business or properties of either company or any capital stock of either
company, whether by merger, purchase of assets, tender offer, share exchange,
business combination or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as an "Acquisition Transaction").
Sulcus, may, in response to an unsolicited written offer or proposal with
respect to a potential or proposed Acquisition Transaction ("Acquisition
Proposal") which Sulcus' Board determines, in good faith and after
consultation with its independent financial advisor, would result (if
consummated pursuant to its terms) in an Acquisition Transaction more
favorable to its shareholders than the merger (any such offer or proposal
being referred to as a "Superior Proposal"), furnish (subject to the
execution of a confidentiality agreement substantially similar to the
confidentiality provisions set forth in the merger agreement), confidential
or non-public information to a financially capable corporation, partnership,
person or other entity or group (a "Potential Acquirer") and negotiate with
such Potential Acquirer if the Sulcus Board, after consulting with its
outside legal counsel, determines in good faith that the failure to provide
such confidential or non-public information to or negotiate with such
Potential Acquirer would be reasonably likely to constitute a breach of its
fiduciary duty to the Sulcus shareholders. Sulcus' Board may also comply with
Rule 14-e2 under the Exchange Act in connection with an Acquisition Proposal.
Both companies agreed to notify the other after receipt of any Acquisition
Proposal or offer to acquire all or any substantial part of their business,
properties or capital stock, whether by merger, purchase of assets, tender
offer, share exchange, business combination or otherwise, whether for cash,
securities or any other consideration or combination thereof and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal or offer.
50
<PAGE>
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Eltrax and SAC have made customary representations
and warranties to Sulcus with respect to, among other things, their
organization and qualification, capitalization, subsidiaries, authority,
non-contravention, approvals, reports and financial statements, absence of
certain changes since June 30, 1998, the information to be included in the
registration statement and proxy statement, the tax-free nature of the
transaction and "pooling of interests" accounting, brokers and finders,
intellectual property and qualification under the HSR Act.
In the merger agreement, Sulcus has made customary representations and
warranties to Eltrax and SAC with respect to, among other things, its
organization and qualification, capitalization, subsidiaries, authority,
non-contravention, approvals, reports and financial statements, absence of
certain changes since June 30, 1998, the information to be included in the
registration statement and proxy statement, the tax-free nature of the
transaction and "pooling of interests" accounting, brokers and finders, the
opinion of Broadview, the Rights Agreement between Sulcus and American Stock
Transfer & Trust Company, as Rights Agent, dated as of January 30, 1998 (the
"Sulcus Rights Agreement"), intellectual property, qualification under the
HSR Act and appraisal rights.
EFFECTIVE TIME
The merger will become effective when articles of merger have been filed with
the Department of State of the Commonwealth of Pennsylvania.
CONDITIONS TO THE MERGER
The completion of the merger depends upon satisfaction of a number of
conditions, including
- approval of the merger agreement by the shareholders of Sulcus,
- approval of the Share Issuance and the 1998 Stock Incentive 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
51
<PAGE>
(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
- 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 1998 Stock Incentive 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 1998 Stock Incentive Plan
Amendment.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements of
Eltrax give effect to the consummation of the merger and to several
additional transactions that Eltrax has completed in 1997 and 1998. The
financial statements of Eltrax and Sulcus have been combined for each
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
52
<PAGE>
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., Hi-Tech
Connections, Inc., Midwest DataComm Associates, Inc. and Midwest Telecom
Associates, Inc. (combined as "DataComm") and the Encore Group acquisitions
as if they had occurred on January 1, 1997.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that the management of Eltrax believes are
reasonable. The unaudited pro forma condensed combined financial information
reflects the merger with Sulcus accounted for using the pooling-of-interest
method of accounting. Each of the other acquisition transactions has been
accounted for using the purchase method of accounting. The adjustments
recorded in the Unaudited Pro Forma Condensed Combined Financial Statements
represent the preliminary determination of these adjustments based upon
available information. There can be no assurance that the actual adjustments
will not differ from the pro forma adjustments reflected in the Unaudited Pro
Forma Condensed Combined Financial Statements. See "The Merger-Estimated
Synergies".
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".
53
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
ELTRAX SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(In thousands)
<TABLE>
<CAPTION>
SULCUS ELTRAX
ELTRAX 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) 34,365
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.
54
<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)
------------- ------------- ----------- -------- ----------- ---------
------------- ------------- ----------- -------- ----------- ---------
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.
55
<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
</TABLE>
<TABLE>
<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
Goodwill adjustments - 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.
56
<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 ELTRAX ELTRAX
NINE MONTHS THREE 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
57
<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
58
<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 $3,000,000 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 $2,500,000 of these costs are expected to be
charged to operations in the quarter in which the merger occurs, and
the remaining costs will be charged 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.
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<PAGE>
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 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 year end from March 31, to December 31, which
resulted in the nine month transition period.
60
<PAGE>
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 sharelculations as their inclusion would be antidilutive
61
<PAGE>
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 of the
holders of Eltrax common stock and may have the effect of delaying, deferring
or preventing a change in control of Eltrax.
62
<PAGE>
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.
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.
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<PAGE>
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 and 300,000 shares are designated as Series B Junior
Participating Preferred Stock. No shares of either Series A Redeemable
Convertible Preferred Stock or Series B Junior Participating 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 permits
cumulative voting in the election of directors, unless otherwise prohibited by a
corporation's articles of incorporation. The Sulcus Articles of Incorporation
do not prohibit cumulative voting.
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 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. 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:
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(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 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
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
65
<PAGE>
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.
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;
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<PAGE>
(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
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
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Series A Redeemable Convertible 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 Junior Participating 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 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
Junior Participating 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 Redeemable
Convertible 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.
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 Junior Participating 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 Junior Participating Preferred Stock,
voting together as a single class. The Sulcus Articles of Incorporation also
provide that at least two-thirds of the Series A Redeemable Convertible
Preferred Stock, voting as a class, must approve an adverse alteration or
change to any powers, preferences or rights of Series A Redeemable
Convertible 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,
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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 between a Minnesota corporation that has shares registered under
the Exchange Act and an "Interested shareholder" unless certain conditions are
satisfied or an exemption is applicable. An "Interested shareholder" is
generally defined to include a person who beneficially owns at least 20% of the
votes that shareholders would be entitled to cast in an election of directors of
the corporation. Neither the Eltrax 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 Junior Participating 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 held by anyone other than 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
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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.
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.
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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 to the Series B
Junior Participating Preferred Stock as to dividends or upon liquidation,
dissolution or winding up unless, prior thereto, the holders of Series B
Junior Participating 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 Junior Participating 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
with the Series B Junior Participating Preferred Stock as to dividends or
upon liquidation, dissolution or winding up, except distributions made
ratably on the Series B Junior Participating 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 Junior Participating 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 Redeemable Convertible
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 Redeemable Convertible Preferred Stock are entitled to receive,
before any distribution is made to the holders of common stock or any other
junior capital stock, an amount equal to $3.00 per share. If such
preferential amount cannot be paid in full, then the holders of Series A
Redeemable Convertible 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 Redeemable Convertible 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 the
American Stock Exchange, 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 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 sole purpose of the 1998 Stock Incentive Plan
Amendment is to facilitate the conversion of Sulcus stock options into Eltrax
stock options as required by the merger agreement. Consequently, even if
approved by Eltrax's shareholders the 1998 Stock Incentive Plan Amendment
will not become effective unless the merger is consummated. Consummation of
the merger is conditioned upon Eltrax's shareholders approval of the 1998
Stock Incentive Plan Amendment. The shareholders of Sulcus will not vote on
the 1998 Stock Incentive Plan Amendment.
The Eltrax Board is requesting that Eltrax shareholders approve the 1998
Stock Incentive Plan Amendment at the Eltrax special meeting.
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THE PURPOSE OF THE 1998 STOCK INCENTIVE PLAN AMENDMENT IS TO INCREASE THE
NUMBER OF SHARES OF ELTRAX COMMON STOCK THAT MAY BE ISSUED UNDER THE 1998
STOCK INCENTIVE 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 STOCK INCENTIVE PLAN INCLUDED IN THIS DOCUMENT
DESCRIBES THE KEY FEATURES OF THE 1998 STOCK INCENTIVE PLAN, AND MAY NOT
CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE 1998
STOCK INCENTIVE PLAN FULLY, YOU SHOULD CAREFULLY READ THE 1998 STOCK
INCENTIVE 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 Stock Incentive Plan
and the shareholders of Eltrax approved the 1998 Stock Incentive Plan on May
19, 1998. The purpose of the 1998 Stock Incentive 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
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 STOCK INCENTIVE PLAN
GENERAL. The 1998 Stock Incentive Plan provides for the grant to participating
eligible recipients of Eltrax and its subsidiaries of:
(a) options to purchase shares of Eltrax common stock that qualify as
"incentive stock 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;
(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").
Options, Restricted Stock Awards, and Stock Bonuses are collectively referred
to herein as "Incentive Awards."
The 1998 Stock Incentive Plan will be administered by the Compensation
Committee of the Board of Directors of Eltrax. In accordance with, and
subject to the provisions of, the 1998 Stock Incentive Plan, the Compensation
Committee will have the authority to determine all provisions of Incentive
Awards as the Compensation Committee may deem necessary or desirable and as
consistent with the terms of the 1998 Stock Incentive Plan, including without
limitation,
(1) the recipients to be granted Incentive Awards under the 1998 Stock
Incentive 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
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(5) the restrictions and other conditions to which the payment or vesting
of Incentive Awards may be subject.
In addition, the Compensation 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 Compensation Committee has the authority under the 1998 Stock Incentive
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 Stock Incentive Plan as
then in effect and that any participant adversely affected by such amended or
modified terms has consented to such amendment or modification. In the event
of any reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend or any other change in the
corporate structure or shares of Eltrax, the Compensation 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 Stock Incentive 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, non-employee directors, consultants and independent
contractors of Eltrax or any subsidiary of Eltrax, who, in the judgment of
the Compensation 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 Stock
Incentive Plan. As of ___________, 1999, there were approximately ____
eligible participants under the 1998 Stock Incentive Plan. As a holder of
Options, 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 Stock Incentive 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 Compensation Committee in its sole discretion.
Currently, up to 1,000,000 shares of Eltrax common stock may be issued under
the 1998 Stock Incentive Plan. This will be increased to 2,500,000 shares of
Eltrax common stock if the 1998 Stock Incentive Plan Amendment is approved by
the shareholders of Eltrax. No participant in the 1998 Stock Incentive 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 Stock Incentive 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 Stock Incentive Plan).
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The 1998 Stock Incentive 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 Stock Incentive Plan or any portion thereof
at any time, and may amend the 1998 Stock Incentive 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 Stock Incentive Plan. Incentive
Awards outstanding upon termination of the 1998 Stock Incentive 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 Stock
Incentive Plan, including whether the Option is to be considered an incentive
option or a non-qualified option (an option that does not qualify as an
incentive option), will be determined by the Compensation Committee, subject
to certain requirements contained in the 1998 Stock Incentive Plan. To the
extent, however, that any incentive option granted under the 1998 Stock
Incentive 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 Stock Incentive Plan but will thereafter be deemed to be
a non-qualified option. The per share price to be paid by a participant upon
exercise of an Option will be determined by the Compensation 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 Compensation 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 Stock
Incentive Plan during any calendar year may not exceed $100,000.
Payment of an Option exercise price must be made entirely in cash unless the
Compensation Committee, in its sole discretion and upon terms and conditions
established by the Compensation 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 Compensation
Committee in its sole discretion; or
(d) a combination of such methods.
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Notwithstanding anything to the contrary, after any reorganization, merger or
consolidation involving Eltrax or a subsidiary of Eltrax, the Compensation
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 Compensation 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 Compensation Committee may
impose such restrictions or conditions, not inconsistent with the provisions
of the 1998 Stock Incentive 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 Stock Incentive Plan,
a participant will have all voting, dividend, liquidation and other rights
with respect to such shares of Eltrax common stock issued to the participant
as a Restricted Stock Award upon the participant becoming the holder of
record of such shares as if such participant were a holder of record of
shares of unrestricted Eltrax common stock.
STOCK BONUSES. Stock Bonuses are awards of Eltrax common stock that are not
subject to any restrictions other than, if imposed by the Compensation
Committee, restrictions on transferability. A participant may be granted one
or more Stock Bonuses under the 1998 Stock Incentive Plan, and such Stock
Bonuses will be subject to such terms and conditions, consistent with other
provisions of the 1998 Stock Incentive Plan, as may be determined by the
Compensation Committee in its sole discretion. Other than transfer
restrictions, if any, imposed by the Compensation 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 Stock Incentive 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 Compensation
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 until the
earlier of three months after such termination or 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
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- all Stock Bonuses then held by the participant will vest and/or
continue to vest in the manner determined by the Compensation
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 Compensation 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
- all outstanding Stock Bonuses then held by the participant will vest
and/or continue to vest in the manner determined by the Compensation
Committee and set forth in the agreement evidencing such Stock
Bonuses.
In addition, the Compensation 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" (under 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" (under the Code), then the "payments" to such participant
pursuant to the Change in Control provisions in the 1998 Stock Incentive 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 Stock Incentive 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 Stock
Incentive 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
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in advance by any individuals who are members of the Eltrax
board on the effective date of the 1998 Stock Incentive Plan
and any individual who subsequently becomes a member of the
Eltrax 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. Such approval may be
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, 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 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 whether or not approved
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 Stock Incentive Plan is subject to
the discretion of the Compensation Committee. The Compensation Committee has not
granted any Incentive Awards under the 1998 Stock Incentive Plan since the
Eltrax Board approved the 1998 Stock Incentive 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 Stock
Incentive 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 Stock Incentive 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
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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 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, the disposition will be characterized as a disqualifying
disposition. The participant will then 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
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equal to the fair market value of the shares received on the date of receipt.
With respect to shares that are subject to a substantial risk of forfeiture,
a participant may file an election under Section 83(b) of the Code within 30
days after receipt to include as ordinary income in the year of receipt an
amount equal to the fair market value of the shares received on the date of
receipt, determined as if the shares were not subject to any risk of
forfeiture. If a Section 83(b) election is made, the participant will not
recognize any additional income when the restrictions on the shares issued in
connection with the Restricted Stock Award lapse. Eltrax will receive a
corresponding tax deduction for any amounts includable in the taxable income
of the participant as ordinary income. At the time any such shares are sold
or disposed of, any gain or loss will be treated as long-term or short-term
capital gain or loss, depending on the holding period from the date of
receipt of the Restricted Stock Award.
A participant who does not make a Section 83(b) election within 30 days of
the receipt of a Restricted Stock Award that is subject to a risk of
forfeiture will recognize ordinary income at the time of the lapse of the
restrictions in an amount equal to the then fair market value of the shares
free of restrictions. Eltrax will receive a corresponding tax deduction for
any amounts includable in the taxable income of a participant as ordinary
income. At the time of a subsequent sale or disposition of any shares of
Eltrax common stock issued in connection with a Restricted Stock Award as to
which the restrictions have lapsed, any gain or loss will be treated as
long-term or short-term capital gain or loss, depending on the holding period
from the date the restrictions lapse.
EXCISE TAX ON PARACHUTE PAYMENTS. Section 4999 of the Code imposes an excise
tax on "excess parachute payments," as defined in Section 280G of the Code.
Generally, parachute payments are payments in the nature of compensation to
certain employees or independent contractors who are also officers,
stockholders or highly-compensated individuals, where such payments are
contingent on a change in ownership or control of the stock or assets of the
paying corporation. In addition, the payments must be substantially greater
in amount than the recipient's regular compensation. Under Proposed Treasury
Regulations issued by the Internal Revenue Service, in certain circumstances
the grant, vesting, acceleration or exercise of Options pursuant to the 1998
Stock Incentive 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 1998 STOCK INCENTIVE 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
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in Atlanta, which is the largest hospitality systems support facility in
North America. Encore expects approximately 20% of its 1998 revenue to
result from on-site system installation and support services.
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:
- a direct sales office in Australia operated by Sulcus (Australia) Pty.
Ltd.;
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- 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 American Stock Exchange 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 the American Stock Exchange, 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 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;
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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.
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
____________________, 1999.
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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
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
20
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effect (each party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted);
(e) no statute, rule or regulation shall have been enacted by any state
or federal government or governmental agency in the United States which would
prevent the consummation of the Merger or make the Merger illegal; and
(f) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby, and all consents from lessors or other third parties (excluding any
lenders) required to consummate the Merger, shall have been obtained and be
in effect at the Effective Time, except where the failure to obtain the same
would not be reasonably likely, individually or in the aggregate, to have a
material adverse effect on the business, operations, properties, assets,
liabilities, condition (financial or other) or results of operations of
Sulcus, Parent and their subsidiaries, taken as a whole, following the
Effective Time.
SECTION 7.2 CONDITION TO OBLIGATION OF SULCUS TO EFFECT THE MERGER.
Unless waived by Sulcus, the obligation of Sulcus to effect the Sulcus Merger
shall be subject to the fulfillment at the Closing Date of the following
additional conditions: Parent and SAC Acquiring Sub shall each have
performed their agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Parent and SAC Acquiring Sub contained in this Agreement shall
be true and correct on and as of the date made and (except to the extent that
such representations and warranties speak as of an earlier date) on and as of
the Closing Date as if made at and as of such date (provided, however, that
on such date the definition of "Parent Material Adverse Effect" shall include
only a circumstance that would trigger Sulcus's right to terminate as
described in Section 8.1(a)(ix)), except for such failures to perform or to
be true and correct that would not reasonably be expected to result in a
Parent Material Adverse Effect, and Sulcus shall have received a certificate
of the Chief Executive Officer of Parent to that effect.
SECTION 7.3 CONDITION TO OBLIGATION OF ELTRAX TO EFFECT THE MERGER.
Unless waived by Parent, the obligation of Parent to effect the Parent Merger
shall be subject to the fulfillment at the Closing Date of the following
additional conditions: Sulcus shall have performed its agreements contained
in this Agreement required to be performed on or prior to the Closing Date
and the representations and warranties Sulcus contained in this Agreement
shall be true and correct on and as of the date made and (except to the
extent that such representations and warranties speak as of an earlier date)
on and as of the Closing Date as if made at and as of such date except for
such failures to perform or to be true and correct that would not reasonably
be expected to result in a Sulcus Material Adverse Effect, and Parent shall
have received a certificate of the Chief Executive Officer of Sulcus to that
effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after the Sulcus or Parent
Stockholders' Approval, by the mutual written consent of Sulcus and Parent or
as follows:
(a) Sulcus shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of
Parent contained in this Agreement which has not been cured in all
material respects within 30 days after written notice of such default
specifying such default in reasonable detail is given to
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Parent by Sulcus and which has caused any of the conditions set forth
in Section 7.2 to be incapable of being satisfied by the Termination
Date;
(ii) if the Merger is not completed by June 30, 1999 (the
"Termination Date") (unless due to a delay or default on the part of Sulcus);
(iii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Sulcus and if Sulcus shall
have used reasonable efforts to prevent the entry of such order;
(iv) if Sulcus receives a Superior Proposal, resolves to accept such
Superior Proposal, and Sulcus shall have given Parent two days' prior written
notice of its intention to terminate pursuant to this provision; provided,
however, that such termination shall not be effective until such time as the
payment required by Section 6.5(b) shall have been received by Parent;
(v) if (A) a tender or exchange offer is commenced by a Potential
Acquirer (excluding any affiliate of Sulcus or any group of which any
affiliate of Sulcus is a member) for all outstanding shares of Sulcus Common
Stock, (B) Sulcus's Board of Directors determines, in good faith and after
consultation with an independent financial advisor, that such offer
constitutes a Superior Proposal and resolves to accept such Superior Proposal
or recommend to the stockholders that they tender their shares in such tender
or exchange offer and (C) Sulcus shall have given Parent two days' prior
written notice of its intention to terminate pursuant to this provision;
provided, however, that such termination shall not be effective until such
time as the payment required by Section 6.5(b) shall have been received by
Parent;
(vi) if the stockholders of Sulcus fail to approve the Merger at a
duly held meeting of stockholders called for such purpose or any adjournment
or postponement thereof;
(vii) if Parent (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such default
in all material respects within 30 days after written notice of such default
specifying such default in reasonable detail is given to Parent by Sulcus;
(viii) if the Parent Stockholders' Approval has not been obtained by
May 31, 1999, provided that the Registration Statement has been declared
effective by April 15, 1999, and remained effective through May 31, 1999, and
Sulcus has materially complied with all of its covenants hereunder; or
(ix) if, for the seven consecutive trading days ending on the third
trading day immediately prior to the Effective Time, the average of the
closing sale prices as reported by the Wall Street Journal or if not reported
therein, by another authoritative source (the "Average Price"), of Parent
Common Stock, as reflected on the National Association of Securities Dealers
Automated Quotation System/Small Cap Market, is less than four and 50/100
dollars ($4.50) per share, BUT ONLY IF, the Average Price of Sulcus Common
Stock, as reflected on the American Stock Exchange, is not less than one and
00/100 dollars ($1.00) per share.
(b) Parent shall have the right to terminate this Agreement:
(i) upon a material breach of a representation or warranty of Sulcus
contained in this Agreement which has not been cured in all material respects
within 30 days after
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written notice of such default specifying such default in reasonable
detail is given to Sulcus by Parent and which has caused any of the
conditions set forth in Section 7.3 to be incapable of being satisfied
by the Termination Date;
(ii) if the Merger is not completed by the Termination Date (unless
due to a delay or default on the part of Parent);
(iii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Parent and if Parent
shall have used reasonable efforts to prevent the entry of such order;
(iv) if the stockholders of Parent fail to approve the Merger at a
duly held meeting of stockholders called for such purpose or any
adjournment or postponement thereof;
(v) if Sulcus (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice
of such default specifying such default in reasonable detail is given
to Sulcus by Parent; or
(vi) if the Sulcus Stockholders' Approval has not been obtained by
May 31, 1999, provided that the Registration Statement has been
declared effective by April 15, 1999 and remained effective through
May 31, 1999, and Parent has materially complied with all of its
covenants hereunder.
SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or Sulcus pursuant to the provisions of Section
8.1, this Agreement shall forthwith become void and there shall be no
liability or further obligation on the part of Parent, Sulcus, or SAC
Acquiring Sub or their respective officers or directors (except this Section
8.2, the second sentence of Section 6.1(a), 6.1(b), 6.5, and 9.5 all of which
shall survive the termination). Nothing in this Section 8.2 shall relieve any
party from liability for any willful and intentional breach of any covenant
or agreement of such party contained in this Agreement.
SECTION 8.3 AMENDMENT. This Agreement may not be amended except by
action taken by the parties' respective Boards of Directors or duly
authorized committees or officers thereof and then only by an instrument in
writing signed on behalf of each of the parties hereto and in compliance with
applicable law. Such amendment may take place at any time prior to the
Closing Date, and, subject to applicable law, whether before or after
approval by the stockholders of Sulcus or Parent.
SECTION 8.4 WAIVER. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No
representations, warranties or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, and
after the Effective Date of the Merger
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neither Parent nor Sulcus, or their respective officers or directors shall
have any further obligation with respect thereto, except for the
representations, warranties and agreements contained in Articles II and IX,
Sections 1.4, 1.5, 6.5, 6.6 (including any factual representations set forth
in a certificate delivered to Sulcus pursuant thereto) and 6.9, which shall
survive the Merger.
SECTION 9.2 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed
by registered or certified mail (return receipt requested) or sent via
confirmed facsimile to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to Sulcus, to:
Sulcus Hospitality Technologies Corp.
105 Morris Ave., Suite 301
Springfield, NJ 07081
Attn: Leon D. Harris
Facsimile No.: (973) 379-5217
with a copy to:
Benesch, Friedlander, Coplan
& Aronoff LLP
2300 BP Tower
200 Public Square
Cleveland, OH 44114-2378
Attn: Michael K. Wager, Esq.
Facsimile No.: (216) 363-4588
(b) If to Parent:
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Facsimile No.: (248) 358-2743
with a copy to:
Jaffe, Raitt, Heuer & Weiss
Professional Corporation
One Woodward Avenue, Suite 2400
Detroit, MI 48226
Attn: William E. Sider, Esq.
Facsimile No.: (313) 961-8358
(c) If to SAC Acquiring Sub:
Sulcus Acquiring Corporation
2000 Town Center, Suite 690
Southfield, MI 48075
Attn: Clunet R. Lewis
Facsimile No.: (248) 358-2743
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.
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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
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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
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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
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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
------- ----- ----------------
<S> <C> <C>
2.1 Agreement and Plan of Merger, dated Included in the Proxy
as of November 11, 1998, by and Statement/Prospectus as
among Eltrax, Sulcus Hospitality Annex A.
Technologies Corp. and Sulcus
Acquiring Corporation.
3.1 Amended and Restated Articles of Incorporated by reference
Incorporation of Eltrax to 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 & Previously filed.
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
Agreement. to 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
Agreement. to Exhibit 10.7 to Eltrax's
Registration Statement on
Form S-18 (File No. 33-
51456).
10.4 Form of Non-Employee Director Stock Incorporated by reference
Option Agreement. to Exhibit 10.10 to
Eltrax's Annual Report on
Form 10-KSB for the year
ended March 31, 1993.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ----- ----------------
<S> <C> <C>
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
June 1, 1996 by and between Eltrax to Exhibit 10.9 to Eltrax's
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
June 1, 1996 by and between Eltrax to Exhibit 10.10 to
and William P. O'Reilly. Eltrax's Annual Report on
Form 10-KSB for the nine
month transition period
ended December 31, 1996.
10.8 Agreement dated as of October 31, Incorporated by reference
1996 by and among Eltrax, William to Exhibit 10.7 to Eltrax's
P. O'Reilly, Clunet R. Lewis, Mack Current Report on Form 8-K
V. Traynor, III and Walter C. filed November 12, 1996.
Lovett, Douglas L. Roberson and B.
Taylor Koonce.
10.9 Employment and Noncompetition Incorporated by reference
Agreement dated as of May 14, 1997 to Exhibit 10.2 to Eltrax's
by and between Eltrax and Edward Current Report on Form 8-K
J. Gorlitz. dated May 15, 1997.
10.10 Employment and Noncompetition Incorporated by reference
Agreement dated as of May 14, 1997 to Exhibit 10.1 to Eltrax's
by and between Eltrax and Colin E. Current Report on Form 8-K
Quinn. dated May 15, 1997.
10.11 Employment and Noncompetition Incorporated by reference
Agreement dated as of July 1, 1997 to Exhibit 10.2 to Eltrax's
by and between Eltrax and Joel J. Current Report on Form 8-K
Blickenstaff. dated July 1, 1997.
10.12 Employment and Noncompetition Incorporated by reference
Agreement dated as of July 1, 1997 to Exhibit 10.1 to Eltrax's
by between Eltrax and Robert A. Current Report and on Form
Hughes. 8-K dated July 1, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ----- ----------------
<S> <C> <C>
10.13 Employment and Noncompetition Incorporated by reference
Agreement dated as of August 15, to 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
Agreement dated as of August 15, to 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
Agreement dated as of August 15, to 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
Agreement dated as of October 31, to Exhibit 10.1 to Eltrax's
1997 by and between Eltrax and John Current Report on Form 8-K
M. Good. dated October 3, 1997.
10.17 Employment and Non-Competition Incorporated by reference
Agreement, dated as of August 31, to Exhibit 10.1 to Eltrax's
1998 between Eltrax and Penelope Current Report on Form 8-K
Sellers dated September 10, 1998.
10.18 Credit Agreement, dated as of Incorporated by reference
September 11, 1998, between Eltrax, to Exhibit 10.2 to Eltrax's
Nordata, Inc., Four Corners Current Report on Form 8-K
Technology, Inc., Encore Systems, dated September 10, 1998.
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
31, 1996 between Eltrax and State to Exhibit 10.16 to
Street Bank and Trust Company, as Eltrax's Annual Report on
amended. Form 10-KSB for the year
ended December 31, 1997.
10.20 Consulting Agreement dated January Incorporated by reference
21, 1997 by and between Eltrax and to Exhibit 10.21 to
Gene A. Bier. Eltrax's Annual Report on
Form 10-KSB for the year
ended December 31, 1997.
10.21 Asset Purchase Agreement dated as Incorporated by reference
of January 29, 1997 between to Exhibit 99.1 to Eltrax's
Atlantic Network Systems, Inc. and Current Report on Form 8-K
MRK Technologies, LTD. filed February 12, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ----- ----------------
<S> <C> <C>
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
1996 between Walt Lovett, Doug and to Exhibit 10.11 to
Lisa Roberson and Atlantic Network Eltrax's Annual Report on
Systems, Inc. Form 10-KSB for the nine
month transition period
ended December 31, 1996.
10.24 Lease Agreement between Incorporated by reference
Burgoe/Wyomissing Partners and Hi- to Exhibit 10.30 to
Tech Connections, Inc. dated Eltrax's Annual Report on
September 15, 1996. Form 10-KSB for the year
ended December 31, 1997.
10.25 Lease Agreement between JMG Incorporated by reference
Development Co. Ltd and DataComm to Exhibit 10.31 to
Associates, Inc. dated December 1, Eltrax's Annual Report on
1996. Form 10-KSB for the year
ended December 31, 1997.
10.26 Lease Agreement between Werner Incorporated by reference
Palmquist Investments and Four to Exhibit 10.32 to
Corners Technology, Inc. dated Eltrax's Annual Report on
February 21, 1996. Form 10-KSB for the year
ended December 31, 1997.
10.27 1998 Stock Incentive Plan Previously filed.
10.28 Office Lease, dated January 15, Previously filed.
1992, between 900 Corporation and
Encore Systems, Inc.
10.29 Amended and Restated Preferred Previously filed.
Vendor Arrangement, dated as of May
15, 1992, between Holiday
Hospitality Corporation and Encore
Systems, Inc.
10.30 Agreement and Plan of Merger dated Incorporated by reference
as of May 14, 1997 by and among to Exhibit 2.1 to Eltrax's
Eltrax, EJG Techline Acquiring Current Report in Form 8-K
Corporation, EJG Techline, dated May 14, 1997 (File
Incorporated and Edward J. and No. 0-22190).
Kathleen M. Gorlitz and Colin E.
and Diane C. Quinn
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ----- ----------------
<S> <C> <C>
10.31 Agreement and Plan of Merger dated Incorporated by reference
as of July 1, 1997 by and among to Exhibit 2.1 to Eltrax's
Eltrax, Four Corners Acquiring Current Report in Form 8-K
Corporation, Four Corners dated July 1, 1997 (File
Technology, Inc. and Robert A. No. 0-22190).
Hughes, Joel J. Blickenstaff and
David Noall.
10.32 Agreement and Plan of Merger dated Incorporated by reference
as of August 15, 1997 by and among to Exhibit 2.1 to Eltrax's
Eltrax, Hi-Tech Acquiring Current Report in Form 8-K
Corporation, Hi-Tech Connections, dated August 15, 1997 (File
Inc. and Edward C. Barrett, Daniel No. 0-22190).
M. Christy, David R. Hurlbrink,
David R. Spatz, Raymond H. Melcher
and Timothy E. Devlin.
10.33 Agreement and Plan of Merger dated Incorporated by reference
as of October 31, 1997 by and among to Exhibit 2.1 to Eltrax's
Eltrax, DataComm Acquiring Corp., Current Report in Form 8-K
Midwest Acquiring Corp., DataComm dated October 3, 1997 (File
Associates, Inc., Midwest Telecom No. 0-22190).
Associates, Inc. and John M. Good
and Harold Madison.
10.34 Form of Consulting Agreement Filed herewith.
between Eltrax and non-employee
Sulcus directors
10.35 Form of Termination Agreement Filed herewith.
between Leon Harris and Sulcus
10.36 Form of Agreement between Leon Filed herewith.
Harris and Eltrax
23.1 Consent of Crowe, Chizek and Filed herewith.
Company LLP, independent
accountants
23.2 Consent of PricewaterhouseCoopers Filed herewith.
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.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
------- ----- ----------------
<S> <C> <C>
99.1 Form of Proxy Card for Special Previously filed.
Meeting of Shareholders of Eltrax
99.2 Form of Proxy Card for Special Previously filed.
Meeting of Shareholders of Sulcus
Hospitality Technologies Corp.
99.3 Articles of Incorporation, as Incorporated by reference
amended, of Sulcus Hospitality to 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
Sulcus Hospitality Technologies to 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
Hospitality Technologies Corp. and to Exhibit ii to Sulcus'
American Stock Transfer & Trust Registration Statement on
Company, dated as of January 30, Form 8-A (File No. 001-
1998. 11148).
99.6 Opinion of Broadview International Included in the Proxy
LLC Statement/Prospectus as
Annex B.
99.7 Consent of Broadview International Included in Exhibit 99.6.
LLC
</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
II-7
<PAGE>
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.
(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-8
<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. 21 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Southfield, State of
Michigan, on February 15, 1999.
ELTRAX SYSTEMS, INC.,
A Minnesota corporation
By: /s/ Clunet R. Lewis
---------------------
Clunet R. Lewis
SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 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>
William P. O'Reilly* Chief Executive Officer, February 15, 1999
------------------------- Chairman of the Board of
William P. O'Reilly Directors, and Director
(principal executive officer)
/s/ Clunet R. Lewis Director February 15, 1999
-------------------------
Clunet R. Lewis
James C. Barnard* Director February 15, 1999
-------------------------
James C. Barnard
Patrick J. Dirk* Director February 15, 1999
-------------------------
Patrick J. Dirk
Penelope Sellers* Director February 15, 1999
-------------------------
Penelope Sellers
Stephen E. Raville* Director February 15, 1999
-------------------------
Stephen E. Raville
Mack V. Traynor, III* Director February 15, 1999
-------------------------
Mack V. Traynor, III
Thomas F. Madison* Director February 15, 1999
-------------------------
Thomas F. Madison
Nicholas J. Pyett* Chief Financial Officer February 15, 1999
------------------------- (principal financial officer
Nicholas J. Pyett and principal accounting
officer)
</TABLE>
II-9
<PAGE>
*By: /s/ Clunet R. Lewis
---------------------
Clunet R. Lewis
Attorney-in-fact
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
-------- ---- ----------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated Included in the Proxy
as of November 11, 1998, by and among Statement/Prospectus as
Eltrax, Sulcus Hospitality Annex A.
Technologies Corp. and Sulcus
Acquiring Corporation.
3.1 Amended and Restated Articles of Incorporated by reference
Incorporation of Eltrax to 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 & Previously filed.
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
Agreement. to 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
Agreement. to Exhibit 10.7 to
Eltrax's Registration
Statement on Form S-18
(File No. 33-51456).
10.4 Form of Non-Employees Director Stock Incorporated by reference
Option Agreement. to Exhibit 10.10 to
Eltrax's Annual Report on
Form 10-KSB for the year
ended March 31, 1993.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
-------- ---- ----------------
<C> <S> <C>
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
June 1, 1996 by and between Eltrax to Exhibit 10.9 to
and Clunet R. Lewis. Eltrax's Annual Report on
Form 10-KSB for the nine
month transition period
ended December 31, 1996.
10.7 Consulting Agreement dated as of Incorporated by reference
June 1, 1996 by and between Eltrax to Exhibit 10.10 to
and William P. O'Reilly. Eltrax's Annual Report on
Form 10-KSB for the nine
month transition period
ended December 31, 1996.
10.8 Agreement dated as of October 31, Incorporated by reference
1996 by and among Eltrax, William P. to Exhibit 10.7 to
O'Reilly, Clunet R. Lewis, Mack V. Eltrax's Current Report
Traynor, III and Walter C. Lovett, on Form 8-K filed
Douglas L. Roberson and B. Taylor November 12, 1996.
Koonce.
10.9 Employment and Noncompetition Incorporated by reference
Agreement dated as of May 14, 1997 by to Exhibit 10.2 to
and between Eltrax and Edward J. Eltrax's Current Report
Gorlitz. on Form 8-K dated May 15,
1997.
10.10 Employment and Noncompetition Incorporated by reference
Agreement dated as of May 14, 1997 by to Exhibit 10.1 to
and between Eltrax and Colin E. Eltrax's Current Report
Quinn. on Form 8-K dated May 15,
1997.
10.11 Employment and Noncompetition Incorporated by reference
Agreement dated as of July 1, 1997 by to Exhibit 10.2 to
and between Eltrax and Joel J. Eltrax's Current Report
Blickenstaff. on Form 8-K dated July 1,
1997.
10.12 Employment and Noncompetition Incorporated by reference
Agreement dated as of July 1, 1997 by to Exhibit 10.1 to
between Eltrax and Robert A. Hughes. Eltrax's Current Report
and on Form 8-K dated
July 1, 1997.
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
-------- ---- ----------------
<C> <S> <C>
10.13 Employment and Noncompetition Incorporated by reference
Agreement dated as of August 15, 1997 to Exhibit 10.1 to
by and between Eltrax and Edward C. Eltrax's Current Report
Barrett. on Form 8-K dated August
15, 1997.
10.14 Employment and Noncompetition Incorporated by reference
Agreement dated as of August 15, 1997 to Exhibit 10.1 to
by and between Eltrax and Daniel M. Eltrax's Current Report
Christy. on Form 8-K dated August
15, 1997.
10.15 Employment and Noncompetition Incorporated by reference
Agreement dated as of August 15, 1997 to Exhibit 10.3 to
by and between Eltrax and David R. Eltrax's Current Report
Hurlbrink. on Form 8-K dated August
15, 1997.
10.16 Employment and Noncompetition Incorporated by reference
Agreement dated as of October 31, to Exhibit 10.1 to
1997 by and between Eltrax and John Eltrax's Current Report
M. Good. on Form 8-K dated October
3, 1997.
10.17 Employment and Non-Competition
Agreement, dated as of August 31, Incorporated by reference
1998 between Eltrax and Penelope to Exhibit 10.1 to
Sellers. Eltrax's Current Report
on Form 8-K dated
September 10, 1998.
10.18 Credit Agreement, dated as of Incorporated by reference
September 11, 1998, between Eltrax, to Exhibit 10.2 to
Nordata, Inc., Four Corners Eltrax's Current Report
Technology, Inc., Encore Systems, on Form 8-K dated
Inc., Global Systems and Support, September 10, 1998.
Inc., Five Star Systems, Inc., and
State Street Bank and Trust Company.
10.19 Security Agreement dated October 31, Incorporated by reference
1996 between Eltrax and State Street to Exhibit 10.16 to
Bank and Trust Company, as amended. Eltrax's Annual Report on
Form 10-KSB for the year
ended December 31, 1997.
10.20 Consulting Agreement dated Incorporated by reference
January 21, 1997 by and between to Exhibit 10.21 to
Eltrax and Gene A. Bier. Eltrax's Annual Report on
Form 10-KSB for the year
ended December 31, 1997.
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
-------- ---- ----------------
<C> <S> <C>
10.21 Asset Purchase Agreement dated as of Incorporated by reference
January 29, 1997 between Atlantic to Exhibit 99.1 to
Network Systems, Inc. and MRK Eltrax's Current Report
Technologies, LTD. on Form 8-K 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, 1996 Incorporated by reference
between Walt Lovett, Doug and Lisa to Exhibit 10.11 to
Roberson and Atlantic Network Eltrax's Annual Report on
Systems, Inc. Form 10-KSB for the nine
month transition period
ended December 31, 1996.
10.24 Lease Agreement between Incorporated by reference
Burgoe/Wyomissing Partners and to Exhibit 10.30 to
Hi-Tech Connections, Inc. dated Eltrax's Annual Report on
September 15, 1996. Form 10-KSB for the year
ended December 31, 1997.
10.25 Lease Agreement between JMG Incorporated by reference
Development Co. Ltd and DataComm to Exhibit 10.31 to
Associates, Inc. dated December 1, Eltrax's Annual Report on
1996. Form 10-KSB for the year
ended December 31, 1997.
10.26 Lease Agreement between Werner Incorporated by reference
Palmquist Investments and Four to Exhibit 10.32 to
Corners Technology, Inc. dated Eltrax's Annual Report on
February 21, 1996. Form 10-KSB for the year
ended December 31, 1997.
10.27 1998 Stock Incentive Plan Previously filed.
10.28 Office Lease, dated January 15, 1992, Previously filed.
between 900 Corporation and Encore
Systems, Inc.
10.29 Amended and Restated Preferred Vendor Previously filed.
Arrangement, dated as of May 15,
1992, between Holiday Hospitality
Corporation and Encore Systems, Inc.
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
-------- ---- ----------------
<C> <S> <C>
10.30 Agreement and Plan of Merger dated as Incorporated by reference
of May 14, 1997 by and among Eltrax, to Exhibit 2.1 to
EJG Techline Acquiring Corporation, Eltrax's Current Report
EJG Techline, Incorporated and Edward in Form 8-K dated May 14,
J. and Kathleen M. Gorlitz and Colin 1997 (File No. 0-22190).
E. and Diane C. Quinn
10.31 Agreement and Plan of Merger dated as Incorporated by reference
of July 1, 1997 by and among Eltrax, to Exhibit 2.1 to
Four Corners Acquiring Corporation, Eltrax's Current Report
Four Corners Technology, Inc. and in Form 8-K dated July 1,
Robert A. Hughes, Joel J. 1997 (File No. 0-22190).
Blickenstaff and David Noall.
10.32 Agreement and Plan of Merger dated as Incorporated by reference
of August 15, 1997 by and among to Exhibit 2.1 to
Eltrax, Hi-Tech Acquiring Eltrax's Current Report
Corporation, Hi-Tech Connections, in Form 8-K dated August
Inc. and Edward C. Barrett, Daniel M. 15, 1997 (File No. 0-
Christy, David R. Hurlbrink, David R. 22190).
Spatz, Raymond H. Melcher and Timothy
E. Devlin.
10.33 Agreement and Plan of Merger dated as Incorporated by reference
of October 31, 1997 by and among to Exhibit 2.1 to
Eltrax, DataComm Acquiring Corp., Eltrax's Current Report
Midwest Acquiring Corp., DataComm in Form 8-K dated October
Associates, Inc., Midwest Telecom 3, 1997 (File No. 0-
Associates, Inc. and John M. Good and 22190).
Harold Madison.
10.34 Form of Consulting Agreement between Filed herewith.
Eltrax and non-employee Sulcus
directors
10.35 Form of Termination Agreement between Filed herewith.
Leon Harris and Sulcus
10.36 Form of Agreement between Leon Harris Filed herewith.
and Eltrax
23.1 Consent of Crowe, Chizek and Company Filed herewith.
LLP, independent accountants
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Item Method of Filing
-------- ---- ----------------
<C> <S> <C>
23.2 Consent of PricewaterhouseCoopers Filed herewith.
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 Previously filed.
Meeting of Shareholders of Eltrax
99.2 Form of Proxy Card for Special Previously filed.
Meeting of Shareholders of Sulcus
Hospitality Technologies Corp.
99.3 Articles of Incorporation, as Incorporated by reference
amended, of Sulcus Hospitality to Exhibit 4.1 to Sulcus'
Technologies Corp. Registration Statement on
Form S-8 (File No. 333-
43419).
99.4 Amended and Restated Bylaws of Sulcus Incorporated by reference
Hospitality Technologies Corp. to Exhibit 4.2 to Sulcus'
Registration Statement on
Form S-8 (File No. 333-
43419).
99.5 Rights Agreement between Sulcus Incorporated by reference
Hospitality Technologies Corp. and to Exhibit ii to Sulcus'
American Stock Transfer & Trust Registration Statement on
Company, dated as of January 30, Form 8-A (File No. 001-
1998. 11148).
99.6 Opinion of Broadview International Included in the Proxy
LLC Statement/Prospectus as
Annex B.
99.7 Consent of Broadview International Included in Exhibit 99.6
LLC
</TABLE>
II-16
<PAGE>
February 16, 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. 333-68699, filed by Eltrax with the
Securities and Exchange Commission on December 10, 1998, 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;
<PAGE>
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 held immediately prior to the
Merger 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, in each case,
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
<PAGE>
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>
CONSULTING AGREEMENT
This Consulting Agreement is made as of ________________, 1999, by and
between Eltrax Systems, Inc. (the "Company") and ___________ (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
______________________________________
2
<PAGE>
TERMINATION AGREEMENT
This Termination Agreement ("Agreement") between SULCUS HOSPITALITY
TECHNOLOGIES CORP., a Pennsylvania corporation ("Sulcus"), together with its
subsidiaries (collectively, the "Company") and LEON HARRIS, an individual
residing in the State of New Jersey ("Employee"), is dated as of February ___,
1999, but shall become effective only on the date the merger between Sulcus and
Sulcus Acquiring Corporation ("SAC"), a wholly owned subsidiary of Eltrax
Systems, Inc., a Minnesota corporation ("Eltrax"), is consummated (the
"Effective Time"). In the event that the merger between Sulcus and SAC (the
"Merger") does not take place, this Agreement shall be null and void and without
any effect whatsoever.
RECITALS
WHEREAS, on March 3, 1997, Employee entered into an LETTER AGREEMENT with
Sulcus whereby Employee agreed to serve as Sulcus' Chief Executive Officer, and
Sulcus agreed to compensate Employee for those services (the "Original
Agreement"); and
WHEREAS, on October 13, 1997, Sulcus and Employee entered into an
AMENDMENT TO EMPLOYMENT AGREEMENT which amended certain terms of the Original
Agreement; and
WHEREAS, on March 1, 1998, Sulcus and Employee executed AMENDMENT NO. 2
TO EMPLOYMENT AGREEMENT (the Original Agreement together with each of its
Amendments as well as all other documents pertaining to Employee's employment by
Sulcus, is collectively referred to as the "Sulcus Agreement"); and
WHEREAS, in recognition of the fact that at the Effective Time Sulcus
will cease to exist as a public company and will become a wholly owned
subsidiary of Eltrax, the Company and Employee desire to terminate the Sulcus
Agreement in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration for the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
1.1 SULCUS AGREEMENT SUPERSEDED. At the Effective Time, all terms and
conditions of the Sulcus Agreement shall terminate, and Employee shall
have no rights or benefits of any kind or nature whatsoever under the
Sulcus Agreement, unless expressly provided for herein.
1.2 TERMINATION FEE. As sole consideration for Employee's termination of
the Sulcus Agreement, Sulcus shall pay Employee on March 31, 1999,
compensation of Seven Hundred Twenty Two Thousand and xx/100 Dollars
($722,000.00).
<PAGE>
1.3 OPTIONS VEST. Notwithstanding the termination of the Sulcus Agreement,
any and all options to acquire Sulcus stock held by Employee shall fully
vest as of the Effective Time.
1.4 PARACHUTE PROTECTION. If at the Effective Time, the closing price of
Eltrax common stock is less than $8.00 per share, and in the event that
any payment (within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code")) to Employee arising out of
the termination of his employment with the Company would be subject to
the excise tax imposed by Section 4999 of the Code, or any interest or
penalties are incurred by Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, collectively,
the "Excise Tax"), then Employee will be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by Employee of all taxes (including any interest or penalties
imposed with respect to such taxes, other than interest and penalties
imposed by reason of Employee's failure to file timely a tax return or
pay taxes shown due on his return), including any Excise Tax imposed upon
the Gross-Up Payment, Employee will retain an amount of net cash equal to
the amount he would have retained absent application of Code Section
4999.
ARTICLE 2
2.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company. This Agreement shall not be
assignable by the Employee, but its economic terms shall inure to the
benefit of the Employee's heirs and beneficiaries.
2.2 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
2.3 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Pennsylvania
without giving effect to the conflict of laws principles thereof.
2.4 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement shall be prohibited or
invalid, all remaining clauses shall remain fully enforceable.
2.5 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by all parties.
2.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
SULCUS HOSPITALITY TECHNOLOGIES CORP.,
together with its subsidiaries
By: ___________________________________________
John W. Ryba, Senior Vice
President and General Counsel
EMPLOYEE
_______________________________________________
Leon D. Harris
<PAGE>
AGREEMENT
This Agreement ("Agreement) between ELTRAX SYSTEMS, INC., a Minnesota
corporation having its principal place of business in Southfield, Michigan
("Eltrax"), together with its subsidiaries (collectively, the "Company") and
LEON HARRIS, an individual residing in the State of New Jersey ("Harris") is
dated as of February ___, 1999, but shall become effective only on the date the
merger between Sulcus Acquiring Corporation, a wholly owned subsidiary of Eltrax
("SAC") and Sulcus Hospitality Technologies Corp. ("Sulcus") is consummated (the
"Effective Time"). In the event that the merger between SAC and Sulcus (the
"Merger") does not take place, this Agreement shall be null and void and without
any effect whatsoever.
R E C I T A L S
WHEREAS, Harris has been employed by Sulcus as its Chief Executive
Officer since March 3, 1997; and
WHEREAS, as a result of the Merger, Sulcus will cease to exist as a
public company and will become a wholly owned subsidiary of Eltrax, and
WHEREAS, Eltrax desires to insure an orderly and smooth integration of
the Sulcus operations with and into Eltrax; and
WHEREAS, Eltrax desires to hire Harris to assist in the combination of
the Sulcus and Eltrax operations and Harris desires to serve in such capacity.
NOW, THEREFORE, in consideration for the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
1.1 TERM. The term of this Agreement shall commence on April 1, 1999 and
shall terminate on August 31, 2000, unless earlier terminated pursuant to
Article 3 of this Agreement.
1.2 POSITION. On and before August 31, 1999 (the "Employment Period"),
Harris will be employed by the Company as Special Advisor to the Eltrax
Board and the Company's executive officers. From September 1, 1999
through August 31, 2000 (the "Consulting Period"), Harris will serve as a
consultant to the Company.
<PAGE>
1.3 DUTIES.
(a) During the Employment Period, Harris shall devote his full-
business time and give his best efforts to the Company and to
fulfilling his duties as may from time to time be assigned to him
by the Eltrax Board of Directors or the Chief Executive Officer of
the Company, provided such duties are commensurate with Harris'
experience and/or skills or expertise. During the Consulting
Period, Harris shall continue in his role as Special Advisor, but
shall not be required to work more than one (1) day per month on
behalf of the Company.
(b) Harris shall perform his duties in the best interests of the
Company and its shareholders.
(c) Harris shall comply with the Company's policies and procedures to
the extent they are not inconsistent with this Agreement in which
case the provisions of this Agreement shall prevail. In addition,
Harris shall comply with the Company's lawful policies regarding
conduct and business ethics.
ARTICLE 2
2.1 COMPENSATION. For services rendered under this Agreement, during the
Employment Period, the Company shall pay Harris, in accordance with the
Company's usual pay practice, a monthly salary, exclusive of benefits, of
Twenty Four Thousand Dollars ($24,000). During the Consulting Period,
the Company shall pay Harris a monthly amount, exclusive of benefits, of
One Thousand Four Hundred and Fifty Dollars ($1,450).
2.2 BENEFITS. During the Employment Period, Harris will participate in the
Company's medical benefit plan (including, but not limited to, health,
dental and other similar benefits) and all other benefit plans currently
maintained or hereafter established by the Company on the same basis as
other executive employees in accordance with Company policies and plans.
During the Consulting Period, Harris will only participate in the
Company's medical benefit plan. The Company will pay any premiums (but
not co-pays or other similar expenses) associated with Harris'
participation in any benefit plan under this Section 2.2.
2.3 VACATION. During the Employment Period, Harris will be entitled to two
(2) weeks of paid vacation. Sick days and holidays will be in accordance
with Company policy.
2.4 EXPENSES. The Company shall reimburse Harris for all expenses reasonably
and necessarily incurred by Harris during this Agreement, subject to and
made in accordance with such reasonable and nondiscriminatory policies
and procedures as may be established by the Company as applicable to its
employees and consultants.
2
<PAGE>
ARTICLE 3
3.1 TERMINATION FOR CAUSE. The Company may terminate this Agreement and
Harris' services immediately for Cause. For the purpose hereof, "Cause"
means: (a) engaging in any personal or business activities that are
materially harmful to the Company; (b) theft or embezzlement of the
Company's assets, or misuse of Company funds; (c) willful violation of
law constituting a felony; (d) the commission of any illegal act that
materially harms or is reasonably expected to materially harm the
Company; (e) a material breach of the terms and conditions of this
Agreement not cured within thirty (30) days after written notice
describing the details of such breach; (f) the continued failure by
Harris to perform his duties as reasonably assigned to Harris under this
Agreement for a period of thirty (30) days after written notice
describing such failure; (g) willful failure to disclose any improper or
illegal activities that may materially harm the Company; (h) a willful
breach of any confidential Company matters; or (i) breach of any
fiduciary responsibilities or duties to the Company.
In the event of termination for Cause pursuant to this section, Harris
shall be paid through the date that any notice of termination is received
by Harris (the "Termination Date").
3.2 TERMINATION WITHOUT CAUSE. Either Harris or the Company may terminate
this Agreement and Harris' services without Cause upon fifteen (15) days
advance written notice (the "Termination Notice"). In the event of
termination of this Agreement and of Harris' services pursuant to this
section, compensation shall be paid as follows:
(a) If the termination is by Harris, Harris shall be paid through the
date specified in the Termination Notice.
(b) If the termination is by the Company, Harris shall be paid through
the term of this Agreement, and all benefits described in Section
2.2 shall continue through the term of this Agreement. The Company
shall be treated as having terminated Harris without cause if it
commits a material breach of the terms and conditions of this
Agreement.
3.3 TERMINATION IN THE EVENT OF DEATH OR DISABILITY. In the event of Harris'
death, payments to Harris shall terminate as of the day immediately
following such death. In the event of Harris' Disability, payments to
Harris shall terminate immediately following the thirtieth (30th)
consecutive day of such Disability. For purposes of this Section 3.3,
"Disability" shall mean Harris' inability, as reasonably determined by
the Company, to perform the essential functions of his duties under this
Agreement because of illness or incapacity for a continuous period of
thirty (30) days.
3
<PAGE>
ARTICLE 4
CONFIDENTIALITY, DISCLOSURE AND ASSIGNMENT
4.1 CONFIDENTIALITY.
(a) Harris will not, during the term or after the termination or
expiration of the Agreement, publish, disclose, or utilize in any
manner any Confidential Information (as hereinafter defined)
obtained while performing services for the Company. If Harris
ceases to perform services on behalf of the Company, Harris will
not, without its prior written consent, retain or take away any
drawing, writing or other record in any form containing any
Confidential Information. "Confidential Information" means
information or material which is not generally available to or
used by others, or the utility or value of which is not generally
known or recognized as standard practice, whether or not the
underlying details are in the public domain, including:
(a) information or material relating to the Company, and its
businesses as conducted or anticipated to be conducted, business
plans, operations, past, current or anticipated software, products
or services, customers or prospective customers, or research,
engineering, development, manufacturing, purchasing, accounting,
or marketing activities; (b) information or material relating to
the Company's inventions, improvements, discoveries, "know-how,"
technological developments, or unpublished works, or to the
materials, apparatus, processes, formulae, plans or methods used
in the development, manufacture or marketing of the Company's
software, products or services; (c) any information marked
"proprietary," "private," or "confidential"; (d) trade secrets;
(e) software in any stage of development, including source code
and binary code, software designs, specifications, programming
aids(including subroutines and productivity tools), programming
languages, interfaces, visual displays, technical documentation,
user manuals, data files and databases; and (f) any similar
information of the type described above which the Company obtained
from another party and which the Company treats as or designates
as being proprietary, private or confidential, whether or not
owned or developed by the Company.
(b) With respect to paragraph (a) above, the restrictions on Harris'
use of Confidential Information shall not apply to any
information:
(i) which is lawfully received by Harris, free of restriction
from another source, having the right to so furnish such
information; or
(ii) after it has become generally available to the public
without breach of this Agreement by Harris; or
(iii) which at the time of disclosure to Harris was known to
Harris; or
(iv) which the Company agrees in writing is free of such
restrictions.
4
<PAGE>
4.2 BUSINESS CONDUCT AND ETHICS. During the term which Harris provides
services to the Company, Harris will dutifully comply with all
reasonable, nondiscriminatory Company policies and guidelines and will
observe the highest standard of ethical business conduct.
4.3 DISCLOSURE. Harris will disclose promptly in writing to an officer of
the Company all inventions, discoveries, software, writings and other
works of authorship which are conceived, made, discovered, or written
jointly or singly on business time during the term of this Agreement,
provided the invention, improvement, discovery, software, writing or
other work of authorship is capable of being used by the Company in the
normal course of business, and all such inventions, improvements,
discoveries, software, writings and other works of authorship shall
belong solely to the Company.
4.4 INSTRUMENTS OF ASSIGNMENT. Harris will sign and execute all instruments
of assignment and other papers to evidence the granting of all entire
right, title and interest in such inventions, improvements, discoveries,
software, writings or other works of authorship to the Company, at the
request and the expense of Company, and Harris will do all acts, give any
needed testimony and sign all instruments of assignment and other papers
the Company may reasonably request relating to applications for patents,
copyrights, and the enforcement and protection thereof.
4.5 SURVIVAL. The obligations of this Article 4 shall survive the expiration
or termination of this Agreement.
ARTICLE 5
5.1 NON-COMPETITION. Harris agrees that during the term of this Agreement
and until August 31, 2000.
(a) Harris will not, directly or indirectly, alone or as a partner,
member, officer, director, shareholder or consultant of any other
firm or entity, engage in any commercial activity in competition
with any part of the Company's business at any time during the
term of this Agreement. For purposes of this section,
"shareholder" shall not include beneficial ownership of less than
five percent (5%) of the combined voting power of all issued and
outstanding voting securities of a publicly held corporation whose
voting stock is traded in a public market. Also for purposes of
this section, "the Company's business" shall mean businesses
conducted during the term of this Agreement by the Company;
(b) Divert, or by aid to others, do anything which would tend to
divert, or may divert from the Company, any trade or business with
any customer, supplier or vendor with whom the Company has had any
contact or association; or
(c) Take any affirmative action to induce or attempt to induce any
person employed by the Company to leave the employment of the
Company.
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5.2 ENFORCEMENT. In addition to any other rights and remedies available to
the Company for breach of this Article 5, the Company shall be entitled
to enforcement by court injunction.
5.3 EFFECT OF TERMINATION. Upon the termination of Harris' performance of
services, no additional compensation shall be paid for the non-
competition obligation.
ARTICLE 6
6.1 NO ADEQUATE REMEDY. The parties acknowledge it is impossible to measure
in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement.
Therefore, in the event of a claim for equitable relief, each party
hereby waives the claim or defense that the other has an adequate remedy
at law.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the Company. This Agreement shall not be
assignable by Harris, but its economic terms shall inure to the benefit
of Harris' heirs and beneficiaries.
6.3 NOTICES. All notices, requests and demands given to or made pursuant
hereto shall, except as otherwise specified herein, be in writing and be
delivered or mailed to any such party at its address which:
(a) In the case of the Company shall be:
Eltrax Systems, Inc.
2000 Town Center, Suite 690
Southfield, Michigan 48075
Attn: Clunet R. Lewis
With a copy to:
William E. Sider, Esq.
Jaffe, Raitt, Heuer & Weiss, P.C.
One Woodward Avenue, Suite 2400
Detroit, Michigan 48226
(b) In the case of Harris shall be:
Leon Harris
105 Morris Avenue, Suite 301
Springfield, New Jersey 07081
With a copy to:
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Michael Wager, Esq.
Benesch, Friedlander, Coplan & Aronoff, LLP
2300 BP Tower
200 Public Square
Cleveland, Ohio 44114-2378
Any notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed sent on the registered date or that
stamped on the certified mail receipt, and shall be deemed received on
the second business day thereafter.
6.4 CAPTIONS. The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation of
this Agreement.
6.5 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed by the laws of the State of Michigan without
giving effect to the conflict of laws principles thereof.
6.6 CONSTRUCTION. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Agreement shall be prohibited or
invalid, all remaining clauses shall remain fully enforceable.
6.7 WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof; nor shall any partial exercise of any right or remedy
hereunder preclude any exercise of that or any other right or remedy
granted hereby by law.
6.8 MODIFICATION. This Agreement may not be and shall not be modified or
amended except by written instrument signed by all parties.
6.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto in reference to all the matters
herein agreed upon and supersedes all prior or contemporaneous
agreements, understandings and negotiations with respect to the subject
matter hereof.
6.10 ARBITRATION. With the sole exception of the injunctive relief
contemplated by Section 5.2 of this Agreement, any controversy or claim
arising out of any aspect of the relationship of the parties hereto, will
be settled by binding arbitration in Southfield, Michigan by a panel of
three arbitrators in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Judgment upon any arbitration
award may be entered in any court having jurisdiction thereof and the
parties consent to the jurisdiction of the courts of the State of
Michigan for this purpose.
6.11 ATTORNEYS' FEES. In the event there is litigation or other proceedings
between the parties hereto with respect to their rights and obligations
under this Agreement, the prevailing party in any such litigation shall
be entitled to recover from the opposing party all reasonable
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attorneys' fees and expenses (including fees of accountants) incurred by
the prevailing party in connection with such proceeding.
6.12 VENUE; JURISDICTION. The parties agree that all actions or proceedings
arising in connection with this Agreement and the instruments, agreements
and documents executed pursuant to the terms of this Agreement shall be
tried, litigated and arbitrated only in the courts of the United States
located in the Eastern District of Michigan, the Michigan state courts or
the offices of the American Arbitration Association located nearest
Southfield, Michigan. Harris irrevocably accepts for himself and in
respect of his property, generally and unconditionally, the jurisdiction
of such courts. Harris irrevocably consents to the service of process
out of any such courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to him,
at his address as set forth in the records of the Company, such service
to become effective ten (10) days after such mailing. Nothing in this
Section 6.12 shall affect the right of any party to serve process in any
other manner permitted by law. Harris irrevocably waives any right he
may have to assert the doctrine of forum non conveniens or to object to
venue to the extent any proceeding is brought in accordance with this
Section 6.12.
6.13 NON-AFFILIATE STATUS. The Company hereby acknowledges that Harris is
not an "affiliate" of the Company as defined in Rule 144 promulgated
under the Securities Act of 1933, as amended, and will not otherwise be
restricted from buying or selling shares of common stock of the Company,
except to the extent prohibited by applicable federal and state
securities laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
CONSULTANT ELTRAX SYSTEMS, INC., TOGETHER WITH
ITS SUBSIDIARIES
__________________________ By:__________________________________
Leon Harris Clunet R. Lewis, Secretary
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 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 16, 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 16, 1999