<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________
Commission File Number 0-22190
ELTRAX SYSTEMS, INC.
(Name of issuer as specified in its charter)
MINNESOTA 41-1484525
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
400 GALLERIA PARKWAY
SUITE 300
ATLANTA, GA 30339
(Address of principal executive offices)
(770) 612-3500
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 29, 2000, 23,940,867 shares of common stock of the
registrant were outstanding, and the aggregate market value of the common stock
of the registrant as of that date (based upon the last reported sale price of
the common stock reported on that date by the Nasdaq National Market), excluding
outstanding shares beneficially owned by the directors and officers, was
$305,019,468.
<PAGE> 2
AMENDMENT NO. 1
This Form 10K/A is being filed solely to report the information
required under Items 10, 11, 12, and 13 and to amend Item 14.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The executive officers and directors of the Company, their ages,
offices held and committee memberships, as of April 19, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS:
William P. O'Reilly 54 Chairman of the Board, Director, President and Chief Executive
Officer of the Company
James C. Barnard (1) 66 Director
Patrick J. Dirk (2) 60 Director
Stephen E. Raville (2) 52 Director
William G. Taylor (1) 44 Director
EXECUTIVE OFFICERS (WHO ARE NOT DIRECTORS):
William A. Fielder III 41 Chief Financial Officer and Secretary of the Company
Edward C. Barrett 51 President of Eltrax Technology Services Group, Inc.
Barry A. Logan 50 President of Eltrax Hospitality Group, Inc. and Squirrel
Systems, Inc.
Johnny H. Butler 55 President of Eltrax Customer Care Group, Inc.
Denise R. Grey 36 President of Eltrax ASP Group, LLC
</TABLE>
- ---------------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Information regarding the business experience of the executive officers
and directors is set forth below. The information is based on information
furnished to the Company by each director and officer.
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WILLIAM P. O'REILLY has been a director of the Company since July 1995,
Chairman of the Board of Directors since August 1995, and President and Chief
Executive Officer since April 2000. Mr. O'Reilly served as Chief Executive
Officer of the Company from January 1997 through April 1999. For the past 15
years, Mr. O'Reilly has been a private investor and entrepreneur. Mr. O'Reilly
served as Chairman of the Board and Chief Executive Officer of Military
Communications Center, Inc. from 1989 to 1994. In 1986, Mr. O'Reilly founded
Digital Signal, Inc., a provider of fiber optic capacity to long distance
carriers in the telecommunications industry, where he served as Chief Executive
Officer from 1986 to 1989. In 1981, Mr. O'Reilly founded Lexitel Corporation, a
long distance carrier (which was subsequently acquired by ALC Communications,
Inc.), where he served as Chairman of the Board and Chief Executive Officer from
1980 to 1984. Mr. O'Reilly is also currently a director of Pointe
Communications, Inc., a builder and operator of international communication
networks which provides voice, video and data services.
JAMES C. BARNARD has been a director of the Company since 1997. Prior
to his retirement in March 1996, Mr. Barnard served as Chairman and Chief
Executive Officer of Access America Telemanagement, Inc., a telecommunications
management company which Mr. Barnard founded in July 1989. Prior to forming
Access America Telemanagement, Inc., Mr. Barnard served as Chairman and Chief
Executive Officer of LDX NET, INC., a telecommunications company which merged
with Williams Telecommunications in July 1987 to form the Williams
Telecommunications Group, Inc. From July 1987 to June 1989, Mr. Barnard served
as Vice Chairman of the Board of Directors of Williams Telecommunications Group,
Inc.
PATRICK J. DIRK has been a director of the Company since its formation.
Mr. Dirk served as President and Chief Executive Officer of the Company from its
formation until September 1985 and as Chairman of the Board from formation until
May 1989 and from February through August 1995. Mr. Dirk is Chairman of the
Board and Chief Executive Officer of Troy Group, Inc., an enterprise output
solutions provider. From 1973 until 1982, Mr. Dirk was employed in various
executive positions and as a Board member with Kroy Inc., a marketer of
automated lettering systems.
STEPHEN E. RAVILLE has been a director of the Company since October
1997. Since 1996, Mr. Raville has been Chairman of the Board of Pointe
Communications, Inc. Mr. Raville is also President and controlling shareholder
of First Southeastern Corp., a private investment company he formed in 1992. In
1983, Mr. Raville founded TA Communications, a long-distance telephone company,
and served as its President. In 1985, in conjunction with a merger between TA
and Advanced Telecommunications Corporation (ATC), he became Chairman and Chief
Executive Officer of ATC until the merger of ATC into WorldCom in late 1992.
WILLIAM G. TAYLOR has been a director of the Company since June 1999.
Since 1992, Mr. Taylor has been President and director of The Springs Company, a
privately held investment and management services company. Prior to joining The
Springs Company in 1990, Mr. Taylor was a Senior Vice President with First Union
National Bank. Mr. Taylor is also a director of Wachovia Bank, N.A. and Kanawha
Insurance Company.
WILLIAM A. FIELDER III has been Chief Financial Officer of the Company
since August 1999. From March 1998 through August 1999, Mr. Fielder was Vice
President and Chief Financial Officer of Clarus Corporation, a provider of
business-to-business e-commerce solutions. From April 1991 through February
1998, Mr. Fielder was Vice President and Chief Financial Officer of Gray
Communication Systems, Inc. From 1984 to 1991, he was employed with Ernst &
Young LLP.
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EDWARD C. BARRETT has been the President of Eltrax Technology Services
Group, Inc. since January 1998. Mr. Barrett joined the Company in August 1997
through the acquisition of Hi-Tech Connections, Inc. where he was President and
Chief Executive Officer from April 1985 to August 1997. Prior to April 1985, he
served as Executive Vice President of Executone Telecommunications, Inc.
BARRY A. LOGAN has been President of Eltrax Hospitality Group, Inc.
since September 1999, and President of Squirrel Systems, Inc., a subsidiary of
Sulcus Hospitality Technologies Corp., which the Company acquired in March 1999,
since June 1997. From 1995 to June 1997, Mr. Logan was Vice President and
General Manager of Squirrel Systems. Mr. Logan was Vice President of Sulcus
Hospitality Technologies Corp. from 1993 to 1995. Mr. Logan was Vice President
at Postech Limited from 1984 through 1989. Mr. Logan was also a founding partner
and Vice President of SQUiRREL(R) Systems of Canada from 1989 to 1993 before
being acquired by Sulcus Computer Corporation in 1993.
JOHNNY H. BUTLER has been President of Eltrax Customer Care Group,
Inc. since January 2000. From 1993 to 1999, Mr. Butler was Chief Operating
Officer of Encore Systems, Inc. Mr. Butler was the Management Information
Systems Director for Deloitte and Touche from 1987 to 1993. From 1976 through
1987, Mr. Butler was Director of Operations at Holiday Inn. From 1969 to 1976,
Mr. Butler was Vice President of Information Systems for Regions Bank in
Montgomery, Alabama.
DENISE R. GREY has been President of Eltrax ASP Group since January
2000. From July 1999 to December 1999, Ms. Grey was Chief Marketing Officer of
the Company. From 1998 to June 1999, Ms. Grey was Vice President of Field Sales
and Operations for KMC Telecom, a startup competitive local exchange carrier.
Prior to joining KMC Telecom in 1998, Ms. Grey was the Director of Marketing for
AT&T WorldNet Business Internet services from June 1985 to June 1998.
INFORMATION ON THE BOARD AND ITS COMMITTEES
The business and affairs of the Company are managed by the board of
directors, which met five times during the year ended December 31, 1999 and took
action by unanimous written consent once. The board has also established a
Compensation Committee and an Audit Committee.
The current members of the Compensation Committee are Messrs. Taylor
and Barnard. The function of the Compensation Committee is to set the
compensation for those officers of the Company who are also directors of the
Company and to act on other such matters relating to compensation as it deems
appropriate, including the administration of the Company's Stock Incentive
Plans. The Compensation Committee met four times during the year ended December
31, 1999.
The current members of the Audit Committee are Messrs. Dirk and
Raville. The function of the Audit Committee is to review the accounting,
auditing, operating and reporting practices of the Company. The Audit Committee
reviews the Company's annual financial statements, changes in accounting
practices, the selection and scope of the work of the Company's independent
auditors and the
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adequacy of internal controls for compliance with corporate policies and
directives. The Audit Committee met two times during the year ended December 31,
1999.
Each of the directors attended 75% or more of the meetings of the board
and committees on which he served during the year ended December 31, 1999.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and all persons who
beneficially own more than 10% of the outstanding shares of the Company's common
stock ("Reporting Persons") to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership of
the Company's common stock and other equity securities of the Company. Reporting
persons are also required to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely upon a review of
the copies of such forms furnished to the Company for the year ended December
31, 1999, and the information provided to the Company by Reporting Persons of
the Company, all Reporting Persons filed the forms required by Section 16 of the
Exchange Act on a timely basis except that Mr. Butler failed to timely file his
initial Form 3 after his election as an executive officer of the Company.
ITEM 11. DIRECTOR AND EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
DIRECTORS' FEES. Each director who is not an employee of the Company
receives a fee of $1,500 for each fiscal quarter during which he serves on the
board. Accordingly, during the year ended December 31, 1999, Messrs. Barnard,
Dirk and Raville each received $6,000 in fees for services rendered in 1999 and
Mr. Taylor received $3,000. The Company reimburses directors for out-of-pocket
expenses incurred in attending board or committee meetings.
STOCK OPTIONS. The directors who are not employees of the Company are
eligible to receive grants of stock options under the Company's stock incentive
plans.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of the Company and by the other four most highly compensated executive officers
of the Company during the year ended December 31, 1999 (the "Named Executive
Officers").
5
<PAGE> 6
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION(1) YEAR SALARY BONUS OPTIONS COMPENSATION
----------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
WILLIAM P. O'REILLY(2) 1999 $188,254(3) $ - - $ -
Chairman of the Board, 1998 103,846 - 75,000 -
President and Chief 1997 72,692 - 150,000 25,000
Executive Officer
EDWARD C. BARRETT (4) 1999 180,069 40,585 50,000 -
President, Eltrax Technology 1998 136,850 - - -
Services Group, Inc. 1997 38,760 - 46,667 -
BARRY LOGAN (5) 1999 150,689 71,821 280,000 -
President, Eltrax 1998 - - 8,678 (6) -
Hospitality Group, Inc. and 1997 - - 63,634 (6) -
President, Squirrel Systems,
Inc.
JOHNNY H. BUTLER (7) 1999 184,694 21,143 10,000 -
President, Eltrax Customer 1998 61,565 26,850 25,000 -
Care Group, Inc. 1997 - - - -
DENISE R. GREY (8) 1999 93,334 39,470 150,000 -
President, Eltrax 1998 - - - -
ASP Group, LLC. 1997 - - - -
DON G. HALLACY (9) 1999 192,348 - 500,000 -
President and Chief 1998 - - - -
Executive Officer 1997 - - - -
</TABLE>
(1) William A. Fielder III joined the Company as Chief Financial Officer
and Treasurer on August 25, 1999, and was appointed Secretary on
February 24, 2000. Mr. Fielder is not listed on the Summary
Compensation Table because he earned less than $100,000 in salary and
bonus for fiscal year ended December 31, 1999. Mr. Fielder was granted
options to purchase 250,000 shares of the Company's common stock in
1999.
(2) Mr. O'Reilly became President and Chief Executive Officer on April 19,
2000. During fiscal year 1999, Mr. O'Reilly served as Chairman of the
Board of the Company. He also served as Chief Executive Officer of the
Company from January 1999 through April 1999.
(3) Such amount represents consulting fees paid to Mr. O'Reilly pursuant to
a consulting agreement between the Company, Montana Corporation, a
company of which Mr. O'Reilly is the sole shareholder, and Mr.
O'Reilly.
(4) Mr. Barrett joined the Company in August 1997 upon the acquisition of
Hi-Tech Connections, Inc.
(5) Mr. Logan joined the Company in March 1999 upon the acquisition of
Sulcus Hospitality Technologies Corp.
(6) Represents shares originally subject to options to purchase shares of
common stock of Sulcus Hospitality Technologies Corp. that were
converted to options to purchase shares of the Company's common stock
in the merger of Sulcus with the Company in March 1999.
(7) Mr. Butler joined the Company in September 1998 upon the acquisition of
Encore Systems, Inc.
(8) Ms. Grey joined the Company in July 1999.
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(9) Mr. Hallacy resigned as Chief Executive Officer, President and a
director of the Company effective April 19, 2000.
AGGREGATE OPTION EXERCISES IN THE YEAR ENDED
DECEMBER 31, 1999 AND YEAR-END OPTION VALUES
The following table sets forth for the Named Executive Officers
aggregated information concerning each exercise of stock options during the
fiscal year ended December 31, 1999, and the fiscal year-end value of
unexercised options.
<TABLE>
<CAPTION>
- ------------------------------------- --------------------------------------- ----------------------------------------
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END (1)
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
SHARES ACQUIRED
NAME ON EXERCISE IN 1999 EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
<S> <C> <C> <C> <C> <C>
William P. - 235,500 0 $ 622,606 $ -
O'Reilly
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
Edward C. - 93,500 3,167 277,195 8,017
Barrett
- ----------------- ------------------- ---------------- ---------------------- ------------------ --------------------
Barry A. Logan - 114,680 237,632 486,277 977,580
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
Johnny H. Butler - 12,500 12,500 48,831 48,831
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
Denise R. Grey - 37,501 112,499 125,385 376,140
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
Don G. Hallacy - 100,000 400,000 390,650 1,562,600
- ----------------- ------------------- ---------------- ---------------------- ------------------ ---------------------
</TABLE>
(1) Value of the Company's unexercised, in-the-money options based on the
spread between the exercise price and the average of the high and low price
of the Company's common stock on December 31, 1999, which was $7.7815.
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<PAGE> 8
OPTION GRANT TABLE
The following table sets forth individual grants of stock options made
by the Company to the Named Executive Officers during the fiscal year ended
December 31, 1999.
<TABLE>
<CAPTION>
- -------------------- ------------------- -------------------- --------------- ------------- ------------------------------
SHARES UNDERLYING % OF TOTAL OPTIONS POTENTIAL REALIZABLE VALUE
OPTIONS GRANTED GRANTED TO EXERCISE DATE AT ASSUMED ANNUAL RATES OF
NAME IN 1999 EMPLOYEES IN 1999 PRICE OPTIONS STOCK PRICE APPRECIATION FOR
(1) EXPIRE OPTION TERM (2)
- -------------------- ------------------- -------------------- --------------- ------------- ------------------------------
5% 10%
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William P. O'Reilly 0 -- $ -- -- $ -- $ --
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
Edward C. Barrett 50,000 2.7% 4.44 3/1/09 139,500 354,000
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
Barry A. Logan (3) 230,000 12.5% 3.813 3/25/09 551,310 1,397,710
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
Barry A. Logan 50,000 2.7% 3.313 9/29/09 104,200 264,000
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
Johnny H. Butler 0 -- -- -- -- --
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
Denise R. Grey 150,000 8.2% 4.44 6/24/09 418,650 1,060,950
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
Don G. Hallacy (4) 500,000 27.3% 3.875 4/12/09 1,217,500 3,087,500
- -------------------- ------------------- -------------------- --------------- ------------- --------------- --------------
</TABLE>
(1) 1,834,500 options granted in 1999.
(2) The dollar amounts in this table are the result of calculations at stock
appreciation rates specified by the Securities and Exchange Commission and
are not intended to forecast actual future appreciation rates of the
Company's stock price.
(3) Mr. Logan also received options to purchase 72,311 shares of the Company's
common stock upon the conversion of options to purchase shares of the
common stock of Sulcus Hospitality Technologies Corp. in the merger of
Sulcus with the Company in March 1999.
(4) Mr. Hallacy was granted an option to purchase 50,000 shares of common stock
on January 1, 2000 at an exercise price of $8.0625 per share. He resigned
as a director and President and Chief Executive Officer of the Company
effective April 19, 2000. Of the aggregate options granted to Mr. Hallacy,
Mr. Hallacy exercised options to acquire 25,806 shares in March 2000, and
25,806 in April 2000, and has until the close of business on July 17, 2000
to exercise the remaining options to purchase 160,888 shares vested and
available for exercise. Options to purchase 337,500 shares expired upon his
resignation.
EMPLOYMENT AGREEMENTS
Don G. Hallacy resigned as a director and as President and Chief
Executive Officer of the Company effective April 19, 2000, thereby terminating
his Employment and Non-Competition Agreement with the Company. Mr. Hallacy's
employment agreement was entered into on March 24, 1999 and provided for a
minimum annual base salary of $250,000. As a result of the termination of the
agreement, options to purchase 337,500 shares of the Company's common stock that
were not vested on the termination date expired, and Mr. Hallacy forfeited any
bonus that would have been payable to him under the agreement for fiscal year
2000 and for all fiscal years thereafter. The non-competition covenant
contained in the agreement will be binding on Mr. Hallacy for a period of twelve
months following his resignation. Mr. Hallacy will continue to be bound by the
confidentiality, disclosure, and assignment covenants contained in the
agreement.
Penelope Sellers resigned as a director and as President of Eltrax
Hospitality Group, Inc. on August 31, 1999, thereby terminating her Employment
and Non-Competition Agreement with the Company. Ms. Sellers' employment
agreement was entered into on August 31, 1998 and provided for a minimum annual
base salary of $94,800. The non-competition covenant contained in the agreement
will
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be binding on Ms. Sellers for a period of two years following her
resignation. Ms. Sellers shall continue to be subject to the confidentiality,
disclosure and assignment covenants contained in the agreement.
Edward C. Barrett, an executive officer of the Company, entered into an
Employment and Non-Competition Agreement with the Company on August 15, 1997.
The agreement provides for a minimum annual base salary for Mr. Barrett of
$100,000 and contains a two-year non-competition clause in the event of
termination of Mr. Barrett's employment. The agreement terminates on July 31,
2000, unless terminated earlier. Commencing August 1, 2000 and on each August
thereafter, the term of the agreement will be automatically extended for one
additional year unless on or before the July 1 immediately preceding any such
renewal period either party gives written notice to the other of the cessation
of further extensions, in which case no further automatic extensions will occur.
The agreement may be terminated (i) by the Company immediately for cause; (ii)
by either party upon 75 days' written notice for whatever reason; and (iii)
automatically in the event of the death or disability of Mr. Barrett. In the
event that the Company terminates the agreement without cause, Mr. Barrett will
be entitled to continue to be paid his base salary through the termination date
or 75 days, whichever is greater.
EXECUTIVE COMPENSATION AND OTHER BENEFITS
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
POLICY ON EXECUTIVE OFFICER COMPENSATION. The executive compensation
program is administered by the Compensation Committee of the Board (the
"Committee"), which in 1999 consisted of non-employee directors Messrs. Taylor
and Barnard. The program supports the Company's commitment to providing superior
shareholder value. It is designed to attract and retain high-quality executives,
to encourage them to make career commitments to the Company, and to accomplish
the Company's short and long-term objectives. The Committee attempts to
structure a compensation program for the Company that will reward its top
executives with bonuses and stock and option awards upon attainment of specified
goals and objectives while striving to maintain salaries at reasonably
competitive levels. The Committee reviews the compensation (including salaries,
bonuses and stock options) of the Company's officers and performs such other
duties as may be delegated to it by the Board. The Committee held four formal
meetings during the fiscal year ended December 31, 1999.
In reviewing the compensation to be paid to the Company's executive
officers during the fiscal year ended December 31, 1999, the Committee sought to
ensure that executive officers were rewarded for long-term strategic management,
for increasing the Company's value for its shareholders, and for achieving
internal goals.
The key components of executive officer compensation are salary,
bonuses and stock option awards. Salary is generally based on factors such as an
individual officer's level of responsibility, prior years' compensation,
comparison to compensation of other officers in the Company, and compensation
provided at competitive companies and companies of similar size. Bonuses and
stock option awards are intended to reward exceptional performances. Benchmarks
for determining base salary and bonus levels include targeted funds from
operations levels, strength of the balance sheet and creation of shareholder
value. Stock option awards are also intended to increase an officer's interest
in the Company's long-term success as measured by the market and book value of
its common stock. Stock awards may be granted to officers and directors of the
Company and its subsidiaries and to certain employees who have managerial or
supervisory responsibilities under the various stock incentive plans.
CEO COMPENSATION. During the fiscal year ended December 31, 1999,
William P. O'Reilly served in the capacity of Chief Executive Officer of the
Company from January 1, through April 1999. In April 1999, Don G. Hallacy
assumed the Chief Executive Officer position. Under the leadership of both
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men, the Company continued its growth by merging with Windward Technologies, and
aggressively entering the Application Service Provider market.
As of April 1, 1999, the Company entered into a consulting agreement
with Mr. O'Reilly which compensates him at a rate of $250,000 annually. Prior to
entering into this Agreement, Mr. O'Reilly was paid $100,000 annually. In March
1999, the Company entered into an employment agreement with Don G. Hallacy,
which compensated him at a rate of $250,000 annually. Mr. Hallacy also received
options to acquire 500,000 shares of common stock at an exercise price equal to
the market price of the stock on his employment date. In April 1999, Mr. Hallacy
resigned as President and Chief Executive Officer for personal reasons, and Mr.
O'Reilly assumed the offices of President and Chief Executive Officer. Based on
pay levels for chief executive officers of publicly traded technology companies,
the Committee believes that Mr. Hallacy's total compensation was, and Mr.
O'Reilly's total compensation is, commensurate with executives in similar
positions. The Compensation Committee does not believe that the provisions of
Section 162(m) of the Internal Revenue Code relating to the deductibility of
compensation paid to the Named Executive Officers will limit the deductibility
of such compensation expected to be paid by the Company. However, circumstances
may arise in the future that might result in the Compensation Committee
authorizing compensation that is not entirely deductible.
Respectfully submitted,
William Taylor
James Barnard
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year ended December 31, 1999, neither of the members of the
Compensation Committee of the Company's board (i) was an officer or employee of
the Company or any of its subsidiaries, (ii) was formerly an officer of the
Company or any of its subsidiaries, or (iii) had any relationship requiring
disclosure by the Company pursuant to Item 404 of Regulation S-K.
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SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total shareholder return on the Company's common stock against
the cumulative total shareholder return of a peer group of companies and the
Nasdaq market index, for the five year period ending on December 31, 1999. This
line graph assumes a $100 investment on December 31, 1994, and actual increases
of the market value of the Company's common stock relative to an initial
investment of $100. The comparisons in this table are required by the Securities
and Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's common stock.
The peer group selected by the Company represents the published Media
General index of Business Software and Service Providers.
[LINE GRAPH]
<TABLE>
<CAPTION>
12/31/94 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Eltrax Systems, Inc. 100.00 350.00 1025.00 950.00 962.50 1612.50
Peer group 100.00 133.01 152.01 169.18 201.92 304.74
Nasdaq Market Index 100.00 129.71 161.18 197.16 278.08 490.46
</TABLE>
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the common stock of the Company as of March 31, 2000, unless
otherwise noted, by (a) each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding common stock, (b) each director,
(c) each Named Executive Officer, and (d) all current executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
------------------------------------------ --------------------- ---------------------------------------------------
NAME NUMBER SHARES BENEFICIALLY OWNED (1)(2)
PERCENT
- ------------------------------------------- --------------------- ---------------------------------------------------
<S> <C> <C>
William P. O'Reilly 1,559,858 (3) 6.1%
400 Galleria Parkway Ste. 300
Atlanta, Georgia 30339
- ------------------------------------------- --------------------- ---------------------------------------------------
Edward C. Barrett 614,290 (4) 2.4%
400 Galleria Parkway Ste. 300
Atlanta, Georgia 30339
- ------------------------------------------- --------------------- ---------------------------------------------------
Patrick J. Dirk 373,825 (5) 1.5%
Troy Group, Inc.
2331 South Pullman Street
Santa Ana, California 92705
- ------------------------------------------- --------------------- ---------------------------------------------------
William G. Taylor 354,700 (6) 1.4%
The Springs Company
PO Drawer 460
Lancaster, South Carolina 29721
- ------------------------------------------- --------------------- ---------------------------------------------------
Stephen E. Raville 146,250 (7) *
Pointe Communication, Inc.
1951 Airport Road Ste. 120
Atlanta, Georgia 30341
- ------------------------------------------- --------------------- ---------------------------------------------------
James C. Barnard 101,250 (8) *
14308 Spyglass Ridge
Chesterfield, Missouri 63017
- ------------------------------------------- --------------------- ---------------------------------------------------
Barry A. Logan 175,328 (9) *
400 Galleria Parkway Ste. 300
Atlanta, Georgia 30339
- ------------------------------------------- --------------------- ---------------------------------------------------
Johnny H. Butler 19,000 (10) *
400 Galleria Parkway Ste. 300
Atlanta, Georgia 30339
- ------------------------------------------- --------------------- ---------------------------------------------------
Denise R. Grey 41,251 (11) *
400 Galleria Parkway Ste. 300
Atlanta, Georgia 30339
- ------------------------------------------- --------------------- ---------------------------------------------------
Don G. Hallacy 252,500 (12) 1.0%
400 Galleria Parkway NW Ste. 300
Atlanta, Georgia 30339
- ------------------------------------------- --------------------- ---------------------------------------------------
All current directors and executive 3,448,252 (13) 13.2%
officers as a group (10 persons)
(excluding Mr. Hallacy)
- ------------------------------------------- --------------------- ---------------------------------------------------
</TABLE>
* Less than 1% of the issued and outstanding shares of common stock.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days
of March 31, 2000 are treated as outstanding only when determining the
amount and percent owned by such person or group.
12
<PAGE> 13
(2) Unless otherwise noted, all of the shares shown are held by individuals
or entities possessing sole voting and investment power with respect to
such shares.
(3) Includes options to purchase 246,942 shares of common stock
excercisable within 60 days of March 31, 2000.
(4) Includes 100,000 shares owned by Mr. Barrett's wife as to which he may
be deemed to share voting and investment power, 22,500 shares owned by
Mr. Barrett as trustee for the benefit of his minor children as to
which he may be deemed to have sole voting and investment power, and
options to purchase 96,667 shares of common stock exercisable within 60
days of March 31, 2000.
(5) Includes 11,400 shares of common stock owned by Troy Systems, Inc., of
which Mr. Dirk is the Chairman of the Board, as to which he may be
deemed to have sole voting and investment power, and options to
purchase 81,750 shares of common stock exercisable within 60 days of
March 31, 2000.
(6) Includes 320,000 shares of common stock owned by corporations of which
Mr. Taylor is the Chairman of the Investment Committee as to which he
may be deemed to have sole voting and investment power, and options to
purchase, and 31,250 shares of common stock exercisable within 60 days
of March 31, 2000.
(7) Includes 105,000 shares of common stock owned by Peachtree Capital
Corporation that is being held in trust for Mr. Raville's family
limited partnership as beneficiary, and options to purchase 41,250
shares of common stock exercisable within 60 days of March 31, 2000.
(8) Includes 60,000 shares of common stock owned by a Trust of which Mr.
Barnard is the trustee and options to purchase 41,250 shares of common
stock exercisable within 60 days of March 31, 2000.
(9) Includes options to purchase 173,916 shares of common stock exercisable
within 60 days of March 31, 2000.
(10) Includes options to purchase 12,500 shares of common stock exercisable
within 60 days of March 31, 2000.
(11) Represents options to purchase 41,251 shares of common stock
exercisable within 60 days of March 31, 2000.
(12) Includes 40,000 shares owned by Mr. Hallacy's wife's trust as to which
he may be deemed to share voting and investment power, and options to
purchase 160,888 shares of common stock exercisable within 60 days of
March 31, 2000.
(13) Includes (i) an aggregate of 536,400 shares of common stock held by
controlled corporations, jointly with spouses or by spouses, as to
which members of the group may be deemed to have sole or shared voting
and investment power, and (ii) options to purchase an aggregate of
801,690 shares of common stock exercisable within 60 days of March 31,
2000 held by members of the group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
O'REILLY CONSULTING AGREEMENT. Effective April 1999, Montana
Corporation, a corporation of which Mr. O'Reilly is the sole shareholder, and
Mr. O'Reilly entered into a consulting agreement with the Company. The agreement
provides that Mr. O'Reilly will provide certain services to the Company,
13
<PAGE> 14
including participating in senior management and assisting the Company in
identifying and pursuing possible acquisitions, joint ventures, marketing
arrangements and other growth opportunities. The agreement provides for a
consulting fee of $250,000 for each year of the agreement. The agreement is for
three years ending March 31, 2002, and renews for successive two-year periods if
not terminated earlier by the Company or Mr. O'Reilly. The agreement contains a
non-competition clause that expires two years after the termination of the
agreement.
O'REILLY BRIDGE LOAN. On December 30, 1999, the Company, as borrower,
entered into a Loan and Security Agreement with Mr. O'Reilly, as lender. The
loan was established as a line of credit facility, at an interest rate of 1.5%
over the prime rate, and was secured by the general assets of the Company. The
loan was subordinate to the Company's primary working capital facility. The
maturity date of the loan was the earlier of December 31, 2000 or on demand. On
March 17, 2000, in connection with the closing of the Company's new credit
facility with PNC Bank, the Company paid off the principal balance and all
accrued interest on the loan, an amount totaling $2,638,652.69.
As a requirement to closing the new facility, PNC Bank required that Mr.
O'Reilly execute a limited guaranty of the Company's obligations under the new
facility. As a further condition to closing, Mr. O'Reilly entered into a pledge
agreement pursuant to which he deposited a $2.8 million certificate of deposit
with PNC Bank to secure his obligations under the guaranty. On April 19, 2000,
the guaranty was terminated and the collateral was released to Mr. O'Reilly, in
accordance with the terms of the new facility.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(3) THE FOLLOWING EXHIBITS ARE ADDED TO THE EXHIBIT INDEX.
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
-------------- ----------- ----------------
<S> <C> <C>
10.35 Loan and Security Agreement dated as of December 30, 1999 by and among Filed herewith
William P. O'Reilly and the Company. electronically.
10.36 Revolving Credit Note dated as of December 30, 1999 made by the Filed herewith
Company in favor of William P. O'Reilly in the amount of $1,000,000, electronically
</TABLE>
14
<PAGE> 15
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf on April 27, 2000 by
the undersigned, thereunto duly authorized.
ELTRAX SYSTEMS, INC.
By: /s/ William P. O'Reilly
-----------------------------------------
William P. O'Reilly,
President and Chief Executive Officer
15
<PAGE> 16
ELTRAX SYSTEMS, INC.
EXHIBIT INDEX
FORM 10-K/A
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Exhibit Number Description Method of Filing
-------------- ----------- ----------------
<S> <C> <C>
10.35 Loan and Security Agreement dated as of December 30, 1999 by and among Filed herewith
William P. O'Reilly and the Company. electronically.
10.36 Revolving Credit Note dated as of December 30, 1999 made by the Filed herewith
Company in favor of William P. O'Reilly in the amount of $1,000,000, electronically
</TABLE>
16
<PAGE> 1
EXHIBIT 10.35
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (the "Agreement"), effective as of the
date accepted by WILLIAM P. O'REILLY (herein referred to as "you" or "your"),
sets forth the terms and conditions upon which you will make loans and advances
and extend other financial accommodations to ELTRAX SYSTEMS, INC., a Minnesota
corporation (herein referred to as "we", "us" or "our"):
RECITALS
1. DEFINITIONS. As used herein:
(A) "COLLATERAL" means all of our presently owned and hereafter
acquired:
(i) accounts (whether or not earned by performance), proceeds
of any letter of credit naming us as a beneficiary,
chattel paper, contracts, contract rights, instruments and
documents, general intangibles (including without
limitation tax refunds, tax refund claims, trade names,
trademarks, copyrights, patents and licenses with respect
to the foregoing), (individually and collectively referred
to as "RECEIVABLES");
(ii) goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or
held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or
consumed in our business or used in connection with the
manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise and other personal
property including without limitation such goods which
give rise to any Receivables and which goods have been
returned to or repossessed or stopped in transit by us
("INVENTORY");
(iii) tangible goods (other than Inventory), equipment and
fixtures including without limitation office machines,
tools, dies, furniture, and vehicles together with all
accessions, parts and appurtenances thereto appertaining
or attached or kept or used or intended for use in
connection therewith, and all substitutions, renewals,
improvements and replacements of and additions thereto
(sometimes hereinafter individually and collectively
referred to as "EQUIPMENT");
(iv) general intangibles, including without limitation, tax
refunds, tax refund claims, trade names, trade marks,
choses-in-action, copyrights, patents and licenses
("GENERAL INTANGIBLES");
(v) property now or at any time hereafter in our possession
(including monies, deposit accounts, claims and credit
balances); and
(vi) books, blueprints, drawings and records related to any of
the foregoing as described in subsection (i) through (v)
above;
and all proceeds (including proceeds of any insurance policies) and products of
and accessions to all the foregoing described property in which we may have any
right, title or interest.
(B) "DEFAULT" shall have the meaning set forth in Paragraph 11 of
this Agreement.
<PAGE> 2
(C) "INDEBTEDNESS" means all of our present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred acquired, owing or arising, whether under
written or oral agreement, operation of law, or otherwise, and includes, without
limiting the foregoing (i) Obligations, (ii) obligations and liabilities of any
Person secured by a lien, claim, encumbrance, or security interest upon property
owned by us, even though we have not assumed or become liable therefor, (iii)
obligations and liabilities created or arising under any lease (including
capitalized leases) or conditional sales contract or other title retention
agreement with respect to property used or acquired by us, even though the
rights and remedies of the lessor, seller or lender are limited to repossession,
(iv) all unfunded pension fund obligations and liabilities, and (v) deferred
taxes.
(D) "OBLIGATIONS" means all present and future loans, advances,
debts, liabilities, obligations, covenants, duties and Indebtedness owing by us
to you, whether evidenced by any note, or other instrument or document, whether
arising from an extension of credit, opening of a letter of credit, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by you in
our debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees and any other sums chargeable to us hereunder or under any other agreement
with you.
(E) "OBLIGOR" means us or any guarantor of the Obligations,
individually or collectively.
(F) "PERSON" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, government, or any agency or political division thereof, or any
other entity.
(G) "PRIME RATE" means the Prime Rate published from day to day in
The Wall Street Journal in its "Money Rates" column as the "Prime Rate," should
such publication not continue to publish the Prime Rate or a substitute rate
then you will select a comparable announced rate. The interest rate charged for
any loan based upon the Prime Rate will change at any time the prime rate
changes.
(H) "SENIOR LIEN" means any and all liens, encumbrances and claims
upon the Collateral in favor of Citizens Bank of Massachusetts (successor in
interest to State Street Bank and Trust Company) or any lender which has
refinanced the Senior Indebtedness ("CITIZENS BANK").
(I) "SENIOR INDEBTEDNESS" means all loans advanced to us by
Citizens Bank, or any lender which has refinanced such loans, and all costs and
expenses related thereto.
(J) Any accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings customarily given to them in accordance with
generally accepted accounting principles.
(K) All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Uniform Commercial Code of
the state set forth in Paragraph 14(B) ("CODE") to the extent the same are
defined therein.
2. LOANS AND COLLATERAL.
(A) Loan advances. Subject to the terms of this Agreement, you may,
in your sole discretion and upon our request, make loan
advances to us from time to time.
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<PAGE> 3
You may, in your sole discretion and without notice to us,
disburse any or all of the proceeds of any or all of the
advances made by you to such person or persons as you deem
necessary to insure that the security interest in or lien upon
the Collateral shall at all times have the priority represented
by us in this Agreement.
(B) Promissory Notes. Loans under this Agreement shall be evidenced
by promissory notes executed by us, in form satisfactory to
you, and shall be payable at your principal place of business.
Interest and principal payable by us under such promissory
notes shall be paid at the times, in the amounts, on the terms
and at the rates set forth in the applicable promissory note.
All amounts owing to you as evidenced by the promissory notes
or otherwise shall constitute part of the Obligations.
(C) Interest and Other Charges. We shall pay you interest on the
daily outstanding balance of the various notes at a rate equal
to the Prime Rate plus 1.5%. In addition, we shall also pay you
on the first day of each month, with respect to the prior
calendar month or portion thereof 1/12 of one percent of the
amount of the loans not utilized. In no event whatsoever shall
the interest rate and other charges charged hereunder exceed
the highest rate permissible under any law which a court of
competent jurisdiction shall, in the final determination, deem
applicable hereto. In the event that a court determines that
you have received interest or other charges hereunder in excess
of the highest rate applicable hereto, you shall promptly, in
your sole discretion, either apply such amount to the
Obligations or refund such amount to us and the provisions
herein shall be deemed amended to provide for such permissible
rate.
(D) Term. The Term of this Agreement and of loans shall be on
demand, but if demand is not made, then no later than December
31, 2000.
(E) Monthly Accounting. You will provide us, monthly, with an
account of advances, charges and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and
binding upon us, unless we notify you in writing to the
contrary within thirty (30) days after each account is
rendered.
(F) Collateral. As security for the Obligations, we hereby grant
you a continuing security interest in the Collateral, subject
only to the prior interest of the Senior Lien. We acknowledge
that nothing contained in this Agreement shall be (i) construed
as your agreement to resort or look to a particular type of
Collateral as security for any loan to us, or limit in any way
your right to resort to any or all of the Collateral as
security for any of the Obligations, or (ii) deemed to limit or
reduce any security interest in or lien upon any portion of the
Collateral for the Obligations.
3. PERFECTION OF SECURITY INTEREST; PROTECTION OF SECURITY
INTEREST. We shall, at our expense, perform all steps requested by you at any
time to perfect, maintain, protect, and enforce your security interest in the
Collateral, including, without limitation, executing and filing financing or
continuation statements, and amendments thereof, in form and substance
satisfactory to you, placing notations on our books of account to disclose your
security interest therein, and taking such other steps as are deemed necessary
by you to maintain your control of and security interest in the Collateral. You
may file, without our signature, one or more financing statements disclosing
your security interest under this Agreement. We agree that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any warehouseman, bailee or any of
our agents or
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<PAGE> 4
processors, we shall notify such person of your security interest in such
Collateral and, upon your request, instruct them to hold all such Collateral for
your account subject to your instructions. From time to time, we shall, upon
your request, execute and deliver confirmatory written instruments pledging to
you the Collateral, but our failure to do so shall not affect or limit your
security interest or other rights in and to the Collateral. Until all
Obligations have been fully satisfied, your security interest in the Collateral
shall continue in full force and effect.
4. CHARGES AND INSURANCE.
(A) You may, in your discretion, at any time discharge any lien or
encumbrance or bond the same, pay any insurance, pay any service bureau, or
obtain any record and charge the cost thereof to our loan account.
(B) At your request, we shall insure the Collateral in your name
against loss or damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as you shall specify in amounts, under policies and by
insurers acceptable to you. Each policy shall include a provision for thirty
(30) days prior written notice to you of any cancellation or substantial
modification and shall show you as mortgagee and loss payee in a manner
acceptable to you. All premiums shall be paid by us and the policies shall be
delivered to you. If we fail to do so, you may (but shall not be required to)
procure such insurance at our expense.
5. EXAMINATION OF RECORDS; REPORTING.
(A) You may at all reasonable times have access to, examine, audit,
make extracts from and inspect our records, files, books of account and the
Collateral. We will deliver to you any instrument necessary for you to obtain
records from any service bureau maintaining records for us. All instruments and
certificates prepared by us showing the value of any of the Collateral shall be
accompanied, upon request, by copies of related purchase orders and invoices.
You may, at any time after default, remove from our premises our books and
records or require us to deliver them to you and you may, without expense to
you, use such of our personnel, supplies and premises as may be reasonably
necessary for maintaining or enforcing your security interest.
(B) We shall furnish you, upon request, information and statements
showing our business affairs, financial condition and the results of our
operations. We will provide you within thirty (30) days after the end of each
calendar quarter, our internally prepared income statement and balance sheet
prepared on a basis consistent with such statement prepared in prior months and
in accordance with generally accepted accounting principles, and within ninety
(90) days after the end of each of our fiscal years, our financial statements
prepared by our independent, certified public accountants prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
prior year-end statements (said interim and year-end financial statements
hereinafter referred to as "FINANCIALS").
6. OTHER LIENS. We represent and warrant that all Collateral is
and will continue to be owned by us free and clear of all liens, claims and
encumbrances whatsoever, except for the Senior Lien, whether prior or
subordinate to the liens we have granted you and that we will not, subject to
the terms of the Senior Indebtedness, without your prior written approval, which
may be withheld in your sole discretion, sell, encumber or dispose of or permit
the sale, encumbrance or disposal of any Collateral, except for sales of
inventory in the ordinary course of business.
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<PAGE> 5
7. GENERAL WARRANTIES AND REPRESENTATIONS.
We warrant and represent that:
(A) We are duly organized and existing in good standing under the
laws of Minnesota, are qualified to do business and are in good standing in all
states in which qualification and good standing are necessary in order for us to
conduct our business and own our property and have all requisite power and
authority to conduct our business, to own our property and to execute, deliver
and perform all of our Obligations;
(B) We have not, during the preceding five (5) years, been known by
or used any other assumed names;
(C) The execution, delivery and performance by us of this Agreement
will not constitute a violation of any applicable law or of our Articles of
Incorporation, By-Laws or any agreement, or document to which we are a party or
bound, except for the Senior Indebtedness;
(D) We possess adequate assets, licenses, patents, patent
applications, copyrights, trademarks, trademark applications, and tradenames for
the conduct of our business;
(E) We have capital sufficient to conduct our business, are solvent
and able to pay our debts as they mature and own property having a fair value
greater than the amount required to pay our debts;
(F) Except for trade payables arising in the ordinary course of our
business, we have (i) no pending or threatened litigation, actions or
proceedings which would materially and adversely affect our business assets,
operations or condition, financial or otherwise, or the Collateral and (ii) no
Indebtedness, other than the Obligations and the Senior Indebtedness;
(G) We have good, indefeasible, and merchantable title to the
Collateral, and there is no lien or encumbrance thereon other than the security
interest granted to you, except for the Senior Lien;
(H) We are not a party to any contract, or subject to any charge,
corporate restriction, judgment, decree or order materially and adversely
affecting our business, assets, operations or condition, financial or otherwise,
and are not subject to any labor dispute; and, no labor contract is scheduled to
expire during the term of this Agreement, except as heretofore disclosed to you
in writing;
(I) We are not in violation of any applicable statute, regulation
or ordinance, in any respect materially and adversely affecting the Collateral
or our business, assets, operations or condition, financial or otherwise;
(J) Other than the Senior Indebtedness, we are not in default with
respect to any note, indenture, loan agreement, mortgage, lease, deed or other
agreement to which we are a party or bound;
(K) The financial statements delivered to you fairly present our
financial condition and results of operations and those of such other Persons
described therein as of the date thereof; and there has been no material and
adverse change in such financial condition or operations since the date of the
statements;
(L) We have received no notice that we are not in full compliance
with any of the requirements of the Employee Retirement Income Security Act of
1974, as amended,
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<PAGE> 6
("ERISA") and its regulations and, to the best of our knowledge, there exists no
event described in Section 4043 of ERISA, excluding subsections 4043(b)(2) and
4043(b)(3) thereof, with respect to us;
(M) We have filed all tax returns and other reports we are required
by law to file and have paid all taxes and similar charges that are due and
payable;
(N) Our chief executive office, principal place of business and the
location of collateral records is at 900 Circle 75 Parkway, Suite 1700, Atlanta,
Georgia 30339;
(O) We have not received any notice alleging and are not aware of
any facts indicating noncompliance with any state or federal law governing the
use, generation, storage or release of any hazardous waste or substance;
8. AFFIRMATIVE COVENANTS. We covenant that, so long as any
Obligations remain outstanding and this Agreement is in effect, we shall:
(A) Pay to you on demand all fees and expenses which you incur in
connection with (i) the forwarding of loan proceeds, (ii) the processing of loan
advances, (iii) the establishment and maintenance of any lock box and of all
other accounts created in connection with the transaction contemplated hereby,
and (iv) the examination of the Collateral;
(B) Promptly file all tax returns and other reports which we are
required to file and promptly pay all taxes, assessments and other charges;
(C) Promptly notify you in writing of any litigation affecting us,
whether or not the claim is covered by insurance, and of any suit or
administrative proceeding which may materially and adversely affect the
Collateral or our business, assets, operations or condition, financial or
otherwise;
(D) Notify you in writing (i) promptly upon the occurrence of any
event described in Section 4043 of ERISA, other than a termination, partial
termination or merger of a "Plan" (as defined in ERISA) or a transfer of a
Plan's assets, and (ii) prior to any termination, partial termination or merger
of a Plan or a transfer of a Plan's assets;
(E) Give you thirty (30) days prior written notice of our opening
or closing any place of business;
(F) Maintain our corporate existence and our qualification and good
standing in all states necessary to conduct our business and own our property
and maintain adequate assets, licenses, patents, copyrights, trademarks and
tradenames to conduct our business;
(G) Promptly notify you in writing of any labor dispute to which we
are or may become subject and the expiration of any labor contract to which we
are a party or bound;
(H) Promptly notify you in writing of any violation of any law,
statute, regulation or ordinance of any governmental entity, or of any agency
thereof, applicable to us which may materially and adversely affect the
Collateral or our business, assets, operations or condition, financial or
otherwise;
(I) Notify you in writing within five (5) business days of our
default under any note, indenture, loan agreement, mortgage, lease, or other
agreement to which we are a party or bound;
- 6 -
<PAGE> 7
(J) Promptly notify you in writing of any default under any
Indebtedness or indebtedness owing to us;
(K) Promptly notify you in writing of the making of any capital
expenditures materially affecting our business, assets, operations or
conditions, financial or otherwise;
(L) Execute and deliver to you, upon request, such documents and
agreements as you may, from time to time, reasonably request to carry out the
terms and conditions of this Agreement;
(M) Promptly, and in any event within five (5) days of the receipt
thereof, deliver any communication in any way concerning any act or omission on
our part regarding the use, generation, storage or release of a hazardous waste
or substance. We agree to indemnify and hold you harmless from any and all loss,
damage, cost, liability or expense (including reasonable attorney fees) arising
out of our use, generation, storage or release of any hazardous waste or
substance;
(N) Promptly, and in any event within five (5) days of the receipt
thereof, deliver to you a copy of any communication from the Federal Department
of Labor concerning any alleged act or omission on our part in connection with
the payment of minimum and/or overtime wages to an employee;
(O) Promptly, and in any event within five (5) days of the receipt
thereof, deliver to you a copy of any communication concerning any violation of
a state or Federal law which could result in the forfeiture of the Collateral;
and
(P) Maintain the liens and security interests granted to you,
subordinate only to the Senior Indebtedness.
9. NEGATIVE COVENANTS. Without your prior written consent, we
covenant that, so long as any Obligations remain outstanding and this Agreement
is in effect, we shall not:
(A) Merge or consolidate with or acquire any other Person;
(B) Declare or pay cash dividends upon any of our stock or
distribute any of our property or make (except in the ordinary course of
business) any loans or extensions of credit, or investments in, any Person, or
redeem, retire, purchase or acquire, directly or indirectly any of our stock,
other than pursuant to employee incentive or stock purchase plans, or make any
material change in our capital structure or in our business or operations which
might adversely affect the repayment of the Obligations;
(C) Enter into any transaction which materially and adversely
affects the Collateral or our ability to repay the Obligations;
(D) Become liable for the indebtedness of any Person, except by
endorsement of instruments for deposit;
(E) Incur Indebtedness, other than trade payables arising in the
ordinary course of our business, the Senior Indebtedness and the Obligations;
(F) Make a sale to any customer on a bill-and-hold, guaranteed
sale, sale and return, sale on approval, consignment, or any other repurchase or
return basis;
(G) Use any other corporate or fictitious name; or
- 7 -
<PAGE> 8
(H) Prepay any Indebtedness.
10. TERMINATION. Either party shall have the right to terminate
this Agreement at any time hereafter by giving the other party written notice by
registered or certified mail not less than sixty (60) days prior to the
effective date of such termination. Upon the effective date of termination, all
Obligations shall become immediately due and payable.
11. DEFAULT. Any one or more of the following events shall
constitute a default ("DEFAULT") under this Agreement: (a) we shall fail to pay
when due, or breach, any Obligations, or (b) we shall (i) become insolvent, (ii)
generally not pay our respective debts as they become due, (iii) make an
assignment for the benefit of creditors, or (iv) make any misrepresentation to
you or fail to observe or perform any covenants or conditions in connection with
this Agreement or any other instrument related to the loan hereto, or (c) there
shall be filed by or against us a petition in bankruptcy for liquidation or for
reorganization, or a custodian, receiver or agent is appointed or authorized to
take charge of its properties, or we authorize any such action, or (d) there
hereafter occur any material and adverse change in the business, assets,
operations and condition, financial or otherwise, or (e) we shall be in default
under any agreement to which we are a party, or (f) any guaranty of the
Obligations shall be terminated or revoked.
We acknowledge that while there are events of default set forth above,
the Obligations are due upon demand, and if demand is not made, then the
Obligations are due and payable by December 31, 2000. Demand may occur with or
without there being an event of default.
12. YOUR RIGHTS AND REMEDIES.
(A) If a Default occurs under this Agreement or any other document
or instrument executed by the undersigned, you may, at your election, without
notice of your election and without demand, do any one or more of the following:
(a) declare our Obligations, whether evidenced by a revolving credit note, a
demand note or otherwise, to be immediately due and payable; (b) stop advancing
money or extending credit to or for our benefit under the Agreement; (c)
exercise any and all of the rights accruing to a secured party under the Code
and any other applicable law; (d) take possession of the Collateral and keep it
on our premises, at no cost to you, or remove any part of it to such other
place(s) as you may desire or we shall, upon your demand, at our cost, assemble
the Collateral and make it available to you at a place reasonably convenient to
you.
(B) You may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and upon such terms as
you deem advisable, at your discretion, and may, if you deem it reasonable,
postpone or adjourn any sale of the Collateral by an announcement at the time
and place of sale of such postponed or adjourned sale without giving a new
notice of sale. We agree that you have no obligation to preserve rights to the
Collateral or marshall any Collateral for the benefit of any Person. You are
hereby granted a license or other right to use, without charge, our labels,
patents, copyrights, name, trade secrets, trade names, trademarks and
advertising matter, or any similar property, in completing production,
advertising or selling any Collateral and our rights under all licenses and all
franchise agreements shall inure to your benefit. Any requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to us at our
address set forth below at least five (5) days before sale or other disposition.
The proceeds of sale shall be applied first to all expenses of sale, including
attorneys' fees, and second to (in whatever order you elect) all Obligations.
You will return any excess to us and we shall remain liable for any deficiency.
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<PAGE> 9
(C) IN THE EVENT OF A DEFAULT HEREUNDER, WE HEREBY WAIVE ALL RIGHTS
TO NOTICE AND HEARING PRIOR TO THE EXERCISE BY YOU OF YOUR RIGHTS TO REPOSSESS
THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL WITHOUT NOTICE OR HEARING AND ALL RIGHTS OF SET-OFF AND COUNTERCLAIM
AGAINST YOU.
13. WAIVER; AMENDMENTS; SUCCESSORS AND ASSIGNS. Your failure to
exercise any right, remedy or option under this Agreement or other agreement
between you and us or delay by you in exercising the same will not operate as a
waiver. No waiver by you will be effective unless in writing and then only to
the extent stated. No waiver by you shall affect your right to require strict
performance of this Agreement. Your rights and remedies will be cumulative and
not exclusive. This Agreement cannot be changed or terminated orally. All terms,
conditions, promises, covenants, provisions and warranties shall inure to the
benefit of and bind your and our respective representatives, successors and
assigns.
14. MISCELLANEOUS.
(A) If any provision of this Agreement shall be prohibited or
invalid, under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
(B) This Agreement shall be interpreted in accordance with the
governing law of the state of Georgia.
(C) All of our representations and warranties contained in this
Agreement shall survive the execution, delivery and acceptance thereof by the
parties.
(D) No termination of this Agreement or of any guaranty of the
Obligations shall affect or impair the powers, obligations, duties, rights,
warranties, representations or liabilities of the parties hereto and all shall
survive such termination.
(E) Each Obligation may, in your discretion, be evidenced by notes
or other instruments issued or made by us to you. If not so evidenced, such
Obligation shall be evidenced solely by entries upon your books and records.
(F) All Obligations shall constitute one loan secured by the
Collateral. You may, in your sole discretion, subject to the Senior
Indebtedness: (i) exchange, enforce, waive or release any of the Collateral or
(ii) apply Collateral and direct the order or manner without affecting your
right to take any other action with respect to any other Collateral.
(G) You shall have the continuing and exclusive right to apply or
reverse and re-apply any and all payments to any portion of the Obligations. To
the extent that we make a payment or you receive any payment or proceeds of the
Collateral for our benefit, which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver or any other party under any bankruptcy law,
common law or equitable cause, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by you.
(H) We shall reimburse you for all expenses incurred or to be
incurred by you in connection with (a) the negotiation, preparation and closing
of this Agreement; (b) the protection, perfection or preservation of your
security interest in or lien upon the Collateral; (c) your inspection or
verification of the Collateral; (d) any court or bankruptcy proceeding relating
to the Agreement or any claim or action by any Person against you which would
not have been asserted were it not for your relationship with us hereunder or
otherwise; (e) actions taken with
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<PAGE> 10
respect to the Collateral and your security interest or lien therein; and (f)
enforcement of any of your rights and remedies with respect to the Obligations
or Collateral. The foregoing expenses shall include, without limitation: (i)
reasonable fees, costs and expenses of your attorneys and paralegals; (ii)
interest on the foregoing at the highest applicable interest rate provided under
this Agreement, which shall be part of the Obligations, payable on demand and
secured by the Collateral. In recognition of your right to have all your
expenses incurred or to be incurred in connection with this Agreement and the
fees due you secured by the Collateral, you shall not be required to record any
discharge of your lien or termination of your security interest unless and until
we deliver to you a general release acceptable to you.
(I) We agree to give you written notice of any action or omission
by you or your agents in connection with this Agreement that may be actionable
against you or that may be a defense to payment of the Obligations for any
reasons. We further agree that unless such a notice specifically describing the
action or omission is given by us within thirty (30) days after we have
knowledge or with the exercise of reasonable diligence should have had knowledge
of the occurrence of said action or omission we shall not assert, and we shall
be deemed to have waived, any claim or defense arising therefrom.
(J) If you shall breach your obligation under this Agreement to
make an advance under the terms of this Agreement, notwithstanding our
conformance with the provisions thereof, we agree that our sole remedy on
account thereof shall be to recover liquidated damages on account of such
breach, computed as hereinafter provided, in recognition of the fact that the
damages which we might incur are uncertain and speculative. Liquidated damages
to which we shall be entitled shall be equal to sixty (60) times the interest
payable for one day on the loans outstanding as of the day that you are deemed
to have failed to fund. In any event, you shall never be liable to us for
special, indirect and consequential damages, whatever the nature of your breach
hereunder.
(K) We authorize and direct you to disburse, for our account, the
proceeds of loans made by you to us to such Person as any of our officers or
directors shall direct, whether in writing or orally.
(L) Any notice required hereunder shall be in writing, and
addressed to the party to be notified as follows:
If to you, to: William P. O'Reilly
2000 Town Center, Suite 690
Southfield, Michigan 48075
If to us, to: Eltrax Systems, Inc.
900 Circle 75 Parkway, Suite 1700
Atlanta, Georgia 30339
Attention: William A. Fielder, III, CFO
or to such other address as each party may designate for itself by like notice.
(M) We represent and warrant to you that, with respect to the
financing transaction herein contemplated, no Person is entitled to any
brokerage fee or other commission and we agree to indemnify and hold you
harmless against any and all such claims.
(N) The paragraph titles contained in this Agreement are without
substantive meaning and are not part of the Agreement.
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<PAGE> 11
(O) You acknowledge that you have been given full access to all of
the documents pertaining to the Senior Indebtedness and Senior Lien and
understand fully that our ability to repay the Obligations, as well as secure
the Collateral, is circumscribed by the terms and conditions of such documents.
15. WAIVER OF JURY TRIAL. Our legal counsel has advised us that (i)
there may be a constitutional right to a jury trial in connection with any
claim, dispute or lawsuit arising out of this Agreement and (ii) such
constitutional right may be waived. After consultation with our counsel (which
has included our counsel's review of this Agreement), we believe that it is in
our best interest in this commercial transaction to waive such right.
Accordingly, we hereby waive our right to a jury trial, and further agree that
the best forum for hearing any claim, dispute or lawsuit, if any, arising in
connection with this Agreement or our relationship with you, shall be a court of
competent jurisdiction sitting without a jury.
16. NO ORAL AGREEMENTS. We acknowledge that this Agreement
represents the final agreement between you and us and the terms of such
documents may not be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements that may have or will be exchanged between you
(including your officers, employees and agents) and us.
Very truly yours,
ELTRAX SYSTEMS, INC.
a Minnesota corporation
By: /s/ Don G. Hallacy
-------------------------------
Don G. Hallacy, President
Accepted on December 30, 1999:
/s/ William P. O'Reilly
- -----------------------------------
William P. O'Reilly
<PAGE> 1
EXHIBIT 10.36
REVOLVING CREDIT NOTE
$1,000,000
Due Date: The earlier of Demand
or December 31, 2000 Dated: December 30, 1999
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
WILLIAM P. O'REILLY (the "Lender"), at his office at 2000 Town Center, Suite
690, Southfield, Michigan 48075, or at such other place as Lender may designate
in writing, the principal sum of One Million ($1,000,000) Dollars, or such
lesser sum as shall have been advanced by Lender to Borrower pursuant to that
certain Loan and Security Agreement dated as of December 30, 1999, between
Borrower and Lender (which, together with all amendments and modifications
thereof, is hereinafter referred to as the "Loan Agreement"), plus interest as
hereinafter provided, all in lawful money of the United States of America, in
accordance with the terms hereof.
The unpaid principal balance of this Revolving Credit Note ("Note")
shall bear interest computed upon the basis of a year of 360 days for the actual
number of days elapsed in a month, at a rate of interest (the "Effective Rate")
which is equal to the prime rate as reported in The Wall Street Journal, plus
1.5% per annum.
Interest on all principal amounts advanced by Lender from time to time
and unpaid by Borrower shall be paid on the last day of the month hereafter and
on the last day of each month thereafter until the Due Date, upon which date the
entire unpaid principal balance of this Note, together with all accrued and
unpaid interest, shall be due and payable in full. If Borrower makes and Lender
accepts a payment made five (5) days after the last day for such payment,
Borrower shall pay with such payment a late charge equal to five (5%) percent
thereof. Payments required on the Due Date shall not have a late charge, but the
default interest specified below shall accrue commencing on the day following
the Due Date.
Advances of principal, repayment, and readvances may be made under this
Note from time to time, upon the terms set forth in the Loan Agreement and said
Loan Agreement is incorporated herein by reference. All advances made hereunder
shall be charged to a loan account in Borrower's name on Lender's books, and
Lender shall debit to such account the amount of each advance made to, and
credit to such account the amount of each repayment made by Borrower. Lender
shall furnish Borrower with a monthly statement of Borrower's loan account,
which statement shall be deemed to be correct, accepted by, and binding upon
Borrower, unless Lender receives a written statement of exceptions from Borrower
within thirty (30) days after such statement has been furnished. Borrower
expressly assumes all risks of loss or delay in the delivery of any payments
<PAGE> 2
made by mail, and no course of conduct or dealing shall affect Borrower's
assumption of these risks.
Upon the Due Date, which Borrower acknowledges may be upon demand,
Lender, without prior notice to Borrower, may declare the entire unpaid
principal balance of this Note and all accrued interest, together with all other
indebtedness of Borrower to Lender, to be immediately due and payable. Upon the
occurrence of any Default specified on the Loan Agreement or upon demand, the
unpaid principal balance of this Note shall bear interest at a rate which is
three (3.0%) percentage points greater than the Effective Rate. After Default or
demand, Lender may apply its own indebtedness or liability to Borrower to any
indebtedness due under this Note. Borrower agrees to pay all of the Lender's
costs incurred in the collection of this Note as provided in the Loan Agreement.
Acceptance by Lender of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only. Upon any Default,
neither the failure of the Lender promptly to exercise its right to declare the
outstanding principal and accrued unpaid interest hereunder to be immediately
due and payable, nor the failure of the Lender to demand strict performance of
any other obligation of the Borrower or any other person who may be liable
hereunder, shall constitute a waiver of any such rights, nor a waiver of such
rights in connection with any future default on the part of the Borrower or any
other person who may be liable hereunder.
Borrower acknowledges that no Default is necessary for Lender to make
demand.
Borrower and all endorsees, sureties and guarantors hereof hereby
jointly and severally waive presentment for payment, demand, notice of
non-payment, notice of protest or protest of this Note, and Lender diligence in
collection or bringing suit, and do hereby consent to any and all extensions of
time, renewals, waivers or modifications as may be granted by Lender with
respect to payment or any other provisions of this Note, and to the release of
any collateral or any part thereof, with or without substitution. The liability
of Borrower under this Note shall be absolute and unconditional, without regard
to the liability of any other party. This Note has been executed in the State of
Georgia, and all rights and obligations hereunder shall be governed by the laws
of such state.
In no event whatsoever shall the interest rate and other charges
charged hereunder exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in the final determination, deem
applicable hereto. In the event that a court determines that Lender has received
interest or other charges hereunder in excess of the highest rate applicable
hereto, Lender shall, either in its sole discretion, promptly apply such amounts
to the principal due hereunder or refund such amount to Borrower and the
provisions herein shall be deemed amended to provide for such permissible rate.
Lender acknowledges that the Borrower's obligations under this Note are
limited by the terms of the Senior Indebtedness and Senior Lien (as defined in
the Loan Agreement)
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<PAGE> 3
This Note is issued pursuant to the terms of the Loan Agreement and is
secured by the Collateral, as defined in the Loan Agreement. All of the terms,
covenants and conditions of the Loan Agreement are hereby made a part of this
Note and are hereby incorporated by reference.
"BORROWER"
ELTRAX SYSTEMS, INC.,
a Minnesota corporation
By: /s/ Don G. Hallacy
----------------------------------
Don G. Hallacy, President
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