Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File Number 000-17577
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CORE TECHNOLOGIES (PENNSYLVANIA), INC.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2537194
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Summit Drive, Exton, PA 19341
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 524-7000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s)) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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. [ ]
<PAGE>
Aggregate market value of voting stock held by non-affiliates (based on the
average of the bid and asked prices as quoted on the NASD's Electronic Bulletin
Board on March 19, 1996) was approximately $1,415,127. For purposes of
determining this amount only, Registrant has defined affiliates as including (a)
the executive officers named in Part III of this 10-K report, (b) all directors
of Registrant, and (c) each stockholder that has informed Registrant by March 4,
1996 that it is the beneficial owner of 10% or more of the outstanding Common
Stock of Registrant.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of March 19, 1996:
Common Stock 8,887,326 Shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference in this Form 10-K.
<PAGE>
PART I
Item 1(a). General Development of the Business
Prior to 1993, Core Technologies (Pennsylvania), Inc. (formerly
CenterCore, Inc., the "Company") was engaged solely in the business of
designing, manufacturing and distributing modular workstation systems and a line
of complementary office products, including air management systems for
temperature blending and breathing zone filtration. In February 1993, the
Company, through a subsidiary, acquired the assets and assumed the liabilities
of Airo Clean Engineering, Inc. ("Airo Clean"), a designer and manufacturer of
cleanroom and air filtration components and systems serving industry and the
hospital and health care markets. In September 1993, the Company, through a
subsidiary, purchased substantially all of the assets and assumed certain
liabilities of Maris Equipment Company ("Maris"), a specialty contractor
providing integration, installation and servicing of advanced electronic systems
for security access control, fire alarm, sound, communications and other
applications on a nationwide basis. These acquisitions were part of the
Company's overall strategy to improve the Company's operating performance by
penetrating new and growing markets to compensate for the government spending
decline in the market of the Company's furnishings segment.
In 1995, the Company took steps to downsize its business, concentrate
on growing marketplaces with less reliance on government spending, and pay back
its bank debt as quickly as possible. On August 25, 1995, the Company sold all
of the assets relating to its furnishings business to a corporation organized by
the principals of the Apollo Group, Inc., an organization unaffiliated with the
Company and its principals. The assets sold included the rights to the name
"CenterCore", and subsequent to the transaction, the Company changed its
corporate name to Core Technologies (Pennsylvania), Inc. In the acquisition, the
Company received $2.3 million in cash, $1.7 million in installment notes payable
in 1996 and a $2.0 million subordinated note, which bears interest at a rate of
8% per annum commencing August 25, 1996. The payments due on the installment
notes have been reduced by $847,000 representing the value of receivables
remaining uncollected 120 days after closing plus a $50,000 collection fee. The
Company now owns the receivables which were not collected, expects to collect a
substantial portion of these in 1996 and, through March 1, 1996, approximately
$340,000 of these receivables had been collected by the Company . The principal
amount of the subordinated note will be amortized on a seven year level schedule
with semi-annual payments and a balloon payment due on August 25, 2000. Interest
and principal payments will commence on February 25, 1997. The installment
payments and the subordinated note are subordinated to the buyer's senior debt.
The cash received by the Company in the sale of the furnishings
business was used to reduce the Company's outstanding bank borrowings.
Simultaneously, the Company negotiated an amendment to its agreements with the
bank to provide a $6.0 million credit line facility through March 31, 1997. The
new facility is secured by an aggregate of $4.5 million letters of credit from
Safeguard Scientific (Delaware), Inc. ("Safeguard") through June 30, 1997. The
Company's financial restructuring in 1995 also included the contribution to the
capital of the Company of 2,000,000 shares of the Company's common stock by
Safeguard, previously the Company's majority shareholder. Safeguard
simultaneously sold an aggregate 2,500,000 shares of the Company's common stock
to officers of the Company. See Item 13. As a result, while Safeguard remains
the Company's largest shareholder, Safeguard's beneficial ownership of the
Company's common stock was reduced below 50%.
In 1995, the Company also sold its Canadian operation to Safeguard.
Safeguard sold this operation in February 1996, and the proceeds of the sale
were assigned to the Company. See Item 13.
<PAGE>
In 1995 the Company significantly downsized Maris' operations to
concentrating on the low voltage security and fire alarm business and selected
"smart highway" operations. Smart highway programs involve the integration and
installation of communications networks for automated traffic management
systems. In connection with this downsizing, Maris turned over to its surety
companies all of its bonded construction projects in progress. See Item 7. These
changes in Maris' business allowed Maris to achieve an operating profit in the
fourth quarter of 1995.
The Company's operations are now concentrated in Maris' non-bonded
projects and Airo Clean's air filtration business. The air filtration business
grew in 1995, particularly in the health care and hospital field. In 1995, the
Company acquired a new product line employing the Laminar Air Flow Patient
Isolation technology, which is a necessary component for bone marrow transplant
procedures.
Item 1(b). Financial Information about Industry Segments
Financial information about the Company's industry segments is
contained in footnote 16 to the Consolidated Financial Statements contained in
Item 14 below.
Item 1(c). Narrative Description of Business
SECURITY SYSTEMS
Products and Services
The Company, through its wholly owned subsidiary, Maris Equipment
Company, Inc. ("Maris"), provides low voltage electronic security systems to the
commercial and institutional markets. Products include fire alarm systems,
closed circuit television surveillance systems, card access security and alarm
monitoring systems, paging and intercom systems, hospital communications
systems, parking and revenue control systems and programmable logic controller
based central alarm and control systems. The Company no longer intends to pursue
large, bonded correctional facility and airport projects, and will no longer
provide correctional detention hardware, such as doors, security glazing and
access operating devices, to the correctional marketplace. Maris is also
pursuing a developing market--the "smart" highway program--which entails the
integration and installation of communications networks for automated traffic
management systems such as re-routing access lanes on bridges, tunnels and
superhighways as traffic patterns fluctuate throughout the day. Because the
"smart" highway projects are for state or federal transportation departments,
Maris may be required to provide surety bonds as a condition to winning these
jobs. It is likely that availability of bonding at Maris will be limited, at
best, in the near future. This may inhibit the rate of growth of the Company's
business in the "smart" highway program.
Patents and Proprietary Rights
The Company is qualified as an electrical or alarm contractor, where
required, in most of the Continental United States. Maris does not hold any
material patents or proprietary rights. In its role as an integrator, Maris
obtains proprietary products from vendors for integration and installation at
customers' facilities or on construction sites.
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<PAGE>
Marketing and Distribution; Contracting Practices
Maris has significantly reduced its marketing and sales staff in
accordance with its downsized business. The Company maintains a sales force in
its headquarters in Exton, Pennsylvania and in its regional office in Austin,
Texas. It also has satellite operations in San Antonio, Texas, New York City,
New York and Carson City, California.
Maris will focus on bidding for smaller projects involving new or
upgraded construction to electrical contractors and on providing proposals to
owners and building managers for new or upgraded systems. These bids and
proposals are generally made at a fixed price based on the specifications
provided by the contractor, owner or manager. Accurate estimation of the
Company's total cost to complete a project is therefore crucial to
profitability. The Company will no longer bid on large, bonded correctional
facility and airport projects or on any correctional facility projects which
require the provision or installation of detention hardware. These are the
projects which Maris has in the past experienced difficulties managing and
completing profitably. Maris typically provides the integration engineering,
assembly shop drawings and system start-up with its own staff of project
managers, engineers, computer aided design (CAD) operators and technicians.
As with any construction activities, there are risks associated with
the business. Cost overruns can occur from a variety of sources, including but
not limited to estimating errors, owner-initiated changes to system performance
or operation, unanticipated conditions at the installation site, delays in
collection of accounts receivable because of performance issues, delays caused
by other contractors which may cause the Company to be delayed and not be
compensated for such delay, and subjective assessment of system performance
compared to specifications. Maris and its subcontractors may submit change
orders for additional work or costs incurred beyond their control or beyond the
scope of the contract, but they are subject to approval. Working capital
requires active management for several reasons. Contracts frequently provide for
a retention of five percent or more of the total contract amount until
satisfactory completion of the contract. Maris retains comparable amounts from
its subcontractors, but often the subcontractors' work is completed before
Maris' work is completed. The timing and amounts of payments due to and from
Maris are often subject to dispute for the reasons described above resulting in
delays in collection of receivables and payment of payables. Maris attempts to
match the timing of payments to its subcontractors and vendors with payments
received from the general contractors or construction managers wherever
possible.
Design and Development; Product Availability; Inventory
As an integrator, Maris purchases proprietary products for integration
and installation at customer facilities or construction sites. The Company does
not manufacture, design or develop any of its systems. The Company is a party to
a number of distribution agreements with the major manufacturers of the systems
which it provides. The Company has negotiated purchasing terms with its major
suppliers to provide products for Maris' projects. The Company will continue to
negotiate terms with a wider variety of suppliers, some of whom have had the
Company on credit arrangements which were stricter than usual terms. The
Company's relationships with several different suppliers allows the Company to
provide the latest technology to its markets without the necessity of designing
and developing new products. The Company maintains only a sufficient amount of
inventory as may be necessary to provide materials for warranty service and
repairs.
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<PAGE>
Revenue Recognition and Backlog
The Company recognizes revenues on a percentage of completion basis.
Backlog consists of the uncompleted portion of the contracts. The backlog for
the security systems segment (excluding projects which have been turned over to
sureties) was approximately $6.8 million at December 31, 1995 as compared with
approximately $9.2 million at December 31, 1994. The Company anticipates that
approximately 91% of the backlog will be fulfilled during 1996. The remaining
backlog relates to performance under long-term service contracts.
Competition
The Company provides security systems to a variety of institutional
markets. In that marketplace, the Company competes with numerous local dealers
and factory direct operations. There are also numerous firms operating
nationally in the construction marketplace that provide electronic security
systems integration. Competition is based primarily on price, quality of work,
and ability to complete the work on time. The Company's recent financial
difficulties and limited ability to obtain bonding are a competitive
disadvantage in the institutional markets. Many large institutional projects
require the contractor to provide a completion bond. However, in the commercial
and industrial building markets, the Company believes that its personnel and the
depth of their knowledge are important competitive factors.
U. S. Government Sales and Dependence on Significant Customers
In the past, the Federal Bureau of Prisons had been a substantial
direct and indirect customer of Maris. In 1994, Maris generated revenues
constituting 13% of the Company's revenues from one federal correctional
facility project. Maris' contract on that project was with Omni Construction,
the general contractor for the project. However, the Company expects that it
will do very little work on federal or state correctional facilities in the
future. Maris has also performed in the past numerous large airport projects for
different customers, generally lasting not more than 12 months. These projects
had resulted in single customers accounting for significant portions of Maris'
revenues in any single year. Maris surety companies have taken over all of its
bonded correctional facility and airport jobs, and Maris does not intend to
perform any more large bonded correctional facility or airport projects for the
foreseeable future, although it may perform a number of smaller projects for a
single institutional customer. No single securities systems customer accounted
for more than 10% of consolidated revenues in 1995 and the Company does not
expect any single customer to account for 10% or more of the Company's
consolidated revenues in 1996. See Item 7 for a summary of sales and gross
margins for correctional facility and airport projects compared to other
projects.
Seasonality
The security systems business is not subject to any material seasonal
fluctuations.
AIR FILTRATION PRODUCTS
Products
The Company designs, manufactures and distributes through its wholly
owned subsidiary, Airo Clean, Inc. ("Airo Clean"), air filtration components and
systems which are used in a variety of industries which require particle-free,
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<PAGE>
ultra clean working environments, as well as patient isolation devices for
hospital and health care applications.
The two room-size cleanroom systems manufactured and distributed by the
Company are the UDF Perforated Ceiling System and the UltraGuard(R) HEPA/Fan
Module Ceiling System, both of which can be delivered prepackaged using standard
components or can be custom designed to meet precise client specifications. The
UDF Perforated Ceiling System provides mass air displacement for a more uniform
distribution of clean air throughout a cleanroom environment and other
critically controlled areas. The UltraGuard HEPA/Fan Module Ceiling System is a
pressurized plenum system which utilizes a self-powered blower and HEPA filter
packaged together in one compact housing which can be installed in a suspended
ceiling grid.
The Company also manufactures and distributes several application
specific, modular cleanroom systems which are available in a number of
prepackaged sizes or can be customized to meet special requirements:
o The BioShield(TM) air filtration unit, a health care product
introduced late in 1993, is an air scrubbing product for controlling airborne
pathogens. The product is targeted for the health care industry. The BioShield
product meets or exceeds the Center for Disease Control guidelines for hospital
isolation rooms, which require a minimum of 6 air changes per hour. The
guidelines were issued during the fourth quarter of 1994. The Company expects
these guidelines to have a positive impact on BioShield sales, and is
aggressively promoting the product.
o The Microlab(R) portable cleanroom can be set up by one person and
operational within 30 minutes to provide Class 100 air for sanitized operations
such as animal studies, health care, hybrid electronics, and medical device
assembly. The Microlab unit's compact design fits through standard 36" doorways,
can be expanded by linking multiple units together where additional space is
required, and can be quickly moved to another location or folded and stored
until needed again.
o The CleanStation(R) single-pass softwall cleanroom is available in 15
sizes for Class 100, 1,000 or 10,000 air requirements and is designed for
customers with limited budgets requiring fast delivery and quick setup using
standard tools. The Flexi-Jet(TM) system is an economical solution that supplies
HEPA-filtered Class 100 air to a large area for industrial and institutional
applications that require minimal dust and other airborne contaminants. The
BioLock(R) is a portable, transparent clean air isolation enclosure used for
temporary isolation needs. The PureZone(TM) product is specifically targeted to
the commercial market and can be wall-mounted or retrofitted on existing
furniture systems.
o In the third quarter of 1995, the Company acquired the Laminar Air
Flow Patient Isolation product line. Laminar Air Flow Patient Isolation
technology is a necessary component for bone marrow transplant procedures. The
products consist of modular components which can be managed in varied
configurations to create a room environment providing patient isolation. The
evolution in design refinements stems from more than a quarter million patient
hours of experience. The Company assembles the components at its Exton facility
and the product is then disassembled and reconstructed in the on-site hospital
settings. The room air is HEPA-filtered continually to provide maximum levels of
cleanliness for the patient.
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<PAGE>
Patents and Proprietary Rights
The Company has a number of patents, patent applications, patent
licenses and trademarks with respect to various air filtration products. The
Company's issued patents and patent licenses expire between 2008 and 2011. The
Company believes that these patents and trademarks help differentiate the
Company's product offerings, but price and flexibility of product offerings are
equally important competitive factors.
Marketing and Distribution
The Company primarily conducts its sales and marketing activities for
its cleanroom and other indoor air quality products from its Airo Clean facility
located in Exton, Pennsylvania. The Company markets and sells these products to
a wide variety of end-users throughout the United States through a network of
independent dealers and manufacturers' representatives primarily located in the
eastern United States. Some of the dealers have exclusive rights to sell the
Company's air filtration products to specific markets in a defined territory, so
that a territory servicing different markets may have more than one dealer.
These dealers are paid commissions for product sales. Customers of cleanroom
products include a variety of manufacturing operations, including biomedical,
microelectronics, medical devices, pharmaceuticals, and the hospital and health
care markets.
The Company also has a distributor in Singapore which accounted for
approximately 18% of the sales of the air filtration products segment in 1995,
and approximately 19% in 1994.
The Company's marketing activities seek to demonstrate the unique
applications and quality of its products. These activities include distribution
of sales literature, on-site demonstrations, direct mail programs, advertising,
publication of articles in the trade press and participation in industry
conferences and trade shows.
Airo Clean's marketing efforts have been targeted primarily to
end-users and facility managers for use in manufacturing applications. However,
the Company anticipates expanding the marketing efforts for its air cleansing
devices to satisfy the increased demand for the prevention of infectious
contaminants in hospitals and for a variety of industrial applications.
Manufacturing
The Company's cleanrooms and indoor air quality products are
manufactured in Exton, Pennsylvania. This manufacturing operation consists
primarily of an assembly process and testing of finished products.
Raw Materials and Supplies
The Company's air filtration products include specific filters, blowers
and electronic components that are assembled with steel assemblies and cabinets
which constitute the majority of the products. Some of these items are custom
made for the Company and require coordination from qualified vendors to assure
availability of various electronic and steel assemblies. If any supplier should
terminate its relationship for any reason, the Company anticipates that it will
be able to develop, or obtain from other sources, substitute components without
sustaining any material adverse effects.
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<PAGE>
Backlog
The backlog for the air quality segment was approximately $2.4 million
at December 31, 1995, compared to approximately $1.4 million at December 31,
1994. The Company anticipates that this backlog will be fulfilled in 1996.
Backlog primarily represents firm accepted orders for air filtration
products. Although orders included in backlog may be canceled or rescheduled by
the customer, cancellations are uncommon and cancellation or restocking charges
may apply to a canceled order.
Seasonality
The air quality segment of the business is not seasonal.
Competition
The Company competes primarily in the hospital and health care segment
and the small to mid-size commercial and industrial applications segment of the
market for indoor air quality products. The Company's products are based on high
efficiency filtration systems, and are targeted at markets with strict air
purity requirements. There are a wide variety of companies providing services
similar to Airo Clean, and the market is very competitive. Competition is based
on price, ability of the products to satisfy specified air purity standards,
ability to customize products to meet specific customer needs, and reputation.
Management believes that the excellent long term reputation of Airo Clean and
its ability to provide customized solutions, combined with the growing number of
applications requiring air particle control, places the Company in a good
position to grow with the market and potentially improve its market share.
U.S. Government Sales and Dependence on Significant Customers
Airo Clean does not sell any material amount of products to the U.S.
government. Airo Clean has one distributor located in Singapore which sells
products in China and Southeast Asia, and which accounted for approximately 18%
of Airo Clean's total revenues in 1995. The loss of this distributor would have
a material adverse effect on Airo Clean's business. To the Company's knowledge,
no end user of Airo Clean's products accounted for over 10% of the Company's
consolidated revenues in 1995. Airo Clean has one contract to provide cleanroom
systems to a domestic company which may account for as much as 14% of the
Company's consolidated revenues in 1996.
EMPLOYEES
As of December 31, 1995, the Company had 99 employees engaged in its
continuing operations, excluding certain individuals who are employed by Maris
but are exclusively assisting the surety companies in completing jobs taken over
by them, and who are being funded by the surety companies. None of the Company's
employees is represented by a labor union. The Company considers its employee
relations to be good and has never experienced any work stoppages.
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<PAGE>
Item 1(d). Financial Information About Foreign and Domestic Operations
and Export Sales
The Company has sold all of its foreign operations. The Company's air
filtration products segment had approximately $.9 million of export sales
through a distributor in Singapore in 1995 and approximately $.8 million through
this distributor in 1994. These sales are dollar-denominated. The security
systems segment does not have any export sales.
Item 1(e). Directors and Executive Officers of Registrant
Information about the Company's executive officers and directors can be
found in Part III of this report under "Item 10. Directors and Executive
Officers of Registrant."
Item 2. Properties
The Company's continuing operations are conducted primarily at its
headquarters facility in Exton, Pennsylvania, where its executive offices are
located. This facility occupies approximately 21,580 square feet of space. This
space is leased from Safeguard, and the Company and Safeguard have executed a
three year lease, commencing April 1, 1996 providing for a monthly rental of
$12,588 and a monthly operating expense allowance of $4,784, which expense
allowance is subject to adjustment. See Item 13. The Company believes that the
headquarters facility will be adequate for its present and anticipated purposes.
The Company also leases sales and support offices in Austin, Texas and Los
Angeles, California.
The Company continues to be obligated under a lease for approximately
2,900 square feet of office space in London, England which runs through
September 2013. The Company is negotiating with the landlord to terminate that
lease.
Item 3. Legal Proceedings
Maris is a named party to certain pending law suits relating to certain
of Maris' security system installation projects. In connection with Maris'
settlement with its surety companies, the surety companies have assumed all
liabilities and all claims and counterclaims in respect of these law suits, and
the surety companies have agreed to release Maris from its indemnity obligations
to them.
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's results of operations, liquidity, or
consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Stockholders (the
"Meeting") was held on August 24, 1995.
(b) At the Meeting, each of the nominees for director,
George E. Mitchell, Anthony A. Nichols and Richard P.
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<PAGE>
Richter were elected to the Board of Directors by the
affirmative vote of 8,894,757 shares, with 0 voting
against and 0 abstentions or withheld votes.
(c) In addition to the election of directors, at the
Meeting:
(i) The stockholders approved a proposal to
amend the Company's 1993 Stock Option Plan
to increase the number of shares of Common
Stock which may be issued upon exercise of
options granted or to be granted from
500,000 to 1,200,000; and
(ii) The stockholders adopted a proposal to
approve the sale of the Company's
furnishings business. This transaction is
described in the Company's current Report on
Form 8-K dated August 25, 1995.
Each of the above proposals was approved by the affirmative
vote of 8,894,757 shares, with 0 voting against the proposal,
and 0 abstentions.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
As of May 4, 1995, the Company's common stock was delisted from the
NASDAQ small-cap market. Since that date, there has been no established public
trading market for the common stock. The Company's common stock continues to be
quoted by a limited number of market makers on the NASD Electronic Bulletin
Board under the symbol "CCOR." There can be no assurance that there will be
regularly available quotations from market makers in the Company's common stock
in the future. The following are the high and low bid quotations for the
Company's common stock as quoted by NASDAQ through the second quarter of 1995
prior to delisting from NASDAQ, and as quoted on the Electronic Bulletin Board
for the third and fourth quarter of 1995.
1995 1994
High Low High Low
---- ---- ---- ----
First Quarter $.44 $.22 $1.38 $.75
Second Quarter .34 .06 1.38 .81
Third Quarter .48 .19 .88 .56
Fourth Quarter .28 .06 .56 .38
The above bid quotations reflect inter-dealer prices without mark-ups,
mark-downs or commissions and may not necessarily represent actual transactions.
There were 336 record holders of the Company's Common Stock on March
20, 1996. The Company has historically reinvested any earnings in the growth of
the business and has not paid cash dividends on its common stock.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
====================================================================================
(In thousands, except per
share amounts) 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Net sales $ 17,663 $ 31,245 $ 15,242 $ -- $ --
- ------------------------------------------------------------------------------------
Net earnings (loss)
- ------------------------------------------------------------------------------------
Continuing operations 52 (10,392) (113) -- --
- ------------------------------------------------------------------------------------
Discontinued operations (1,745) (703) 989 282
- ------------------------------------------------------------------------------------
Disposition of
discontinued operations 100 (3,303) -- -- --
-------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------
Net earnings (loss) 152 (15,440) (816) 989 282
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Earnings (loss) per share
- ------------------------------------------------------------------------------------
Continuing operations $ .01 (1.00) (.01) -- --
- ------------------------------------------------------------------------------------
Discontinued operations -- ( .17) (.07) .09 .03
- ------------------------------------------------------------------------------------
Disposition of
discontinued operations .01 ( .31) -- -- --
-------- -------- -------- -------- -------
- ------------------------------------------------------------------------------------
Net earnings (loss) $ .02 (1.48) (.08) .09 .03
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Working capital 933 (11,379) 3,947 -- --
- ------------------------------------------------------------------------------------
Total assets 9,681 16,691 34,571 16,014 17,773
- ------------------------------------------------------------------------------------
Long-term debt 5,744 -0- 9,939 4,451 6,393
- ------------------------------------------------------------------------------------
Redeemable Convertible
Preferred Stock 1,500 1,500 -- -- --
- ------------------------------------------------------------------------------------
Stockholders' equity
(deficit) (4,229) (4,425) 10,236 11,078 10,667
====================================================================================
</TABLE>
Discontinued operations includes the furnishings segment and Nord Systems. No
cash dividends have been declared on common stock. Prior to 1993, the
furnishings segment constituted substantially all of the Company's operations.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
In 1995 the Company significantly downsized the Maris Equipment Company
("Maris") business by concentrating on the low voltage security and fire alarm
business and selected smart highway applications. The majority of net sales in
1994 represented bonded correctional facility and airport projects that the
Company has not pursued in 1995.
Due to declining furniture sales, particularly to the Federal
government, the Company decided in 1994 to dispose of the furnishings segment.
On August 25, 1995 the Company completed the sale of the assets of the domestic
furnishings segment, including Corel Corporate Seating, for cash and notes
receivable. The Company has applied the proceeds from the sale to pay down its
bank debt. The Company has a tentative agreement to sell the UK furnishings
business. The Canadian operation was sold to Safeguard Scientifics, Inc. in
April 1995. Accordingly, the furnishings segment has been presented as a
discontinued operation.
In connection with the above described sale of the Company's
furnishings segment, the Company changed its name to Core Technologies
(Pennsylvania), Inc. This name change was approved by the stockholders of the
Company at the 1994 Annual Meeting.
In September 1995, Safeguard Scientifics (Delaware), Inc. ("Safeguard")
contributed to the capital of the Company 2,000,000 shares of the Company's
Common Stock and sold 2,500,000 shares of Common Stock to management. Prior to
the above transactions, Safeguard was the beneficial owner of 67% of the
Company's outstanding Common stock. Subsequent to the above transactions,
Safeguard became the beneficial owner of 36% of the Company's outstanding Common
Stock. The above information regarding Safeguard's beneficial ownership of the
common stock assumes conversion of the 15,000 shares of the Company's
Convertible Preferred Stock which are convertible by Safeguard into 1,500,000
shares of Common Stock.
Continuing operations reflect the results of the on-going businesses of
Maris and Airo Clean. Because of the disposition of the furnishings segment and
the change in the focus of the business, comparisons from year to year are not
necessarily meaningful.
Review of continuing operations
Net sales were $17.7 million in 1995, $31.2 million in 1994 and $15.2
million in 1993. The Company reported net earnings from continuing operations of
$51,600 in 1995, a net loss of $10.4 million in 1994 and a net loss of $113,200
in 1993. The Company also reported a gain of $100,000 in 1995, a loss of $5.0
million in 1994 and a loss of $703,000 in 1993 from discontinued operations.
Gross margins, as a percentage of sales, were 24.9% in 1995, (4.6%) in 1994 and
17.4% in 1993. The negative gross margin in 1994 reflects the losses incurred by
Maris due to cost over runs on the larger bonded correctional facility and
airport projects.
Maris sales were $13.0 million in 1995, $27.2 million in 1994 and
$12.5 million in 1993. The sales in 1994 included $16.2 million of bonded
correctional facility and airport projects which were subsequently turned over
to the bonding companies. The sales increase in 1994 reflects the inclusion of
Maris operations for the entire year in 1994 compared to 1993 which included the
operating results subsequent to its September 1993 acquisition. Gross margins as
a percentage of sales at Maris were 23.1% in 1995, (8.4%) in 1994 and 15.9% in
-12-
<PAGE>
1993. The negative gross margin in 1994 reflects losses incurred to complete
fixed-fee major correctional facility and airport projects in process at the
time of the September 1993 Maris acquisition. In 1994, the Company recorded a
provision for losses on transferring the contracts to the surety companies of
$4.0 million, more fully discussed in note three to the financial statements.
The Company has ceased bidding on correctional facility and airport
projects. The following table summarizes correctional facility and airport
revenues and margins compared to all other revenues and margins for 1995, 1994
and for approximately three months subsequent to the Maris acquisition in 1993:
(In Thousands) Correctional Facility and Airport All Other
--------------------------------- ---------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Net Sales - $16,185 $ 9,162 $12,987 $10,993 $ 3,353
Cost of goods sold - 19,763 7,821 9,982 9,689 2,705
Gross margin % - (22.1%) 14.6% 23.1% 11.9% 19.3%
of sales
Airo Clean sales were $4.7 million in 1995, $4.1 million in 1994 and
$2.7 million in 1993. The increased sales in 1994 compared to 1993 reflected
increased product sales and the inclusion of Airo Clean for twelve months
compared to eleven months in 1993. Gross margin, as a percentage of sales,
increased to 29.9% in 1995 compared to 20.9% in 1994 and 24.2% in 1993. Airo
Clean's improved margins in 1995 can be attributed to selectively increasing its
selling prices, improved manufacturing efficiencies, and obtaining price
concessions from its vendors. Lower margins in 1994 compared to 1993 can be
attributed to increased sales discounts on several large export sales.
Marketing efforts at Airo Clean have been focused on promoting the
BioShield and Ultraguard products which are air scrubbing devices for
controlling airborne pathogens and targeted for the health care industry. In the
third quarter 1995, Airo Clean acquired the laminar air flow patient product
line from Isolation Technology Systems, a provider of sterile cleanroom products
to the health care and hospital industries. Laminar air flow patient isolation
is a necessary component of bone marrow transplant procedures, and Airo Clean
will use this new product line to enhance its offering to the hospital and
health care markets.
Sales and marketing expenses were $1.7 million in 1995, $3.3 million in
1994 and $1.2 million in 1993. These costs, as a percentage of sales, were 9.5%,
10.6% and 7.8% in 1995, 1994 and 1993, respectively. These costs decreased $1.6
million in 1995 due to cost reductions implemented at Maris and Airo Clean.
These costs increased $2.1 million in 1994 compared to 1993 primarily due to the
inclusion of Maris operations subsequent to its September 1993 acquisition.
Sales efforts at Maris are being concentrated in expanding the electronic
security systems business to take advantage of the Company's expertise and the
higher profit potential.
General and administrative expenses were $2.2 million in 1995, $4.5
million in 1994 and $1.5 million in 1993. These costs, as percentage of sales,
-13-
<PAGE>
were 12.4% in 1995, 14.4% in 1994 and 9.9% in 1993. The absolute dollar decrease
of $2.3 million in 1995 from 1994 reflects staff reductions and salary freezes
implemented at Maris and Airo Clean. The absolute dollar increase of $3 million
in 1994 from 1993 reflects the acquisition of Maris. The Company continues to
closely monitor and control costs and believes that additional sales can be
achieved without a proportional increase in business infrastructure.
During 1994 the Company restructured its security business which
resulted in a charge of $2.2 million in the statement of operations, more fully
described in note three to the financial statements.
Interest expense was $692,100 in 1995, $593,400 in 1994 and $116,200 in
1993. The increase in 1995 reflects the higher average debt level before the
reduction in debt due to sale of the furnishings segment of the Company and an
increase in the average interest rate. The increase in 1994 compared to 1993
primarily reflects additional debt incurred to finance the Maris acquisition and
to fund losses.
The income tax benefit of $220,700 in 1995 and $1.7 million in 1994
principally reflects the benefit of recoverable U.S. income taxes as a result of
losses incurred. In addition, the Company has generated an operating loss
carryforward of approximately $7.3 million that may be used in future years to
offset taxable income until the year 2010, as more fully described in note
twelve to the financial statements.
Backlog as of December 31, 1995 was $6.8 million at Maris and $2.4
million at Airo Clean. Backlog as of December 31, 1994 was $9.2 million at Maris
and $1.4 million at Airo Clean. Backlog as of December 31, 1993 was $4 million
at Maris and $2 million at Airo Clean. Maris backlog excludes correctional
facility and airport projects.
Liquidity and Capital Resources
In August 1995, the Company successfully negotiated an amendment to its
existing bank credit agreement which provides a $6.0 million credit line
facility through March 31, 1997. Under this facility, Safeguard has provided
guarantees of $4.5 million in the form of letters of credit through June 30,
1997. Borrowings bear interest at prime plus 1 1/4%. The Company believes that
the combination of Safeguard's letters of credit and the working capital assets
of the on going business will be sufficient to satisfy or support the bank debt.
As of March 15, 1996 outstanding borrowings under the credit facility were $5.1
million.
In August 1995 as a result of the sale of the furnishings segment, $2.3
million cash consideration was applied to reduce the Company's outstanding bank
borrowings. In addition to the cash consideration at close, the Company received
an aggregate of $1.7 million in installment payments due in 1996 and a $2.0
million Subordinate Note which bears interest at a rate of 8% per annum,
commencing August 25, 1996. The principal amount of the Subordinate Note will be
amortized on a seven-year level schedule with semi-annual payments and a balloon
payment due on August 25, 2000. Interest and principal payments on the
Subordinate Notes will commence February 25, 1997. The 1996 installment payments
have been reduced by $847,000, the amount of accounts receivable uncollected 120
days after closing plus a collection fee of $50,000. However, the Company
expects to substantially collect these receivables in 1996 and, through March 1,
1996, approximately $340,000 of these receivables had been collected by the
Company.
-14-
<PAGE>
The Company has entered into an agreement with the parties from whom it
acquired Maris, which significantly restructured the original purchase
transaction. Under this agreement the seller has agreed to offset its $3.6
million note receivable from the Company in exchange for releases from its
indemnification liabilities to the Company under the original asset purchase
agreement. The principal sureties have released the Company from its indemnity
obligations under certain construction projects in return for 300,000 shares of
Core Technologies stock, cash payments of $487,000 and additional payments of up
to $1 million in the aggregate equal to 20% of Maris' net earnings in 1998-2002.
The Company has negotiated terms with its principal vendors to supply the
materials needed to meet current requirements.
Safeguard has made cash advances to the Company totaling $887,000 to
cover the closing costs of the sale of the furnishings segment and the cash
payments to the sureties. Safeguard is not contractually obligated to satisfy
any of the Company's obligations with the exception of the $4.5 million of
letters of credit used as collateral for the Company's bank credit facility.
As a result of the restructurings, the Company has emerged as a
significantly downsized company. Availability of bonding on jobs will, at least
in the near term, be limited. Bank financing is available for limited working
capital requirements. If these sources of funds prove to be inadequate or in the
case of bank financing, unavailable, then the Company will have to seek
additional funds from other investors in order to continue operations. There can
be no assurance that new sources of funds, if required, will be available. The
Company believes it will be able to continue to operate in this downsized mode
and continues to focus on management of receivables to minimize the need to
utilize availability under the credit facility.
Capital expenditures in 1995 were $182,900, $113,500 in 1994 and $2,500
in 1993. The 1995 expenditures were primarily used to upgrade computer systems
in Maris and Airo Clean. Capital expenditures for 1996 are projected at
approximately $100,000 with no formal commitments as of December 31, 1995.
Item 8. Financial Statements
The consolidated financial statements and schedules appear at the end
of this report beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-15-
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
Executive Officers:
The following persons were executive officers of the Registrant at
March 28, 1996:
Has Been an
Officer
Name Age Since Position
- ---- ---- ------- ---------
George E. Mitchell 58 1984 President, Chairman and
Chief Executive Officer
Frederick B. Franks, III(1) 56 1989 Vice President-Finance, Chief
Financial Officer, Treasurer and
Secretary
Michael Pelosi III(2) 38 1994 President, Airo Clean, Inc.
(1) Mr. Franks joined the Company in May 1989. From March 1981 to April
1989, Mr. Franks served as Vice President-Finance and Chief Financial
Officer of Ferag, Inc., a manufacturer of newspaper material handling
equipment.
(2) Mr. Pelosi joined Airo Clean in 1981, and became Sales and Marketing
Director in 1985. He was appointed President in 1989.
-16-
<PAGE>
Directors:
<TABLE>
<CAPTION>
Has Been
Principal Occupation and Business a Director
Name Experience During Last Five Years Since Age
---- --------------------------------- ------- ---
<S> <C> <C> <C>
George E. Mitchell President, Chairman and Chief Executive
Officer of the Company 1984 58
Anthony A. Nichols President, The Nichols Company, which owns,
manages, and leases commercial office and
industrial space(1)(2) 1988 56
Richard P. Richter President Emeritus, Ursinus College(1)(3)(4) 1989 65
W. Wayne Dunlop Executive Vice President and Chief Operating 1995 49
Officer, Barclay White, Inc., a general
construction contracting and management
firm(5)
</TABLE>
- ------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Stock Option Committee.
(4) Prior to January 1, 1995, Mr. Richter was President of Ursinus College.
(5) Mr. Dunlop has been Chief Operating Officer of Barclay White since
September 1995 and Executive Vice President since September 1994. Prior
to September 1994 he was a Senior Vice President of Barclay White.
Disclosure of Delinquent Filers Pursuant to Item 405 of Regulation S-K:
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities ("10%
Stockholders") to file reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company with the Securities and
Exchange Commission ("SEC"). Officers, directors and 10% Stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it and written representations from certain reporting persons that
no other reports were required for those persons, the Company believes that
during the period from January 1, 1995 to December 31, 1995, all Section 16(a)
filing requirements applicable to its officers, directors and 10% Stockholders
were complied with, except for one late Form 4 filed by Mr. Franks.
-17-
<PAGE>
Item 11. Executive Compensation
REPORT OF THE BOARD COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee")
determines compensation levels, including incentive compensation, for the
executives of the Company. Anthony A. Nichols is presently serving as the sole
member of the Compensation Committee. Charles A. Root was a member of the
Compensation Committee until his resignation from the Board of Directors in
April 1995.
Executive Compensation Policies
The Company was and is in a highly competitive industry. In order to
succeed, the Company believes that it must be able to attract and retain
qualified executives, promote among them the economic benefits of stock
ownership in the Company, and motivate and reward executives who, by their
industry, loyalty and exceptional service, make contributions of special
importance to the success of the business of the Company. The Company has
structured its executive compensation program to support the strategic goals and
objectives of the Company.
Base compensation levels and benefits for executives generally had been
set in previous years to be between the lower end and the midpoint of the scale
of compensation paid by comparable companies in the Company's principal
industry. Conversely, incentive programs were regarded to be above the midpoint
of the scale in the industry. In pursuing this philosophy, the Company believed
it could keep the fixed component of the compensation package at reasonable
levels while incenting its key executives and managers to achieve better than
average results. Therefore, the total cash compensation plan is made up of a
lower base and higher incentive opportunity which in total would be competitive
with comparable companies in the industry if the Company's objectives are
achieved. For the purpose of establishing these levels, the Company had reviewed
an evaluation by an independent compensation consultant of various published
industry salary surveys. In setting executive compensation packages for 1994 and
1995, the Committee considered an evaluation of executive compensation levels
for comparably-sized companies in the electrical contracting industry, rather
than in the office furnishings industry.
Annual cash bonuses are based on return on assets and individual
performance. At the beginning of each year, the Committee approves a target
range of return on assets, and a range of potential bonus amounts for the chief
executive officer and each other executive officer, stated as a percentage of
base salary. Performance bonuses are awarded at year-end based on the actual
return on assets compared to the target range of return on assets, and the
achievement of individual objectives and individual contributions during the
year to the achievement by the Company of its financial and strategic objectives
as set forth in the Company's annual strategic plan.
Grants of Company stock options are intended to align the interests of
executives and key employees with the long-term interests of the Company's
stockholders, and to encourage executives and key employees to remain in the
Company's employ. Generally, grants are not made in every year, but are awarded
subjectively based on a number of factors, including the pre-tax operating
earnings of the Company, the individual's contributions to the achievement of
the Company's financial and strategic objectives, and the amount and remaining
term of options already held by an individual. The Stock Option Committee of the
Board administers the Company's stock option plan. In 1995, options for 50,000
shares were granted to Michael H. Pelosi, III. See "Stock Options," below.
-18-
<PAGE>
CEO Compensation
In 1994, the Compensation Committee authorized an increase in Mr.
Mitchell's base salary to $140,000. However, based on the Company's performance
during the first quarter and its cash flow problems, in April 1994, Mr. Mitchell
initiated a 16% reduction in his salary in order to conserve Company resources.
Mr. Mitchell continued to draw base salary at this reduced level in 1995. A
payment of $25,000 was made to Mr. Mitchell in March, 1996, to partially
compensate him for the salary foregone in 1994 and 1995. Since the Company
failed to achieve the established target range of return on assets during 1994
and 1995, no bonus was paid for 1994 or 1995 to Mr. Mitchell.
Other Executive Compensation
The Compensation Committee re-set executive salaries for 1994 for
certain executives based on its review of executive compensation in the
electrical contracting industry. Mr. Pelosi's compensation is governed by a
five-year employment agreement, and his salary was not adjusted. However, based
on the Company's performance during the first quarter and its cash flow
problems, in April and May 1994, all executives accepted salary reductions in
order to conserve Company resources. Since the Company failed to achieve the
established target range of return on assets during 1994, no bonuses were paid
to any of the Company's executive officers for 1994. Mr. Pelosi (but no other
executive officers) received a bonus in 1995. Mr. Franks received a payment in
March, 1996, to compensate him for salary foregone in 1994 and 1995.
By the Compensation Committee:
Anthony A. Nichols
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers
The following table sets forth information concerning compensation paid
to the Chief Executive Officer and to each other person who was an executive
officer of the Company at any time during 1995 and whose salary and bonus
exceeded $100,000 in 1995.
-19-
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
---------------------------------------------------------------------------
Awards
---------------------
Securities
Other Annual Underlying All Other
Compensation Options/ Compensa-
Name and Principal Position Year Salary ($)(1) Bonus ($) ($)(2) SARS (#) tion ($)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
George E. Mitchell, (4) 1995 $142,600 $ 0 $17,733 0 $32,106
President, Chairman and 1994 125,354 0 13,816 0 33,787
Chief Executive Officer 1993 130,001 0 13,350 0 36,084
- ----------------------------------------------------------------------------------------------------------------------------------
Michael H. Pelosi III, (5) 1995 $ 99,801 $ 5,465 $ 0 50,000 $37,500
President, Airo Clean, Inc. 1994 93,461 0 0 0 37,500
- ----------------------------------------------------------------------------------------------------------------------------------
Frederick B. Franks, III (4) 1995 $108,154 $ 0 $11,194 0 $17,587
Vice President-Finance 1994 92,154 0 7,491 0 17,747
and Chief Financial Officer 1993 90,194 0 6,497 0 18,074
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes annual compensation which has been deferred by the named
executives pursuant to the Company's 401(k) Tax Deferred Retirement and
Incentive Plan ("401(k) Plan").
(2) Represents amounts reimbursed during the fiscal year for the payment of
taxes. Perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of any executive officer's salary and bonus
and accordingly have been omitted from the table as permitted by the
rules of the Securities and Exchange Commission.
(3) The stated amounts for fiscal 1995 include the following amounts for
each named executive officer: Company contributions under the 401(k)
Plan -- Mr. Mitchell, $0; Mr. Pelosi, $0;; term life and disability
premiums -- Mr. Mitchell, $25,525; Mr. Pelosi, $0; Mr. Franks, $13,901;
current dollar value of benefits to the named executives of the
remainder of split-dollar premiums paid by the Company -- Mr. Mitchell,
$6,581; Mr. Pelosi, $0; Mr. Franks, $3,686; residual salary payments
agreed to in connection with acquisition -- Mr. Mitchell, $0; Mr.
Pelosi, $37,500; Mr. Franks, $0.
(4) Includes salary adjustment paid on March 15, 1996 to: Mr. Mitchell,
$25,000 and Mr. Franks, $16,000.
(5) Mr. Pelosi was elected as an executive officer of the Company in
mid-1994.
-20-
<PAGE>
Stock Options
The following table sets forth information with respect to the number
of unexercised options and the value of unexercised in-the-money options at
December 31, 1995.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying
Shares Unexercised Value of Unexercised
Acquired Options/SARs at Fiscal Year-End in-the-Money Options/SARs
on (#)(1) at Fiscal Year-End ($)(1)
Exercise Value
Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
George E. Mitchell 0 $ 0 0 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Michael H. Pelosi III 0 $ 0 42,500 52,500 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
Frederick B. Franks III 0 $ 0 80,000 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On December 29, 1995, the fair market value was $.2344. No options
were in-the-money on that date.
During Fiscal Year 1995, Mr. Pelosi was granted options to purchase
50,000 shares of the Company's common stock under the Company's 1993 Stock
Option Plan. These options were issued at the market price on the date of grant,
expire seven years after the date of grant, and vest in twenty-five percent
increments annually beginning one year from the date of grant. No options were
granted to the Company's Chief Executive Officer or any other named executive
officer in 1995. The following table sets forth certain information regarding
the options granted to Mr. Pelosi in 1995:
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
===================================================================================================================================
Potential Realizable Value
at Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
===================================================================================================================================
% of Total
Number of Options/
Securities SARs Exercise
Underlying Granted to or Base Fare
Options/SARs Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael H. Pelosi, III 50,000 7.6% $.375 8/24/02 $7,633 $17,788
===================================================================================================================================
</TABLE>
- ------------
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
In connection with the acquisition of the assets of Airo Clean
Engineering, Inc. in 1993, Airo Clean, Inc. entered into a five-year employment
agreement with Michael H. Pelosi III providing for his employment through
February 1, 1998 as President of Airo Clean, Inc. at a minimum base salary of
$100,000 per year. Mr. Pelosi has also received residual salary payments agreed
to in connection with the acquisition of $37,500 per year, terminating after
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<PAGE>
1996. The agreement also provided for Mr. Pelosi to receive an incentive payment
each year equal to 3.75% of Airo Clean's net income, before allocated expenses
and taxes, in excess of $150,000 per year. Airo Clean did not achieve this
target in 1994, and consequently Mr. Pelosi did not receive any incentive
payment for 1994. In May 1994, in recognition of the Company's liquidity
problems, Mr. Pelosi accepted a temporary salary reduction for the balance of
1994 in order to conserve Company resources. In 1995, Airo Clean did achieve its
target and Mr. Pelosi received a bonus of $5,465. Upon the termination of Mr.
Pelosi's employment for reasons other than just cause or voluntary resignation,
he will be entitled to receive an amount equal to his base salary for the
balance of the term of the agreement. Pursuant to this agreement, Mr. Pelosi has
agreed to refrain from competing with the Company until the earlier of February
1, 1998 or two years after the termination of his employment.
-22-
<PAGE>
STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
the Company's Common Stock for the period December 31, 1990 through December 31,
1995 with the cumulative total return on the NASDAQ Index and the cumulative
total return for a peer group index for the same period. Because the Company has
discontinued its furnishings operations, the Company has selected as a new peer
group SIC Code 1731--Electrical Contractors, which is the primary industry in
which the Company is continuing to operate.
[GRAPHIC OMITTED]
As required by the rules of the Securities and Exchange Commission, the
chart below compares the cumulative stockholder return on the Company's Common
Stock with the cumulative total return on the NASDAQ Index and the peer group
used in the chart presented in the Company's 1994 proxy statement. The peer
group in this chart consists of SIC Code 252--Office Furniture.
[GRAPHIC OMITTED]
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<PAGE>
Each of the above charts assumes that $100 was invested on December 31, 1989 in
the Company's Common Stock and in each of the comparison groups, and assumes
reinvestment of dividends.
Directors' Compensation
Directors are elected annually and hold office until their successors
are elected and have qualified or until their earlier resignation or removal.
Directors who are not employees of the Company or Safeguard Scientifics, Inc.
are paid a quarterly fee of $1,000 and $400 for each Board meeting attended,
including committee meetings attended on a date other than a Board meeting date.
The Company also maintains a stock option plan for Non-Employee
Directors (the "Directors' Plan") which provides for the grant of options to
directors not otherwise employed by the Company, its parent or any of its
subsidiaries ("Eligible Director"). Each Eligible Director receives, as of the
date such person first becomes an Eligible Director, an option to purchase 5,000
shares of the Company's Common Stock at an option exercise price equal to the
fair market value of the Common Stock on the date of grant. All options granted
under the Directors' Plan vest in four equal annual installments beginning on
the first anniversary of the date of option grant and have a term of seven
years. During 1995, Mr. Nichols and Mr. Richter were each granted options for
5,000 shares of the Company's common stock exercisable at $.375 per share. No
options were exercised by any Eligible Director during 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 1, 1996, the Company's
Common Stock beneficially owned by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, and the number
of shares of Common Stock owned beneficially by each director, by each named
executive officer, and by all executive officers and directors as a group. In
addition to the information regarding the Company's Common Stock listed below,
as of March 1, 1996, there were 15,000 Series A Shares issued and outstanding.
All of such Series A Shares are owned of record by Safeguard Scientifics
(Delaware), Inc., a wholly owned subsidiary of Safeguard Scientifics, Inc.
("Safeguard"), and consequently are beneficially owned by Safeguard.
-24-
<PAGE>
Number of Percent of
Shares Owned(1) Class
-------------- ----------
Safeguard Scientifics (Delaware), Inc. (2)..... 3,744,757 36.05%
103 Springer Building
3411 Silverside Road
Wilmington, DE 19803
Philip J. Donnelly ............................ 833,333 9.38%
110 Summit Drive
Exton, PA 19341
George E. Mitchell (3)......................... 1,484,584 16.7%
110 Summit Drive
Exton, PA 19341
Frederick B. Franks (4) ....................... 918,333 10.18%
110 Summit Drive
Exton, PA 19341
W. Wayne Dunlop .............................. -0- *
Anthony A. Nichols ............................ 24,688 *
Richard P. Richter (4)......................... 5,100 *
Michael H. Pelosi III(4)....................... 55,000 *
Officers and directors
as a group (6 persons)(5)................... 3,321,038 36.8%
- --------------------------------
(*) Less than 1%.
(1) Except as otherwise disclosed, the nature of beneficial ownership is
the sole power to vote and to dispose of the shares (except for shares
held jointly with spouse). 233,334 shares owned by Mr. Mitchell, and
233,333 shares each held by Mr. Franks and Mr. Donnelly, are redeemable
by the Company to satisfy exercises of employee stock options. See Item
13.
(2) Safeguard Scientifics (Delaware), Inc. is the record owner of 2,244,757
shares of Common Stock and 15,000 Series A Shares, which are presently
convertible into 1,500,000 shares of Common Stock. Such shares are
beneficially owned by Safeguard. All of the shares beneficially owned
by Safeguard have been pledged by Safeguard as collateral in connection
with its bank line of credit.
(3) Includes 300,000 shares of Common Stock held by Mr. Mitchell's spouse.
(4) Includes for Messrs. Franks, Richter and Pelosi 80,000, 5,000 shares
and 45,000 shares, respectively, which may be acquired pursuant to
stock options which are currently exercisable or which will become
exercisable by May 28, 1996.
(5) Includes 130,000 shares which may be acquired pursuant to stock options
which are currently exercisable or which will become exercisable by May
28, 1996. Includes, for purposes of this table, shares owned by Mr.
Donnelly, a Vice President of the Company. The Company has not
designated Mr. Donnelly as a policy-making executive officer for
purposes of Section 16 of the Exchange Act of 1934 and the regulations
thereunder.
-25-
<PAGE>
Item 13. Certain Relationships and Related Transactions
Prior to 1995, the Company and Safeguard were parties to an
administrative services agreement pursuant to which Safeguard provided the
Company with administrative support services for an annual fee and the
reimbursement of certain out-of-pocket expenses incurred by Safeguard in
performing services under the agreement. The administrative support services
included consultation regarding the Company's general management, investor
relations, financial management, human resources management, certain legal
services, insurance programs administration, and tax research and planning. In
connection with the Company refinancing its bank credit facility in March, 1994,
the maximum annual administrative services fee was reduced to $300,000,
retroactive to January 1, 1994 and was subordinated to the bank loan. The
Company paid administrative services fees of $83,333 to Safeguard and accrued
the remaining fees of $216,667 in 1994. The administrative services agreement
was terminated in 1995 and no payments were made in 1995. However, Safeguard
provided certain administrative services to the Company at no charge in 1995.
The Company rents 21,580 square feet of office space used as its
headquarters in Exton, Pennsylvania from Safeguard. From April 1, 1995 through
April 1, 1996, this facility was leased on a month to month basis with monthly
rental payments of $11,539 and a monthly operating expense allowance of $4,784,
which expense allowance is subject to adjustment based upon the Company's
proportionate share of actual operating expenses. The Company and Safeguard have
executed a three year lease, effective April 1, 1996, which provides for a
monthly rental of $12,588, and continues the previous arrangement with respect
to operating expenses. The Company also is responsible for its proportionate
share of utility charges and insurance for each of the leased premises. The
Company intends to retain this facility as its corporate headquarters. The
Company believes the lease terms are no less favorable than could be obtained
from an unrelated third party.
Prior to April 1, 1995, the Company also rented 4,600 sq. feet of
office space in Exton, Pennsylvania from Safeguard. The Company paid monthly
rental to Safeguard of $3,067 per month and an operating expense allowance of
$1,303 per month prior to the termination of the lease. All amounts paid to
Safeguard under the lease for this property have been charged to discontinued
operations on the Company's financial statements.
In September 1993, Safeguard loaned $1.1 million to the Company on a
subordinated, unsecured basis to partially finance the Company's acquisition of
Maris Equipment Company. In the fourth quarter of 1994, Safeguard contributed
this loan to the capital of the Company.
Safeguard currently has in place letters of credit in the aggregate
amount of $4,540,000 to guaranty the Company's bank loans through June 30, 1997.
Safeguard has guaranteed varying amounts of the Company's debt in the past.
Safeguard received no monetary compensation for the extension of these
guarantees. The Company has agreed to indemnify Safeguard against loss resulting
from the above described guarantees.
In June 1994, Safeguard purchased from the Company 15,000 shares of its
Series A Redeemable Convertible Preferred Stock ("Series A Shares") for an
aggregate purchase price of $1.5 million. The Series A Shares are convertible
into shares of Common Stock based on a conversion price of $1.00 per share of
Common Stock. The conversion price and number of shares into which the Series A
Shares may be converted are subject to anti-dilutive adjustments. The Series A
Shares are entitled to a 6% per annum dividend payable out of legally available
funds. Dividends which are not declared and paid will accumulate. No dividends
have been declared to date. Unpaid, undeclared cumulative dividends as of
-26-
<PAGE>
December 31, 1994 were $45,000. The Series A Shares are entitled to one vote for
each share of Common Stock into which such Series A Shares may be converted. The
Company may redeem the Series A Shares at any time after June 1, 1995 and must
redeem all outstanding Series A Shares on June 1, 2001.
In March 1995, the Company sold all of the capital stock of CenterCore
Canada Limited to Safeguard for $10,000. CenterCore Canada had an intercompany
liability to the Company of approximately $369,300, which liability survived the
stock sale. In February, 1996, Safeguard sold the assets of Safeguard Canada for
a cash payment of $100,000 U.S. plus contingent deferred payments equal to three
percent of the purchaser's annual consolidated revenues from all or any part of
the business or assets sold to the purchaser in the years 1996 through 2000, up
to a maximum aggregate of $100,000. The debt between CenterCore Canada and the
Company was satisfied by CenterCore Canada's assignment to the Company of the
cash proceeds and the rights to the contingent deferred payments.
Effective September 29, 1995, Safeguard contributed to the capital of
the Company 2,000,000 shares of the Company's common stock and sold to Mr.
Mitchell, Mr. Franks and Philip J. Donnelly, a Vice President of the Company, an
aggregate of 2,500,000 shares of the Company's common stock, at a price of $.10
per share, payable in the form of a five year, interest-bearing promissory note.
The promissory notes bear interest at a rate of 6.35% per annum and are payable
in full upon the maturity date, September 29, 2000. Each individual is required,
however, to prepay the outstanding balance to the extent of 25% of the proceeds
of any sale or other disposition of any of the shares purchased from Safeguard.
The parties estimated the fair market value of the shares to be $.10 as of the
date of issue, taking into account a discount for lack of liquidity, after the
common stock of the Company was delisted from NASDAQ.
Mr. Mitchell, Mr. Franks and Mr. Donnelly have entered into an
agreement with the Company pursuant to which they have deposited an aggregate of
700,000 of the shares acquired from Safeguard into escrow with the Company. The
Company may redeem these escrowed shares in order to satisfy exercises of
options under the Company's 1993 Stock Option Plan. The redemption price payable
by the Company will be equal to the exercise price payable by the individual
exercising the option. The Company issued options for 684,000 shares of its
common stock in August, 1995, at an exercise price of $.375 per share.
In 1995, Safeguard advanced $887,000 to the Company to cover closing
costs of the sale of the furnishings business and payments to Maris' sureties.
Repayment of these amounts are subordinated to the Company's bank obligations.
In connection with the Airo Clean acquisition in 1993, Airo Clean, Inc.
entered into a five-year employment agreement with Joseph P. Pelosi, the brother
of Michael H. Pelosi, III. The agreement provides for a minimum annual base
salary of $80,000, and provides for an incentive payment each year equal to
3.75% of Airo Clean's net income, before allocated expenses and taxes, in excess
of $150,000. During 1994, the Company paid Joseph Pelosi $80,000 plus normal
employee benefits.
Also in connection with the Airo Clean acquisition, Airo Clean entered
into a lease for approximately 15,300 square feet of flex office, warehouse and
assembly space in Exton, PA from Michael Pelosi, Jr. and Lucille Pelosi, who are
the parents of Michael H. Pelosi, III. The lease continues through December
2001. During 1995, Airo Clean paid $110,000 as rent to Mr. and Mrs. Pelosi, and
also paid all operating expenses for the leased premises. The Company has
consolidated Airo Clean's operations into the Company's headquarters facility,
and subletted the Airo Clean space. Through the remaining term of the lease, the
-27-
<PAGE>
rental paid by the sublettor will be $128,000 less than the rent to be paid by
the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following Financial Statements and Schedules are included with
this Annual Report.
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(b) Reports on Form 8-K
During the fiscal quarter ended December 31, 1995, the Company filed a
Current Report on Form 8-K dated September 29, 1995. This Current Report
reported on Item 1, and contained no financial statements.
-28-
<PAGE>
(c) Exhibits
The following is a list of exhibits required by Item 601 of Regulation
S-K to be filed as part of this Report.
Exhibit No. Exhibit
- ----------- ----------
3.1 Amended and Restated Certificate of Incorporation
3.2 By-Laws
4.1 Reference is made to Exhibit 3.1
4.2 Form of certificate representing the shares of
Common Stock
4.3** Amended and Restated 1984 Stock Option Plan of
CenterCore, Inc.
4.4** Stock Option Plan for Non-Employee Directors
4.5** 1993 Stock Option Plan
4.6 Certificate of Designation for Series A Preferred Stock
10.1 Administrative Services Agreement between Safeguard
Scientifics, Inc. and CenterCore, Inc. dated
December 4, 1987
10.2 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc.
effective as of January 1, 1992
10.3 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc. effective
as of January 1, 1994
10.4 Underlease of Unit 2.04 Harbour Exchange Square, London,
England between CenterCore UK Limited and
Berkley House Properties Limited
-29-
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.5 Assignment and Assumption of Lease Agreement for
212 Phillips Road, Lionville, PA dated as of February 1,
1993 between Airo Clean Engineering, Inc. and Airo Clean
Acquisition Corp.
10.6 Lease Agreement between CenterCore, Inc. and The Nichols
Company dated September 29, 1993 for 110 Summit
Drive, Exton, PA and Landlord's Waiver dated
February 9, 1994
10.7 Lease Agreement between Maris Equipment Company and Chesco
Nichols Company dated July 23, 1986 for 110C Summit
Drive, Exton, PA and amendments thereto
10.8 Fourth Amendment to Lease
10.9** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan
10.10** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan, Amendment 2-93
10.11** Third Amendment to the CenterCore, Inc. 401(k) Tax Deferred
Retirement and Incentive Plan effective as of June 1, 1994
10.12 Settlement Agreement dated December 13, 1991 by and
among Safeguard Scientifics, Inc., CenterCore, Inc.,
Michael Martin and Frank LaForgia
10.13 Common Stock Purchase Agreement dated as of
July 9, 1992 between Warren V. Musser and
CenterCore, Inc.
10.14 Award/Contract with the General Services
Administration effective February 7, 1992,
Contract No. GS-00F-6296A
10.15 Award/Contract with the General Services
Administration effective June 4, 1992,
Contract No. GS-00F-8071F
10.16 Award/Contract with the General Services
Administration effective January 31, 1992,
Contract No. GS-00F-9003A
-30-
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.17 Award/Contract with the General Services
Administration effective May 5, 1993 through
March 31, 1996 for TEC 2000/ADP furniture,
Contract No. GS-00F-0327A
10.18 Award Contract with the General Services
Administration effective October 1, 1993 through
September 30, 1994 for air treatment/air purifiers,
Contract No. GS-07F-5821A
10.19 Settlement Agreement between the Company and Joseph
Pisarra dated as of September 29, 1995
10.20 Asset Purchase Agreement dated February 1, 1993
between Airo Clean Acquisition Corp. and
Airo Clean Engineering, Inc. and Michael H.
Pelosi III, Joseph Pelosi and Michael H.
Pelosi, Jr. (schedules and exhibits
omitted)
10.21** Employment Agreement dated February 1, 1993
between Airo Clean, Inc. and Michael H. Pelosi, III
10.22 Exclusive License Agreement between Michael H.
Pelosi III and Airo Clean, Inc. dated
as of February 1, 1993
10.23 Asset Purchase Agreement dated September 15, 1993
among MEC Acquisition, Inc., CenterCore, Inc., Maris
Equipment Company and JWP Inc.
10.24 Promissory Note dated September 22, 1993 made by
Maris Equipment Company to JWP Inc.
10.25 Agreement and Release dated June 19, 1995 among CenterCore,
Inc., Maris Equipment Company, Inc., Safeguard Scientifics,
Inc., EMCOR Group, Inc., JWP/MEC Corp., and Seaboard Surety
Company
10.26 Agreement dated June 16, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Insurance Company of
North America
-31-
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.27 Agreement dated June 19, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Liberty Mutual
Insurance Company
10.28 $1.1 Million Note to Safeguard Scientifics, Inc. dated
September 22, 1993
10.29 First Fidelity Bank, N.A. Pennsylvania Loan Agreement
with CenterCore, Inc. dated October 6, 1993
10.30 Maris Security Agreement
10.31 $1 Million Note to First Fidelity Bank, N.A. Pennsylvania
dated October 6, 1993
10.32 CenterCore Guarantee Agreement dated October 22, 1993
10.33 CenterCore Subordination Agreement dated
October 22, 1993
10.34 CenterCore Pledge and Security Agreement dated
October 22, 1993
10.35 CenterCore Collection Guarantee
10.36 CenterCore Amended Credit Agreement
10.37 CenterCore Amended and Restated Note
10.38 Loan and Security Agreement among CenterCore, Inc.,
CenterCore Canada, Inc., CenterCore Systems of Pennsylvania,
Inc., CenterCore U.K. Limited, CenterCore Office Environments
(S.A.) Ltd., Maris Equipment Company, Inc., Airo Clean, Inc.
Corel Corporate Seating, Inc. and Mellon Bank, N.A. dated
March 4, 1994
10.39 First Amendment to Loan and Security Agreement dated
June 1, 1994
10.40 Second Amendment to Loan and Security Agreement dated
August 25, 1995
10.41 Revolving Credit Note dated March 4, 1994 in the principal
amount of $10,000,000
-32-
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.42 Subordination Agreement dated March 1994 among
Maris Equipment Company, Inc., JWP/MEC Corp., and Mellon
Bank
10.43 Preferred Stock Purchase Agreement dated June 15, 1994
between CenterCore, Inc. and Safeguard Scientifics
(Delaware), Inc.
10.44 Asset Purchase Agreement dated May 26, 1995 among CenterCore,
Inc., Corel Corporate Seating, Inc. and The CenterCore Group,
Inc.
10.45 Amendment No. 1 dated as of June 30, 1995 to Asset Purchase
Agreement
10.46 Option Shares Escrow Agreement dated September 29, 1995, by
and between George Mitchell, Frederick Franks III, Philip
Donnelly and the Company
10.47 Promissory Note dated September 29, 1995 from George Mitchell
to the Company in the principal amount of $83,333
10.48 Promissory Note dated September 29, 1995 from Frederick
Franks III to the Company in the principal amount of $83,333
10.49 Promissory Note dated September 29, 1995 from Philip Donnolly
to the Company in the principal amount of $83,333
11 Computation of Per Share Earnings (Loss)
21 List of Subsidiaries
23 Consent of Independent Auditors
** These exhibits relate to compensatory plans, contracts or arrangements
in which directors and/or executive officers of the registrant may
participate.
-33-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 1996 CORE TECHNOLOGIES (PENNSYLVANIA), INC.
By: /s/ George E. Mitchell
---------------------------------------
George E. Mitchell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name and Title Signature Date
- -------------- --------- ----
George E. Mitchell /s/ George E. Mitchell March 29, 1996
Chief Executive Officer ---------------------------
and Director
Frederick B. Franks, III /s/ Frederick B. Franks, III March 29, 1996
Chief Financial Officer ----------------------------
Anthony A. Nichols /s/ Anthony A. Nichols March 29, 1996
Director ----------------------------
Richard P. Richter /s/ Richard P. Richter March 29, 1996
Director ----------------------------
-34-
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Core Technologies (Pennsylvania), Inc.:
We have audited the consolidated balance sheets of Core Technologies
(Pennsylvania), Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' deficit and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Core
Technologies (Pennsylvania), Inc. and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 1, 1996
F-1
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ---------
<S> <C> <C>
Assets
Current assets
Cash $ 106,500 $ 583,600
Receivables, less allowances ($338,200 -- 1995; $2,864,700 -- 1994) 3,709,700 5,024,900
Costs and estimated earnings in excess of billings on uncompleted contracts 401,300 292,500
Inventories 679,500 625,700
Notes receivable 848,200
Income taxes receivable 1,357,900
Other current assets 871,500 231,300
---------- -----------
Total current assets 6,616,700 8,115,900
Net assets of discontinued operations 7,157,300
Plant and equipment
Leasehold improvements 168,200 155,400
Machinery and equipment 987,000 816,900
---------- -----------
1,155,200 972,300
Less accumulated depreciation and amortization (652,900) (385,400)
---------- -----------
Net plant and equipment 502,300 586,900
Other assets
Excess of cost over fair value of net assets of businesses acquired 177,500 192,300
Notes receivable 1,962,300
Other 421,900 638,300
---------- -----------
Total other assets 2,561,700 830,600
---------- -----------
$9,680,700 $16,690,700
========== ===========
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $2,319,300 $ 5,885,500
Accrued expenses 2,547,200 3,793,500
Billings in excess of costs and estimated earnings on uncompleted contracts 681,100 1,419,800
Current debt 136,600 8,396,100
---------- -----------
Total current liabilities 5,684,200 19,494,900
Long-term debt 5,744,200
Other liabilities 981,200 121,300
Redeemable convertible preferred stock issued to Safeguard Scientifics, Inc. 1,500,000 1,500,000
Stockholders' deficit
Common stock, $.01 par value; Authorized -- 20,000,000 shares;
Issued - (9,217,326 shares--1995; 10,767,326 shares--1994) 92,200 107,700
Additional paid-in capital 7,983,900 7,923,400
Accumulated deficit (11,884,500) (12,036,100)
Treasury stock at cost - 330,000 shares (420,500) (420,500)
----------- -----------
Total stockholders' deficit (4,228,900) (4,425,500)
----------- -----------
$ 9,680,700 $16,690,700
See notes to consolidated financial statements =========== ===========
</TABLE>
F-2
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $17,663,400 $ 31,244,700 $15,242,100
Cost of goods sold 13,261,400 32,668,200 12,593,100
----------- ------------ -----------
Gross profit (loss) 4,402,000 (1,423,500) 2,649,000
Expenses
Sales and marketing 1,681,700 3,310,000 1,188,300
General and administrative 2,197,300 4,488,200 1,504,700
Restructuring 2,239,900
Interest 692,100 593,400 116,200
----------- ------------ -----------
4,571,100 10,631,500 2,809,200
----------- ------------ -----------
Loss from continuing operations before income taxes (169,100) (12,055,000) (160,200)
Benefit of income taxes (220,700) (1,662,900) (47,000)
----------- ------------ -----------
Earnings (loss) from continuing operations 51,600 (10,392,100) (113,200)
Loss from discontinued operations (net of tax
of $0 - 1994 and $190,200 -1993) (1,745,200) (703,000)
Gain (loss) on disposition of discontinued operations 100,000 (3,302,800)
----------- ------------ -----------
Net earnings (loss) $ 151,600 $(15,440,100) $ (816,200)
=========== ============ ===========
Earnings (loss) per share - Primary
Continuing operations $0.01 ($1.00) ($0.01)
Discontinued operations ($0.17) ($0.07)
Gain (loss) on disposition of discontinued operations 0.01 ($0.31)
----------- ------------ -----------
Net earnings (loss) $0.02 ($1.48) ($0.08)
=========== ============ ===========
Earnings (loss) per share - Assuming full dilution
Continuing operations $0.00 ($1.00) ($0.01)
Discontinued operations ($0.17) ($0.07)
Gain (loss) on disposition of discontinued operations 0.01 ($0.31)
----------- ------------ -----------
Net earnings (loss) $0.01 ($1.48) ($0.08)
=========== ============ ===========
Weighted average shares outstanding - Primary 10,112,000 10,437,000 10,437,000
Weighted average shares outstanding - Assuming full dilution 11,612,000 10,437,000 10,437,000
See notes to consolidated financial statements
</TABLE>
F-3
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Retained Foreign
Common stock Additional earnings/ currency
-------------------- paid-in (accumulated translation Treasury
Shares Amount capital deficit) adjustment stock
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1992 10,767,326 $107,700 $6,832,000 $4,220,200 $364,200 $(445,900)
Net loss (816,200)
Translation adjustment (42,800)
Reissue of treasury stock (8,600) 25,400
---------- -------- ---------- ---------- -------- ---------
Balance -- December 31, 1993 10,767,326 107,700 6,823,400 3,404,000 321,400 (420,500)
Net loss (15,440,100)
Note receivable contribution 1,100,000
Translation adjustment (196,800)
Write off translation adjustment (124,600)
----------- -------- ---------- ----------- -------- ---------
Balance -- December 31, 1994 10,767,326 107,700 7,923,400 (12,036,100) - (420,500)
Net earnings 151,600
Common stock contribution (2,000,000) (20,000) 20,000
Common stock issued 450,000 4,500 40,500
---------- -------- ---------- ----------- -------- ---------
Balance -- December 31, 1995 9,217,326 $ 92,200 $7,983,900 $(11,884,500) $ - $ (420,500)
========== ======== ========== ============ ======== ==========
See notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Operations
Net earnings (loss) $ 151,600 $(15,440,100) $ (816,200)
Adjustments to reconcile net loss to cash from operations
Loss from discontinued operations 1,745,200 703,000
(Gain) loss on disposition of discontinued operations (100,000) 3,302,800
Provision for restructuring 2,239,900
Depreciation and amortization 315,500 473,800 160,400
Decrease in deferred taxes (36,000) (141,900)
Cash provided by discontinued operations 1,901,300 782,200 315,300
Cash provided by (used in) changes in working capital items
Receivables 1,315,200 1,703,200 (977,600)
Inventories (53,800) 501,400 (205,600)
Contracts in progress (847,500) 856,500 974,800
Other current assets (640,200) (68,900) (52,700)
Accounts payable (3,566,200) 326,300 (1,620,100)
Accrued expenses (1,246,300) 1,673,900 504,000
Taxes on income 1,602,700 (1,719,300) 237,900
----------- ----------- -----------
Cash used by operations (1,167,700) (3,659,100) (918,700)
Financing activities
Additions of term debt 1,100,000
Issuance of preferred stock 1,500,000
Borrowings (repayments) of debt (2,515,300) 2,773,700 586,100
----------- ----------- -----------
Cash provided (used) by financing activities (2,515,300) 4,273,700 1,686,100
Investing activities
Expenditures for plant and equipment (182,900) (113,500) (2,500)
Business acquired, net of cash (1,170,300)
Proceeds from sale of discontinued operations 2,345,700
Other, net 1,043,100 (294,400) 128,100
----------- ----------- -----------
Cash provided (used) by investing activities 3,205,900 (407,900) (1,044,700)
----------- ----------- -----------
Increase (decrease) in cash (477,100) 206,700 (277,300)
Cash beginning of year 583,600 376,900 654,200
----------- ----------- -----------
Cash end of period $ 106,500 $ 583,600 $ 376,900
=========== =========== ===========
Supplemental disclosures of financial information:
Noncash investing and financing activities:
Notes received from sale of discontinued operations, net $ 2,810,500
===========
Common stock issued for noncash consideration $ 45,000
===========
See notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
DESCRIPTION OF BUSINESS - The Company provides integration,
installation and servicing of advanced electronic security and fire alarm
systems in its major market areas. Work is generally performed under fixed fee
or unit price contracts as a subcontractor to the general contractor or as a
prime contractor to the owner. The Company also designs, manufactures and
distributes air filtration units, components and systems which are used in a
variety of industries which require particulate-free, ultra-clean, working
environments, as well as patient isolation devices for hospital and health care
applications.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Core Technologies, Inc. and its domestic, wholly-owned
subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated. The furnishings segment of the Company was
disposed of in August 1995 and accordingly is reported as a discontinued
operation.
RETAINAGE RECEIVABLES AND PAYABLES under contracts which may extend
beyond one year are classified as current assets and current liabilities.
Accounts receivable under retainage provision contracts at December 31, 1995 and
1994 were $415,900 and $795,100, respectively. Accounts payable, under retainage
provision contracts at December 31, 1995 and 1994, were $11,100 and $71,900,
respectively.
INVENTORIES are valued at the lower of standard cost (which
approximates average cost) or market.
PLANT AND EQUIPMENT are carried at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets (leasehold
improvements - 5 years; machinery and equipment - 3 to 7 years).
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED is
amortized on a straight-line basis primarily over 15 years. Assessment of the
carrying amount of goodwill is made when changing facts and circumstances
suggest that the carrying value of goodwill or other assets may be impaired
using the forecasted undiscounted cash flow from the related business activity
(including possible proceeds from a sale of the business). Accumulated
amortization at December 31, 1995, 1994 and 1993 was $136,500, $88,400 and
$271,900, respectively.
TAXES ON INCOME are accounted for using the asset and liability method.
Under this method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in operations in the period that includes
the enactment date.
F-6
<PAGE>
CONTRACTING SALES are recognized using the percentage of completion
accounting method determined by the ratio of cost incurred to date on the
contract to management's estimate of the total contract cost. Provisions for
estimated losses on uncompleted contracts are recorded in the period in which
the losses are determined. Changes in estimated sales and costs are recognized
in the periods in which such estimates are revised.
SALES of air filtration products are recognized when product is shipped
and title or risk of loss is transferred. Revenue from installation services is
recognized when performed.
PRIMARY EARNINGS (LOSS) PER SHARE of common stock are computed on net
earnings (loss) using the weighted average number of shares outstanding during
each period, including common stock equivalents (unless antidilutive) which
would arise from the exercise of stock options. On a fully diluted basis, the
weighted average number of shares outstanding is adjusted to assume the
conversion of the convertible preferred stock (unless antidilutive).
FINANCIAL INSTRUMENTS, principally accounts receivable, notes
receivable and debt, are carried at cost which approximates fair value.
USE OF ESTIMATES - The preparation of financial statements in
conformity with general accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates made in the preparation of the accompanying financial statements
include the amount of reserves established for inventory and uncollectible
amounts included in accounts receivable and estimates used in costs to complete
contracts in progress.
2. Acquisitions
On February 1, 1993, the Company acquired the assets and assumed the
liabilities of Airo Clean Engineering, Inc. (Airo Clean), a designer and
manufacturer of cleanroom and air filtration components and systems for
$828,000. The acquisition was accounted for by the purchase method with excess
of cost over fair value of net assets of businesses acquired of $220,300
recorded.
On September 22, 1993, the Company purchased substantially all of the
assets and certain liabilities of Maris Equipment Company (Maris), a
wholly-owned subsidiary of JWP, Inc. (JWP). The purchase price was a fixed
amount of $4.3 million plus a contingent payment. The fixed portion was funded
by a note payable to JWP for $3.95 million and $350,000 in cash at closing. The
acquisition was accounted for by the purchase method, and accordingly, the
purchase price was allocated to the assets acquired and the liabilities assumed
based on the estimated fair value at the date of acquisition. Excess of cost
over fair value of net assets of business acquired of $1,954,800 was recorded
(note 3).
F-7
<PAGE>
3. Restructurings
Furnishings Segment
On August 25, 1995, the Company sold the assets of its furnishings
segment consisting of the business of designing, manufacturing and distributing
space-efficient, modular workstation systems and a line of complimentary office
products, including cable and wiring systems, ergonomically designed seating
products, and air management systems for temperature blending and breathing zone
filtration. The Company had conducted the furnishings segment directly, and
through its majority owned subsidiary, Corel Corporate Seating, Inc. (Corel).
The sales price was comprised of three components, determined based on the net
assets sold to The CenterCore Group, Inc., as follows: $2,345,700 in cash,
$1,695,500 million in installment payments to be paid in 1996 and a $1,962,300
Subordinate Note, for an aggregate sales price of $6,003,500. The installment
payments in 1996 were reduced by $847,300 representing the amount of accounts
receivable not collected 120 days after closing plus a collection fee of
$50,000. The Subordinate Note bears interest at the rate of 8% per annum,
commencing on August 25, 1996. The principal amount of the Subordinate Note will
be amortized on a seven year level schedule with semi-annual payments, and with
a balloon payment due August 25, 2000. Interest and principal payments will
commence February 25, 1997 and continue semi-annually thereafter until maturity.
The Company issued 150,000 shares of common stock to the minority shareholder of
Corel in payment for its minority interest. The Company also has a tentative
agreement to sell the United Kingdom furnishings business for approximately
$91,000 to be paid over five years. The Canadian furnishings business was sold
to Safeguard Scientifics, Inc. (Note 8) who subsequently sold the business to
the Canadian management for $100,000 in cash and up to $100,000 in payments
based on net annual sales through the year ending December 31, 2000. Proceeds of
the Canadian sale will be remitted to the Company. In 1994, the Company recorded
an anticipated loss of $3,302,800 related to the sale of these businesses.
Revenues for the furnishings segment, which are not included in consolidated
sales, for 1995, 1994 and 1993, were $20,152,200, $34,088,200 and $37,924,900,
respectively.
F-8
<PAGE>
The following is a summary of the net assets of the furnishings segment
at December 31, 1994 (in thousands):
Current assets $12,787
Net property and equipment 1,065
Other assets 325
Current liabilities (6,838)
Long-term liabilities (182)
------
Net assets $7,157
======
Security Systems Segment
In 1994, the Company continued to suffer reductions in the
profitability of fixed-fee contracts since its acquisition of Maris (Note 2) in
1993. This erosion was caused primarily by unforeseen costs and operational and
contract problems, which were exacerbated by insufficient financing to support
the timely performance of the effected contracts. As a result of this profit
degradation, the Company during 1994 was not able to pay its vendors on a timely
basis and had difficulty completing work in progress.
Most of the larger jobs affected by these issues were bonded and the
Company entered into agreements with the surety companies to have them assume
responsibility for completing their respective jobs. The Company has obtained
agreements with sureties releasing the Company from any financial obligations
with respect to completing the jobs in exchange for 300,000 shares of the
Company's stock and a cash settlement totaling $487,000.
The Company has agreed with the parties from whom it purchased Maris,
to restructure the original purchase transaction by offsetting its note
receivable from Maris of $3.6 million in exchange for releases from its
indemnification of liabilities to the Company under the original asset purchase
agreement and additional payments of 20% of Maris' net earnings in 1998-2002 up
to $1 million in the aggregate. The effective $3.6 million reduction in the note
payable net of the related write-off of $1.8 million of remaining costs in
excess of the fair value of net assets of business acquired recorded for the
Maris acquisition has been reflected in the financial statements as of December
31, 1994.
F-9
<PAGE>
The financial effect of the above transfer of contracts to the surety
companies and the write-off of the goodwill is listed below:
(In thousands)
Accounts receivable $ 5,977
Costs and estimated earnings in excess of
billings on uncompleted contracts net 1,881
Payables (4,362)
Settlement with surety companies 487
Costs in excess of net assets of business acquired 1,794
Note payable (3,600)
Other 63
--------
Charge for restructuring $ 2,240
========
These transactions were recorded in the financial statements of the
Company as of December 31, 1994.
As of December 31, 1994 Safeguard contributed a note receivable from
the Company of $1.1 million as additional paid-in capital.
4. Inventories
(In thousands) 1995 1994
---- ----
Raw materials.......... $354 $311
Finished goods......... 326 315
---- ----
$680 $626
==== ====
5. Accrued Expenses
(In thousands) 1995 1994
---- ----
Commissions............ $29 $122
Salaries............... 342 794
Sales and Use Tax...... 586 1,025
Other.................. 1,590 1,853
------ -------
$2,547 $3,794
======= =======
F-10
<PAGE>
6. Commitments and Contingencies
In consideration for contributions to the development of certain air
filtration products, the Company agreed to pay royalties based on sales of such
products to a former shareholder of the dealer through December 1996. Royalty
costs were $17,900 and $18,500 in 1995 and 1994, respectively.
Maris is a named party to certain pending law suits relating to certain
of Maris' security system installation projects. Maris also believes that it has
certain claims with respect to other security systems installation projects for
which it has not filed law suits. In connection with Maris' settlement with its
surety companies, the surety companies have assumed all claims and all
liabilities in respect to these and potential law suits, and the surety
companies have agreed to release Maris from its indemnity obligations to them.
The Company is subject to other pending and threatened legal
proceedings and claims which have arisen in the ordinary course of business and
which have not been fully adjudicated. These actions, when ultimately concluded
and determined, will not, in the opinion of management, have a material effect
on the results of operations, liquidity, or the financial position of the
Company.
7. Contracts in progress
(In thousands) 1995 1994
- ------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $25,218 $30,053
Estimated earnings 4,180 4,258
------- --------
29,398 34,311
Billings to date (29,678) (35,438)
------- --------
($280) ($1,127)
======= ========
Such amounts are included in the
accompanying consolidated balance sheet as
follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 401 $293
Billings in excess of costs and estimated
earnings on uncompleted contracts (681) (1,420)
------- --------
($280) ($1,127)
======= ========
F-11
<PAGE>
8. Related Party Transactions
Safeguard Scientifics, Inc. (Safeguard) owns 25% of the outstanding
common stock of the Company at December 31, 1995 and all of the redeemable
convertible preferred stock. In 1995, Safeguard contributed 2 million shares to
the Company and sold 2.5 million shares to the management of the Company and
provided bank guarantees of an aggregate of $4.5 million in the form of letters
of credit through June 30, 1997.
The Company and Safeguard were parties to an administrative services
agreement pursuant to which Safeguard provided the Company with administrative
support. In 1995, the administrative services agreement was terminated. However,
Safeguard provided certain administrative services to the Company at no charge
in 1995. Prior to 1995 the agreement for these administrative services was for a
maximum annual fee of $500,000 and the reimbursement of certain out-of-pocket
expenses incurred by Safeguard in performing services under the agreement.
However, in conjunction with the 1994 bank agreement, the fee was reduced to
$300,000 retroactive to January 1, 1994, and payment of the fee was to be made
subject to the Company's satisfaction of certain requirements under its bank
agreement which the Company was not able to satisfy. Therefore, no payments were
made or are owing under this agreement in 1995. The Company made payments of
$83,333 to Safeguard and accrued the remaining fees of $216,667 in 1994. The
amount charged to continuing operations was $0 in 1995, $220,000 in 1994 and
$13,500 in 1993. The balance of these fees were charged to discontinued
operations. The Company leases building space from Safeguard. The amount payable
to Safeguard at December 31, 1995 and 1994 for these transactions and other
expenses incurred on behalf of the Company was $105,800 and $502,400,
respectively.
During 1994 Safeguard purchased 15,000 shares of redeemable convertible
preferred stock for $1.5 million. The preferred stock has a stated value of $100
per share and entitles holders to quarterly dividends of $1.50 per share
commencing on July 1, 1994. Unpaid undeclared cumulative dividends were $135,000
and $45,000 as of December 31, 1995 and 1994, respectively. The Company may
redeem all outstanding preferred stock any time after June 1, 1995 at the stated
value plus any unpaid dividends. However, the preferred stock must be redeemed
prior to June 1, 2001. The preferred stock is convertible at any time into
shares of the Company common stock at one share for each dollar of stated value
plus unpaid dividends. The preferred stock has voting privileges equivalent to
the shares of common stock into which the preferred stock converts. The Company
has authorized 1,000,000 shares of preferred stock.
F-12
<PAGE>
9. Debt
Debt consists of the following:
(In thousands) 1995 1994
---- ----
Revolving secured bank facility $4,638 $8,266
Safeguard note, subordinated to bank 887
Other 356 130
------ -------
5,881 8,396
Less current debt 137 8,396
------
=======
$5,744 $ --
====== =======
In August 1995, the Company successfully negotiated an amendment to its
existing bank credit agreement which now provides a $6.0 million credit facility
and restructured financial covenants through March 31, 1997. This facility is
secured by guarantees of $4.5 million in the form of letters of credit from
Safeguard through June 30, 1997. Borrowings bear interest at prime plus 1 1/4%.
The agreement limits borrowings under the credit facility to certain levels of
receivables and inventory and requires the maintenance of liquidity and minimum
levels of net worth and earnings, and limits the amounts available for capital
expenditures and amounts to be advanced to the Company's subsidiaries. The
agreement prohibits the payment of cash dividends. The Company pays a commitment
fee of 1/4% on the unused portion of the credit facility.
During 1995 and 1994, the Company borrowed a maximum of $9.9 and $8.8
million, respectively, under its credit facilities. The weighted average
interest rate was 10.0% and 8.1% in 1995 and 1994, respectively.
Interest paid, for continuing operations in 1995, 1994 and 1993 was
$692,100, $593,400 and $116,200, respectively.
F-13
<PAGE>
10. Operating Leases
The Company leases its office facilities and certain equipment under
operating leases ranging from one to six years. Future minimum rental payments
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year are as follows:
(In thousands)
1996................................ $184
1997................................ 139
1998................................ 128
1999................................ 128
2000................................ 123
Thereafter.......................... 112
----
$814
====
Rental expense in 1995, 1994 and 1993 was $448,900, $776,900 and
$204,400, respectively.
11. Major Customers
Prior to 1995, the Company's security systems segment was primarily in
the prison and airport construction business where the customer is an agent of
either the federal or state governments or local municipalities. During the year
ended December 31, 1994, one customer generated 15%, and during 1993 three
customers generated 15%, 14% and 12% of security systems sales.
In 1995, the Company turned over to its sureties most of its prison and
airport construction projects, and does not intend to bid for any significant
additional prison or airport projects.
In 1995, the Company's security segment primarily provided low voltage
electronic security systems to the commercial and industrial markets where the
customers are either end users or general contractors. During the year ended
December 31, 1995 two customers generated 12% and 10% of security sales.
The Company's air filtration products segment had one customer that
generated 18% and 19% of air technologies product sales in 1995 and 1994,
respectively.
F-14
<PAGE>
12. Income Taxes
The income benefit from continuing operations was:
(In thousands) 1995 1994 1993
---- ---- ----
Current............................... ($221) ($1,579) ($50)
Deferred.............................. (84) 3
----- -------- -----
Continuing operations................. ($221) ($1,663) ($47)
===== ======== =====
State provision included above........ $22 $ 6
A reconciliation of the income tax benefit from income taxes to the federal
statutory rate are as follows:
Statutory tax benefit.................. ($57) ($4,099) ($54)
State taxes net of federal tax benefit. 15 4
Non-deductible U.S. losses............. 57 2,421 3
Other.................................. (221)
----- ------- -----
($221) ($1,663) ($47)
===== ======= =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) are presented below:
Deferred tax assets:
U.S. net operating loss carryforwards.... $2,477 $1,014
Other expense allowance.................. 179
Bonded jobs allowance.................... 1,420
Receivables allowance.................... 723 1,146
Inventory reserves....................... 104
Alternative minimum tax credit........... 97 97
Goodwill allowance....................... 717
------ -------
Total gross deferred assets.......... 3,580 4,394
Less valuation allowance............. (3,580) (4,390)
------ -------
Net deferred tax assets.............. 0 4
------ -------
Deferred tax liabilities:
Accelerated depreciation............... (4)
------ -------
Total net deferred tax liability............. $0 $0
====== =======
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized.
F-15
<PAGE>
As of December 31, 1995, the Company had net operating loss
carryforwards for U.S. income tax purposes of $7.3 million that may be used
until 2010 to offset taxable income.
Total income taxes paid (refunded) in 1995, 1994 and 1993, were
($1,602,700), $158,200 and ($34,900), respectively.
13. Stock Options
In 1995, the Company's 1993 Stock Option Plan was amended to increase
the number of shares of Common stock which may be issued upon exercise of
options granted by 700,000 shares, from 500,000 shares to 1,200,000 shares of
Common stock in the aggregate. Under the various incentive stock option plans,
selected employees may be granted options to purchase the Company's common stock
at a price not less than fair market value on the date of grant.
Generally, all options are exercisable 25% per year beginning one year
from date of grant. Options expire seven years from the date of grant.
A summary of stock option activity in the plans follows:
1995 1994
---- ----
Shares under option beginning of year 605,875 749,250
Options granted 684,500
Options canceled (385,375) (143,375)
-------- --------
Shares under option end of year 905,000 605,875
======== ========
Options exercisable 231,833 377,325
Shares available for future grant 531,000 443,000
Average price of shares under option $.50 $.90
Under the Company's non-employee Director stock option plan, 5,000
options at $1.13 and 20,500 options at $.38 per share are outstanding at
December 31, 1995. These options are exercisable 25% per year and expire in 1996
and 2002, respectively.
At December 31, 1995, the Company has reserved 1,498,000 shares of
common stock for possible future issuance under all stock option plans.
F-16
<PAGE>
14. Retirement Plans
The Company has defined contribution plans which cover all employees.
Certain plans provide for a limited Company match of employee contributions. The
Company contributed $2,100, $132,700 and $180,900 in 1995, 1994 and 1993,
respectively.
15. Liquidity and Capital Resources
The Company believes that the combination of Safeguard's letters of
credit and the working capital assets of the ongoing business will be sufficient
to support the borrowing under the credit line facility. As of March 1, 1996
outstanding borrowings under this facility were approximately $5.0 million.
Safeguard has made cash advances to the Company totaling $887,000 to
cover the closing costs of the sale of the furnishings segment and the cash
payments to the sureties. Safeguard is not contractually obligated to satisfy
any of the Company's obligations with the exception of the $4.5 million of
letters of credit used as collateral under the Company's bank credit facility.
16. Segment Data
<TABLE>
<CAPTION>
Air
In thousands Security Filtration General
Systems Products Corp. Total
1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales..................................... $12,987 $4,676 $17,663
Earnings (loss) from continuing operations
before income taxes........................... (474) 305 (169)
Assets employed............................... 4,385 1,907 $3,389 9,681
1994
----------------------------------------------------------------------------------------------------------
Net sales..................................... $27,178 $4,067 $31,245
Earnings (loss) from continuing operations
before income taxes........................... (11,895) (160) (12,055)
Assets employed............................... 5,009 2,213 $2,311 9,533
1993
----------------------------------------------------------------------------------------------------------
Net sales..................................... $12,515 $2,727 $15,242
Earnings (loss) from continuing operations
before income taxes........................... 92 (252) (160)
Assets employed............................... 17,649 1,922 $1,930 21,501
</TABLE>
The security systems segment provides low voltage electronic systems to the
commercial and institutional markets. Air filtration products segment designs
and manufactures clean room and air filtration components and systems. Virtually
F-17
<PAGE>
all sales are to United States customers, except for two foreign customers
amounting to 5.4% and 2.5% of total net sales in 1995 and 1994, respectively.
During 1994 the Company discontinued the furnishings segment.
F-18
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Core Technologies (Pennsylvania), Inc.:
Under date of March 1, 1996, we reported on the consolidated balance sheets of
Core Technologies (Pennsylvania), Inc. and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the years in the three-year period ended
December 31, 1995, as contained in the 1995 annual report to stockholders. These
consolidated financial statements and our report thereon are included in the
annual report on Form 10-K for the year 1995. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basis consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 1, 1996
F-19
<PAGE>
CORE TECHNOLOGIES (PENNSYLVANIA), INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Additions
Beginning Charged to Balance
Description of Year Operations Deductions Other End of Year
- ----------- --------- ---------- ---------- ----- -----------
(1)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1993 $ (17,800) $1,860,700(2) 1,842,900
Year ended December 31, 1994 $1,842,900 $1,170,800 (149,000) 2,864,700
Year ended December 31, 1995 2,864,700 52,600 (2,579,100) 338,200
</TABLE>
(1) Net write-offs.
(2) Maris Equipment Co. valuation reserve at acquisition date.
Does not reflect the discontinued furnishings segment.
F-20
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits required by Item 601 of Regulation
S-K to be filed as part of this Report. Where so indicated by footnote, exhibits
which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous filing is
indicated in parentheses. The page numbers listed refer to the page numbers
where such exhibits are located using the sequential numbering system specified
by Rules 0-3 and 403.
Exhibit No. Exhibit
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation
(12) (Exhibit 3.1)
3.2 By-Laws (2) (Exhibit 3.2)
4.1 Reference is made to Exhibit 3.1 (2) (Exhibit 4.1)
4.2 Form of certificate representing the shares of
Common Stock (2) (Exhibit 4.2)
4.3** Amended and Restated 1984 Stock Option Plan of
CenterCore, Inc.(5)(Exhibit 4.3)
4.4** Stock Option Plan for Non-Employee Directors
(3) (Exhibit 10.18)
4.5** 1993 Stock Option Plan (9)(Exhibit 4.1)
4.6 Certificate of Designation for Series A Preferred Stock
(9)(Exhibit 4.2)
10.1 Administrative Services Agreement between Safeguard
Scientifics, Inc. and CenterCore, Inc. dated
December 4, 1987 (1) (Exhibit 10.10)
10.2 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc.
effective as of January 1, 1992 (4) (Exhibit 10.3)
10.3 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc. effective
as of January 1, 1994 (8)(Exhibit 10.3)
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.4 Underlease of Unit 2.04 Harbour Exchange Square, London,
England between CenterCore UK Limited and
Berkley House Properties Limited (3) (Exhibit 10.14)
10.5 Assignment and Assumption of Lease Agreement for
212 Phillips Road, Lionville, PA dated as of February 1,
1993 between Airo Clean Engineering, Inc. and Airo Clean
Acquisition Corp.(5)(Exhibit 10.9)
10.6 Lease Agreement between CenterCore, Inc. and The Nichols
Company dated September 29, 1993 for 110 Summit
Drive, Exton, PA and Landlord's Waiver dated
February 9, 1994 (8)(Exhibit 10.10)
10.7 Lease Agreement between Maris Equipment Company and Chesco
Nichols Company dated July 23, 1986 for 110C Summit
Drive, Exton, PA and amendments thereto (8)(Exhibit 10.11)
10.8 Fourth Amendment to Lease*
10.9** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan (5)(Exhibit 10.16)
10.10** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan, Amendment 2-93 (8)(Exhibit 10.13)
10.11** Third Amendment to the CenterCore, Inc. 401(k) Tax Deferred
Retirement and Incentive Plan effective as of June 1, 1994
(9) (Exhibit 10.1)
10.12 Settlement Agreement dated December 13, 1991 by and
among Safeguard Scientifics, Inc., CenterCore, Inc.,
Michael Martin and Frank LaForgia
(4) (Exhibit 10.17)
10.13 Common Stock Purchase Agreement dated as of
July 9, 1992 between Warren V. Musser and
CenterCore, Inc. (5)(Exhibit 10.18)
10.14 Award/Contract with the General Services
Administration effective February 7, 1992,
Contract No. GS-00F-6296A (4) (Exhibit 10.25)
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.15 Award/Contract with the General Services
Administration effective June 4, 1992,
Contract No. GS-00F-8071F (5)(Exhibit 10.22)
10.16 Award/Contract with the General Services
Administration effective January 31, 1992,
Contract No. GS-00F-9003A (5)(Exhibit 10.23)
10.17 Award/Contract with the General Services
Administration effective May 5, 1993 through
March 31, 1996 for TEC 2000/ADP furniture,
Contract No. GS-00F-0327A (8)(Exhibit 10.20)
10.18 Award Contract with the General Services
Administration effective October 1, 1993 through
September 30, 1994 for air treatment/air purifiers,
Contract No. GS-07F-5821A (8)(Exhibit 10.21)
10.19 Settlement Agreement between the Company and Joseph
Pisarra dated as of September 29, 1995*
10.20 Asset Purchase Agreement dated February 1, 1993
between Airo Clean Acquisition Corp. and
Airo Clean Engineering, Inc. and Michael H.
Pelosi III, Joseph Pelosi and Michael H.
Pelosi, Jr. (schedules and exhibits
omitted)(5)(Exhibit 10.27)
10.21** Employment Agreement dated February 1, 1993
between Airo Clean, Inc. and Michael H. Pelosi, III (11)
(Exhibit 10.23)
10.22 Exclusive License Agreement between Michael H.
Pelosi III and Airo Clean, Inc. dated
as of February 1, 1993 (5)(Exhibit 10.28)
10.23 Asset Purchase Agreement dated September 15, 1993
among MEC Acquisition, Inc., CenterCore, Inc., Maris
Equipment Company and JWP Inc. (6)(Exhibit 2.1)
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.24 Promissory Note dated September 22, 1993 made by
Maris Equipment Company to JWP Inc. (6)(Exhibit 1)
10.25 Agreement and Release dated June 19, 1995 among CenterCore,
Inc., Maris Equipment Company, Inc., Safeguard Scientifics,
Inc., EMCOR Group, Inc., JWP/MEC Corp., and Seaboard Surety
Company (11)(Exhibit 10.27)
10.26 Agreement dated June 16, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Insurance Company of
North America (11)(Exhibit 10.28)
10.27 Agreement dated June 19, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Liberty Mutual
Insurance Company (11)(Exhibit 10.29)
10.28 $1.1 Million Note to Safeguard Scientifics, Inc. dated
September 22, 1993 (7)(Exhibit 10.3)
10.29 First Fidelity Bank, N.A. Pennsylvania Loan Agreement
with CenterCore, Inc. dated October 6, 1993
(7)(Exhibit 10.4)
10.30 Maris Security Agreement (7)(Exhibit 10.5)
10.31 $1 Million Note to First Fidelity Bank, N.A. Pennsylvania
dated October 6, 1993 (7)(Exhibit 10.6)
10.32 CenterCore Guarantee Agreement dated October 22, 1993
(7)(Exhibit 10.7)
10.33 CenterCore Subordination Agreement dated
October 22, 1993 (7)(Exhibit 10.8)
10.34 CenterCore Pledge and Security Agreement dated
October 22, 1993 (7)(Exhibit 10.9)
10.35 CenterCore Collection Guarantee (7)(Exhibit 10.10)
10.36 CenterCore Amended Credit Agreement (7)(Exhibit 10.11)
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
10.37 CenterCore Amended and Restated Note (7)(Exhibit 10.12)
10.38 Loan and Security Agreement among CenterCore, Inc.,
CenterCore Canada, Inc., CenterCore Systems of Pennsylvania,
Inc., CenterCore U.K. Limited, CenterCore Office Environments
(S.A.) Ltd., Maris Equipment Company, Inc., Airo Clean, Inc.
Corel Corporate Seating, Inc. and Mellon Bank, N.A. dated
March 4, 1994 (8)(Exhibit 10.39)
10.39 First Amendment to Loan and Security Agreement dated
June 1, 1994 (9)(Exhibit 10.2)
10.40 Second Amendment to Loan and Security Agreement dated
August 25, 1995 (13)(Exhibit 10.1)
10.41 Revolving Credit Note dated March 4, 1994 in the principal
amount of $10,000,000 (8)(Exhibit 10.40)
10.42 Subordination Agreement dated March 1994 among
Maris Equipment Company, Inc., JWP/MEC Corp., and Mellon
Bank (10)(Exhibit 10.1)
10.43 Preferred Stock Purchase Agreement dated June 15, 1994
between CenterCore, Inc. and Safeguard Scientifics
(Delaware), Inc. (9) (Exhibit 10.3)
10.44 Asset Purchase Agreement dated May 26, 1995 among CenterCore,
Inc., Corel Corporate Seating, Inc. and The CenterCore Group,
Inc. (12) (Exhibit 2.1)
10.45 Amendment No. 1 dated as of June 30, 1995 to the Asset
Purchase Agreement (12)(Exhibit 2.2)
10.46 Option Shares Escrow Agreement dated September 29, 1995, by
and between George Mitchell, Frederick Franks III, Philip
Donnelly and the Company*
10.47 Promissory Note dated September 29, 1995 from George Mitchell
to the Company in the principal amount of $83,333*
10.48 Promissory Note dated September 29, 1995 from Frederick
Franks III to the Company in the principal amount of $83,333*
10.49 Promissory Note dated September 29, 1995 from Philip Donnolly
to the Company in the principal amount of $83,333*
<PAGE>
Exhibit No. Exhibit
- ----------- -----------
11 Computation of Per Share Earnings (Loss)*
21 List of Subsidiaries* (Exhibit 21)
23 Consent of Independent Auditors*
- --------------------------------
* Filed herewith
** These exhibits relate to compensatory plans, contracts or arrangements
in which directors and/or executive officers of the registrant may
participate.
(1) Filed on March 22, 1988 as an exhibit to Amendment No. 1 to the
Registration Statement on Form S-1 (No. 33-18974) and incorporated
herein by reference.
(2) Filed on April 14, 1988 as an exhibit to Amendment No. 2 to the
Registration Statement on Form S-1 (No. 33-18974) and incorporated
herein by reference.
(3) Filed on April 2, 1990 as an exhibit to Annual Report on Form 10-K
(No. 000-17577) and incorporated herein by reference.
(4) Filed on March 30, 1992 as an exhibit to Annual Report on Form 10-K
(No. 000-17577) and incorporated herein by reference.
(5) Filed on March 31, 1993 as an exhibit to Annual Report on Form 10-K
(No. 000-17577) and incorporated herein by reference.
(6) Filed on October 7, 1993 as an exhibit to Form 8-K (No. 000-17577) and
incorporated herein by reference.
(7) Filed on November 15, 1993 as an exhibit to Quarterly Report on Form
10-Q (No. 000-17577) and incorporated herein by reference.
(8) Filed as an exhibit to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (No. 000-17577) and incorporated herein by
reference.
(9) Filed as an exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1994 (No. 000-17577) and incorporated herein by
reference.
(10) Filed as an exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1994(No. 000-17577) and incorporated herein
by reference.
(11) Filed as an exhibit to Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (No. 000-17577) and incorporated herein by
reference.
(12) Filed on August 25, 1995 as in Exhibit to Form 8-K (No. 000-17577) and
incorporated herein by reference.
(13) Filed as an exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1995 (No. 000-17577) and incorporated
herein by reference.
<PAGE>
Exhibit 10.8
FOURTH AMENDMENT TO LEASE
THIS AGREEMENT, dated as of the 5TH day of March, 1996, by
and between THE NICHOLS COMPANY, agent for SAFEGUARD SCIENTIFICS, INC.,
("Landlord") and MARIS EQUIPMENT COMPANY, ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into an Agreement of
Lease dated July 23, 1986 (which together with the Lease Amendment Agreement
dated January 13, 1992, Second Amendment to Lease dated May 29, 1992, and the
Third Amendment to Lease) are herein referred to as the "Lease", for Premises
situated in the Whiteland Business Park, 110 Summit Drive, West Whiteland
Township, Exton, Pennsylvania totalling 21,580 Square Feet, said Premises being
more particularly described in said Lease, and
WHEREAS, the parties hereto desire to amend the lease by
modifying certain provisions thereof as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and intending to be legally bound hereby, the parties hereto
agree as follows:
1. The Term of said Lease is hereby extended for a period of
three (3) years so as to expire on April 30,1999.
2. Effective May 1, 1996 the annual Base Rent as set forth in
Section 1 of said Lease shall be changed to $151,060.00, all such Base Rent
to be payable in equal monthly installments of $12,588.33 at the same time and
in the same manner as provided in said Lease for Base Rent payments.
3. Except as modified hereby, all terms and provisions of said
Lease shall continue in full force and effect, all of which are hereby ratified
and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be executed the day and year first above written.
(CORPORATE SEAL) THE NICHOLS COMPANY, Agent for
SAFEGUARD SCIENTIFICS, INC.,
Landlord
ATTEST:_______________________ BY:___________________________
(CORPORATE SEAL) MARIS EQUIPMENT COMPANY,
Tenant
ATTEST:_______________________ BY:___________________________
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EXHIBIT 10.19
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT made as of the 29th day of September, 1995,
by and between CORE TECHNOLOGIES (PENNSYLVANIA), INC., a Delaware corporation
having offices at 110 Summit Drive, Exton, Pennsylvania 19341 (hereinafter, the
"Company") and JOSEPH PISARRA, an individual having an address at 8001 Kerry
Lane, Chevy Chase, Maryland 20815 (hereinafter, "Pisarra"),
W I T N E S S E T H:
WHEREAS, Corel, Inc., a Delaware corporation and a subsidiary of the
Company (hereinafter "Corel") and Pisarra entered into a certain Common Stock
Purchase Agreement as of December 29, 1989 (hereinafter the "Purchase
Agreement") pursuant to which Corel agreed to sell to Pisarra 100 shares of
common stock of Corel, par value $.01 per share (hereinafter, the "Pisarra
Stock"), and Pisarra agreed to purchase the Pisarra Stock, for the aggregate sum
of $7,500.00; and
WHEREAS, Pisarra acquired the Pisarra Stock from Corel as set forth in
the Purchase Agreement and also acquired the right (hereinafter, the "Put")
under Section 7 of the Purchase Agreement to sell to Corel, and to require Corel
to purchase, all of the Pisarra Stock for a price to be determined as set forth
in Section 7(a) of the Purchase Agreement; and
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WHEREAS, Pisarra gave notice of his exercise of the Put as required by
Section 7(b) of the Purchase Agreement by a letter to Corel dated October 17,
1994; and
WHEREAS, Corel was unable to purchase the Pisarra Stock as otherwise
required under the Purchase Agreement because the purchase of the Pisarra Stock
would have impaired the capital of Corel and also would have violated agreements
to which Corel is subject; and
WHEREAS, Pisarra is now willing to relinquish his right to exercise the
Put, and also is willing to transfer to the Company all of the Pisarra Stock, in
consideration for his receipt of 150,000 shares of the common stock of the
Company, par value $.01 per share, as provided in this Settlement Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Transfer and Release. In consideration of the Company's issuance to
Pisarra of 150,000 shares of common stock of the Company, par value $.01 per
share, Pisarra hereby:
(a) transfers to the Company all of the Pisarra Stock and also agrees
to sign and deliver any stock powers that may be required in connection with
such transfer, and
(b) releases, remises, acquits and forever discharges the Company and
Corel and their respective predecessors, successors, assigns, past, present and
future directors, officers, shareholders, employees, agents, consultants,
attorneys and representatives, of and from any and all actions, causes of
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action, claims, suits, demands, rights, damages, losses, costs, expenses, fees
(including attorneys fees), accounts, judgments, executions, debts, obligations
and any and all liabilities of any kind or nature whatsoever, either in law or
in equity, whether known or unknown, suspected or unsuspected, that Pisarra ever
had, now has or may have or claim to have in the future, arising out of, based
upon or in any way related to, the Pisarra Stock, the Purchase Agreement
(including all rights of Pisarra under the Purchase Agreement), the Put
(including the inability to consummate the Put as contemplated under the
Purchase Agreement) or that certain Agreement dated December 31, 1988 by and
between the Company and OfficeWorks, Inc.
2. Issuance of Company Stock. In consideration of Pisarra's transfer of
the Pisarra Stock to the Company and Pisarra's execution of this Agreement,
including the preceding release provisions, the Company hereby issues to Pisarra
150,000 shares of common stock of the Company, par value $.01 per share
(hereinafter, the "Common Stock").
3. Representations and Warranties of Pisarra. Pisarra hereby represents
to the Company as follows:
(a) Experience. Pisarra has substantial experience in evaluating and
investing in companies similar to the Company, so that Pisarra is capable of
evaluating the merits and risks of his investment in the Company. Pisarra has
received such independent advice and counsel, and has reviewed such reports and
information (including the reports and information described in paragraph (d)
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below), as Pisarra has deemed necessary for the purpose of evaluating his
purchase of the Common Stock.
(b) Stock Restrictions. Pisarra acknowledges that the shares of Common
Stock are "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933 (hereinafter the "Securities Act") in that they have not
been and will not be registered under the Securities Act or any state securities
laws, that the sale or other transfer of the Common Stock will be subject to
restrictions to assure compliance with applicable securities laws, and that
certificates representing these securities will bear a legend evidencing these
restrictions. The Common Stock cannot be sold or transferred unless it is
subsequently registered under applicable law or an exemption from registration
is available. The Company has no obligation to register or assist in the
registration of the Common Stock. Rule 144 under the Securities Act will be
available, if at all, to permit a public resale of the Common Stock only after
two years have elapsed from the issuance of the Common Stock pursuant to this
Settlement Agreement. In addition, Pisarra understands that the market for the
Common Stock is limited, and therefore Pisarra may be required to hold such
securities and bear the economic risk of an investment in the Company for an
indefinite period.
(c) Investment. Pisarra is acquiring the Common Stock solely for his
own account, for investment, and not with a view to or in connection with any
public resale or distribution of the Common Stock. Pisarra acknowledges that the
Company is relying on the preceding representation in determining that the
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Common Stock may be issued to Pisarra without registration under Federal or
state securities laws.
(d) Access to Reports and Information. Pisarra has reviewed the
Company's Annual Report on Form 10-KA, filed with the Securities and Exchange
Commission on August 3, 1995, as amended, the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1995, and the Company's Current Report on
Form 8-K dated August 25, 1995, and Pisarra has had the opportunity to ask
questions of, and request additional information regarding the business,
finances and affairs of the Company from, officers of the Company. All questions
have been answered and all information which has been requested has been
provided to the satisfaction of Pisarra.
(e) Authorization. This Settlement Agreement, when executed and
delivered by Pisarra, will constitute the valid and legal binding obligation of
Pisarra, enforceable in accordance with its terms.
4. Governing Law. This Settlement Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Delaware,
without reference to those provisions governing conflict of laws.
5. Parties Bound. This Settlement Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto, and their respective heirs,
executors, administrators and successors.
6. Entire Agreement. This Settlement Agreement constitutes the entire
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understanding of the parties hereto with respect to the subject matter hereof
and no modification or change will be made to this Settlement Agreement unless
it is reduced to a writing signed by both of the parties hereto. If any one or
more of the provisions of this Settlement Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remaining provisions of this Agreement will not be affected thereby. To the
extent permitted by law, each party waives any provision of law which renders
any provision of this Settlement Agreement invalid, illegal, or unenforceable in
any respect.
IN WITNESS WHEREOF, the parties hereto have executed this Settlement
Agreement as of the day and year first above written.
ATTEST: (Corporate Seal) CORE TECHNOLOGIES (PENNSYLVANIA),
INC.
_________________________ By:_____________________________
WITNESS: _______________ ________________________________
JOSEPH PISARRA
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EXHIBIT 10.46
OPTION SHARES ESCROW AGREEMENT
THIS OPTION SHARES ESCROW AGREEMENT ("Agreement") is entered into as of
September 29, 1995, by and between George Mitchell, Frederick Franks III, Philip
Donnelly (collectively, the "Shareholders") and Core Technologies
(Pennsylvania), Inc., a Delaware corporation (the "Company").
Recitals:
Whereas, each of the Shareholders have entered into a Stock Purchase
Agreement of even date herewith (the "SPA") for the purchase of common stock of
the Company from Safeguard Scientifics (Delaware), Inc. ("Safeguard");
Whereas, Safeguard required, as a condition to entering into the SPA,
that the Shareholders and the Company enter into this Agreement and the
Shareholders deposit an aggregate of 700,000 shares of the Company's Common
Stock (the "Option Shares") into the escrow with the Company created by this
Agreement, subject to the Company's right to redeem said shares upon exercise of
vested Covered Options (as defined below);
NOW, THEREFORE, for adequate consideration the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Escrow.
1.1 The Company hereby acknowledges receipt from the Shareholders of
the certificate or certificates evidencing the following number of Option Shares
George Mitchell 233,334 shares
Frederick Franks III 233,333 shares
Philip Donnelly 233,333 shares;
together with Assignments Separate From Certificate in the form attached hereto
as Attachment A, duly executed by the Shareholders in blank. Unless redeemed by
the Company in accordance herewith, the Option Shares shall be held by the
Company in escrow in accordance with the terms and conditions of this Agreement.
1.2 During the term of this escrow, the Secretary of the Company, or
such substitute officer of the Company as may be designated by the Company's
board of directors, shall maintain custody of and hold the Option Shares on
behalf of the Company, in its capacity as escrow agent under this Agreement.
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Each Shareholder irrevocably appoints the Company as attorney-in-fact for the
term of this escrow to execute all documents necessary or appropriate to make
negotiable any Option Shares redeemed pursuant to Section 3 and to complete any
such redemption transaction.
1.3 The Company shall act as escrow agent under this Agreement on the
following terms and conditions:
1.3.1 The escrow agent shall, and shall be obligated to,
perform only those duties specifically set forth herein. The escrow agent's
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
1.3.2 The escrow agent may rely and shall be protected in
relying on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The escrow agent (as well as
any officer of the Company appointed pursuant to Section 1.2) shall not be
liable for any act done or omitted reasonably and in good faith (and any
reliance on or act done or omitted pursuant to the written advice of legal
counsel to the Company shall be conclusively presumed to be reasonable and in
good faith).
1.3.3 It is understood and agreed that should any dispute
arise with respect to the redemption of or the delivery and/or ownership or
right of possession of the Option Shares held by the escrow agent hereunder, the
escrow agent is authorized and directed to retain in the escrow agent's
possession, without liability to anyone, all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected. However, the escrow agent shall be under no duty whatsoever to
institute any such proceedings.
1.4 Unless and until redeemed by the Company pursuant to and in
accordance with Section 3, each Shareholder shall retain beneficial and legal
ownership of all the Option Shares deposited by him, and shall be entitled to,
and to exercise, all the privileges, rights and benefits of such ownership,
including without limitation the right to vote the same and to receive dividends
and other distributions thereon.
2. Grant of Covered Options. The Company has granted, or shall
reasonably promptly after the date of this Agreement grant, to employees of the
Company other than the Shareholders a total of at least 700,000 options under
its existing option plan to purchase common stock of the Company (the "Covered
Options"). The Covered Options shall have an exercise price equal to the fair
market value of the common stock of the Company at the time of grant (the
"Option Price").
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3. Redemption.
3.1 If and for so long as they are held in escrow hereunder, the Option
Shares shall be subject to redemption by the Company from time-to-time on a
one-for-one basis as the Covered Options are exercised as set forth herein. In
this regard:
3.1.1 If and as those Covered Options which are or become
vested are exercised from time-to-time, the Company shall have the right to, and
the parties intend that the Company shall, redeem from the Shareholders, pro
rata in accordance with the respective number of Option Shares deposited by the
Shareholders, an aggregate number of Option Shares equal to the number of shares
of Common Stock being purchased by such Covered Option exercise. The Redemption
Price of a given Option Share (i.e., the amount payable upon its redemption
hereunder), which will be payable by the Company upon exercise of a Covered
Option and redemption of a corresponding number of Option Shares, shall be equal
to the exercise price per share under the Covered Option whose exercise gives
rise to the redemption in question.
3.1.2 The Company shall give to the Shareholders a written
notice (a "Redemption Notice") in connection with each redemption of Option
Shares pursuant hereto. Each Redemption Notice shall, as to each Covered Option
then being exercised, (i) certify that said Covered Option was fully vested, had
not lapsed or expired, and was validly and properly exercised, except for any
such requirements which are waived with respect to such option by the Company's
board of directors or its option committee; (ii) identify the person exercising
the same, the number of shares of stock being purchased pursuant thereto and the
option exercise price per share thereunder; and (iii) state the number of Option
Shares being redeemed and the applicable Redemption Price (in total and per
share).
3.1.3 Each redemption shall occur as described in its
respective Redemption Notice, unless the Shareholders object in good faith in
writing stating the basis for such objection, at the principal office of the
Company on the tenth (10th) business day after the date the Shareholders are
given the Redemption Notice. If the Shareholders so object to a redemption, then
the Company shall neither effect the closing of the redemption in question nor
release the affected Option Shares to the Shareholders until the dispute is
resolved by the mutual written agreement of the parties concerned or by a final
order, decree or judgment of a court of competent jurisdiction after the time
for appeal has expired and no appeal has been perfected.
3.1.4 At each redemption closing hereunder, the Company shall
(i) transfer to the Company's order (including, if applicable, appropriately
filling in and dating the necessary Assignments Separate From Certificate)
and/or cancel the correct number of shares and (ii) pay to the Shareholders the
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aggregate Redemption Price for the shares so transferred and/or canceled either
by personal delivery of a check to Shareholders or by wire transfer in
accordance with the Shareholders' instructions, the payment method to be at the
election of the Shareholders.
3.1.5 The parties intend that the Company shall exercise the
corresponding redemption right set forth in this Section 3 reasonably promptly
after each valid exercise of a vested Covered Option. However, the failure of
the Company to timely exercise a redemption right hereunder following the valid
exercise of a vested Covered Option shall not result in a waiver by the Company
of such redemption right or bar a later exercise of such redemption right except
as provided in Section 7.1.
3.1.6 The Company shall redeem all Option Shares which it has
the right to redeem under this Section 3 unless otherwise expressly approved by
the Company's board of directors.
4. Stock Splits, etc. If, from time to time during the term of this
Agreement, there is any stock dividend, stock split or other change in the
character or amount of any of the outstanding securities of the Company or if
there is any consolidation, merger or sale of all, or substantially all, of the
assets of the Company, then in such event any and all adjustments or new,
substituted or additional securities to which the Shareholder is entitled by
reason of its ownership of Option Shares shall be immediately subject to this
escrow and the redemption right set forth in Section 3 and shall be "Option
Shares" for all purposes of this Agreement with the same force and effect as the
shares of stock presently subject to this Agreement, if and provided that the
shares of stock under the Covered Options are similarly adjusted or entitled to
such new, substituted or additional securities and such adjustments or new,
substituted or additional securities are subject to the terms and conditions of
the Covered Options agreements between the Company and the optionees thereunder.
After each such event, the Option Price per Option Share payable upon exercise
of the Covered Option in question shall be appropriately adjusted as well. The
Shareholders authorize the Company to deposit into escrow under this Agreement
any certificates evidencing any such new, substituted or additional securities
subject to this Agreement.
5. Restriction on Transfer.
5.1 The Shareholders agree not to sell, transfer, pledge, hypothecate
or otherwise dispose of any Option Shares which remain subject to the right of
redemption set forth in Section 3, except as set forth in Section 5.2 below.
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5.2 Notwithstanding anything to the contrary in this Agreement, nothing
in this Agreement shall prevent the Shareholders from making a distribution or
transfer of beneficial and legal ownership of any or all the Option Shares,
provided that any such distribution or transfer is otherwise in compliance with
applicable securities laws and that the transferee(s) agree in writing to be
bound by the provisions of this Agreement and delivers to the Escrow Agent such
number of Assignments Separate From Certificate in the form of Attachment A,
duly executed in blank as the Company may reasonably require. The Shareholders
agree to give Company written notice of any distribution or transfer made
pursuant to this Section 5.2.
5.3 The Company shall not be required (i) to transfer on its books any
Option Shares which shall have been sold or transferred in violation of any of
the provisions set forth in this Agreement, or (ii) to treat as owner of such
shares or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such shares shall have been so transferred.
5.4 In no event may the Company assign its rights and delegate its
duties under this Agreement, including but not limited to the redemption right
set forth in Section 3, without the prior written consent of the Shareholders.
6. Stock Legends. The certificates representing the Option Shares, if
and while subject to the provisions of this Agreement, may be endorsed with the
following stock legend (in addition to any other stock legend endorsed thereon):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RIGHTS OF REDEMPTION AND RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO
TRANSFER AS SET FORTH IN AN "OPTION SHARES ESCROW AGREEMENT" BETWEEN THE
CORPORATION AND THE ORIGINAL REGISTERED HOLDER OF SAID SHARES, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION.
7. Termination Provisions.
7.1 If a Covered Option does not fully vest in the option holder, or if
a vested Covered Option lapses in whole or part without exercise, then a
corresponding number of Option Shares immediately shall cease to be subject to
such right of redemption and shall be free of any and all obligation to sell the
same to the Company and the certificate(s) for such share(s) promptly shall be
delivered to the Shareholders (or as the Shareholders then direct), pro rata in
proportion to the respective number of Option Shares deposited by each
Shareholder, with any legend endorsed thereon pursuant to Section 6 removed.
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7.2 This Agreement and the escrow created hereby will automatically
terminate upon the date all Option Shares have been either redeemed or released
from escrow pursuant to Section 3 or 7; provided, however, (i) if there is then
pending an unresolved objection to a redemption hereunder or any other
applicable dispute (see Sections 1.3.3 and 3.1.3), then this Agreement shall not
terminate until thirty (30) days after such objection or dispute is resolved and
(ii) the Company's obligation to pay in full the Option Price for all Option
Shares redeemed hereunder shall survive such termination. If, at the time of
such termination, the Company has possession of any documents, securities or
other property belonging to Shareholders, it shall promptly deliver all of same
to Shareholders.
8. Miscellaneous.
8.1 The parties agree to execute such further instruments and to take
such further action as may reasonably be necessary to carry out the intent of
this Agreement.
8.2 Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, deposit
with a guaranteed overnight courier, or upon deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to the Shareholders at their addresses set forth in the Company's records, or to
the Company as follows:
Core Technologies, Inc.
110 Summit Drive
Exton, PA 19341
Attn: Corporate Secretary
or, in each case, at such other address as such party may designate by written
notice to the other party hereto.
8.3 This Agreement shall inure to the benefit of the successors and
assigns of the Company and, subject to the restrictions on transfer herein set
forth, be binding upon Shareholders, their heirs, executors, administrators,
successors and assigns. Safeguard Scientifics (Delaware), Inc. shall be a third
party beneficiary of this Agreement, and the parties shall not amend or waive
compliance with this Agreement without the consent of Safeguard.
8.4 This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CORE TECHNOLOGIES (PENNSYLVANIA),
INC. SHAREHOLDERS:
By: George Mitchell George Mitchell
-------------------------- ---------------------------
George Mitchell, President GEORGE MITCHELL
Philip Donnelly Frederick Franks
- ------------------------------ ---------------------------
PHILIP DONNELLY FREDERICK FRANKS III
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EXHIBIT 10.47
PROMISSORY NOTE
$83,333.00 September 29, 1995
FOR VALUE RECEIVED, George Mitchell, an individual resident of
Pennsylvania (the "Borrower") hereby promises to pay to the order of Safeguard
Scientifics (Delaware), Inc. (the "Lender"), at 800 The Safeguard Building, 435
Devon Park Drive, Wayne PA 19087 or at such other place in the continental
United States as the Lender may designate in writing, in lawful money of the
United States, and in immediately available funds, the principal sum of
Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($83,333).
The unpaid principal balance of the Note shall be paid on September 29,
2000.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at a per
annum rate of 6.35%, compounded annually. Interest shall accrue during the term
of this Note and all accrued interest shall be paid in full upon the payment of
any principal amount of this Note.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to late
charges and collection costs, if any, then to accrued interest, and then to
principal.
Accrued interest and principal shall be prepaid from time to time to
the extent of 25% of the proceeds of any sales or other dispositions (including
redemptions pursuant to that certain Option Shares Escrow Agreement of even date
herewith) by the Borrower of any of the shares of common stock of Core
Technologies (Pennsylvania), Inc. purchased by Borrower from Lender on the date
hereof.
The accrued interest and outstanding principal amount of this Note may
be prepaid in whole or in part without any prepayment penalty or premium at any
time or from time to time by Borrower upon notice to the Lender.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by Borrower at any time shall be applied to the unpaid balance of
any outstanding principal of this Note.
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An event of default hereunder shall consist of:
(i) a default in the payment by Borrower to Lender of principal under
this Note as and when the same shall become due and payable;
(ii) an event of default by Borrower under any other obligation,
instrument, note or agreement with the Lender for borrowed money, beyond any
applicable notice and/or grace period;
(iii) institution of any proceeding by or against Borrower under any
present or future bankruptcy or insolvency statute or similar law and, if
involuntary, if the same are not stayed or dismissed within sixty (60) days, or
Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for Borrower or
Borrower's property or Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, the entire unpaid
principal amount of this Note and all unpaid interest accrued thereon shall, at
the sole option of Lender, without notice, become immediately due and payable,
and Lender shall thereupon have all the rights and remedies provided hereunder
or now or hereafter available at law or in equity.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. The Borrower shall pay to the Lender, upon demand, all costs and
expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it.
Notices required to be given hereunder shall be deemed validly given
(i) three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
If to Lender:
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Safeguard Scientifics, Inc.
Attention: General Counsel
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
If to Borrower:
to the address set forth at the bottom of this Note;
or to such other address, or in care of such other person, as Holder or Borrower
shall hereafter specify to the other from time to time by due notice.
Any provision hereof found to be illegal, invalid or unenforceable
for any reason whatsoever shall not affect the validity, legality or
enforceability of the remainder hereof.
This Note shall apply to and bind the successors of the Borrower and
shall inure to the benefit of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania.
The Borrower has duly executed this Note as of the date first above
written.
WITNESS:------------------- /s/ George Mitchell
-----------------------------------
George Mitchell
Adress:-----------------------
-----------------------
-3-
<PAGE>
EXHIBIT 10.48
PROMISSORY NOTE
$83,333.00 September 29, 1995
FOR VALUE RECEIVED, Frederick Franks III, an individual resident of
Pennsylvania (the "Borrower") hereby promises to pay to the order of Safeguard
Scientifics (Delaware), Inc. (the "Lender"), at 800 The Safeguard Building, 435
Devon Park Drive, Wayne PA 19087 or at such other place in the continental
United States as the Lender may designate in writing, in lawful money of the
United States, and in immediately available funds, the principal sum of
Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($83,333).
The unpaid principal balance of the Note shall be paid on September 29,
2000.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at a per
annum rate of 6.35%, compounded annually. Interest shall accrue during the term
of this Note and all accrued interest shall be paid in full upon the payment of
any principal amount of this Note.
All payments made on this Note (including, without limitation, prepayments)
shall be applied, at the option of the Lender, first to late charges and
collection costs, if any, then to accrued interest, and then to principal.
Accrued interest and principal shall be prepaid from time to time to the
extent of 25% of the proceeds of any sales or other dispositions (including
redemptions pursuant to that certain Option Shares Escrow Agreement of even date
herewith) by the Borrower of any of the shares of common stock of Core
Technologies (Pennsylvania), Inc. purchased by Borrower from Lender on the date
hereof.
The accrued interest and outstanding principal amount of this Note may be
prepaid in whole or in part without any prepayment penalty or premium at any
time or from time to time by Borrower upon notice to the Lender.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by Borrower at any time shall be applied to the unpaid balance of
any outstanding principal of this Note.
-1-
<PAGE>
An event of default hereunder shall consist of:
(i) a default in the payment by Borrower to Lender of principal under
this Note as and when the same shall become due and payable;
(ii) an event of default by Borrower under any other obligation,
instrument, note or agreement with the Lender for borrowed money, beyond any
applicable notice and/or grace period;
(iii) institution of any proceeding by or against Borrower under any
present or future bankruptcy or insolvency statute or similar law and, if
involuntary, if the same are not stayed or dismissed within sixty (60) days, or
Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for Borrower or
Borrower's property or Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, the entire unpaid principal
amount of this Note and all unpaid interest accrued thereon shall, at the sole
option of Lender, without notice, become immediately due and payable, and Lender
shall thereupon have all the rights and remedies provided hereunder or now or
hereafter available at law or in equity.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. The Borrower shall pay to the Lender, upon demand, all costs and
expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it.
Notices required to be given hereunder shall be deemed validly given (i)
three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
-2-
<PAGE>
If to Lender:
Safeguard Scientifics, Inc.
Attention: General Counsel
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
If to Borrower:
to the address set forth at the bottom of this Note;
or to such other address, or in care of such other person, as Holder or Borrower
shall hereafter specify to the other from time to time by due notice.
Any provision hereof found to be illegal, invalid or unenforceable for
any reason whatsoever shall not affect the validity, legality or enforceability
of the remainder hereof.
This Note shall apply to and bind the successors of the Borrower and shall
inure to the benefit of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
The Borrower has duly executed this Note as of the date first above
written.
WITNESS: /s/Frederick Franks
---------------------- -------------------------------
Frederick Franks III
Address:
------------------------------
------------------------------
-3-
<PAGE>
EXHIBIT 10.49
PROMISSORY NOTE
$83,333.00 September 29, 1995
FOR VALUE RECEIVED, Philip Donnelly, an individual resident of Pennsylvania
(the "Borrower") hereby promises to pay to the order of Safeguard Scientifics
(Delaware), Inc. (the "Lender"), at 800 The Safeguard Building, 435 Devon Park
Drive, Wayne PA 19087 or at such other place in the continental United States as
the Lender may designate in writing, in lawful money of the United States, and
in immediately available funds, the principal sum of Eighty-Three Thousand Three
Hundred Thirty-Three Dollars ($83,333).
The unpaid principal balance of the Note shall be paid on September 29,
2000.
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at a per
annum rate of 6.35%, compounded annually. Interest shall accrue during the term
of this Note and all accrued interest shall be paid in full upon the payment of
any principal amount of this Note.
All payments made on this Note (including, without limitation, prepayments)
shall be applied, at the option of the Lender, first to late charges and
collection costs, if any, then to accrued interest, and then to principal.
Accrued interest and principal shall be prepaid from time to time to the
extent of 25% of the proceeds of any sales or other dispositions (including
redemptions pursuant to that certain Option Shares Escrow Agreement of even date
herewith) by the Borrower of any of the shares of common stock of Core
Technologies (Pennsylvania), Inc. purchased by Borrower from Lender on the date
hereof.
The accrued interest and outstanding principal amount of this Note may be
prepaid in whole or in part without any prepayment penalty or premium at any
time or from time to time by Borrower upon notice to the Lender.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by Borrower at any time shall be applied to the unpaid balance of
any outstanding principal of this Note.
-1-
<PAGE>
An event of default hereunder shall consist of:
(i) a default in the payment by Borrower to Lender of principal under
this Note as and when the same shall become due and payable;
(ii) an event of default by Borrower under any other obligation,
instrument, note or agreement with the Lender for borrowed money, beyond any
applicable notice and/or grace period;
(iii) institution of any proceeding by or against Borrower under any
present or future bankruptcy or insolvency statute or similar law and, if
involuntary, if the same are not stayed or dismissed within sixty (60) days, or
Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for Borrower or
Borrower's property or Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, the entire unpaid principal
amount of this Note and all unpaid interest accrued thereon shall, at the sole
option of Lender, without notice, become immediately due and payable, and Lender
shall thereupon have all the rights and remedies provided hereunder or now or
hereafter available at law or in equity.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. The Borrower shall pay to the Lender, upon demand, all costs and
expenses, including, without limitation, attorneys' fees and legal expenses,
that may be incurred by the Lender in connection with the enforcement of this
Note.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon the
Lender unless in writing and signed by it.
Notices required to be given hereunder shall be deemed validly given (i)
three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day after sent, charges paid by the sender,
by Federal Express Next Day Delivery or other guaranteed delivery service, (iii)
when sent by facsimile transmission, or (iv) when delivered by hand:
-2-
<PAGE>
If to Lender:
Safeguard Scientifics, Inc.
Attention: General Counsel
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
If to Borrower:
to the address set forth at the bottom of this Note;
or to such other address, or in care of such other person, as Holder or Borrower
shall hereafter specify to the other from time to time by due notice.
Any provision hereof found to be illegal, invalid or unenforceable for
any reason whatsoever shall not affect the validity, legality or enforceability
of the remainder hereof.
This Note shall apply to and bind the successors of the Borrower and shall
inure to the benefit of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
The Borrower has duly executed this Note as of the date first above
written.
WITNESS: /s/ Philip Donnelly
------------------------- ---------------------------------
Philip Donnelly
Adress:
----------------------------
----------------------------
-3-
<PAGE>
EXHIBIT 11
CORE TECHNOLOGIES, INC.
Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Primary 1995 1994 1993
------- ---- ---- ----
<S> <C> <C> <C>
Earnings (loss)
Continuing operations $ 51,600 $ (10,392,100) $ (113,200)
Discontinued operations $ - $ (1,745,200) $ (703,000)
Disposition of discontinued
operations 100,000 (3,302,800) 0
----------- --------------- ------------
Net earnings (loss) $ 151,600 $ (15,440,100) $ (816,200)
=========== =============== ============
Common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 10,112,000 10,437,000 10,437,000
==================================================
Earnings (loss) per common share:
Continuing operations 0.01 (1.00) (0.01)
Discontinued operations $ - $ (0.17) $ (0.07)
Disposition of discontinued
operations 0.01 (0.31) -
---------------------------------- ------------
Earnings (loss ) per common share $ 0.02 $ (1.48) $ (0.08)
=========== =============== ============
Fully Diluted 1995 1994 1993
------------- ---- ---- ----
Earnings (loss)
Continuing operations $ 51,600 $ (10,392,100) $ (113,200)
Discontinued operations $ - $ (1,745,200) $ (703,000)
Disposition of discontinued
operations 100,000 (3,302,800) 0
----------- --------------- -------------
Net earnings (loss) $ 151,600 $ (15,440,100) $ (816,200)
=========== =============== =============
Common and common equivalent
shares outstanding:
Weighted average common
shares outstanding 10,112,000 10,437,000 10,437,000
Assumed conversion of
convertible preferred stock 1,500,000
----------- -------------- ------------
11,612,000 10,437,000 10,437,000
=========== ============== ============
Earnings (loss) per common share:
Continuing operations 0.00 (1.00) (0.01)
Discontinued operations $ - $ (0.17) $ (0.07)
Disposition of discontinued
operations 0.01 (0.31) -
----------- --------------- -------------
Earnings (loss) per common share $ 0.01 $ (1.48) $ (0.08)
=========== =============== =============
</TABLE>
-5-
<PAGE>
Exhibit 21
SUBSIDIARIES OF CORE TECHNOLOGIES (PENNSYLVANIA), INC.
Exclusive of inactive subsidiaries and companies in which Registrant
holds a minority interest, Registrant as of March 28, 1996 had the following
subsidiaries:
Place of
Name Incorporation
---- -------------
Airo Clean, Inc. Delaware
CenterCore UK Limited United Kingdom
Corel Corporate Seating, Inc. Delaware
Maris Equipment Company, Inc. Delaware
<PAGE>
Consent of Independent Auditors
The Board of Directors and Stockholders
Core Technologies (Pennsylvania), Inc.:
We consent to incorporation by reference in the registration statements (No's.
33-25536 and 33-57972) on Form S-8 of Core Technologies (Pennsylvania), Inc.
of our reports dated March 1, 1996 relating to the consolidated balance
sheets of Core Technologies (Pennsylvania), Inc. and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated statements of
operations, stockholders' deficit, and cash flows and related schedule for
each of the years in the three-year period ended December 31, 1995, which
reports are included in the December 31, 1995 annual report on Form 10-K of
Core Technologies (Pennsylvania), Inc.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 3, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 106,500
<SECURITIES> 0
<RECEIVABLES> 4,047,900
<ALLOWANCES> 338,200
<INVENTORY> 679,500
<CURRENT-ASSETS> 6,616,700
<PP&E> 1,155,200
<DEPRECIATION> 652,900
<TOTAL-ASSETS> 9,680,700
<CURRENT-LIABILITIES> 5,684,200
<BONDS> 0
1,500,000
0
<COMMON> 92,200
<OTHER-SE> (4,321,100)
<TOTAL-LIABILITY-AND-EQUITY> 9,680,700
<SALES> 17,663,400
<TOTAL-REVENUES> 17,663,400
<CGS> 13,261,400
<TOTAL-COSTS> 13,261,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 692,100
<INCOME-PRETAX> (169,100)
<INCOME-TAX> (220,700)
<INCOME-CONTINUING> 51,600
<DISCONTINUED> 100,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,600
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.01
</TABLE>
